2001 has proved to be another excellent year for Amersham, showing
our resilience to difficult economic conditions, with strong growth
in sales and double-digit growth in earnings per share. Our sales
have exceeded £1.6 billion pounds for the first time.
In September 2001 we sold our remaining 29 per cent stake in Nycomed
Pharma. We received sales proceeds of £73 million and realised £50
million for the outstanding Nycomed Pharma loan note held by the
group. A profit was recorded on the transaction of £55 million after
associated costs, which included the costs of transferring the Nycomed
name to Nycomed Pharma and our consequent name change from Nycomed
Amersham to Amersham plc. Following on from the sale of the majority
stake in May 1999, our total cash proceeds are now £399 million
for the Nycomed Pharma business as a whole and we have recorded
a total profit of £57 million before taxation.
Cash flow this year has been particularly strong with excellent
cash generation from our business operations in addition to the
sale of the 29 per cent stake in Nycomed Pharma. We have used these
funds to reduce our net debt by almost £300 million so that at the
year end net debt stands at £25 million. Since the year end we have
signed a new $750 million syndicated bank credit facility committed
to February 2007 to replace the previous facility which was due
to mature in September 2002.
Results overview
Sales during 2001 were £1,603 million, up 13 per cent at constant
exchange rates, excluding the impact of disposed businesses. The
strong sales growth was balanced across both businesses with Amersham
Health up 13 per cent year on year and Amersham Biosciences up by
12 per cent. Our businesses continue to benefit from the geographical
breadth and robustness of their market positions with double-digit
growth recorded in both the patented and unpatented product portfolio
of Amersham Health and in the separations and proteomics businesses
of Amersham Biosciences. Together these account for 60 per cent
of our total sales.
Operating profit before exceptional items and goodwill amortisation
was £293 million. This is eight per cent higher than last year and
is after a £25 million (16 per cent) growth in our R&D expenditure.
Total trading profit before R&D costs and exceptional items and
goodwill amortisation is £466 million, up 11 per cent from last
year. The continued investment in R&D reflects our strong commitment
to the development of the product portfolio. In Amersham Health
we have taken new initiatives in life-cycle projects, partnerships
and in-licensing, as well as continuing internal R&D. In Amersham
Biosciences, we have continued the trend seen over the last three
years of significant investment in R&D, which grew by 22 per cent
this year, to build up a substantial portfolio of products and to
incorporate new technologies particularly in genomics, proteomics,
bioassays and the rapidly growing separations business. Having brought
several major new product platforms to market since 1998 we have
now completed a phase of significant investment, and in the second
half of 2001 R&D investment was slightly lower than in the first
half year.
Interest costs have been reduced this year, due to a significant
reduction in our net debt following strong cash flow including the
sale of our remaining stake in Nycomed Pharma. We have also taken
a charge of £4 million against the carrying value of listed investments
following a material reduction in their market value during 2001.
We hold a small number of equity positions in companies with which
we have collaboration agreements, with the total value of our trade
investments at year end standing at £14 million.
Profit before tax was £279 million before exceptional items and
goodwill amortisation, up from £231 million last year, and included
a favourable exchange rate impact of £26 million, resulting primarily
from the strengthening of the US dollar. Overall profit before tax
(including exceptional items and goodwill amortisation) was £314
million, up from £194 million in 2000.
The group’s underlying tax rate, before exceptional items and goodwill
amortisation, was 33.1 per cent (34.6 per cent after goodwill amortisation),
a reduction of 0.9 per cent from last year. The rate is lower principally
as a result of the favourable settlement of a number of outstanding
tax items relating to earlier years. Earnings per share were 27.2p
before exceptional items and goodwill amortisation, compared with
22.5p last year, representing a growth of 21 per cent at actual
exchange rates and 10 per cent at constant exchange rates. We paid
an interim dividend of 2.35p per share and the Board is recommending
a final dividend of 4.75p per share, bringing the total dividend
to 7.10p for the year, an increase of 11 per cent.
We have realised a pre tax exceptional profit this year of £47
million. Included within the £47 million is the £55 million profit
generated by the sale in September 2001 of our remaining 29 per
cent stake in Nycomed Pharma. Exceptional operating costs incurred
in 2001 totalled £9 million compared to £27 million in 2000. During
2000, £10 million of exceptional operating costs were incurred in
disengaging from the Nycomed Pharma business following the initial
sale of 71 per cent of the business in May 1999. In 2001, costs
of £3 million have been incurred in relation to the proposed partial
flotation of Amersham Biosciences announced last year and currently
on hold as a result of market conditions. The company received £23
million related to a transfer of assets from former pension plans,
with £9 million recorded as exceptional operating income after providing
for ongoing liabilities, primarily for employees who have transferred
into the Amersham plc pension scheme. Costs of £6 million were incurred
in concluding and winding up the operation of an early stage investment
in disease profiling research. Costs of £9 million for asset write
offs and decommissioning have been recorded in relation to the decision
to terminate our lease at Harwell following a complete cessation
of the company’s activities on that site.
Overall, basic earnings per share, after exceptional items and
goodwill amortisation, have increased from 17.6p in 2000 to 33.9p
in 2001.
Financial Reporting Standards
During 2001 we implemented Financial Reporting Standard (FRS) 18
‘Accounting Policies’, and have included the relevant disclosure
requirements of FRS 17 ‘Retirement Benefits’.
On the introduction of FRS 18 the group changed its accounting
policy in relation to revenue recognition on Technology Transfer
agreements to recognise associated revenue evenly over the life
of the agreement in order to provide greater comparability between
different arrangements. In accordance with FRS 18 we have restated
prior years to recognise this accounting policy change, the full
details of which are contained in note 36 to the financial statements.
FRS 17 will change the way that companies account for pensions
and other retirement benefits. The standard is applicable for accounting
periods ending after 22 June 2003, although we are now in a transition
period when additional disclosures are required, which are contained
in note 29 to the financial statements.
We are required to adopt FRS 19 ‘Deferred Taxation’ in 2002. We
do not anticipate that this will have any significant impact on
either our underlying tax rate or the group’s balance sheet.
Cash flows and investment activities
 |
| |
2001
£m |
|
2000
£m |
|
|
| Cash flow from operations
before exceptional items |
342 |
|
255 |
|
| Business reorganisation and
exceptional items |
|
|
|
|
| Integration and exceptional items |
12 |
|
(31 |
) |
| Disposals and sales of assets |
23 |
|
11 |
|
 |
| |
35 |
|
(20 |
) |
|
| Business investments |
|
|
|
|
| Capital expenditure |
(102 |
) |
(128 |
) |
| Acquisitions and purchases |
(14 |
) |
(38 |
) |
|
| |
(116 |
) |
(166 |
) |
|
| Business cash flow |
261 |
|
69 |
|
| Proceeds from disposal of Nycomed Pharma |
123 |
|
– |
|
| Interest, tax, dividends and share capital |
(79 |
) |
(62 |
) |
|
| Net cash flow before repayment of debt |
305 |
|
7 |
|
|
Cash flow has been particularly strong during 2001 with cash flow
from operations before exceptional items £87 million higher than
in 2000. We generated £35 million from business reorganisation and
exceptional items including the £23 million received from the transfer
of assets from former pension plans. The overall level of business
investment has reduced this year, with capital expenditure £26 million
lower than 2000 following the completion of our rationalisation
of manufacturing and other operations after the 1997 mergers. Business
cash flows increased from £69 million in 2000 to £261 million in
2001.
Net cash flow before repayment of debt was £305 million, an increase
of £298 million compared to 2000. These funds have been used to
reduce our net debt by £298 million, after an exchange impact of
£7 million. Net debt stands at £25 million at 31 December 2001.
The cash flow generated by our businesses is analysed in the following
table:
|
| |
2001
£m |
|
2000
£m |
|
|
| Business cash flows |
|
|
|
|
| Amersham Health |
174 |
|
106 |
|
| Amersham Biosciences |
84 |
|
(8 |
) |
| Corporate |
3 |
|
(29 |
) |
|
| Business cash flow |
261 |
|
69 |
|
|
Our Amersham Health business continues to generate strong cash
flow for the group with £174 million realised during 2001, an increase
of £68 million over last year. Amersham Biosciences also generated
good cash flow in the year following lower capital expenditure and
a strong improvement in working capital whilst continuing the growth
in R&D investment. Cash flow in 2001 was £84 million compared with
a cash funding of £8 million in 2000. Corporate cash flow includes
the funds from former pension plans noted above as well as corporate
costs.
Treasury policy and liquidity
Treasury policy and objectives
Our treasury activities are co-ordinated and managed by the group
treasury department in accordance with policies approved by the
Board. These policies are reviewed regularly and have not changed
significantly over the past year. The department operates under
close management supervision and is subject to review by the Risk
and Operational Review department. It does not operate as a profit
centre and no speculative transactions are undertaken.
Financial instruments
The group uses financial instruments, primarily forward foreign
exchange contracts and interest rate swaps, in the management of
currency and interest rate exposures. Clear procedures have been
established, including levels of authority, regarding the type and
use of financial instruments to manage these exposures. The Board
has approved these procedures. The group controls credit risk by
entering into transactions involving financial instruments only
with authorised counter-parties of strong credit quality. Counterparty
positions are monitored regularly.
Funding
The group requirement for debt funding is managed by group treasury.
The group finances its operations through a variety of instruments
and maturities. In general, subsidiaries’ borrowing requirements
are funded by loans from group treasury, except where precluded
by local regulations. The principal borrowings during the period
were US$213 million (£152 million) of private placement loan notes
and drawings under a £430 million committed revolving bank credit
facility. At 31 December 2001, the group had net debt of £25 million
with no drawings on the £430 million committed facilities. Since
the year end the company has signed a new $750 million syndicated
bank facility committed to February 2007 and the previous facility
has been cancelled.
Interest rate management
The group’s interest charge is exposed to movements in interest
rates as well as debt levels. Our policy is to hold between 30 and
70 per cent of debt at fixed rates. Following the disposal of Nycomed
Pharma in August 2001 we repaid all outstanding short term debt
and invested the remaining proceeds in short term floating rate
based instruments. We continue to carry $213 million (£152 million)
of fixed rate private placement notes which mature between 2002
and 2009 and which are uneconomical to repay. At 31 December 2001,
after taking into account interest rate swaps, 85 per cent of debt
was at fixed rates. The average maturity of this fixed rate debt
was 2.4 years. With net debt and interest now at historically low
levels and net interest covered over 34 times by operating profit,
we will revert to our policy concerning fixed rate debt when debt
levels become more significant. The group uses currency and interest
rate swaps to manage its interest rate exposures on debt and cash
positions. The interest rate profile of the group is shown in note
20 to the financial statements.
Currency management
The group’s manufacturing activities and costs are concentrated
in a small number of countries, primarily the US, Norway, Sweden
and the United Kingdom. Sales income is spread more widely. Overall
we have net income in US dollars, euros and Japanese yen and net
costs in sterling, Norwegian kroner and Swedish krona. The group’s
principal financial exposures are to movements in currency exchange
rates. These comprise transaction exposures arising from currency
cash flows and translation exposures arising from the conversion
of the results of foreign subsidiaries. Transaction exposures are
hedged on a rolling six month basis, primarily by forward foreign
exchange transactions. In addition, where sterling has deviated
significantly from its long term purchasing power parity rates,
strategic hedging is undertaken for periods of up to three years.
During the year, we took advantage of the strength of the US dollar
by selling forward an increased proportion of our anticipated US
dollar income for the next three years in accordance with our strategic
hedging policy. Translation exposures on the net monetary assets
of foreign subsidiaries are generally hedged by borrowings and deposits
with group treasury. An analysis of net monetary assets by functional
currency is shown in note 20 to the financial statements. Translation
exposures on the results of foreign subsidiaries are not hedged.
Equity investments in certain subsidiaries and associated companies
are hedged by financial instruments in the currencies of those investments.
In 2001, profit before tax was impacted by a favourable exchange
effect of £26 million as a result of the strengthening US dollar,
and weakening of the Scandinavian currencies, against the pound.
Introduction of the euro
Following the three year transition period, euro notes and coins
were introduced on 1 January 2002. We completed all the changes
required to our systems and procedures during 2001 and encountered
no problems with the change over.
Giles Kerr
Finance Director
|
