23/05/2006
Tuesday
Preliminary Results for the Year Ended 31st March 2006
SSL delivers strong results and sets new targets
Year Ended March
2006 2005(1)
£’m £’m
Continuing Operations – Normal business
- Sales 450.6 426.3
- Operating profit before financing costs 47.0 38.3
- Operating profit before financing and after income 49.1 40.2
from associate
Profit before tax 35.7 26.9
Profit after tax and before discontinued operations 26.0 19.6
Earnings per share (normal business)
- Continuing operations 12.8p 9.5p
- Discontinued - 3.1p
- Total 12.8p 12.6p
Final dividend per share 4.4p 4.2p
· Underlying sales growth of 4.6%, Durex sales up 9.2%, Scholl footcare sales
up 11.3 per cent, Scholl footwear up almost 2% in the important second half
· Underlying brand contribution up 4% to £175.8 million after additional £3m
million investment in marketing development
· Underlying operating profit up 18% to £49.1 million; underlying operating
margin up more than 1 percentage point to 10.9%
· PBT up 33% to £35.7 million (2005: £26.9 million)
· Earnings per share for the continuing business up by 35% to 12.8p (2005: 9.5p)
· Final dividend increased by 5% to 4.4 pence
· Increased investment in China to take control of joint venture operations
Notes
(1) Relates to “normal business”
(2) The underlying position refers to a comparison against currency adjusted 2005 figures.
Commenting, Garry Watts, Chief Executive said:
“SSL has had a good year, with profits up 33%. Sales have grown strongly, margins have improved;
we’ve launched new products, increased investment behind the brands and controlled costs.
“We’ve announced a significant further investment in China. We’ve set an ambitious new target
of annual double digit operating profit growth in each of the current and next two years.
We’re increasing the final dividend by 5%.”
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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
Maitland 020 7379 5151
William Clutterbuck
Charlotte Barker
FINANCIAL OVERVIEW
SSL’s results for the year ended 31 March 2006 are set out below. All figures stated in the
Group’s results are after implementing, for the first time, ‘International Financial
Reporting Standards’ (‘IFRS’) as adopted by the EU. The comparative figures relate only to
the continuing business.
Sales were £450.6 million compared with £426.3 million last year generating operating profit
before financing and after associates of £49.1 million (2005: £40.2 million).
Underlying sales grew 4.6 per cent driven by Durex, through continued expansion of the ‘Play’
range and further strong growth in condom sales; and Scholl footcare, where the roll-out of
Scholl Party Feet in Continental Europe combined with new product introductions produced an
excellent result. Currency adjusted sales from Durex and Scholl footcare grew by 9.2 per cent
and 11.3 per cent respectively.
As we hoped, the second half finally saw the stabilisation of Scholl footwear. Whilst on a
full year basis sales declined by 3 per cent on an underlying basis, the important second
half spring/summer sell-in saw growth of almost 2 per cent. We believe that we can capitalise
on this and build on the brand heritage of Scholl; we can provide well-designed, stylish
shoes that take care of feet, whilst also expanding distribution outside the traditional
pharmacy sector.
Sales of our locally owned brands were broadly the same as last year. The UK local brands
suffered from the flat retail environment, but this effect was partially offset by good results
from our Southern European Mister Baby brand.
Other consumer sales declined 9.3 per cent on an underlying basis as a result of lower sales
of our low margin unbranded condom business. Sales under contract manufacturing arrangements
increased by £3 million to £12.6 million.
Operating profit for the year was £49.1 million continuing the strong profit progression towards
our target of £52 million of operating profit by March 2007. Our underlying operating profit
margin has once again increased by more than one percentage point to 10.9 per cent
(2005: 9.7 per cent).
Pre-tax profit of £35.7 million compares to £26.9 million last year. Basic earnings per share
on our continuing business increased by 35 per cent to 12.8 pence from 9.5 pence.
Underlying operational cashflow before restructuring was £40.6 million compared to £12.5 million
last year. Net debt at the year end was £91.5 million (2005: £88.2 million).
DIVIDENDS
The Board is recommending an increased final dividend of 4.4 pence, 5 per cent ahead of last
year. This is the first increase since the dividend was rebased following completion of the
restructuring programme in 2004. The total dividend for the year of 6.4 pence is covered 2 times.
The final dividend will be paid on 7 September 2006 to shareholders on the register on 18 August
2006.
OUTLOOK
The new year has begun satisfactorily. From our progress over the last two years and the strength
of our brand portfolio we have set a new financial target for the Group – to deliver annual double
digit growth in operating profit in each of the current year and the next two years. We believe
this can be achieved through growth in brand contribution and control of overheads.
In order to maximise sales growth through supporting new product launches, we are spending more
of our yearly advertising budget in the first half - by some £10 million. This will have the
effect of reducing first half profit but increasing second half profit. Overall, advertising and
promotion expenditure is expected to remain at a similar proportion of sales as last year.
ANALYSIS OF RESULTS
The commentary on performance below relates solely to our continuing business and comparatives
have been restated to exclude the effects of foreign currency translation to aid understanding.
Sales
Sales of our total continuing business were £450.6 million, 4.6 per cent ahead of last year after
excluding favourable foreign currency movements. Sales of our branded consumer business (comprising
Durex, Scholl footcare, Scholl footwear and locally owned brands) were £397.8 million, representing
growth of 5.5 per cent against last year. Sales are analysed in Table 1.
Table 1
As reported Underlying (1) Underlying
31 March 2006 31 March 2005 Growth
£’m £’m %
Durex 162.3 148.6 9.2
Scholl footcare 95.8 86.1 11.3
Scholl footwear 66.3 68.5 (3.2)
Locally Owned Brands 73.4 73.7 (0.4)
Total Branded Consumer 397.8 376.9 5.5
Other Consumer 40.2 44.3 (9.3)
Third Party Supply 12.6 9.5 32.6
Total Consumer 450.6 430.7 4.6
(1) Adjusted for currency movements
Durex
Durex sales were £162.3 million, 9.2 per cent ahead of last year on an underlying basis.
Global market share is in excess of 30 per cent with significant growth particularly in the
Eastern European markets and the US.
Our positioning of Durex to provide not only safe sex, but help people have better sex has
been a key driver of sales growth as we have evolved our product offering into three clearly
defined groups – condoms, lubricants and devices – all under the Durex banner.
Condoms continue to be the largest product group representing over 90 per cent of Durex sales.
Our latest condoms clearly reflect the brand positioning and include Pleasuremax with
combined ribs and dots and Tingle which provides an novel sensation.
The Durex Play range of personal lubricants and devices has been particularly successful,
with sales of £12.2 million in the year. One of our notable successes was the wide
distribution and consumer acceptance of ‘Play Vibrations’, an innovative vibrating ring
launched during the year.
Scholl footcare
Sales of Scholl footcare grew over 11 per cent to £95.8 million on an underlying basis.
The most recent market data indicates that Scholl footcare has around a quarter of the
global footcare market.
The launch of Party Feet in Continental Europe in the first half of the year has been a
driver of sales growth. However, we have also seen a pleasing performance from new product
introductions such as Cracked Heel Cream, Moisturising Foot Cream Mousse and
Freeze Verruca & Wart Remover.
Scholl footwear
Underlying sales of Scholl footwear declined by 3.2 per cent to £66.3 million driven by the
decline in Autumn/Winter sales we reported for the first half of the year. However, in the
important second half, sales of our Spring/Summer range increased to £38.3 million, almost
2 per cent ahead of last year.
Our strategy for footwear is to ensure that we provide well-designed, stylish shoes that take
care of feet whilst extending distribution beyond our traditional channel of pharmacy into high
street footwear retailers.
Locally owned brands
Sales from our portfolio of locally owned brands were £73.4 million, marginally lower than last
year as a result of the flat retail environment in the UK as we reported in the first half.
However, this decline was offset by a strong performance from Mister Baby (a range of mother
and baby products) in Italy following a product range overhaul and an effective TV campaign.
Other sales
Sales of our other consumer products were £40.2 million, 9.3 per cent below last year, on an
underlying basis, as a result of lower sales of our low margin unbranded condom business.
Sales under contract manufacturing arrangements increased by £3 million to £12.6 million.
Gross margin
The gross margin for the Group was in line with last year at 61 percent. We continually challenge
our product sourcing to help us achieve a consistently high level of customer service at the
lowest overall cost to the business. Last year we announced the transfer of the Scholl footcare
packing operations from Derby, UK to our new joint venture in India and this is now close to
completion.
Market development expenditure
The Group spent £69.2 million on market development in the year ended 31 March 2006. This is
an increase of £3 million which reflects our commitment to investing in advertising our
consumer brands.
Brand contribution
Brand contribution is the Group’s key measure for success in growing the value of our brands.
It is defined as sales less cost of sales, market development expenditure and variable selling
costs. Brand contribution was £175.8 million an increase of almost £7 million compared to last
year and represents 39 per cent of sales.
Selling, General & Administration Costs (SG&A)
SG&A costs were £128.8 million, lower than last year (2005: £129.3 million. Our cost control
measures have meant that we have achieved both absolute and relative reductions in overhead
expenditure.
Operating profit
Underlying operating profit was £49.1 million up 18 per cent compared to last year
(2005: £41.6 million) through organic sales growth and cost control, despite higher market
development expenditure. Underlying operating margin was 10.9 per cent compared with
9.7 per cent last year.
Financing costs & taxation
Total interest cost for the year was £13.4 million (2005: £13.3 million). The underlying
interest charge has reduced from £10.6 million to £7.9 million reflecting the lower net
borrowings of the Group. The impact of reflecting accounting changes relating to
IAS 19 ‘Employee Benefits’ has increased the interest charge by £3.4 million
(2005: £2.7 million). The introduction for the first time of IAS 39 ‘Financial Instruments’
resulted in a non-cash charge of £2.1 million (2005: nil) reflecting the divergence of
US$/£ bond yield during the year.
The tax charge of £9.7 million represents a tax rate of 28.9 per cent of operating profit
pre-associate income (2005: 29.2 per cent).
Earnings & Financial Condition
Profit after tax and minority interests was £24.2 million (2005: £23.9 million) which
generated basic earnings per share of 12.8 pence (2005: 9.5 pence). Shareholders’ funds
at 31 March 2006 were £67.0 million (2005: £55.6 million).
Cash flow and investing activities
Underlying operational cashflow which comprises earnings before interest, taxation,
depreciation and amortisation and restructuring charges but including working capital
movements and pension payments was £40.6 million compared to £12.5 million last year.
Cash outflows from restructuring of £7.3 million (2005: cash inflows of £14.6 million)
result in cash generated from the operations of £33.3 million (2005: £27.1 million).
Consolidated income statement
for the year ended 31 March 2006
2006 2005 2005 2005 2005
Business
disposal and
Normal Factory post disposal
Total business closure restructuring Total
Note £'m £'m £'m £'m £'m
Revenue 3 450.6 426.3 - - 426.3
Cost of sales (177.0) (167.1) (10.3) - (177.4)
Gross profit 273.6 259.2 (10.3) - 248.9
Distribution expenses (142.2) (144.3) - - (144.3)
Administrative expenses (84.4) (76.6) (1.1) (16.7) (94.4)
Operating profit 3 47.0 38.3 (11.4) (16.7) 10.2
Financial income 9.2 9.8 - - 9.8
Financial expenses (22.6) (23.1) - - (23.1)
Net financing costs (13.4) (13.3) - - (13.3)
Share of profit of associates 2.1 1.9 - - 1.9
Profit/(loss) before taxation 35.7 26.9 (11.4) (16.7) (1.2)
Income tax expense (9.7) (7.3) 4.9 7.2 4.8
Profit after tax but before gain on 26.0 19.6 (6.5) (9.5) 3.6
discontinued operations
Discontinued operations - 6.0 (0.6) 16.2 21.6
Profit for the financial year 26.0 25.6 (7.1) 6.7 25.2
Attributable to:
Equity holders of the parent 24.2 23.9 (7.1) 6.7 23.5
Minority interest 1.8 1.7 - - 1.7
Profit for the financial year 26.0 25.6 (7.1) 6.7 25.2
Basic earnings per share (pence)
- continuing operations 2 12.8 9.5 (3.5) (5.0) 1.0
- discontinued operations - 3.1 (0.2) 8.5 11.4
Total basic earnings per share (pence) 12.8 12.6 (3.7) 3.5 12.4
Diluted earnings per share (pence)
- continuing operations 2 12.7 9.4 (3.4) (5.0) 1.0
- discontinued operations - 3.2 (0.3) 8.5 11.4
Total diluted earnings per share (pence) 12.7 12.6 (3.7) 3.5 12.4
Consolidated balance sheet
As at 31 March 2006
2006 2005
£'m £'m
ASSETS
Property, plant and equipment 69.9 74.8
Goodwill 12.9 12.9
Other intangible assets 68.8 67.2
Deferred tax assets 43.1 41.1
Investments in associates 2.5 2.0
Total non-current assets 197.2 198.0
Inventories 86.4 67.3
Trade and other receivables 145.8 153.6
Tax recoverable 0.7 0.8
Financial assets - -
Cash and cash equivalents 35.5 40.8
Total current assets 268.4 262.5
Total assets 465.6 460.5
LIABILITIES
Trade and other payables (111.6) (108.4)
Financial liabilities (47.3) (40.2)
Provisions (17.8) (28.5)
Current tax payable (3.5) (2.4)
Total current liabilities (180.2) (179.5)
Financial liabilities (80.0) (88.8)
Deferred tax liabilities (9.2) (10.3)
Employee benefits (91.5) (82.4)
Provisions (8.1) (12.7)
Tax payable (18.9) (20.2)
Other payables (2.2) (2.6)
Total non-current liabilities (209.9) (217.0)
Total liabilities (390.1) (396.5)
NET ASSETS 75.5 64.0
EQUITY
Issued capital 19.0 19.0
Other reserves 178.3 177.5
Cumulative foreign exchange reserve 4.5 0.1
Retained earnings (134.8) (141.0)
Total equity attributable to
equity holders of the parent 67.0 55.6
Minority interest 8.5 8.4
TOTAL EQUITY 75.5 64.0
Consolidated statement of recognised income and expense
for the year ended 31 March 2006
2006 2005
£'m £'m
Actuarial losses on defined benefit plans (13.1) (16.6)
Currency translation differences on foreign currency net investments 4.4 0.1
Taxation on gains and losses taken directly to reserves 4.0 4.7
Income and expense recognised directly in equity (4.7) (11.8)
Profit for the financial year 26.0 25.2
Total recognised income and expense for the year 21.3 13.4
Attributable to:
- Equity holders of the parent 19.5 11.7
- Minority interest 1.8 1.7
21.3 13.4
IFRS 2005 transitional adjustment - attributable to equity
holders of the parent 7 1.3 -
22.6 13.4
Consolidated statement of cash flows - indirect method
for the year ended 31 March 2006
2006 2005
£'m £'m
Cash flows from operating activities:
Profit for the financial year 26.0 25.2
Adjustments for:
Depreciation 11.1 17.0
Amortisation of intangibles 1.1 0.8
Impairment of goodwill - 2.3
Share-based payment charge 1.6 0.6
Investment income (9.2) (9.8)
Interest expense 22.6 37.6
Share of profit of associate (2.1) (1.9)
Loss on sale of property, plant and equipment - 2.8
Profit on sale of OTC brands and investments - (0.5)
Gain on sale of discontinued operations net of tax - (30.8)
Income tax expense 9.7 (3.1)
Operating profit before changes in working capital and provisions 60.8 40.2
Decrease/(increase) in trade and other receivables 3.9 (7.3)
(Increase)/decrease in inventories (17.8) (1.8)
Decrease in trade and other payables 1.2 (11.5)
(Decrease)/increase in provisions and employee benefits (14.8) 7.5
Cash generated from the operations 33.3 27.1
Interest paid (9.8) (31.1)
Income taxes paid (8.5) (5.8)
Dividend paid to minority interests (2.3) (2.4)
Net cash from operating activities 12.7 (12.2)
Cash flows from investing activities:
Proceeds from sale of plant and equipment 0.6 7.6
Proceeds from sale of OTC brands and investments - 0.8
Disposal of discontinued activities, net of cash disposed of (1.3) 145.5
Interest received 1.2 2.7
Dividend received from associate 3.3 0.9
Acquisition of property, plant and equipment (5.7) (6.8)
Acquisition of intangible assets (2.8) (0.3)
Payment of deferred consideration - (0.3)
Net cash from investing activities (4.7) 150.1
Cash flows from financing activities:
Proceeds from issue of share capital 0.8 0.4
Repayment of borrowings (11.3) (206.9)
Payment of finance lease liabilities (0.9) (0.8)
Dividends (11.8) (11.8)
Net cash from financing activities (23.2) (219.1)
Net decrease in cash and cash equivalents (15.2) (81.2)
Cash and cash equivalents, and bank overdraft at start of year 35.2 106.5
Consolidation of former associate - 9.7
Effect of exchange rate fluctuations on cash held 0.8 0.2
Cash, cash equivalents, and bank overdraft at end of year 20.8 35.2
Notes to the consolidated financial statements
1. Accounting policies
The accounting policies are consistent with those presented in the 'Restatement of
financial information under International Financial Reporting Standards', published
on 28 September 2005, with the exception of accounting polices relating to the
transitional adoption of IAS 32 'Financial Instruments: Presentation and Disclosure'
and IAS 39 'Financial Instruments: Recognition and Measurement' which apply to the Group
from 1 April 2005. The accounting policies for IAS 32 and IAS 39 are presented in the
interim financial statements for the period ended 30 September 2005.
The 'Restatement of financial information under International Financial Reporting
Standards', and the interim financial statements for the period ended 30 September 2005,
are available from The Company Secretary, 35 New Bridge Street, London, EC4V 6BW.
Notes (continued)
2. Earnings per £0.10 ordinary share
Earnings per share has been calculated by dividing the profit attributable to ordinary
shareholders by the weighted average number of ordinary shares in issue during the year.
The profit attributable to ordinary shareholders is as follows:
2006 2006 2005 2005
Normal Normal
Total business business Total
£'m £'m £'m £'m
Profit for the year: 24.2 24.2 23.9 23.5
Discontinued operations - - (6.0) (21.6)
For basic earnings per share 24.2 24.2 17.9 1.9
The calculation of diluted earnings per share uses basic earnings as defined above,
and the basic weighted average number of ordinary shares in issue during the period,
adjusted as follows:
2006 2006 2005 2005
Normal Normal
Total business business Total
Weighted average number of shares (millions):
Number of ordinary shares at start of year 189.5 189.5 189.4 189.4
Effect of shares issued in the year 0.1 0.1 - -
For basic earnings per share 189.6 189.6 189.4 189.4
Dilutive effect of share options 0.8 0.8 0.5 0.5
For diluted earnings per share 190.4 190.4 189.9 189.9
Basic earnings per share (pence) 2006 2006 2005 2005
Normal Normal
Total business business Total
- continuing operations 12.8 12.8 9.5 1.0
- discontinued operations - - 3.1 11.4
Total basic earnings per share (pence) 12.8 12.8 12.6 12.4
Diluted earnings per share (pence)
- continuing operations 12.7 12.7 9.4 1.0
- discontinued operations - - 3.2 11.4
Total diluted earnings per share (pence) 12.7 12.7 12.6 12.4
Notes (continued)
3. Segment information
Segment information is presented in the consolidated financial statements in respect
of the Group's geographical segments, which, by location of assets, are the primary
basis for reporting. The geographical segment reporting format reflects the Group's
management and internal reporting structure.
Intra-segment pricing is determined on an arm's length basis.
Segment results include items directly attributable to a segment as well as those that
can be allocated on a reasonable basis.
Geographical segments
The Group is comprised of the following main geographical segments:
- United Kingdom and Continental Europe
- Americas
- Asia Pacific and Rest of the World
GEOGRAPHICAL SEGMENTS
2006 2006 2005 2005
Note £'m £'m £'m £'m
Segment revenue By location By location By location By location
Continuing operations - external of assets of customers of assets of customers
- United Kingdom and Continental Europe 346.2 328.6 331.2 303.2
- Americas 29.8 31.2 24.0 24.5
- Asia Pacific and Rest of the World 74.6 90.8 71.1 98.6
450.6 450.6 426.3 426.3
Continuing operations - intra-segment
- United Kingdom and Continental Europe 165.2 - 125.5 -
- Americas 0.3 - - -
- Asia Pacific and Rest of the World 27.4 - 27.2 -
- Eliminations (192.9) - (152.7) -
Total continuing revenue 450.6 450.6 426.3 426.3
Discontinued operations
- United Kingdom and Continental Europe - - 19.8 12.5
- Americas - - 17.2 17.2
- Asia Pacific and Rest of the World - - 2.9 2.8
- Eliminations - - (7.4) -
Total discontinued revenue - - 32.5 32.5
450.6 450.6 458.8 458.8
Normal Normal
Segment result Total business business Total
Continuing operations
- United Kingdom and Continental Europe 36.2 36.2 27.4 (0.2)
- Americas 1.3 1.3 0.9 0.9
- Asia Pacific and Rest of the World 9.5 9.5 10.0 9.5
Operating profit from continuing operations 47.0 47.0 38.3 10.2
Discontinued operations
- United Kingdom and Continental Europe - - 7.6 13.3
- Americas - - 0.3 13.1
- Asia Pacific and Rest of the World - - 0.1 (19.4)
Operating profit from discontinued operations - - 8.0 7.0
47.0 47.0 46.3 17.2
Share of profit of associates - continuing * 2.1 2.1 1.9 1.9
Net financing costs - continuing (13.4) (13.4) (13.3) (13.3)
Net financing costs - discontinued - - - (14.5)
Net gain on sale of operations - discontinued - - - 30.8
Income tax - continuing (9.7) (9.7) (7.3) 4.8
Income tax - discontinued - - (2.0) (1.7)
Profit for the financial year 26.0 26.0 25.6 25.2
* Relates to Asia Pacific and Rest of the World
Notes (continued)
3. Segment information (continued)
BUSINESS SEGMENTS
2006 2005
£'m £'m
Segment revenue
Continuing operations - external
- Branded condoms 162.3 146.1
- Footwear 66.3 68.0
- Footcare 95.8 85.3
- Locally owned brands 73.4 72.3
- Other consumer 40.2 45.1
- Third party supply 12.6 9.5
Total continuing revenue 450.6 426.3
Discontinuing operations - external
- Wound management - 1.6
- Medical gloves and antiseptics business - 25.9
- Silipos - 5.0
450.6 458.8
4. Dividends
2006 2005 2006 2005
pence pence £'m £'m
2005 final paid 8 September 2005 (2004 final, paid 2 September 2004) 4.2 4.2 8.0 8.0
2006 interim, paid 1 March 2006 (2005 interim, paid 1 March 2005) 2.0 2.0 3.8 3.8
Amounts recognised as distributions to equity holders in the year 6.2 6.2 11.8 11.8
The proposed final dividend for 2006 is 4.4 pence per ordinary £0.10 share and £8.4 million
in total.
The proposed 2006 final dividend will be submitted to the shareholders for confirmation at
the Annual General Meeting on 20 July 2006 and has not been recognised as a distribution to
equity holders in these financial statements. This will be payable, subject to approval, on
7 September 2006 to shareholders on the register on 18 August 2006.
5. Statutory information
Subsequent events
On 19 May 2006 the Group announced that it has exchanged conditional contracts with Qingdao
Double Butterfly Group Company Limited to obtain full control of its joint venture operations
in China. Completion is expected to take place by the end of 2006 and is conditional upon,
inter alia, Chinese Government approval.
The purchase price of the remaining 50 per cent of the operation not already owned by SSL is
USD 37.5 million.
Subsequent to completion, the Group will own 100% of the ordinary share capital of Qingdao
London Durex Company Limited, shown as an associate in these financial statements.
Proposed dividends are disclosed in note 4. There are no other events after the balance sheet
date disclosable under IAS 10 'Events after the balance sheet date'.
Notes (continued)
6. Explanation of transition to IFRS
From 1 April 2005 the Group has been reporting its results in accordance with International
Financial Reporting Standards (IFRS). The transition date for SSL of adoption of IFRS is
1 April 2004. All comparative data in this report has been restated, except the Group has
taken the exemption under IFRS 1 not to restate the comparatives for IAS 32 and 39.
To comply with the requirements of reporting the first set of annual results following
transition to IFRS, a reconciliation from the profit and loss under UK GAAP, to the income
and expense under IFRS, is set out below for the year ended 31 March 2005. The reconciliation
relates to the pre exceptional business under UK GAAP which has been classified as normal
business under IFRS. The 2005 UK GAAP numbers also disclosed exceptional items in respect
of business disposals and factory closure. The reconcilation from UK GAAP to IFRS for these
items and the total business is included in the 'Restatement of financial information under
International Financial Reporting Standards', published on 28 September 2005.
Reconciliation of income statement for the year ended 31 March 2005 - normal business
Before
exceptionals Reclass Share-based Income Goodwill Normal
items discontinued payment taxes amortisation Dividend business
UK GAAP (a) (b) (c) (d) (e) IFRS
£'m £'m £'m £'m £'m £'m £'m
Revenue 458.8 (32.5) - - - - 426.3
Cost of sales (178.6) 10.6 - - - - (168.0)
Gross profit 280.2 (21.9) - - - - 258.3
Distribution expenses (155.9) 11.6 - - - - (144.3)
Administrative expenses (79.4) 3.3 (0.6) - 1.0 - (75.7)
Operating profit before 44.9 (7.0) (0.6) - 1.0 - 38.3
financing costs
Financial income 2.4 - - - - - 2.4
Financial expenses (15.7) - - - - - (15.7)
Net financing costs (13.3) - - - - - (13.3)
Share of profit of 1.9 - - - - - 1.9
associates
Profit before taxation 33.5 (7.0) (0.6) - 1.0 - 26.9
Income tax expense (9.7) 2.0 - 0.4 - - (7.3)
Profit after tax but 23.8 (5.0) (0.6) 0.4 1.0 - 19.6
before gain on
discontinued operations
Discontinued operations - 5.0 1.0 6.0
Profit for the financial 23.8 - (0.6) 0.4 2.0 - 25.6
year
Minority interest (1.7) - - - - - (1.7)
Profit for the financial
year attributable to 22.1 - (0.6) 0.4 2.0 - 23.9
equity shareholders
Dividends (11.8) 11.8 -
Retained profit for 10.3 - (0.6) 0.4 2.0 11.8 23.9
the year
Since the production of "Restatement of financial information under International Accounting
Standards", published on 28 September 2005 and available from The Company Secretary, 35 New
Bridge Street, London, EC4V 6BW, royalty charges of £0.9 million have been reclassified from
cost of sales to administrative expenses. This income statement presentation is consistent
with the current year.
Notes (continued)
Since the production of "Restatement of financial information under International Accounting
Standards", published on 28 September 2005 and available from The Company Secretary, 35 New
Bridge Street, London, EC4V 6BW, the expected return on pension scheme assets of £7.4 million
has been reclassified from the net pensions interest cost. This income statement presentation
is consistent with the current year.
A summary of the principal differences between UK GAAP and IFRS as applicable to SSL
International is as follows:
(a) Reclass of discontinued and other items
Under IFRS the results of discontinued operations may be classified in one line on the face
of the income statement rather than within each income statement category as is required
under UK GAAP.
This has no overall impact on the results for the Group and is a reclassification only.
(b) Share-based payments
The Group has elected to apply IFRS 2 Share-based Payments only to relevant share based payment
transactions granted after 7 November 2002 as permitted under IFRS 1.
The Group operates a number of share based incentive schemes that are impacted by IFRS 2
"Share-based payments". Under UK GAAP no expense has been recognised for awards under the
Executive share option scheme, as the intrinsic value of the options was £nil. No charge was
recognised for awards under the SAYE scheme, as this was exempt under UITF 17. Under IFRS,
an expense is recognised in the income statement for all share-based payments. This expense
has been calculated based upon the fair value at the date of the awards using appropriate
option pricing models.
This has resulted in a charge for the full year of £0.6 million, recognised within administrative
expenses. The tax impact of the charge has been considered in adjustment (ciii).
(c) Income taxes
(i) IAS 12 changes the methodology used to calculate deferred tax on unrealised profit on
intra-group sales.
This has resulted in the recognition of a deferred tax asset of £3.4 million at 31 March 04
based upon unrealised profit held in tax paying jurisdictions. The movement on this asset
to 31 March 2005 leads to a credit in the income statement of £0.3 million.
(ii) IAS 12 requires a deferred tax provision for all rolled over capital gains.
The treatment under IAS 12 of deferred tax on rolled over capital gains has resulted in the
recognition of a deferred tax liability of £11.5 million as at 1 April 2004. Of this amount
£7.2 million had already been recorded within current tax creditor under UK GAAP. This has
as such been reclassified from the current tax creditor to deferred tax and a further
£4.3 million booked. Following disposal of the medical business, £7.7 million of the liability
is released in the year to 31 March 2005, following crystallisation of the gain. A current tax
charge in relation to this amount is already recognised under UK GAAP but offsets versus
current year losses. Provision is made for £7.7 million for possible taxable gains that could
arise in the US on the disposal of the medical business. Both entries are classified in
discontinued operations.
At 31 March 2005 a deferred tax asset of £3.8 million is set up for agreed capital losses to
offset the remaining deferred tax liability. This is recognised outside the ‘normal business’
as the losses recognised do not form part of normal trading. .
(iii) IAS 12 requires a deferred tax asset to be recognised in respect of the cumulative charge
on share based payments which would have been deemed to have hit the profit and loss account
or reserves.
A deferred tax asset of £0.2 million at 1 April 2004 and £0.2 million at 30 September 2004
is recognised. A deferred tax asset of £0.3 million is recognised as at 31 March 2005. A tax
credit of £0.1 million is taken to the income statement for the year ended 31 March 2005.
Since the production of "Restatement of financial information under International Accounting
Standards", published on 28 September 2005 and available from The Company Secretary, 35 New
Bridge Street, London, EC4V 6BW, the total deferred tax assets for the comparative year has
been increased by £4.1million to £41.1million. Deferred tax liabilities have also increased
by £4.1 million. The net deferred tax asset has remained unchanged at £30.8 million. The
reclassification has reflected the gross amounts of deferred tax assets and liabilities.
Since the production of "Restatement of financial information under International Accounting
Standards", published on 28 September 2005 and available from The Company Secretary, 35 New
Bridge Street, London, EC4V 6BW, tax liabilities, for which no payment is expected to be made
within 12 months from the balances sheet date, totalling £20.2million have been reclassified
as non-current. The total tax liability has remained unchanged at £22.6 million.
(d) Goodwill amortisation
Under IFRS 3, goodwill is no longer amortised on a straight-line basis, but instead is subject
to annual impairment review. Amortisation previously charged is frozen at the date of transition.
Notes (continued)
Goodwill amortisation of £2.0 million for the year ended 31 March 2005 is written back to the
income statement. Of this amount, £1.0 million is in relation to the continuing business and
£1.0 million is in relation to the discontinued business. In the
year ended 31 March 2005 an additional charge of £2.3 million was charged within the continuing
business following impairment reviews of certain items of goodwill under UK GAAP. This charge
has been retained under IFRS.
(e) Dividend
Under UK GAAP, the dividend charge is recognised in the profit and loss account in the period
to which it relates. Under IFRS the dividend is not recognised in the income statement but is
recognised directly to reserves in the period in which the dividend is declared.
Both the interim and final dividend for the year have been reversed from the income statement
with an impact of £11.8million.
7. Reconciliation of equity
The following reconciliation describes the effect of the adoption of IAS 32 and IAS 39 as at
1 April 2005.
The Group adopted IAS 32 and IAS 39 from 1 April 2005 and has taken advantage of the exemption
available under IFRS 1 not to restate comparatives for IAS 32 and IAS 39. The analysis below
details the transitional adjustments arising from the adoption of IAS 32 and IAS 39 as at
1 April 2005:
Under Financial Financial Under
IFRS Instruments: Instruments: IFRS
(excluding Presentation Recognition (including
IAS 32 and and IAS 32
and 39) Disclosure Measurement and 39)
IAS 32 IAS 39
£m £m £m £m
Non current assets 198.0 - - 198.0
Current assets
Inventories 67.3 - - 67.3
Trade and other receivables 153.6 - - 153.6
Tax recoverable 0.8 - - 0.8
Financial assets - - 0.2 0.2
Cash and cash equivalents 40.8 - - 40.8
262.5 - 0.2 262.7
Current liabilities
Trade and other payables (108.4) - - (108.4)
Financial liabilities (40.2) - (0.7) (40.9)
Provisions (28.5) - - (28.5)
Current tax payable (2.4) - - (2.4)
(179.5) - (0.7 (180.2)
Non-current liabilities
Financial liabilities (88.8) - 1.8 (87.0)
Deferred tax liabilities (10.3) - - (10.3)
Employee benefits (82.4) - - (82.4)
Provisions (12.7) - - (12.7)
Tax payable (20.2) - - (20.2)
Other liabilities (2.6) - - (2.6)
(217.0) - 1.8 (215.2)
Net assets 64.0 - 1.3 65.3
Equity attributable to the equity holders of the parent:
Issued capital 19.0 - - 19.0
Other reserves 177.5 - - 177.5
Foreign exchange reserve 0.1 - - 0.1
Retained earnings (141.0) - 1.3 (139.7)
55.6 - 1.3 56.9
Minority interests 8.4 - - 8.4
Total equity 64.0 - 1.3 65.3
Notes (continued)
1. The adjustment to current assets of £0.2 million represents the marking-to-market of forward
contract derivatives.
2. At 1 April 2005 the Group's borrowings comprised US$ 7.67 per cent loan notes totalling
$27.1 million; US$ 7.84 per cent loan notes totalling $111.2 million and Sterling 7.52 per cent
loan notes totalling £6.4 million. The Group holds foreign currency swap derivatives converting
the 7.67 per cent loan notes into variable rate Euros, and the 7.84 per cent loan notes into
fixed rate Sterling.
Under UK GAAP the loans were retranslated at the swap currency rate at each balance sheet date.
This treatment did not recognise the gains arising from the weaker US dollar, and therefore
only partially recognised the swap. Under IFRS the 7.67 per cent loan notes form part of a
hedging relationship and are held at fair value, reflecting the gain arising from dollar
borrowings, resulting in a reduction in the loan balance of £2.6 million. The 7.84 per cent
loan notes, which are unhedged, are restated at cost at the dollar rate resulting in a further
reduction in loans due of £8.6 million.
The introduction of the fair value of the swap derivatives reflects the losses arising from
conversion to stronger currencies and results in an increase to borrowings of £10.1 million.
Listing Rules note for Preliminary Results Announcement
The financial information set out above does not constitute the Group's statutory accounts for
the years ended 31 March 2006 or 2005. The financial information for 2005 is derived from the
'Restatement of financial information under International Financial Reporting Standards'.
A reconciliation of the statutory information presented in 2005, and the comparative information
presented in this document is provided in note 6.
The auditors have reported on the 2005 accounts, and the 'Restatement of financial information
under International Financial Reporting Standards'; their report was unqualified, in each case,
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 2006 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.