24/05/2005
Tuesday
SSL International plc
Preliminary Results for the Year Ended 31st March 2005
Rejuvenated SSL On Track For Profit Target
Year Ended March
2005 2004(1)
£'m £'m
Continuing Operations
- Sales 426.3 408.2
- Operating profit(2) 39.8 31.3
Discontinued Operations
- Sales 32.5 194.2
- Operating profit 7.0 48.4
Profit/(loss) before tax 21.7 (5.0)
Earnings per share (Basic) 10.0p (3.3)p
Earnings per share (Continuing Business)(2) 9.0p 2.8p
Final Dividend per share 4.2p 4.2p
Net Debt 88.2 227.5
*Operating profit for the continuing business of £39.8 million; operating
margin of 9.3% (2004: 7.7%)
*Earnings per share on the continuing consumer business tripled to 9.0
pence
*Durex sales up 4.4%
*Scholl footcare sales up 5.3%
*Net debt down to £88.2 million (2004: £227.5 million)
*Disposal programme successfully completed
(1) Restated for the impact of FRS17
(2) Relates to our continuing business before charging exceptional items of
£27.5 million (2004: £40.7 million) in operating profit and £11.8 million (2004:
£60.8 million) in profit before tax
Commenting, Garry Watts, Chief Executive said:
"We have made a very promising start to our three year turnaround programme. Our
operating margin is close to double digits as sales growth and cost reductions
have enabled us to increase significantly both advertising expenditure and
operating profits. We are on track to achieve our £52 million operating profit
target by March 2007.
"We have a strong management team in place and morale throughout the Group is
high; we are confident that further good progress will be made in the current
year."
Ian Martin, Chairman added:
"This is my last year as Chairman of SSL. I am very pleased with the progress
that the restructured SSL is now making. The company has a healthy balance
sheet, a strong management team, and with its leading brands, is well on the
road to delivering future growth."
For further information, please contact:
SSL International plc 020 7367 5773
Garry Watts, Chief Executive
Mark Moran, Group Finance Director
Jan Young, Head of Investor Relations
The Maitland Consultancy 020 7379 5151
William Clutterbuck
Brian Hudspith
Chairman's Statement
During the year we sold our medical businesses, allowing us to give full
attention to our consumer healthcare brands, Durex, Scholl and our locally owned
brands, such as Full Marks, Syndol and Proxima Baby. Overall sales growth of our
consumer business of 3.8 per cent was driven by the success of Durex and Scholl
footcare where we have taken advantage of consumer-led innovation and targeted
advertising. Durex has had another successful year with 4.4 per cent sales
growth due, in part, to the continued success of the premium condoms range of
Pleasuremax and Performa. Sales of Scholl footcare grew by 5.3 per cent
resulting from the successful roll-out of Scholl Party Feet across our key
markets. In contrast, the Scholl footwear business has declined by 5 per cent in
line with the trend seen at the half year. We are reshaping this business to
create greater awareness among consumers by offering modern styles in a wider
range of distribution channels. Sales of our locally owned brands and other
consumer business were broadly flat overall. Sales of wound management and Hibi
products to the purchasers of these businesses under contract manufacturing
arrangements amounted to £9.5 million.
In November, we announced that our target was to double operating profit for our
continuing consumer business from the £26.1 million reported last year by March
2007. We are well on track to achieve this. Our continuing operating profit for
the year to 31 March 2005 was £39.8 million. After rebasing last year's
operating profit for the impact of FRS 17, the consolidation of our Indian joint
venture for the first time and currency movements, we have achieved a £6 million
increase in operating profit after investing an additional £5 million in
advertising and promotional expenditure.
Our underlying operating profit margin has increased by more than one percentage
point to 9.3 per cent.
Following the disposals, net debt of £88.2 million was significantly lower than
the £227.5 million as at last March.
Earnings per share on our continuing consumer business, before charging
exceptional items, has more than tripled to 9.0 pence per share.
Dividends
Your Board is recommending a final dividend of 4.2 pence which is consistent
with our revised dividend policy, which we outlined a year ago. This will make a
total dividend for the year of 6.2 pence. The final dividend will be paid on 8
September 2005 to shareholders on the register on 19 August 2005.
Board
As previously reported, Mark Moran joined as Group Finance Director on 7 June
2004 having previously been Finance Director at Porvair plc. We have also
welcomed two Non-Executive Directors to the Board, Anna Catalano who was
appointed on 11 November 2004 and Susan Murray, appointed on 1 January 2005.
Both have extensive sales and marketing experience and are already making
significant contributions to the Board.
Outlook
The completion of the disposal of our medical business and their related
obligations leaves us free to focus exclusively on the development of our
consumer brands. The new year has begun satisfactorily and we believe that the
outlook for the remainder of the year and beyond is promising.
This is my last year as Chairman of SSL. I am very pleased with the progress
that the restructured SSL is now making. The company has a healthy balance
sheet, a strong management team, and with its leading brands, is well on the
road to delivering future growth. We are progressing with the appointment of my
successor and expect to make an announcement in due course.
Financial Review
Overall Results
SSL's results for the year ended 31 March 2005 are set out below. The profit and
loss account for the year ended 31 March 2005 reflects the continuing consumer
business and also the results from discontinued businesses until the date of
disposal. All figures stated in these results are after reflecting the
consolidation of the Indian operations in the current year and after adjusting
for the provisions of FRS 17.
Sales were £458.8 million compared with £602.4 million last year. A
pre-exceptional operating profit of £46.8 million was generated (2004: £79.7
million). Sales of the on-going consumer business were £426.3 million (2004:
£408.2 million) and pre-exceptional operating profit was £39.8 million (2004:
£31.3 million). The operating margin for the continuing consumer business was
9.3 per cent (2004: 7.7 per cent).
After accounting for exceptional items including net gains on disposal, a
pre-tax profit of £21.7 million was generated compared with a pre-tax loss of
£5.0 million last year. Basic earnings per share were 10.0 pence compared with a
loss per share last year of 3.3 pence.
Free cash flow was £139.5 million (2004: £85.2 million), after recognising net
cash proceeds from the sale of the medical businesses of £145.2 million. Net
debt at the year end was £88.2 million (2004: £227.5 million).
The Regent Infection Control business was sold on 28 June 2004 and the Silipos
business was sold on 30 September 2004. The profit and loss account for the year
ended 31 March 2004 includes seven months results for the Marigold Industrial
Gloves business sold on 31 October 2003, together with the full year results of
the wound management business sold on 31 March 2004, and the Regent Infection
Control and Silipos businesses.
Following assumption of effective control, we have, for the first time, fully
consolidated the results of our Indian operations and this is reflected in the
reported 2005 results only. The impact of this in the year ended 31 March 2005
was to increase sales by £8.7 million (2004: £11.1 million) and to increase
operating profit by £2.7 million (2004: £3.8 million). Our share of this
business was accounted for as associate income in the 2004 results
(£3.7million).
We have reported our current year results and restated the prior year results to
comply with the provisions of FRS 17 "Retirement Benefits". For the year ended
31 March 2005, the impact of FRS 17 was to increase operating profit by £5.7
million (2004: £5.2 million) and to increase finance costs by £2.7 million
(2004: £2.7 million).
International Financial Reporting Standards (IFRS)
The Group's project to implement the adoption of IFRS for its 2005 financial
statements is on schedule. The Group intends to provide a reconciliation in
September 2005 of its UK Generally Accepted Accounting Principles (UK GAAP) and
IFRS results for the year ended 31 March 2005 ahead of the publication of its
first set of IFRS interim results in 2005. The reconciliation will also
incorporate the IFRS opening balance sheet as at 1 April 2004. It is not
anticipated that the changes required under IFRS will have a material impact on
the Group's earnings going forward.
Divestment Programme
During the year, we successfully concluded our disposal programme with the sale
of the remaining medical businesses, Regent Infection Control and Silipos. The
Regent Infection Control business was sold on 28 June 2004 and in the three
months of trading in the year ended 31 March 2005 generated sales of £25.9
million and an operating profit of £5.5 million. This compares with sales and
operating profit last year of £118.2 million and £28.0 million respectively.
Gross cash proceeds from the sale of the Regent Infection Control business were
£173 million.
The Silipos business was sold on 30 September 2004. Sales from the Silipos
business in the six months of trading were £5.0 million generating a loss of
£0.1 million which compares to sales of £11.9 million and an operating profit of
£0.5 million last year. Gross proceeds from the disposal of Silipos was US$15.5
million consisting of cash of US$5 million and two vendor loan notes of US$7.5
million redeemable before 31 March 2006 and US$3.0 million redeemable before 31
December 2009.
The results for the year ended 31 March 2004 include seven months of trading of
the Marigold Industrial Gloves business which was sold on 31 October 2003 and
which generated sales of £17.6 million and an operating profit of £1.1 million.
The results also include sales and operating profit of £46.5 million and £18.8
million respectively, from the wound management business which was sold on 31
March 2004.
The net proceeds from our disposal programme, after the payment of tax, specific
transaction expenses and other related costs and licence fees were used to
reduce Group borrowings.
-----------------
Analysis of Results (Continuing Business)
To help ensure comparability of the financial statements for analysis purposes,
we have restated the 2004 operating profits for the continuing consumer business
in Table 1 below to reflect currency movements and the effect of full
consolidation of our Indian operations in 2004.
Table 1
As Reported Underlying(1)
31 March 2005 31 March 2004
£'m £m
Sales 426.3 410.5
Gross Margin 261.5 252.3
Brand Contribution 169.2 166.4
Operating Profit 39.8 33.6
(1) Adjusted for currency movements and pro forma consolidation of the results
from our Indian operations
Sales
Sales of our continuing consumer business were £426.3 million compared to £410.5
million after adjusting for currency movements and consolidating the revenue
from our Indian operations in 2004. On this basis, underlying sales growth was
3.8%. Table 2 shows the underlying sales growth for the continuing consumer
business.
Table 2
As Reported Underlying(1) Underlying
31 March 2005 31 March 2004 Growth
£'m £m %
Durex 146.1 139.9 4.4
Scholl Footcare 85.3 81.0 5.3
Scholl Footwear 68.0 71.6 (5.0)
Locally Owned Brands 72.2 71.8 0.6
Total Branded Consumer 371.6 364.3 2.0
Other Consumer 45.2 44.3 2.0
Third Party Supply 9.5 1.9
Total Consumer 426.3 410.5 3.8
(1) Adjusted for currency movements and pro forma consolidation of the results
from the Indian operations
Our branded consumer business, comprising Durex, Scholl footcare and footwear,
and our portfolio of locally owned brands sold in the UK, Southern Europe and
Asia Pacific, grew by 2.0 per cent to £371.6 million on an underlying basis.
Sales of £45.2 million in our other consumer business comprising unbranded
condom sales and third party distribution such as Marigold household gloves,
Coppertone in Japan and Wilkinson Sword in Australia have grown by approximately
£2 million to £45.2 million. New sales of wound management and Hibi products to
the purchasers of these businesses under contract manufacturing arrangements
amounted to £9.5 million.
Sales of the Durex brand were £146.1 million, representing a growth of 4.4 per
cent against last year on an underlying basis. This growth was driven by the
continued success of the premium condom range such as Performa and Pleasuremax.
In addition, the Durex Play personal lubricants range has been extended beyond
the basic Play 'Feel' lubricant to 'Play Heat' which provides a warming
sensation and Play 'Tingle' which has menthol as an ingredient. This range is
proving to be successful as we take Durex from being a brand which not only
provides safe sex but also encourages better sex. Based on consumer insight, we
have taken this strategy one step further as we launched a range of personal
vibrators under the Durex Play banner in a limited number of markets in February
this year.
Durex now has a 29 per cent share of the global condom market, having increased
market share across all our key markets through focused consumer-led innovation,
effective advertising and by exploiting new distribution channels, such as the
mass market in Spain and convenience outlets in the UK and Italy.
Scholl footcare sales amounted to £85.3 million, growing by 5.3 per cent against
last year on an underlying basis. Scholl Party Feet has continued to be very
successful and has been rolled-out in most of our major markets; it is sold in
numerous new distribution channels including high street fashion and shoe
stores. Scholl Party Feet was supported by a TV advertising campaign
pre-Christmas in the UK which resulted in a significant uplift in sales over the
previous year.
Sales of Scholl footwear were £68.0 million, declining by 5 per cent compared
with last year, on an underlying basis as we have focused on our objective of
growing brand contribution by eliminating less profitable styles. We are
continuing with our strategy of investing in new ranges which are appealing to
younger consumers and of widening our distribution to mainstream retail stores
in a number of selected markets.
Our locally owned brands consists mainly of the UK OTC portfolio, the Southern
European Sauber, Mister Baby and Proxima Baby brands and the Medi Qtto hosiery
brand in Japan. Overall, currency adjusted sales in this category have been
broadly flat with 0.6 per cent growth to £72.2 million.
Gross Margin
The gross margin for the Group was in line with last year at 61.3 per cent on a
comparable basis. We are continuing to focus on cost control through
optimisation of our supply chain efficiency, for example, earlier this year we
announced the proposed closure of our manufacturing facility in Derby by the end
of 2005 and the transfer of manufacturing to India.
Market Development Expenditure
The Group invested £65.3 million in market development expenditure in the year
ended 31 March 2005, an increase of £5 million over last year. We are committed
to maintaining our investment in marketing and advertising of both our global
Durex and Scholl brands and the local over-the-counter brands such as Syndol and
Meltus in the UK and Sauber and Mister Baby and Proxima Baby in Southern Europe.
The Group continues to see the benefit of effective and targeted advertising
particularly on Durex and Scholl Party Feet.
Brand Contribution
One of the key objectives for the Group is to grow brand contribution. Two years
ago, we established brand contribution as a key measure of our success in
growing the value of our brands; it is defined as sales less cost of sales,
advertising and promotion expenditure and variable selling costs. Brand
contribution for our continuing consumer business was £169.2 million being 39.7
per cent of sales and an increase of approximately £3 million from last year.
Selling, General & Administration (SG&A)
SG&A costs for the continuing consumer business were £131.3 million, a real
reduction of £3 million over the previous year on a comparable basis. We
continue to focus on overhead cost reductions and are pleased that the measures
we have implemented in this transitional year have more than offset inflation
increases.
Operating Profit
Operating profit before exceptional items was £39.8 million which compares to
£33.6 million on an underlying basis through continued sales growth and cost
control measures and after increasing our investment in advertising and
marketing by £5 million. The operating margin was 9.3 per cent compared with 8.2
per cent last year.
Financing Costs
The net interest charge, before an exceptional charge of £14.5 million
(explained below) was £13.3 million (2004: £23.9 million) reflecting
substantially lower debt from quarter two onwards. The total interest charge
includes £2.7 million (2004: £2.7 million) resulting from the adoption of FRS
17. Interest in the period is covered 5.2 times by EBITDA (2004: 4.3 times).
Exceptional Items
On a net basis, exceptional costs amount to £11.8 million. These are comprised
of a net gain on disposal of the medical businesses and other assets of £30.2
million and a charge of £14.5 million for payments made to loan note holders on
early repayment of the loan notes subsequent to the business disposals. Other
exceptional charges of £27.5 million relate to commercial restructuring costs of
£9.6 million, manufacturing restructuring costs of £11.4 million largely
relating to the closure of the Derby factory and surplus property costs of £6.5
million, all of which are allowing us to reduce operating costs.
Profit before finance charges, after charging exceptional items was £49.5
million compared with £18.9 million last year.
Taxation
The tax charge of £9.7 million before exceptional items represents a rate of
28.9 per cent (2004: 28.0 per cent). Exceptional items generated a tax credit of
£8.6 million.
Earnings
The profit after tax and minority interests was £18.9 million which generated a
basic earnings per share of 10.0 pence. This compares with a loss after tax last
year of £6.2 million and a loss per share of 3.3 pence.
Cash Flow and Investing Activities
The Group generated an increased free cash flow (i.e. before payment of
dividend) of £139.5 million compared with £85.2 million in the previous year.
This improvement is primarily driven by the net cash proceeds from the
businesses sold.
Operating cashflow, which comprises earnings before interest, taxation,
depreciation and amortisation and includes working capital movements, amounted
to £40.1 million (2004: £96.9 million); as a result of sale of properties, a net
inflow was realised of £1.3 million, compared to a net cash outflow of £14.9
million in the previous year; the cash element of operating exceptional items
was £12.9 million (2004: £31.6 million) and interest and tax payments amounted
to £34.2 million (2004: £26.3 million). Net cash inflow from the sale of the
remaining medical businesses amounted to £145.2 million.
Net working capital at 31 March 2005 was £106.4 million.
Cash flow, after dividend payments of £13.3 million and cash receipts from the
sale of the Regent Infection Control and Silipos businesses were applied to
reduce net indebtedness. The Group net debt position at 31 March 2005 was £88.2
million reduced from £227.5 million at the previous year end.
Consolidated Profit and Loss Account for the year ended 31 March 2005
2005 2005 2005 2004 2004 2004
Before Before
Total Exceptional exceptional exceptional Exceptional Total
items items items items
(as (as
restated) restated)
(note 2) (note 2) (note 2)
£'m £'m £'m £'m £'m £'m
Turnover
Existing
operations 417.6 - 417.6 408.2 - 408.2
Acquisitions -
consolidation
of former
associate 8.7 - 8.7 - - -
------ ------- ------- ------- ------- ------
Continuing
operations 426.3 - 426.3 408.2 - 408.2
Discontinued
operations 32.5 - 32.5 194.2 - 194.2
------ ------- ------- ------- ------- ------
Total turnover 458.8 - 458.8 602.4 - 602.4
Cost of
sales (188.9) (10.3) (178.6) (249.4) (3.3) (252.7)
------ ------- ------- ------- ------- ------
Gross profit 269.9 (10.3) 280.2 353.0 (3.3) 349.7
Distribution
costs (155.9) - (155.9) (183.9) - (183.9)
Administrative
expenses (96.6) (17.2) (79.4) (94.1) (37.4) (131.5)
------ ------- ------- ------- ------- ------
Operating
profit
Existing
operations 7.1 (27.5) 34.6 26.6 (19.4) 7.2
Acquisitions -
consolidation
of former
associate 3.3 - 3.3 - - -
------ ------- ------- ------- ------- ------
Continuing
operations 10.4 (27.5) 37.9 26.6 (19.4) 7.2
Discontinued
operations 7.0 - 7.0 48.4 (21.3) 27.1
------ ------- ------- ------- ------- ------
Group
operating
profit 17.4 (27.5) 44.9 75.0 (40.7) 34.3
Share of
operating
profit in
associated
undertakings 1.9 - 1.9 4.7 - 4.7
------ ------- ------- ------- ------- ------
Total
operating
profit: Group
and
share of
associates
Existing
operations 9.0 (27.5) 36.5 31.3 - 31.3
Acquisitions -
consolidation
of former
associate 3.3 - 3.3 - - -
------ ------- ------- ------- ------- ------
Continuing
operations 12.3 (27.5) 39.8 31.3 (19.4) 11.9
Discontinued
operations 7.0 - 7.0 48.4 (21.3) 27.1
------ ------- ------- ------- ------- ------
Total
operating
profit 19.3 (27.5) 46.8 79.7 (40.7) 39.0
Exceptional
items :
Continuing
operations:
Sale of fixed
assets (0.8) (0.8) - - - -
Continuing
operations:
Profit on
disposal
of OTC
brands 0.2 0.2 - - - -
Discontinued
operations:
Sale of fixed
assets (0.9) (0.9) - - - -
Discontinued
operations :
Profit /
(loss) on
disposal of
subsidiary
undertakings,
businesses and
brands 31.7 31.7 - - (20.1) (20.1)
------ ------- ------- ------- ------- ------
Profit on
ordinary
activities
before
finance
charges 49.5 2.7 46.8 79.7 (60.8) 18.9
Finance
charges (net) (27.8) (14.5) (13.3) (23.9) - (23.9)
------ ------- ------- ------- ------- ------
Profit/(loss)
on ordinary
activities
before
taxation 21.7 (11.8) 33.5 55.8 (60.8) (5.0)
Tax on
profit/(loss)
on ordinary
activities (1.1) 8.6 (9.7) (15.6) 14.4 (1.2)
------ ------- ------- ------- ------- ------
Profit/(loss)
on ordinary
activities
after taxation 20.6 (3.2) 23.8 40.2 (46.4) (6.2)
Equity
minority
interests (1.7) - (1.7) - - -
------ ------- ------- ------- ------- ------
Profit/(loss)
for the
financial year 18.9 (3.2) 22.1 40.2 (46.4) (6.2)
Dividends paid
and proposed
on equity
shares (11.8) - (11.8) (15.4) - (15.4)
------ ------- ------- ------- ------- ------
Retained
profit/(loss)
for the year 7.1 (3.2) 10.3 24.8 (46.4) (21.6)
------ ------- ------- ------- ------- ------
Earnings /
(loss) per
share (pence)
Basic 10.0 11.7 21.2 (3.3)
Basic
(continuing
operations) 9.0 2.8
Diluted 10.0 11.6 21.2 (3.3)
Consolidated Balance Sheet at 31 March 2005
2005 2004
(as restated)
(note 2)
£'m £'m
Fixed assets
Goodwill 11.9 66.6
Brands, trademarks & patents 67.2 73.2
-------- ---------
Intangible assets 79.1 139.8
Tangible assets 74.8 116.5
Investments 2.1 11.9
-------- ---------
156.0 268.2
Current assets
Stocks 67.3 83.1
Debtors 159.4 167.7
Cash and deposits 40.8 127.7
Creditors:
Amounts falling due within one year (178.7) (301.4)
-------- ---------
Net current assets 88.8 77.1
-------- ---------
Total assets less current liabilities 244.8 345.3
Creditors:
Amounts falling due after more than one year (93.0) (221.7)
Provisions for liabilities and charges (42.0) (26.6)
-------- ---------
Net assets before pensions 109.8 97.0
Pension liability (57.9) (49.1)
-------- ---------
Net assets 51.9 47.9
-------- ---------
Capital and reserves - equity
Called up share capital 19.0 18.9
Share premium account 40.7 40.4
Other reserves 136.8 136.8
Profit and loss account (153.0) (148.3)
-------- ---------
Shareholders' funds 43.5 47.8
Equity minority interests 8.4 0.1
-------- ---------
Total capital employed 51.9 47.9
-------- ---------
Consolidated Cash Flow Statement for the year ended 31 March 2005
Total Total
2005 2004
as restated
(note 2)
£'m £'m
Net cash inflow from operating activities
after exceptional items 27.2 65.3
Dividends received from associated undertakings 0.9 -
Returns on investments and servicing of finance
Interest received 2.7 1.5
Interest paid pre exceptional (16.6) (23.3)
Exceptional interest paid (14.5) -
Dividends paid to minority interests (2.4) -
-------- --------
Net cash outflow from returns on
investments and servicing of finance (30.8) (21.8)
-------- ---------
Taxation (5.8) (4.5)
-------- ---------
Capital expenditure and financial investment
Purchase of intangible fixed assets (0.3) (0.1)
Purchase of tangible fixed assets (6.8) (15.2)
Sale of OTC brands and assets 0.5 -
Sale of tangible fixed assets 7.6 0.3
Sale of fixed asset investments 0.3 0.1
-------- ---------
Net cash inflow/(outflow) from capital expenditure
and financial investment 1.3 (14.9)
-------- ---------
Acquisitions and disposals
Deferred consideration (0.3) (0.1)
Sale of product rights, businesses and brands 145.5 61.2
-------- ---------
Net cash inflow from acquisitions and disposals 145.2 61.1
-------- ---------
Equity dividends paid (11.8) (23.3)
-------- ---------
Cash inflow before use of liquid resources and financing 126.2 61.9
Management of liquid resources 7.8 (2.0)
-------- ---------
Financing
Issue of ordinary share capital 0.3 0.1
Increase in loans - 6.0
Repayment of loans (206.9) (13.9)
Repayment of capital element of finance leases (0.8) (0.7)
-------- ---------
Net cash outflow from financing (207.4) (8.5)
-------- ---------
(Decrease)/increase in cash in the year (73.4) 51.4
-------- ---------
Net cash inflows from operating activities includes an inflow of £0.2 million in
relation to the discontinued activities. £0.7 million of the cash outflows in
respect of purchase of fixed assets and £0.5 million in respect of taxation
relate to discontinued activities. The net proceeds on sale of product rights
business and brands relate to discontinued activities.
The accompanying notes are an integral part of this cash flow statement
Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities
for the year ended 31 March 2005
Continuing Discontinued Total
2005 2005 2005 2004
£'m £'m £'m £'m
Group operating profit,
pre exceptional 37.9 7.0 44.9 75.0
Depreciation and
amortisation 20.5 1.6 22.1 24.0
Loss on sale of tangible
fixed assets 1.1 - 1.1 0.6
(Profit) on sale of
investments (0.3) - (0.3) -
(Increase)/decrease in
stocks (1.8) - (1.8) 8.3
(Increase) /decrease in
debtors (11.2) 3.9 (7.3) 19.6
Increase/(decrease) in
creditors 0.8 (12.3) (11.5) (26.7)
Increase in provisions - - - 0.3
Defined benefit pension
contribution (7.1) - (7.1) (4.2)
--------- --------- -------- ---------
Net cash inflow from
operating activities pre
exceptional items 39.9 0.2 40.1 96.9
--------- --------- -------- ---------
Cash effect of operating
exceptional
items (12.9) - (12.9) (31.6)
--------- --------- -------- ---------
Net cash inflow from
operating activities
after exceptional items 27.0 0.2 27.2 65.3
In 2005 exceptional cash charges of £12.9 million exclude the net cash proceeds
on disposal of the Medical business. Proceeds from the sale of fixed
assets £5.2 million, OTC brands £0.5 million and exceptional interest payments
£14.5 million, all of which have been treated as exceptional in the consolidated
profit and loss account, are also excluded. The net exceptional inflow after
taking account of all items was £123.8 million for the period.
In 2004 exceptional cash charges of £31.6 million exclude the net cash proceeds
on disposal of the wound management and industrial gloves businesses. The net
proceeds of £61.2 million are disclosed separately on the face of the cash flow
statement.
Sale of Product Rights, Businesses and Brands for the year ended 31 March 2005
2005 2004
£'m £'m
Net assets sold
Intangible fixed assets 57.4 2.2
Tangible fixed assets 26.7 19.3
Stocks 24.0 15.0
Debtors 13.6 15.0
Cash 0.3 0.9
Creditors (including loans £0.1 million) (15.5) (3.7)
Provisions 0.4 (0.7)
-------- ---------
106.9 48.0
Profit/(loss) on disposal 31.9 (20.1)
Working capital adjustment 6.1 1.8
Disposal costs 28.0 12.3
Goodwill written back on disposal - 33.9
-------- ---------
Sale proceeds 172.9 75.9
-------- ---------
Satisfied by:
Cash consideration 167.2 66.2
Loan notes 5.7 9.7
-------- ---------
In 2005 net cash inflows from the current year disposals were £143.7 million.
In addition, net cash inflows of £1.8 million were received in respect of the
2004 disposals.
In 2004 net cash inflows in respect of the disposals were £61.2 million.
£1.7 million of the working capital adjustment was included in creditors at
the year end. Disposal costs of £12.3 million shown above, include accruals of
£1.7million and provisions of £6.6 million which were not included in the net
cash inflows in 2004.
Analysis of Net Debt at 31 March 2005
Other
At 1 April Cash flow Consolidation non-cash Disposal of Exchange At 31 March
2004 of TTK-LIG changes businesses movement 2005
£'m £'m £'m £'m £'m £'m £'m
Cash in hand
and at bank 113.7 (89.0) 3.4 - - 0.4 28.5
Overdrafts (21.2) 15.6 - - - - (5.6)
------- ------- -------- ------- -------- --------- -------
92.5 (73.4) 3.4 - - 0.4 22.9
Debt due
within one year (115.9) 84.5 - (4.9) 2.9 (0.3) (33.7)
Debt due
after one year (217.5) 122.4 - 4.9 2.4 (0.2) (88.0)
Finance leases (0.6) 0.8 - (1.8) - (0.1) (1.7)
Liquid
resources:
cash deposits 14.0 (7.8) 6.3 - - (0.2) 12.3
------ ----- ------ ----- ------- ------- -----
Net debt (227.5) 126.5 9.7 (1.8) 5.3 (0.4) (88.2)
------- ------- ------ ------ ------- ------- -------
Cash, for the purpose of the cash flow statement, comprises cash in hand and at
banks repayable on demand, less overdrafts payable on demand
Reconciliation of Net Cash Inflow to Movement in Net Debt for the year ended 31
March 2005
2005 2004
£'m £'m
(Decrease)/increase in cash in the year (73.4) 51.4
Cash outflow from decrease in debt 206.9 7.9
Cash outflow from payment of finance leases 0.8 0.7
Cash (inflow)/outflow from changes in liquid resources (7.8) 2.0
---------- ----------
Changes in net debt resulting from cash flows 126.5 62.0
New finance leases (1.8) (0.3)
Debt transferred as part of disposals 5.3 0.1
Consolidation of TTK-LIG 9.7 -
Exchange differences (0.4) 2.7
---------- ----------
Movement in net debt in the year 139.3 64.5
Net debt at 1 April 2004 (227.5) (292.0)
---------- ----------
Net debt at 31 March 2005 (88.2) (227.5)
---------- ----------
Consolidated Statement of Total Recognised Gains and Losses for the year ended
31 March 2005
2005 2004
as restated
(note 2)
£'m £'m
Profit/(loss) for the financial year 18.9 (6.2)
Currency translation differences on foreign currency net
investments 0.1 (7.7)
Actuarial losses on defined benefit schemes (16.6) (5.4)
Taxation on gains and losses taken directly to reserves 4.7 2.3
--------- ---------
Total recognised gains/(losses) relating to the year 7.1 (17.0)
--------- ---------
Prior period restatement (note 2) (47.9)
---------
Total recognised losses since last annual report (40.8)
---------
Reconciliation of Movements in Shareholders' Funds for the year ended 31 March
2005
2005 2004
as restated
(note 2)
£'m £'m
Profit/(loss) for the financial year 18.9 (6.2)
Dividends paid and proposed (11.8) (15.4)
--------- ---------
Retained profit/(loss) for the financial year 7.1 (21.6)
Currency translation differences on foreign
currency net investments 0.1 (7.7)
Actuarial losses on defined benefit schemes
taken directly to reserves (16.6) (5.4)
Taxation on gains and losses taken directly to reserves 4.7 2.3
Share capital issued 0.4 0.1
Goodwill written back on disposals - 33.9
--------- ---------
Net (reduction)/addition to shareholders' funds (4.3) 1.6
Opening shareholders' funds (originally £95.7 million
adjusted for prior period restatement of £47.9 million) 47.8 46.2
--------- ---------
Closing shareholders' funds 43.5 47.8
--------- ---------
1. Accounting Policies
The principal accounting policies are summarised below. During the year the
Group has adopted the provisions of FRS17 "Retirement Benefits" and UITF
Abstract 38 "Accounting for ESOP Trusts". The Group has restated its prior year
numbers to comply with the provisions of the accounting standards. The effects
of the restatement are shown in note 2. With these exceptions all accounting
policies have 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 2005. 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 1 March 1998 was written off to the
profit and loss reserve in accordance with the accounting standard then in
force. As permitted by FRS 10, the goodwill previously written off to reserves
has not been reinstated in the balance sheet. On disposal or closure of a
previously acquired business, the attributable amount of goodwill previously
written off to reserves is included in determining the profit or 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 on consolidation.
(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 2 per cent of cost or over the life of the lease if less
leasehold buildings 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
course of construction
construction
(f) Liquid resources
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.
(g) Investments
Unlisted investments are stated at cost less provisions for any impairment in
value.
The Group has an investment in own shares which represent shares acquired by the
Seton Healthcare Group Qualifying Employee Share Ownership Trust (QUEST) and
Seton Healthcare Group Employee Share Ownership Plan (ESOP). The shares are
purchased on the open market and are held for employees participating in various
share schemes. In accordance with UITF Abstract 38 'Accounting for ESOP Trusts'
the investment in these shares is shown as a reduction in shareholders' funds.
(h) Stock
Stocks are stated at the lower of cost and net realisable value. In determining
the cost of raw materials , consumables and goods 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 puroses.
Credit is taken for advance corporation tax written off in previous years when
it is recovered 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 by 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, including goodwill, 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, pension scheme assets are measured using market
values. Pension scheme liabilities are measured using a projected unit method
and discounted at the current rate of return on a high quality corporate bond of
equivalent term and currency to the liability.
The pension scheme surplus (to the extent it is considered recoverable) or
deficit is recognised in full on the face of the balance sheet net of any
related deferred tax asset / liability. The movement in the scheme surplus /
deficit is split between operating charges, financing items and, in the
statement of recognised gains and losses, actuarial gains and losses.
(n) Turnover
Turnover represents the fair value of the consideration received being value of
goods and services provided during the year net of trade discounts, cash
discounts, retrospective and other rebates, value added and sales taxes.
Turnover from the sale of goods is recognised upon transfer to the customer of
significant risks and rewards of ownership. Generally this will be when goods
are dispatched to, or services performed for, the customer. Sales returns are
recognised as a reduction to turnover as they arise. Credit notes issued are
recognised as a reduction in turnover and 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 £27.5 million continuing business operating exceptional charge relates to
commercial restructuring costs of £9.6 million, manufacturing restructuring
costs of £11.4 and surplus property costs of £6.5 million.
The continuing business non-operating exceptional items relate to profit on
disposal of OTC brands of £0.2 million, and loss on disposal of fixed assets
£0.8m.
The discontinued business non-operating exceptional items relate to net profit
on disposal of the remaining medical businesses of £31.7 million, and loss on
disposal of medical assets sold independently from the business disposals of
£0.9 million.
Exceptional interest charges of £14.5 million relate to payments made to loan
note holders on early repayment of loan notes subsequent to the business
disposals.
The £40.7 million operating exceptional charge for the prior year includes
business process review and associated consultancy costs of £14.9 million,
manufacturing restructuring costs of £2.9 million, Group and commercial
restructuring costs of £6.2 million, other charges of £1.0 million and disposal
related charges of £15.7 million including impairment of fixed assets, and costs
in relation to current business disposals. The non operating exceptional charge
of £20.1 million relates to the business disposals in the year.
Discontinued operations
Discontinued operations in the year relate to the disposal of the remainder of
the Group's medical businesses. The net profit on disposal of these businesses,
£31.7 million, has been disclosed as an exceptional item.
Prior year restatement
The prior period figures have been restated to take account of a number of
changes in accounting policy as detailed below:
FRS 17 'Retirement Benefits'
The prior period profit and loss account and balance sheet have been restated to
adopt the provisions of FRS 17 ' Retirement Benefits'. For the year ended 31
March 2004 this has resulted in an increase in operating profit of £5.2 million,
an increase in finance costs of £2.7 million, an increase in the tax charge of
£0.7 million and a decrease in net assets of £47.4 million after recognition of
an associated deferred tax asset of £20.5 million.
UITF Abstract 38 'Accounting for ESOPs'
The balance sheet has been restated to adopt the provisions of UITF Abstract 38
"Accounting for ESOPs". This has resulted in a decrease in net assets of £0.5m
for 31 March 2004. It has no impact on the profit and loss account in either
year.
3. Segmental Analysis
a) Analysis of turnover by principal class of business:
The continuing consumer business is operated as a single segment. Additional
turnover information in respect of product categories within this class of
business are given below.
2005 2004
£'m £'m
Continuing operations:
Branded condoms (including acquisitions of £8.7 million) 146.1 140.9
Footwear 68.0 73.1
Footcare 85.3 82.2
Locally branded consumer 72.2 72.6
Other consumer 45.2 37.5
Third party supply 9.5 1.9
--------- ----------
426.3 408.2
Discontinued operations:
Industrial gloves - 17.6
Wound management 1.6 46.5
Medical gloves and antiseptics business 25.9 118.2
Silipos 5.0 11.9
--------- ----------
458.8 602.4
--------- ----------
(b) Analysis of turnover by principal region of origin:
2005 2004
£'m £'m
Continuing operations:
United Kingdom and Eire 121.5 115.1
Continental Europe 209.7 209.7
Americas 24.0 23.2
Asia Pacific and Rest of the World (including acquisitions
of £8.7 million) 71.1 60.2
--------- ----------
426.3 408.2
Discontinued operations:
United Kingdom and Eire 6.5 70.7
Continental Europe 6.3 37.8
Americas 17.2 75.7
Asia Pacific and Rest of the World 2.5 10.0
--------- ----------
458.8 602.4
--------- ----------
Continental Europe includes Austria, Belgium, the Czech Republic, France,
Germany, Greece, Hungary, Italy, Luxembourg, the Netherlands, Poland, Portugal,
Romania, Russia, Scandinavia, Slovakia, Spain, Switzerland, and Turkey.
(c) Analysis of turnover by geographical destination:
2005 2004
£'m £'m
Continuing operations:
United Kingdom and Eire 109.2 100.6
Continental Europe 194.0 214.7
Americas 24.5 22.7
Asia Pacific and Rest of the World (including acquisitions
of £8.7 million) 98.6 70.2
--------- ----------
426.3 408.2
Discontinued operations:
United Kingdom and Eire 5.9 64.4
Continental Europe 6.6 41.2
Americas 17.2 75.8
Asia Pacific and Rest of the World 2.8 12.8
--------- ----------
458.8 602.4
--------- ----------
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 earnings per share figure has also been shown for the continuing business
before exceptional items 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 results of the discontinued businesses.
The profit/(loss) attributable to ordinary shareholders is calculated as
follows:
2005 2005 2004 2004
Before Before
exceptional exceptional
items items
(as restated) (as restated)
(note 2) (note 2)
£'m £'m £'m £'m
Profit/(loss) for the
year:
For basic earnings/
(loss) per share 18.9 22.1 40.2 (6.2)
Group operating profit -
discontinued operations (7.0) (48.4)
Tax on discontinued
operations 2.0 13.5
--------- -------- --------
For continuing business
earnings per share 17.1 5.3
--------- -------- --------
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:
2005 2005 2004 2004
Before Before
exceptional exceptional
items items
Weighted average number of shares
(millions):
For basic earnings/(loss)
per share 189.4 189.4 189.2 189.2
Dilutive effect of share options 0.5 0.5 0.6 -
--------- -------- -------- --------
For diluted earnings/(loss)
per share 189.9 189.9 189.8 189.2
--------- -------- -------- --------
Listing Rules note for Preliminary Results Announcement
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 March 2005 or 2004. The financial
information for 2004 is derived from the statutory accounts for the year end 31
March 2004 which have been delivered to the Registrar of Companies.
The auditors have reported on the 2005 accounts; their report was unqualified
and did not contain any statement under section 237(2) or (3) of the Companies
Act 1985.
The statutory accounts for the year ended 31 March 2005 will be finalised on the
basis of the financial information presented by the directors in the preliminary
announcement and will be delivered to the Registrar of Companies following the
Company's annual general meeting.