Notes to the financial statements - Plasmon
Notes to the financial statements - Plasmon
Notes to the financial statements - Plasmon
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<strong>Plasmon</strong> Plc<br />
Annual Report<br />
2003
Contents<br />
01 Overview and Highlights<br />
02 Chairman’s Statement<br />
06 Chief Executive’s Review<br />
14 Finance Direc<strong>to</strong>r’s Review<br />
17 Board of Direc<strong>to</strong>rs and Senior<br />
Management<br />
18 Corporate governance<br />
20 Remuneration report<br />
23 Direc<strong>to</strong>rs’ report<br />
24 Audi<strong>to</strong>rs’ report<br />
25 Consolidated profit and loss account<br />
26 Statement of <strong>to</strong>tal recognised gains and losses<br />
27 Consolidated balance sheet<br />
28 Company balance sheet<br />
29 Consolidated cash flow statement<br />
30 <strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
Direc<strong>to</strong>rs and advisers
<strong>Plasmon</strong> Overview<br />
<strong>Plasmon</strong> manufactures au<strong>to</strong>mated data<br />
s<strong>to</strong>rage systems for <strong>the</strong> professional data<br />
s<strong>to</strong>rage market. <strong>Plasmon</strong>’s systems are<br />
predominantly based on optical s<strong>to</strong>rage<br />
technology and are used for large-scale<br />
data archive applications.Typical end users<br />
include banks, insurance companies,<br />
hospitals and government agencies.<br />
<strong>Plasmon</strong> operates on a global basis and<br />
over 60% of revenues are derived in <strong>the</strong><br />
USA and less than 5% in <strong>the</strong> UK home<br />
market. Manufacturing is located in<br />
Colorado Springs in <strong>the</strong> USA, Caen in<br />
Nor<strong>the</strong>rn France and Cambridge, which<br />
is also <strong>the</strong> Group’s UK headquarters.<br />
<strong>Plasmon</strong> employs over 400 people<br />
worldwide and has been Listed on <strong>the</strong><br />
London S<strong>to</strong>ck Exchange since 1996.<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Introduction<br />
1<br />
2003 Highlights<br />
Turnover declined 2% <strong>to</strong> £60.1m<br />
(2002: £61.6m)<br />
Pre-tax profit before goodwill amortisation,<br />
UDO development costs and exceptional<br />
costs increased 29% <strong>to</strong> £4.7m (2002:<br />
£3.7m). Pre-tax loss £3.4m (2002: £6.3m)<br />
Basic losses per share reduced <strong>to</strong> 6.41p<br />
(2002: 12.28p)<br />
Earnings per share excluding goodwill<br />
amortisation, UDO development costs and<br />
exceptional costs flat at 8.86p (2002: 8.96p)<br />
The 2nd half retained loss fell <strong>to</strong> £1.0m<br />
(1st half: £2.4m) as post reorganisation cost<br />
savings were realised<br />
Excellent OEM response <strong>to</strong> successful<br />
demonstration of functional UDO drives at<br />
Comdex in November 2002. Programme on<br />
schedule for initial product shipments in<br />
September 2003<br />
UDO development expenditure £6.5m<br />
(2002: £5.2m) – raised £1.7m net in June<br />
2002 <strong>to</strong> support purchase of UDO<br />
manufacturing equipment<br />
Year end gearing 34% (31 March 2002: 24%)
Chairman’s Statement<br />
J. Barrie Morgans<br />
Chairman<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Chairman’s Statement<br />
2<br />
Following <strong>the</strong> upheaval of our<br />
major US reorganisation last year,<br />
2002/3 has been a period of<br />
consolidation and steady progress<br />
for <strong>the</strong> <strong>Plasmon</strong> Group. Despite<br />
poor economic conditions in <strong>the</strong><br />
US and uncertainty created by <strong>the</strong><br />
war in Iraq, our full year revenues<br />
fell by only 2% <strong>to</strong> £60.1m compared<br />
<strong>to</strong> £61.6m <strong>the</strong> previous year.
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Pre-tax profit before goodwill amortisation,<br />
UDO development costs and exceptional<br />
costs increased 29% <strong>to</strong> £4.7m and <strong>the</strong><br />
retained loss for <strong>the</strong> full year reduced 41%<br />
<strong>to</strong> £3.4m. Having incurred a loss of £2.4m<br />
in <strong>the</strong> first half, <strong>the</strong> retained loss in <strong>the</strong><br />
second half fell <strong>to</strong> £1.0m as post<br />
reorganisation cost savings were realised.<br />
Despite <strong>the</strong> poor trading conditions our<br />
channel sales in <strong>the</strong> US increased by 4%<br />
in dollar terms. As expected, sales <strong>to</strong> IBM<br />
decreased a fur<strong>the</strong>r 35% in 2002/3<br />
resulting in an overall US revenue decline<br />
of 3% in local currency terms, translating<br />
in<strong>to</strong> a fall of 10% after unfavourable foreign<br />
exchange movements. Our US business<br />
represented 66% of Group sales in 2002/3<br />
and <strong>the</strong> level of activity in <strong>the</strong> US market<br />
<strong>the</strong>refore remains a critical driver of our<br />
overall business performance.<br />
Having achieved 6% revenue growth last<br />
year, our European channel sales grew a<br />
fur<strong>the</strong>r 15% in 2002/3 as we continue <strong>to</strong><br />
increase market share in our core 5.25"<br />
library business. In August we secured<br />
Siemens as a major new DVD library<br />
cus<strong>to</strong>mer and we expect this relationship<br />
<strong>to</strong> drive fur<strong>the</strong>r growth in <strong>the</strong> coming year.<br />
European economic conditions were<br />
more favourable than <strong>the</strong> US last year<br />
and we also benefited from a stronger<br />
European regional presence than many<br />
of our US competi<strong>to</strong>rs.<br />
Our UDO development programme<br />
continues <strong>to</strong> make excellent progress and<br />
we successfully demonstrated working<br />
UDO drives at <strong>the</strong> Comdex trade show in<br />
Las Vegas in November. The overall cost of<br />
<strong>the</strong> UDO development programme<br />
remains broadly in line with our plans and<br />
we are on schedule <strong>to</strong> begin initial<br />
shipments in September this year.<br />
Chairman’s Statement<br />
3<br />
We are receiving an excellent response from<br />
potential OEM cus<strong>to</strong>mers and expect UDO<br />
technology <strong>to</strong> establish a leading position in<br />
professional optical s<strong>to</strong>rage solutions.<br />
Recent changes in <strong>financial</strong> compliance<br />
regulations are also driving <strong>the</strong> market<br />
requirements for secure data archival<br />
solutions like UDO and we look forward <strong>to</strong><br />
commencing deliveries of this exciting new<br />
product in <strong>the</strong> coming <strong>financial</strong> year.<br />
In June 2002 we raised a fur<strong>the</strong>r £1.7m net<br />
of expenses, by way of a 5% Placing, <strong>to</strong><br />
support <strong>the</strong> purchase of capital equipment<br />
for UDO at a time when equipment leasing<br />
was proving difficult <strong>to</strong> secure. In February<br />
2003 we fur<strong>the</strong>r improved our available<br />
<strong>financial</strong> resources with a £7m structured<br />
finance facility that provides us with ample<br />
liquidity <strong>to</strong> complete our UDO<br />
development and launch plans. Our<br />
<strong>financial</strong> position remains comfortable with<br />
gearing of 34% at year end.<br />
Although trading in <strong>the</strong> past year was<br />
difficult, we start <strong>the</strong> new <strong>financial</strong> year<br />
well positioned <strong>to</strong> complete <strong>the</strong> UDO<br />
development and capitalise on its<br />
significant potential. Our UDO launch<br />
plans are well advanced and we believe<br />
<strong>the</strong> timing is excellent <strong>to</strong> deliver a<br />
performance leading data archival solution<br />
at a time of growing compliance<br />
regulation. After a period of significant<br />
contraction <strong>the</strong> IT market is also forecast<br />
<strong>to</strong> return <strong>to</strong> modest growth, which we<br />
expect <strong>to</strong> drive increased revenue and<br />
profitability in our core business in <strong>the</strong><br />
coming year.<br />
On behalf of <strong>the</strong> Board, I would like <strong>to</strong> thank<br />
all our employees for <strong>the</strong>ir dedication and<br />
hard work over <strong>the</strong> past year.<br />
J. Barrie Morgans<br />
Chairman
The UDO production line employs<br />
<strong>the</strong> latest high capacity optical disk<br />
manufacturing equipment and will<br />
have an output of some 80,000<br />
disk’s per month when operating<br />
at maximum capacity<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003 4
<strong>Plasmon</strong> Plc<br />
Annual Report 2003 5
Chief Executive’s Review<br />
Nigel Street<br />
Chief Executive<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Chief Executive’s Review<br />
6<br />
2002/3 has been ano<strong>the</strong>r challenging<br />
year for <strong>Plasmon</strong> with difficult economic<br />
conditions and <strong>the</strong> continuing decline<br />
in our business with IBM depressing<br />
overall revenues from £61.6m <strong>to</strong> £60.1m.<br />
In contrast <strong>to</strong> <strong>the</strong> disappointing trading<br />
performance, our UDO development<br />
programme made excellent progress in<br />
2002/3 and we completed successfully<br />
<strong>the</strong> transfer of our library business from<br />
Minneapolis <strong>to</strong> Colorado Springs.
In <strong>the</strong> first half of 2002/3, <strong>the</strong> Group<br />
returned <strong>to</strong> modest growth with revenues<br />
3% ahead at £30.1m. As we experienced<br />
last year, our European operations<br />
performed better than our business in <strong>the</strong><br />
US where economic conditions remained<br />
difficult. In <strong>the</strong> final quarter of 2002/3 our<br />
US business was fur<strong>the</strong>r impacted by<br />
events in <strong>the</strong> Middle East, and coupled<br />
with a 10% movement in <strong>the</strong> average £:$<br />
exchange rate our overall second half<br />
revenues declined 7% from <strong>the</strong> previous<br />
year. Since <strong>the</strong> cessation of hostilities we<br />
are seeing increasing signs of activity in<br />
<strong>the</strong> US, but we remain cautious about <strong>the</strong><br />
timing of any upturn in business. In<br />
contrast, our European business grew<br />
17% in 2002/3 and we expect <strong>to</strong> make<br />
fur<strong>the</strong>r progress in <strong>the</strong> coming year.<br />
In light of <strong>the</strong> difficult trading conditions<br />
our US reorganisation has proved both<br />
timely and extremely necessary. The<br />
reorganisation was finally completed in<br />
September 2002 when <strong>the</strong> last library<br />
engineers left our Minneapolis engineering<br />
operation. These engineers were retained<br />
for six months longer than <strong>the</strong><br />
manufacturing group <strong>to</strong> complete <strong>the</strong> new<br />
Enterprise DVD library range that we<br />
developed specifically for our major<br />
medical imaging cus<strong>to</strong>mers such as<br />
Siemens Medical. From a peak of some<br />
314 US employees in 2001, <strong>the</strong> US<br />
reorganisation programme reduced <strong>the</strong><br />
headcount <strong>to</strong> 225 by April 2003. In<br />
addition, we reduced our European<br />
headcount by some 20 employees as part<br />
of our overall cost control programme.<br />
In 2002/3 our overall product mix remained<br />
broadly constant and, in line with <strong>the</strong> sales<br />
shortfall, our gross margins declined<br />
slightly <strong>to</strong> 36.3% from 36.7% <strong>the</strong> previous<br />
year. Following our reorganisation,<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
operating expenses before UDO<br />
development expenditure, goodwill<br />
amortisation and exceptional costs fell by<br />
£2.0m <strong>to</strong> £16.4m. At <strong>the</strong> adjusted pre-tax<br />
level we achieved a profit of £4.7m<br />
compared <strong>to</strong> <strong>the</strong> £3.7m we achieved <strong>the</strong><br />
previous year. At <strong>the</strong> pre-tax level we<br />
significantly reduced our full year loss <strong>to</strong><br />
£3.4m from £6.3m, after goodwill<br />
amortisation of £1.1m and <strong>the</strong> final £0.5m<br />
of US reorganisation costs.<br />
UDO development expenditure increased<br />
by 24% <strong>to</strong> £6.5m in 2002/3 as we entered<br />
<strong>the</strong> final development phase of <strong>the</strong> drive<br />
and media. The increased expenditure<br />
was slightly ahead of our original<br />
expectations and reflected additional<br />
costs in reworking ASIC parts and <strong>the</strong><br />
consequent increase in quick-turn<br />
pro<strong>to</strong>type costs <strong>to</strong> keep <strong>the</strong> project on<br />
schedule. In addition <strong>to</strong> fully expensed<br />
development costs of £6.5m, we invested<br />
a fur<strong>the</strong>r £3.9m in capital equipment in<br />
2002/3 as <strong>the</strong> UDO media production<br />
facility in Melbourn neared completion.<br />
Despite maintaining significant levels of<br />
investment in 2002/3, our year-end gearing<br />
remained comfortable at 34% compared<br />
<strong>to</strong> 24% <strong>the</strong> previous year.<br />
In March 2003 we secured new £7m<br />
banking facilities with Venture Finance Plc,<br />
<strong>the</strong> UK structured finance subsidiary of<br />
ABN Amro. These new financing<br />
arrangements have increased our<br />
immediate liquidity by some £3.4m and<br />
will provide sufficient funding <strong>to</strong><br />
complete UDO development and enter<br />
volume production.<br />
Chief Executive’s Review<br />
7<br />
Turnover £ million<br />
70<br />
60<br />
50<br />
40<br />
30<br />
20<br />
10<br />
0<br />
49.9<br />
70.3 69.1<br />
61.6<br />
60.1<br />
1999 2000 2001 2002 2003<br />
(Loss)/profit before tax £ million<br />
4<br />
2<br />
0<br />
-2<br />
-4<br />
-6<br />
-8<br />
-10<br />
0.3<br />
4.1 4.2<br />
6.3<br />
3.4<br />
1999 2000 2001 2002 2003
UDO optical media will be<br />
manufactured in Cambridge and<br />
will be available in both write-once<br />
and rewritable formats<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Chief Executive’s Review<br />
8<br />
UDO Development<br />
Ultra Density Optical (‘UDO’) is <strong>the</strong> next<br />
generation of 5.25" drives and media that we<br />
are developing <strong>to</strong> succeed <strong>the</strong> existing<br />
9.1GB MO products we source from Sony.<br />
UDO employs <strong>the</strong> latest blue laser<br />
technology that provides an increased 30GB<br />
capacity and a five-fold decrease in<br />
incremental s<strong>to</strong>rage cost over existing MO<br />
systems. Since commencing development<br />
in 1999 we have worked closely with HP on<br />
<strong>the</strong> project and expect <strong>the</strong>m <strong>to</strong> become <strong>the</strong><br />
major OEM cus<strong>to</strong>mer for UDO technology.<br />
Since <strong>the</strong> successful demonstration of<br />
working drives at Comdex last November,<br />
we have continued <strong>to</strong> make good progress<br />
with our UDO development programme and<br />
are now reading and writing data reliably in<br />
form-fac<strong>to</strong>r drives. The final phases of <strong>the</strong><br />
development are now underway and involve<br />
manufacturing increasingly large batches of<br />
pro<strong>to</strong>type drives and media <strong>to</strong> de-bug <strong>the</strong><br />
system fully and maximise performance<br />
and reliability.<br />
The UDO drive employs four ASIC chips that<br />
have been specifically designed by <strong>Plasmon</strong><br />
and our development partners. Successful<br />
development of <strong>the</strong>se ASICs represented<br />
one of <strong>the</strong> major risks in <strong>the</strong> UDO<br />
programme but three of <strong>the</strong>m are now<br />
complete and fully tested. The final Optical<br />
Disc Controller (ODC) chip has exhibited<br />
some speed limitations during testing but a<br />
revised design has now been released <strong>to</strong><br />
fabrication which should solve <strong>the</strong><br />
outstanding issues. Our <strong>to</strong>tal capital<br />
investment in <strong>the</strong> ASICs will be some £3m<br />
but <strong>the</strong>y are critical <strong>to</strong> achieving <strong>the</strong> low<br />
volume production costs that will allow UDO<br />
<strong>to</strong> compete effectively in <strong>the</strong> market.<br />
Ano<strong>the</strong>r area of significant risk in <strong>the</strong> UDO<br />
programme was <strong>the</strong> availability of blue lasers
from Nichia, our Japanese supplier. In<br />
December 2002 Nichia announced a new<br />
agreement <strong>to</strong> collaborate with Sony on blue<br />
laser development for use in Sony’s ‘Blu-ray’<br />
consumer video products. Nichia also<br />
informed <strong>Plasmon</strong> that due <strong>to</strong> yield problems<br />
with <strong>the</strong>ir existing laser, <strong>the</strong>y were moving <strong>to</strong><br />
a revised laser design employing elements of<br />
Sony technology. We have now successfully<br />
integrated <strong>the</strong> new lasers in<strong>to</strong> our UDO<br />
drives and we are confident that <strong>the</strong>ir<br />
performance and reliability will comfortably<br />
exceed our requirements.<br />
The op<strong>to</strong>-mechanical assembly (‘OMA’) for<br />
<strong>the</strong> UDO drive is being developed by Pentax,<br />
<strong>the</strong> leading Japanese optical technology<br />
company. The hard <strong>to</strong>oling for <strong>the</strong> OMA is<br />
now complete and we are currently<br />
integrating production quality units in<strong>to</strong> our<br />
pro<strong>to</strong>type drives. Our working relationship<br />
with Pentax continues <strong>to</strong> be excellent and we<br />
have recently despatched one of our<br />
Japanese speaking engineers <strong>to</strong> Japan for<br />
18 months <strong>to</strong> help transition <strong>the</strong> OMA <strong>to</strong> a<br />
low cost volume production facility.<br />
UDO media development is also making<br />
good progress and we now have <strong>the</strong> majority<br />
of <strong>the</strong> disk manufacturing equipment<br />
installed at our facility in Melbourn. The new<br />
cleanroom is fully commissioned and when<br />
complete <strong>the</strong> production line will have a <strong>to</strong>tal<br />
capacity of some 80,000 write-once and<br />
rewritable UDO disks per month.<br />
Development of <strong>the</strong> phase change recording<br />
layers for UDO media is proceeding well and<br />
<strong>the</strong> specification of <strong>the</strong> write-once disk is<br />
now finalised for volume production. This will<br />
employ a four layer structure based on phase<br />
change technology licenced from Kodak that<br />
we also use on our existing 12-inch optical<br />
disk products. We are <strong>the</strong>refore very familiar<br />
with <strong>the</strong> manufacturing process for this<br />
material and are confident a high yield<br />
process will be achieved.<br />
The rewritable phase change disk is in its final<br />
testing phase and will employ an eight layer<br />
structure <strong>to</strong> optimise rewrite cycle<br />
performance, environmental longevity and<br />
manufacturability. In January 2003 we signed<br />
a licence agreement with Mitsubishi<br />
Chemical Media (‘MCM’) for <strong>the</strong>ir patents<br />
and technologies for improving rewrite cycle<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
and cross erase performance in phase<br />
change rewritable media. Using MCM’s<br />
technology we have already exceeded <strong>the</strong><br />
UDO specification of 10,000 rewrite cycles<br />
and with fur<strong>the</strong>r optimisation, believe that<br />
25,000 cycles may be achievable.<br />
MCM are <strong>the</strong> world’s largest optical disk<br />
manufacturer and as well as first class<br />
technical know-how, <strong>the</strong>y have an excellent<br />
quality reputation with <strong>the</strong> major OEM<br />
cus<strong>to</strong>mers such as HP and IBM. We<br />
continue <strong>to</strong> work closely with HP on <strong>the</strong>ir<br />
UDO plans and as <strong>the</strong>y move <strong>to</strong>wards UDO<br />
endorsement <strong>the</strong>y are pressing MCM <strong>to</strong> be<br />
<strong>the</strong> second source media manufacturer.<br />
Major partners such as HP and MCM will be<br />
critical in establishing UDO as <strong>the</strong> de-fac<strong>to</strong><br />
standard in professional optical s<strong>to</strong>rage and<br />
we continue <strong>to</strong> use every effort <strong>to</strong> secure<br />
<strong>the</strong>ir endorsement of UDO.<br />
Having established <strong>the</strong> UDO media<br />
production facility and commenced trial<br />
production runs, we are now working on<br />
improvements <strong>to</strong> <strong>the</strong> 0.1mm cover layer<br />
process <strong>to</strong> reduce volume production costs.<br />
We have recently approved a European<br />
supplier of optical grade 0.1mm film that has<br />
reduced our material costs by some 75%<br />
over Far East suppliers. In addition, we are<br />
also working on a new liquid spin coating<br />
technique that is now providing excellent<br />
uniformity and will dramatically reduce future<br />
production costs.<br />
The media cartridge is an important<br />
component in <strong>the</strong> overall robustness and<br />
reliability of UDO technology and has been<br />
an area of intense focus over <strong>the</strong> last year.<br />
We have recently taken delivery of initial<br />
samples from <strong>the</strong> final production <strong>to</strong>oling and<br />
are now working with Dai-Nippon, our<br />
Japanese supplier, <strong>to</strong> move volume<br />
production <strong>to</strong> China <strong>to</strong> minimise long term<br />
cartridge manufacturing costs.<br />
Overall, <strong>the</strong> UDO development programme<br />
is progressing well and we are on schedule<br />
<strong>to</strong> make initial product deliveries in<br />
September 2003. As expected, UDO’s<br />
common technology base with consumer<br />
Blu-ray products continues <strong>to</strong> provide<br />
technology leverage opportunities and will<br />
ensure our long-term manufacturing costs<br />
remain competitive.<br />
Chief Executive’s Review<br />
9<br />
<strong>Plasmon</strong> product mix 2003<br />
5.25" 42%<br />
12" 33%<br />
CD/DVD 11%<br />
Consultancy 7%<br />
LTO tape 2%<br />
O<strong>the</strong>r 5%<br />
<strong>Plasmon</strong> product mix 2002<br />
5.25" 43%<br />
12" 38%<br />
CD/DVD 5%<br />
Consultancy 6%<br />
LTO tape 2%<br />
O<strong>the</strong>r 6%
UDO drives will be manufactured<br />
in our Colorado Springs facility and<br />
will have an initial capacity of<br />
30GB. Future generations of UDO<br />
products will have capacities of 60<br />
and 120GB<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Chief Executive’s Review<br />
10<br />
UDO launch plans<br />
In addition <strong>to</strong> <strong>the</strong> drive and media<br />
development programme, during <strong>the</strong> past<br />
year we have invested considerable time<br />
and resources on our UDO launch plans.<br />
We successfully recruited new marketing<br />
leadership in both <strong>the</strong> US and Europe and<br />
are now adding business development<br />
resources specifically focused on UDO <strong>to</strong><br />
our sales and marketing teams.<br />
The launch programme for UDO initially<br />
focused on trade shows and started with<br />
<strong>the</strong> first demonstration of working UDO<br />
drives at Comdex in November 2002. We<br />
also demonstrated <strong>the</strong> products at <strong>the</strong><br />
AIIM show in New York and Cebit in<br />
Hanover, which is <strong>the</strong> largest IT trade show<br />
in Europe. In addition <strong>to</strong> <strong>the</strong> product<br />
demonstrations, we also presented a<br />
series of seminars that explained UDO<br />
technology and its positioning in <strong>the</strong><br />
overall s<strong>to</strong>rage market. We received a<br />
considerable level of interest from <strong>the</strong>se<br />
initial activities and UDO is now well<br />
known in <strong>the</strong> s<strong>to</strong>rage industry.<br />
We are now commencing <strong>the</strong> second<br />
phase of our launch activities with a<br />
technical conference for third party<br />
software vendors <strong>to</strong> enable <strong>the</strong>m <strong>to</strong><br />
understand <strong>the</strong> technology and integrate it<br />
in<strong>to</strong> <strong>the</strong>ir software applications. We are<br />
also planning a series of press and media<br />
<strong>to</strong>urs later in <strong>the</strong> year <strong>to</strong> generate general<br />
awareness of UDO and increase its<br />
exposure as we move in<strong>to</strong> initial<br />
production shipments.<br />
The final element of our UDO launch plan<br />
has focused on potential OEM cus<strong>to</strong>mers<br />
and our efforts <strong>to</strong> educate <strong>the</strong>m and<br />
support <strong>the</strong>ir integration activities. The<br />
overall response <strong>to</strong> UDO has been<br />
excellent and we believe <strong>the</strong> superior cost-
performance benefits of <strong>the</strong> technology<br />
should attract significant OEM<br />
endorsement over <strong>the</strong> coming months.<br />
S<strong>to</strong>rage market overview<br />
The s<strong>to</strong>rage market continues <strong>to</strong> be a<br />
significant portion of <strong>the</strong> overall IT market<br />
and <strong>the</strong> revenue declines of <strong>the</strong> last few<br />
years stabilised in 2002/3. S<strong>to</strong>rage<br />
technology is now entering a period of<br />
significant change that will provide a<br />
number of opportunities and challenges<br />
for <strong>Plasmon</strong> in <strong>the</strong> near future.<br />
The drive <strong>to</strong>wards networked s<strong>to</strong>rage<br />
continues <strong>to</strong> ga<strong>the</strong>r momentum with <strong>the</strong><br />
goal of eradicating ‘islands of information’<br />
and making all data available across <strong>the</strong><br />
enterprise. Networked s<strong>to</strong>rage is <strong>the</strong>refore<br />
driving <strong>the</strong> requirements for s<strong>to</strong>rage area<br />
networks (‘SAN’) and network attached<br />
s<strong>to</strong>rage (‘NAS’) solutions and <strong>the</strong><br />
consequent need for <strong>Plasmon</strong>’s optical<br />
library solutions <strong>to</strong> integrate seamlessly<br />
in<strong>to</strong> <strong>the</strong>se environments.<br />
Ano<strong>the</strong>r important development in <strong>the</strong><br />
s<strong>to</strong>rage market last year was <strong>the</strong> arrival of<br />
cheap, high performance Serial-ATA hard<br />
disk drives. Due <strong>to</strong> <strong>the</strong>ir low cost, <strong>the</strong>se<br />
products are now being promoted in<br />
disk-<strong>to</strong>-disk back-up solutions that are<br />
challenging <strong>the</strong> traditional market for<br />
back-up using tape libraries. In addition, <strong>the</strong><br />
low-end tape library market largely moved<br />
<strong>to</strong> a commodity model last year with <strong>the</strong><br />
large PC brands beginning <strong>to</strong> promote<br />
products directly <strong>to</strong> <strong>the</strong> end user, bypassing<br />
traditional s<strong>to</strong>rage hardware channels.<br />
From <strong>Plasmon</strong>’s perspective, <strong>the</strong> most<br />
important development in <strong>the</strong> s<strong>to</strong>rage<br />
market has been <strong>the</strong> recognition of <strong>the</strong><br />
importance of secure archival s<strong>to</strong>rage<br />
following <strong>the</strong> high profile corporate and<br />
securities fraud cases in <strong>the</strong> US last year.<br />
There are now growing compliance<br />
regulations in most industry sec<strong>to</strong>rs <strong>to</strong><br />
mandate how electronic records must be<br />
archived. These regulations are driving<br />
strong interest in data archival products<br />
such as UDO. These developments have<br />
also attracted <strong>the</strong> attention of traditional<br />
hard disk vendors such as EMC and<br />
Network Appliance, who are offering<br />
Serial-ATA disk based solutions with<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
enhanced software <strong>to</strong> prevent data<br />
deletion as an alternative <strong>to</strong> traditional<br />
write-once optical archive solutions.<br />
These changes and developments in <strong>the</strong><br />
s<strong>to</strong>rage market are generally very<br />
beneficial for <strong>Plasmon</strong> as we launch our<br />
UDO archive solutions in <strong>the</strong> coming year.<br />
However, <strong>the</strong> downside is in our tape<br />
business where we expect revenue growth<br />
<strong>to</strong> remain difficult in a market under severe<br />
margin pressure. In addition, <strong>the</strong> trend<br />
<strong>to</strong>wards networked s<strong>to</strong>rage solutions will<br />
require updating of <strong>Plasmon</strong>’s NAS<br />
connectivity offerings <strong>to</strong> improve <strong>the</strong> ease<br />
of deployment of our UDO products.<br />
5.25" Technology<br />
Over <strong>the</strong> past few years, our sales of 5.25"<br />
optical libraries <strong>to</strong> IBM have declined by<br />
some 60% as <strong>the</strong>y continue <strong>to</strong> sell last<br />
generation 5.2GB write-once solutions<br />
and have not adopted <strong>the</strong> latest 9.1GB<br />
technology. In December 2002 we signed<br />
a new contract with IBM <strong>to</strong> provide native<br />
support for <strong>Plasmon</strong> libraries on <strong>the</strong>ir<br />
iSeries (AS400) server platforms. In <strong>the</strong><br />
future, this new agreement will enable<br />
<strong>Plasmon</strong> <strong>to</strong> sell UDO libraries directly <strong>to</strong><br />
<strong>the</strong> IBM cus<strong>to</strong>mer base <strong>to</strong> replace sales of<br />
<strong>the</strong> previous generation products we<br />
currently supply <strong>to</strong> IBM on an OEM basis.<br />
<strong>Plasmon</strong> brand channel sales of 5.25"<br />
products continued <strong>to</strong> grow last year but<br />
failed <strong>to</strong> make up <strong>the</strong> IBM shortfall. Overall<br />
sales of 5.25" technology declined some<br />
6% <strong>to</strong> £24.9m as cheaper DVD solutions<br />
increased <strong>the</strong>ir market penetration but we<br />
also increased our market share in 5.25"<br />
libraries at <strong>the</strong> expense of Hewlett<br />
Packard. Our streng<strong>the</strong>ning position<br />
will serve as an ideal launch point for<br />
UDO solutions in 2003 when we expect<br />
<strong>the</strong> increased capacity and fivefold<br />
decrease in incremental cost of UDO<br />
will drive renewed growth in our core<br />
5.25" business.<br />
During <strong>the</strong> past year we continued <strong>to</strong> migrate<br />
cus<strong>to</strong>mers <strong>to</strong> our new G-Series range of<br />
5.25" libraries and away from <strong>the</strong> older<br />
M-Series products. We now plan <strong>to</strong> end of<br />
life <strong>the</strong> M-Series at <strong>the</strong> end of 2003 which<br />
is also planned <strong>to</strong> be <strong>the</strong> last shipment date<br />
for <strong>the</strong> IBM 3995 variant of <strong>the</strong> product.<br />
Chief Executive’s Review<br />
11<br />
In late 2002 our au<strong>to</strong>mation engineering<br />
team in Colorado Springs commenced<br />
development of a new range of entry level<br />
G-Series libraries. These products will<br />
have capacities from 24 <strong>to</strong> 180 cartridges<br />
and provide market leading features at a<br />
lower cost than our existing products.<br />
First shipments are scheduled <strong>to</strong> coincide<br />
with initial UDO shipments in September<br />
2003 and we are already seeing strong<br />
OEM interest in <strong>the</strong> cost/performance<br />
attributes of <strong>the</strong> new range. The new<br />
products have also been designed <strong>to</strong><br />
accommodate our next generation NAS<br />
hardware internally <strong>to</strong> provide integrated<br />
network s<strong>to</strong>rage solutions.<br />
The market for 5.25" products has been<br />
in slow decline in recent years as lower<br />
cost DVD solutions have emerged.<br />
However, UDO will redress this cost<br />
disadvantage and we expect some major<br />
OEM’s <strong>to</strong> endorse <strong>the</strong> technology in 2003,<br />
which will lead <strong>to</strong> renewed growth for<br />
5.25" products and <strong>the</strong> establishment of<br />
UDO as <strong>the</strong> de-fac<strong>to</strong> professional optical<br />
s<strong>to</strong>rage standard.
12" Technology<br />
The 12" business continues <strong>to</strong> be a major<br />
part of <strong>Plasmon</strong>’s <strong>to</strong>tal revenue mix but<br />
overall sales declined some 17% <strong>to</strong><br />
£19.6m. The majority of <strong>the</strong> reduction<br />
was in sales of new drives that declined<br />
58% <strong>to</strong> £1.4m as 12" solutions become<br />
prohibitively expensive and cus<strong>to</strong>mers<br />
wait for UDO technology. Sales of 12"<br />
media and service declined a more<br />
modest 12% in <strong>to</strong>tal <strong>to</strong> £7.5m and<br />
£10.1m, respectively.<br />
The change in our 12" business was in line<br />
with our expectations and <strong>the</strong> rate of<br />
decline should slow as new drive sales<br />
cease and <strong>the</strong> business becomes a media<br />
and service annuity. The 12" cus<strong>to</strong>mer<br />
base is firmly wedded <strong>to</strong> write-once optical<br />
s<strong>to</strong>rage solutions and is showing strong<br />
interest in <strong>the</strong> significant cost advantages<br />
of UDO technology. We are now working<br />
on upgrade and conversion programmes<br />
<strong>to</strong> migrate <strong>the</strong>se cus<strong>to</strong>mers <strong>to</strong> UDO but<br />
still expect <strong>to</strong> enjoy significant revenues<br />
from 12" media and service for several<br />
more years.<br />
CD/DVD<br />
In response <strong>to</strong> demand from our major<br />
medical imaging cus<strong>to</strong>mers such as<br />
Siemens Medical and GE Medical, we<br />
introduced <strong>the</strong> Enterprise D-Series library<br />
last year with a capacity of up <strong>to</strong> 2,175<br />
discs. The library is derived from our G-<br />
Series 5.25" platform and its development<br />
was completed ahead of schedule in late<br />
2002 by <strong>the</strong> outgoing Minneapolis<br />
engineering team.<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
The response <strong>to</strong> <strong>the</strong> Enterprise D has been<br />
excellent and helped CD/DVD sales grow<br />
139% <strong>to</strong> £6.5m last year. In mid-year we<br />
secured Siemens Medical as a major new<br />
cus<strong>to</strong>mer for this product and <strong>the</strong> medical<br />
imaging market in general is adopting DVD<br />
technology because of its low cost. The low<br />
performance of DVD solutions also<br />
matches <strong>the</strong> infrequent access<br />
requirements of <strong>the</strong> medical imaging<br />
market, but <strong>the</strong> reduced reliability and ease<br />
of use of DVD remains a major concern.<br />
However, we expect UDO <strong>to</strong> regain market<br />
share in this area as it offers higher<br />
performance and reliability at <strong>the</strong> same<br />
price point as DVD based solutions.<br />
Consultancy<br />
Our optical media consultancy business<br />
had ano<strong>the</strong>r excellent year in 2002/3 with<br />
revenue growth of 9% <strong>to</strong> £3.9m compared<br />
<strong>to</strong> £3.6m <strong>the</strong> previous year. During <strong>the</strong> year<br />
we signed significant new agreements<br />
with Intel Research <strong>to</strong> develop highdensity<br />
phase change s<strong>to</strong>rage technology<br />
and with Unaxis AG, <strong>to</strong> develop 0.1mm<br />
cover layer technology for volume Blu-ray<br />
disc production.<br />
Our CD-R and DVD-R consultancy<br />
business with Ciba Specialty Chemicals<br />
also performed well in 2002/3 and we<br />
estimate <strong>the</strong> <strong>Plasmon</strong>-Ciba Ultragreen CD-<br />
R dye has a 65% share of <strong>the</strong> world-wide<br />
market for CD-R dyes. After a considerable<br />
delay due <strong>to</strong> technical issues, Ciba will<br />
finally launch a new DVD-R dye in mid 2003<br />
and we expect this <strong>to</strong> drive significant future<br />
royalty growth as recording video <strong>to</strong> DVD’s<br />
becomes a mainstream application.<br />
LTO Tape<br />
Our LTO tape library business was a major<br />
disappointment in 2002/3 with revenues flat<br />
at £1.4m. Although we successfully<br />
completed our product range with <strong>the</strong><br />
Exabyte au<strong>to</strong>loader acquisition and<br />
secured <strong>the</strong> necessary software support,<br />
<strong>the</strong> market has since commodotised with<br />
<strong>the</strong> entry of major PC brands such as Dell<br />
with very aggressive pricing. In light of <strong>the</strong>se<br />
changes, we are reviewing our overall tape<br />
strategy <strong>to</strong> position our products as part of<br />
higher value added solutions and<br />
consequently expect <strong>to</strong> achieve only<br />
modest growth for this part of our business.<br />
Chief Executive’s Review<br />
12<br />
Software and Connectivity<br />
Sales of our connectivity solutions, which<br />
are included in <strong>the</strong> relevant major product<br />
category, returned <strong>to</strong> growth last year with<br />
revenues increasing 60% <strong>to</strong> £0.8m. During<br />
<strong>the</strong> year we secured Siemens Medical as a<br />
major new cus<strong>to</strong>mer for our integrated<br />
NAS connectivity solution <strong>to</strong> integrate with<br />
<strong>the</strong> Enterprise DVD libraries <strong>the</strong>y also<br />
purchase from <strong>Plasmon</strong>. We expect this<br />
trend for major cus<strong>to</strong>mers <strong>to</strong> purchase<br />
integrated connectivity and library<br />
solutions from one vendor <strong>to</strong> increase in<br />
<strong>the</strong> future and are already discussing<br />
ano<strong>the</strong>r major opportunity in <strong>the</strong> medical<br />
imaging market.<br />
We believe <strong>the</strong> move <strong>to</strong> networked s<strong>to</strong>rage<br />
solutions will continue <strong>to</strong> be a major trend<br />
within <strong>the</strong> s<strong>to</strong>rage market. Late in 2002 we<br />
commenced development of a new range<br />
of NAS-RAID products that will integrate<br />
internally in our new G-Series libraries and<br />
will provide industry standard connectivity<br />
and performance <strong>to</strong> optical archive<br />
solutions. The new solutions will be based<br />
on Serial-ATA RAID and Linux software<br />
and will significantly reduce <strong>the</strong> cost and<br />
complexity of deploying UDO technology.<br />
O<strong>the</strong>r<br />
The majority of this business sec<strong>to</strong>r<br />
relates <strong>to</strong> our optical mastering business<br />
in Caen which had an excellent year in<br />
2002/3 and grew revenues by 31% <strong>to</strong><br />
£2.9m. The majority of production is now<br />
CD-R and DVD video masters which we<br />
supply <strong>to</strong> most of <strong>the</strong> major disc<br />
manufacturers in <strong>the</strong> Far East. We are<br />
now entering volume production of DVD-<br />
R masters and expect this <strong>to</strong> drive fur<strong>the</strong>r<br />
growth in <strong>the</strong> coming year.<br />
Longer term we plan <strong>to</strong> manufacture<br />
masters for Blu-ray video discs and during<br />
<strong>the</strong> past year we commenced<br />
development of <strong>the</strong>se products. Our<br />
experience with UDO is proving highly<br />
beneficial in this area and should enable<br />
<strong>Plasmon</strong> <strong>to</strong> become a leading supplier of<br />
masters and stampers for consumer disc<br />
formats based on blue laser technology.
Outlook<br />
2002/3 has been a year of consolidation<br />
for <strong>Plasmon</strong> in which we maintained stable<br />
revenues and significantly reduced our<br />
cost base at a time of industry and<br />
economic downturn. We also made<br />
excellent progress with our UDO<br />
development programme and we are<br />
confident of delivering a world-class<br />
product and securing major OEM support<br />
for our technology in <strong>the</strong> coming year.<br />
Due <strong>to</strong> <strong>the</strong> high profile corporate fraud<br />
cases of <strong>the</strong> past few years, <strong>the</strong> market for<br />
secure archival s<strong>to</strong>rage products that<br />
provide unalterable records of business<br />
transactions and agreements is very<br />
strong. We are <strong>the</strong>refore launching UDO at<br />
an ideal time and we believe <strong>the</strong> inherent<br />
cost and performance features of UDO will<br />
ensure it is highly competitive in <strong>the</strong><br />
archival s<strong>to</strong>rage market. On this basis we<br />
look forward <strong>to</strong> <strong>the</strong> future with confidence<br />
and expect UDO technology <strong>to</strong> deliver<br />
long-term growth in revenues and<br />
profitability for <strong>the</strong> <strong>Plasmon</strong> Group.<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Chief Executive’s Review<br />
13<br />
Sales of integrated s<strong>to</strong>rage solutions<br />
comprising libraries, servers and<br />
<strong>Plasmon</strong> s<strong>to</strong>rage management<br />
software are expected <strong>to</strong> increase<br />
in <strong>the</strong> future
Finance Direc<strong>to</strong>r’s Review<br />
Timothy Arthur<br />
Finance Direc<strong>to</strong>r<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Finance Direc<strong>to</strong>r’s Review<br />
14<br />
In <strong>the</strong> year ended 31 March 2003<br />
overall Group turnover declined<br />
by 2% but <strong>the</strong> retained loss<br />
reduced by 41% as <strong>the</strong> benefits<br />
of <strong>the</strong> US reorganisation began <strong>to</strong><br />
come through and <strong>the</strong> level of<br />
exceptional costs fell significantly.
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
The US reorganisation was finally<br />
completed in September 2002 when <strong>the</strong><br />
Minneapolis library development<br />
operations were relocated <strong>to</strong> Colorado<br />
Springs at an exceptional cost of £0.5m,<br />
principally comprising employment related<br />
severance costs.<br />
The UDO drive and media development<br />
programmes continue <strong>to</strong> make good<br />
progress with working pro<strong>to</strong>types being<br />
demonstrated at trade shows in both <strong>the</strong><br />
US and Europe. During <strong>the</strong> year ended 31<br />
March 2003, £6.5m of UDO development<br />
costs were fully expensed and a fur<strong>the</strong>r<br />
£3.9m was spent on related capital<br />
purchases. To assist in <strong>the</strong> funding of <strong>the</strong><br />
UDO capital expenditure, £1.7m of cash<br />
was raised through a successful 5%<br />
placing completed in June 2002.<br />
In March 2003 we completed a new £7m<br />
debt and working capital facility with<br />
Venture Finance PLC that is committed for<br />
three years. We also renewed <strong>the</strong> $10m<br />
facility with Silicon Valley Bank for a fur<strong>the</strong>r<br />
year in May 2003 and we now have<br />
sufficient funds <strong>to</strong> complete <strong>the</strong> UDO<br />
development project and marketing<br />
launch initiatives.<br />
Turnover<br />
Turnover fell by 2% <strong>to</strong> £60.1m from<br />
£61.6m in <strong>the</strong> previous year, after a<br />
£1.6m adverse foreign exchange<br />
movement on US sales. Sales <strong>to</strong> IBM<br />
also declined a fur<strong>the</strong>r £4m as<br />
anticipated, however, this was largely<br />
offset by increased channel sales.<br />
In geographical terms, US origin revenues<br />
decreased by 11% <strong>to</strong> £39.6m due <strong>to</strong> <strong>the</strong><br />
adverse foreign exchange impact<br />
compounded by <strong>the</strong> decline in IBM sales.<br />
In contrast, European origin sales rose by<br />
Finance Direc<strong>to</strong>r’s Review<br />
15<br />
17% <strong>to</strong> £20.5m due <strong>to</strong> strong channel<br />
sales, particularly in <strong>the</strong> UK and Germany,<br />
and increased sales by our mastering<br />
business in Caen, Nor<strong>the</strong>rn France.<br />
Operating profit<br />
Operating profits excluding UDO<br />
development costs, goodwill amortisation<br />
and exceptional costs rose by 30% <strong>to</strong><br />
£5.5m with a £0.7m reduction in gross<br />
profits being more than offset by a £2.0m<br />
decrease in operating expenses. In<br />
percentage terms, gross margin fell slightly<br />
<strong>to</strong> 36.3% in 2002/3 from <strong>the</strong> 36.7%<br />
achieved in <strong>the</strong> previous year, primarily due<br />
<strong>to</strong> <strong>the</strong> reduced revenue. The 11%<br />
reduction in overheads was primarily due<br />
<strong>to</strong> <strong>the</strong> savings from <strong>the</strong> US reorganisation<br />
combined with <strong>the</strong> weaker dollar.<br />
First half operating profits excluding UDO<br />
development costs, goodwill amortisation<br />
and exceptional costs of £2m were<br />
followed by a second half adjusted profit of<br />
£3.5m with <strong>the</strong> benefits of <strong>the</strong> US<br />
reorganisation accounting for <strong>the</strong> majority<br />
of <strong>the</strong> improvement.<br />
Losses before tax and interest in North<br />
America <strong>to</strong>talled £5.2m compared <strong>to</strong> <strong>the</strong><br />
prior year loss of £6.4m with <strong>the</strong> reduced<br />
reorganisation costs more than offsetting<br />
<strong>the</strong> increased UDO expenditure. In Europe<br />
profits before tax and interest rose by<br />
269% <strong>to</strong> £2.5m due <strong>to</strong> a strong<br />
contribution by our mastering business, a<br />
return <strong>to</strong> profitability in <strong>the</strong> European sales<br />
business as a result of <strong>the</strong> sales growth<br />
and <strong>the</strong> non-reoccurrence of <strong>the</strong> prior year<br />
£0.6m exceptional bad debts.<br />
Interest<br />
Net interest payable of £0.7m in <strong>the</strong><br />
current year compared <strong>to</strong> £0.5m incurred<br />
during <strong>the</strong> previous year, largely as a result<br />
of <strong>the</strong> increased debt levels arising from<br />
<strong>the</strong> UDO expenditure.
Tax<br />
The tax charge for <strong>the</strong> year mainly related<br />
<strong>to</strong> <strong>the</strong> overseas European subsidiaries with<br />
<strong>the</strong> UDO costs significantly reducing <strong>the</strong><br />
tax charge at <strong>the</strong> principal operating<br />
entities. During <strong>the</strong> year a £0.5m cash<br />
refund was received in <strong>the</strong> US from <strong>the</strong><br />
prior year tax credit that arose under <strong>the</strong><br />
Job Creation and Worker Assistance Act<br />
of 2002.<br />
Full details of potential deferred tax<br />
assets, which all arise in <strong>the</strong> US, are<br />
given in Note 18, although <strong>the</strong>se have<br />
not been recognised in <strong>the</strong> <strong>financial</strong><br />
<strong>statements</strong> as <strong>the</strong>y will not be utilised in<br />
<strong>the</strong> short-term. The deferred tax liabilities<br />
arising from accelerated capital<br />
allowances in <strong>the</strong> UK have been<br />
recognised in full during <strong>the</strong> year.<br />
Earnings per share<br />
For <strong>the</strong> year ended 31 March 2003,<br />
basic losses per share <strong>to</strong>talled 6.41p,<br />
significantly better <strong>the</strong>n <strong>the</strong> 12.28p<br />
recorded during <strong>the</strong> previous year even<br />
though <strong>the</strong> weighted average number of<br />
shares in issue rose by 6.2m <strong>to</strong> 53.1m.<br />
Excluding UDO development costs,<br />
exceptional costs and goodwill<br />
amortisation, earnings per share fell<br />
slightly <strong>to</strong> 8.86p from 8.96p <strong>the</strong><br />
previous year.<br />
Dividends<br />
The dividend policy of <strong>the</strong> Group<br />
continues <strong>to</strong> be moni<strong>to</strong>red by <strong>the</strong> Board<br />
with no dividend being proposed in <strong>the</strong><br />
short-term given <strong>the</strong> funding requirements<br />
of <strong>the</strong> Group’s UDO development plans.<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Financial instruments<br />
Although kept under consideration during<br />
<strong>the</strong> past year <strong>the</strong> Group did not use any<br />
derivative <strong>financial</strong> instruments with <strong>the</strong><br />
principal <strong>financial</strong> risks being addressed<br />
as follows:<br />
Interest rate risk<br />
The Group’s objective is <strong>to</strong> minimise<br />
exposure <strong>to</strong> interest rate fluctuations by<br />
maximising <strong>the</strong> amount of fixed rate<br />
borrowings whilst retaining sufficient<br />
overdraft facilities <strong>to</strong> match short-term<br />
debt fluctuations. Anticipated interest rate<br />
movements are taken in<strong>to</strong> consideration<br />
before fixed rate transactions are<br />
concluded. At 31 March 2003, 13% of<br />
<strong>financial</strong> liabilities were of a fixed nature.<br />
Foreign currency exposures<br />
The Group’s objective is <strong>to</strong> minimise<br />
exposure <strong>to</strong> translational losses arising<br />
on <strong>the</strong> net assets of overseas subsidiaries<br />
by borrowing in local currencies at <strong>the</strong><br />
subsidiary level where possible. At <strong>the</strong><br />
year-end, 28% of <strong>the</strong> net operating<br />
assets of <strong>the</strong> Group’s US operations were<br />
hedged by US dollar denominated<br />
<strong>financial</strong> liabilities.<br />
With respect <strong>to</strong> transactional risks, <strong>the</strong><br />
Group continues <strong>to</strong> moni<strong>to</strong>r its foreign<br />
currency exposures in its major trading<br />
currencies. Matching trading relationships<br />
and debt with <strong>the</strong> currency cash flows<br />
largely covers transactional exposures<br />
within acceptable levels, <strong>the</strong>reby reducing<br />
<strong>the</strong> need for additional hedging.<br />
Liquidity risk<br />
The Group’s policy is <strong>to</strong> ensure sufficient<br />
headroom is maintained in its debt<br />
facilities <strong>to</strong> enable <strong>the</strong> achievement of<br />
strategic objectives, whilst taking in<strong>to</strong><br />
account <strong>the</strong> impact of short-term business<br />
cycle fluctuations on liquidity. Facilities are<br />
reviewed on at least an annual basis or as<br />
changes in business circumstances<br />
require. At 31 March 2003, £6.2m of<br />
headroom was available under <strong>the</strong> Group’s<br />
banking agreements.<br />
The Group also aims <strong>to</strong> ensure that<br />
reasonable proportions of its <strong>financial</strong><br />
liabilities are of a long-term nature. At 31<br />
March 2003, 55% of <strong>financial</strong> liabilities<br />
Finance Direc<strong>to</strong>r’s Review<br />
16<br />
mature in more than one year, compared<br />
<strong>to</strong> 44% <strong>the</strong> previous year, and 20% mature<br />
in more than five years broadly in line with<br />
<strong>the</strong> previous year.<br />
Cash flow and net debt<br />
Net debt increased during <strong>the</strong> year ended<br />
31 March 2003 by £3.1m <strong>to</strong> £13m. Group<br />
gearing rose from 24% <strong>to</strong> 34% with <strong>the</strong><br />
equity issued following <strong>the</strong> 5% placing<br />
partially offsetting <strong>the</strong> losses incurred<br />
during <strong>the</strong> year. The major currency<br />
movements during <strong>the</strong> year resulted in a<br />
£1.6m loss being recorded on <strong>the</strong><br />
translation of <strong>the</strong> foreign currency net<br />
investments and net assets decreased <strong>to</strong><br />
£38.2m at 31 March 2003 from £41.2m at<br />
<strong>the</strong> end of <strong>the</strong> previous year.<br />
Excluding currency movements, s<strong>to</strong>ck<br />
decreased by £1.2m as <strong>the</strong> transition<br />
s<strong>to</strong>ck held at 31 March 2002 as part of <strong>the</strong><br />
US reorganisation was sold. This reduction<br />
was also <strong>the</strong> main reason why trade<br />
credi<strong>to</strong>rs fell by £2.3m. The £1.2m<br />
reduction in provisions for liabilities and<br />
charges resulted from <strong>the</strong> payment of<br />
transitional costs, mainly relating <strong>to</strong><br />
employee severance. Excluding UDO<br />
related expenditure, fixed assets additions<br />
<strong>to</strong>talled £2.6m, which included <strong>the</strong><br />
purchase of <strong>the</strong> adjacent site <strong>to</strong> our UK<br />
facilities for £0.8m. This facility<br />
unexpectedly became available and will<br />
ensure we have adequate space once<br />
UDO is in full production. In <strong>the</strong> short-term<br />
we have sub-let <strong>the</strong> building <strong>to</strong> cover <strong>the</strong><br />
related costs.<br />
Employees<br />
The average number of employees<br />
during <strong>the</strong> year ended 31 March 2003 fell<br />
<strong>to</strong> 458 from 496 during <strong>the</strong> previous year.<br />
The decrease mainly resulted from <strong>the</strong><br />
reductions that followed <strong>the</strong> US<br />
reorganisation that was completed by<br />
<strong>the</strong> end of September 2002. The full<br />
impact of <strong>the</strong> restructuring is more<br />
accurately reflected in <strong>the</strong> 422<br />
headcount in April 2003.
Board of Direc<strong>to</strong>rs<br />
& Senior Management<br />
Board of Direc<strong>to</strong>rs<br />
Senior Management<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Nigel Street<br />
BSc, MBA<br />
Chief Executive<br />
Aged 45<br />
Appointed Chief Executive in<br />
September 1997 having joined <strong>the</strong><br />
Company as a Non-Executive<br />
Direc<strong>to</strong>r in 1987 before becoming<br />
Commercial Direc<strong>to</strong>r in 1990.<br />
Previously six years at Rothschild<br />
Ventures Limited.<br />
Henri Zinsli<br />
Dr. oec.<br />
Non-Executive<br />
Aged 62<br />
Left Ciba Specialty Chemicals,<br />
Inc. after 33 years in March 1999.<br />
Chairman of Discovery Partners<br />
International AG, Non-Executive<br />
Direc<strong>to</strong>r of Paradigm Genetics Inc<br />
and Chairman of Covalys<br />
Bioscience AG.<br />
Robert Longman<br />
Group Technical Direc<strong>to</strong>r<br />
Aged 55<br />
Board of Direc<strong>to</strong>rs<br />
17<br />
John Barrie Morgans<br />
Chairman<br />
Aged 61<br />
Appointed in 1990. He was<br />
Chairman and Chief Executive<br />
of IBM United Kingdom until<br />
March 1997. Chairman of<br />
Telemedic Holdings plc and<br />
Non-Executive Direc<strong>to</strong>r of Legal<br />
& General Group plc.<br />
Chris<strong>to</strong>pher McFadden<br />
MIEE, BSc, PhD<br />
Non-Executive<br />
Aged 43<br />
Appointed in 2001. Telecoms and<br />
technology research analyst for<br />
<strong>the</strong> last 17 years. Holds a PhD in<br />
SemiConduc<strong>to</strong>r Physics from<br />
Cambridge University.<br />
Chris<strong>to</strong>pher Harris<br />
President – <strong>Plasmon</strong> USA<br />
Aged 41<br />
Timothy Arthur<br />
BSc, FCA<br />
Finance Direc<strong>to</strong>r<br />
Aged 40<br />
Appointed Finance Direc<strong>to</strong>r in<br />
September 1994. Previously three<br />
years as Finance Direc<strong>to</strong>r of a high<br />
technology manufacturer, <strong>the</strong>n a<br />
subsidiary of Carl<strong>to</strong>n<br />
Communication plc and seven<br />
years at Price Waterhouse.<br />
Robert Clark<br />
Senior Vice President of US<br />
sales and marketing<br />
Aged 57
Corporate governance<br />
The Direc<strong>to</strong>rs recognise <strong>the</strong> importance of adopting good governance<br />
practices in <strong>the</strong> best interests of <strong>the</strong> shareholders.<br />
Throughout <strong>the</strong> year <strong>the</strong> Company has been in compliance with <strong>the</strong><br />
provisions set out in <strong>the</strong> Combined Code for Corporate Governance<br />
appended <strong>to</strong> <strong>the</strong> Listing Rules of <strong>the</strong> UK Listing Authority, with <strong>the</strong><br />
exception that a Senior Non-Executive Direc<strong>to</strong>r, Henri Zinsli, was only<br />
appointed on 19 September 2002. The Board continues <strong>to</strong> moni<strong>to</strong>r<br />
<strong>the</strong> latest corporate governance guidance <strong>to</strong> ensure that <strong>the</strong> Group<br />
maintains <strong>the</strong> appropriate standards.<br />
As outlined below, <strong>the</strong> Board has considered <strong>the</strong> independence of <strong>the</strong><br />
non-executive direc<strong>to</strong>rs and believes that all <strong>the</strong> non-executive<br />
Direc<strong>to</strong>rs are currently independent of management and free from any<br />
business or o<strong>the</strong>r relationship which could materially interfere with <strong>the</strong><br />
exercise of <strong>the</strong>ir independent judgement.<br />
The following narrative statement explains how <strong>the</strong> Group has applied<br />
<strong>the</strong> Principles of Good Corporate Governance contained in <strong>the</strong><br />
Combined Code.<br />
The Board<br />
The Board comprises two executive Direc<strong>to</strong>rs and three non-executive<br />
Direc<strong>to</strong>rs. It is headed by a non-executive Chairman and is responsible<br />
<strong>to</strong> shareholders for leading and controlling <strong>the</strong> Group. It meets at least<br />
six times a year, reviewing trading performance, ensuring adequate<br />
funding facilities are in place, setting and moni<strong>to</strong>ring strategy,<br />
reviewing risk management processes, examining business expansion<br />
opportunities and shareholder reporting.<br />
When appointing new direc<strong>to</strong>rs, <strong>the</strong> Board principally considers <strong>the</strong>ir<br />
experience and knowledge of <strong>the</strong> technology sec<strong>to</strong>r <strong>to</strong>ge<strong>the</strong>r with<br />
<strong>the</strong>ir ability <strong>to</strong> contribute <strong>to</strong> a specific area of importance <strong>to</strong> <strong>the</strong><br />
Company. Due <strong>to</strong> <strong>the</strong> infrequent changes <strong>to</strong> <strong>the</strong> Board <strong>the</strong>re is no<br />
formal induction policy for new direc<strong>to</strong>rs, with appropriate<br />
arrangements being made as required.<br />
To enable it <strong>to</strong> carry out its responsibilities, <strong>the</strong> Chief Executive and<br />
Finance Direc<strong>to</strong>r supply detailed information on <strong>the</strong> Group’s<br />
operations <strong>to</strong> <strong>the</strong> Board on a monthly basis.<br />
It is <strong>the</strong> Company’s policy that all direc<strong>to</strong>rs should submit <strong>the</strong>mselves<br />
for re-election at regular intervals and at least every three years. The<br />
Direc<strong>to</strong>r submitting himself for re-election this year is shown on<br />
page 23.<br />
The Board has both an audit committee and a remuneration<br />
committee, details of which are outlined below, but does not consider<br />
a nomination committee <strong>to</strong> be necessary due <strong>to</strong> <strong>the</strong> small size of <strong>the</strong><br />
Board.<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Corporate governance<br />
18<br />
The Audit Committee<br />
The Audit Committee, which is chaired by John Barrie Morgans,<br />
comprises all <strong>the</strong> non-executive Direc<strong>to</strong>rs and meets not less than<br />
twice annually. The Audit Committee provides a forum for reporting by<br />
<strong>the</strong> Group’s Audi<strong>to</strong>rs and, by invitation, meetings are attended by <strong>the</strong><br />
Chief Executive and <strong>the</strong> Finance Direc<strong>to</strong>r. It is responsible for reviewing<br />
a wide range of <strong>financial</strong> matters, including <strong>the</strong> Interim and Annual<br />
Report prior <strong>to</strong> <strong>the</strong>ir submission <strong>to</strong> <strong>the</strong> Board, and moni<strong>to</strong>ring <strong>the</strong><br />
controls that are in force <strong>to</strong> ensure <strong>the</strong> integrity of <strong>the</strong> <strong>financial</strong><br />
information reported <strong>to</strong> <strong>the</strong> shareholders. The Audit Committee<br />
advises <strong>the</strong> Board on <strong>the</strong> appointment of external Audi<strong>to</strong>rs and on<br />
<strong>the</strong>ir remuneration for audit and non-audit work, and discusses <strong>the</strong><br />
nature and scope of <strong>the</strong> audit with <strong>the</strong> external Audi<strong>to</strong>rs.<br />
The members of <strong>the</strong> Audit Committee are:<br />
John Barrie Morgans (Chairman)<br />
Henri Zinsli<br />
Chris<strong>to</strong>pher McFadden<br />
The Remuneration Committee<br />
The Remuneration Committee is responsible for determining <strong>the</strong><br />
contract terms, remuneration and o<strong>the</strong>r benefits of <strong>the</strong> executive<br />
Direc<strong>to</strong>rs, including <strong>the</strong>ir performance-related pay. The Remuneration<br />
report, which includes details of Direc<strong>to</strong>rs’ remuneration and beneficial<br />
interests in <strong>the</strong> Company’s share capital, <strong>to</strong>ge<strong>the</strong>r with information on<br />
<strong>the</strong>ir service contracts, is set out on pages 18 <strong>to</strong> 22<br />
The members of <strong>the</strong> Remuneration Committee are:<br />
Chris<strong>to</strong>pher McFadden (appointed Chairman 19 September 2002)<br />
John Barrie Morgans (resigned as Chairman 19 September 2002)<br />
Henri Zinsli<br />
Relations with shareholders<br />
As part of <strong>the</strong> Company’s communication activities, detailed<br />
presentations are made <strong>to</strong> major institutional inves<strong>to</strong>rs on a regular<br />
basis, including whenever a major event occurs. The Board takes<br />
feedback received from <strong>the</strong>se presentations and o<strong>the</strong>r<br />
communications for shareholders, in<strong>to</strong> consideration wherever<br />
appropriate.<br />
The Annual General Meeting is <strong>the</strong> occasion when <strong>the</strong> Direc<strong>to</strong>rs are<br />
routinely available <strong>to</strong> answer questions from shareholders, and <strong>the</strong><br />
Direc<strong>to</strong>rs view this public accountability for <strong>the</strong>ir actions as being <strong>the</strong><br />
main purpose of <strong>the</strong> meeting.
Accountability and Audit<br />
Following <strong>the</strong> publication in September 1999 of <strong>the</strong> guidance for<br />
Direc<strong>to</strong>rs on internal control reviews and disclosures prepared by <strong>the</strong><br />
Internal Control Working Party of <strong>the</strong> Institute of Chartered<br />
Accountants in England and Wales (<strong>the</strong> Turnbull Guidance), <strong>the</strong><br />
Direc<strong>to</strong>rs confirm that processes have operated throughout <strong>the</strong> year,<br />
and continue <strong>to</strong> operate, <strong>to</strong> identify, evaluate, moni<strong>to</strong>r and manage <strong>the</strong><br />
significant risks <strong>to</strong> <strong>the</strong> Group’s strategic objectives.<br />
These processes are reviewed at each Audit Committee meeting with<br />
<strong>the</strong> Executive Direc<strong>to</strong>rs who present a report detailing <strong>the</strong> significant<br />
Group risks identified by senior management during <strong>the</strong> day-<strong>to</strong>-day<br />
running of <strong>the</strong> business. The senior management review <strong>the</strong> risks and<br />
related control procedures at <strong>the</strong>ir regular meetings.<br />
The Board has overall responsibility for <strong>the</strong> Group’s systems of internal<br />
control and for moni<strong>to</strong>ring <strong>the</strong>ir effectiveness. The Audit Committee<br />
reports <strong>to</strong> <strong>the</strong> Board on <strong>the</strong> results of <strong>the</strong>ir review of <strong>the</strong> risk<br />
management processes with <strong>the</strong> Board implementing additional<br />
controls and moni<strong>to</strong>ring processes as considered necessary. Such<br />
processes can only provide reasonable assurance of <strong>the</strong> management<br />
of risk and cannot eliminate <strong>the</strong> risk of failure <strong>to</strong> achieve <strong>the</strong> Group’s<br />
business objectives. The key elements of <strong>the</strong> Group’s internal controls<br />
are outlined below.<br />
Control environment – <strong>the</strong> existence of a clear organisational structure<br />
and well-defined lines of responsibility and delegation of appropriate<br />
authority. The integrity and competence of personnel are ensured<br />
through high recruitment standards, training and development<br />
programmes.<br />
Risk management – business strategy and plans are reviewed by <strong>the</strong><br />
Board. Detailed appraisals and evaluations of <strong>financial</strong> implications are<br />
undertaken prior <strong>to</strong> commitments on major projects. In addition <strong>to</strong> <strong>the</strong><br />
Audit Committee presentations, <strong>the</strong> monthly report <strong>to</strong> <strong>the</strong> Board<br />
includes commentary on <strong>the</strong> key risk areas.<br />
Financial reporting – comprehensive systems of budgeting and<br />
forecasting including monthly reporting of actual results against<br />
budgets.<br />
Control procedures and moni<strong>to</strong>ring systems – ensuring authorisation<br />
levels, procedures and o<strong>the</strong>r systems of internal <strong>financial</strong> control are<br />
documented, applied and regularly reviewed. Many of <strong>the</strong> processes<br />
are documented in <strong>the</strong> Group’s quality manuals and are subject <strong>to</strong><br />
audit by external compliance agencies on a regular basis. In addition,<br />
<strong>the</strong> Audit Committee meets with <strong>the</strong> Group’s external Audi<strong>to</strong>rs <strong>to</strong><br />
discuss <strong>the</strong> results of <strong>the</strong>ir audit work. The Group does not currently<br />
have an internal audit function but as <strong>the</strong> Group continues <strong>to</strong> grow this<br />
is kept under review.<br />
Going concern<br />
After making appropriate enquiries, <strong>the</strong> Direc<strong>to</strong>rs have a reasonable<br />
expectation that <strong>the</strong> Company has adequate resources <strong>to</strong> continue in<br />
operational existence for <strong>the</strong> foreseeable future. For this reason <strong>the</strong>y<br />
continue <strong>to</strong> adopt <strong>the</strong> going concern basis in preparing <strong>the</strong> accounts.<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Corporate governance<br />
19
Remuneration report<br />
This report has been prepared in accordance with <strong>the</strong> provisions of<br />
Schedule B of <strong>the</strong> Combined Code and only <strong>the</strong> details of Direc<strong>to</strong>rs’<br />
emoluments, pension entitlements and share options have been<br />
subject <strong>to</strong> audit.<br />
The Remuneration Committee (“<strong>the</strong> Committee”) is composed entirely<br />
of <strong>the</strong> non-executive Direc<strong>to</strong>rs identified on page 17. On<br />
19 September 2002, Chris<strong>to</strong>pher McFadden was appointed Chairman<br />
of <strong>the</strong> Committee, replacing John Barrie Morgans who remains a<br />
member of <strong>the</strong> Committee. In determining its remuneration policy,<br />
service contracts and compensation for Direc<strong>to</strong>rs, full consideration<br />
has been given <strong>to</strong> <strong>the</strong> provisions of <strong>the</strong> Combined Code.<br />
The Committee meets as required during <strong>the</strong> year and its terms of<br />
reference are <strong>to</strong> determine <strong>the</strong> Company’s policy on executive<br />
remuneration and <strong>to</strong> consider and approve <strong>the</strong> individual terms and<br />
conditions of employment for <strong>the</strong> executive Direc<strong>to</strong>rs. The Committee<br />
takes advice where appropriate from <strong>the</strong> Chief Executive of <strong>the</strong><br />
Company on matters o<strong>the</strong>r than his personal remuneration. No<br />
external advice was sought during <strong>the</strong> year ended 31 March 2003.<br />
Remuneration policy<br />
Basis of <strong>the</strong> remuneration policy<br />
In forming <strong>the</strong> remuneration policy and <strong>the</strong> remuneration packages of<br />
<strong>the</strong> executive Direc<strong>to</strong>rs, <strong>the</strong> Committee balances <strong>the</strong> requirement <strong>to</strong><br />
align <strong>the</strong> interest of <strong>the</strong> Direc<strong>to</strong>rs with those of <strong>the</strong> shareholders, with<br />
<strong>the</strong> creation of a culture of linking reward <strong>to</strong> <strong>the</strong> Company’s<br />
performance and with <strong>the</strong> need <strong>to</strong> recruit and retain management of<br />
<strong>the</strong> highest calibre.<br />
The executive Direc<strong>to</strong>rs’ remuneration consists of four components –<br />
basic salary, performance-related bonus, share options and pension<br />
provisions. The performance related components comprising <strong>the</strong><br />
annual bonus and share option schemes are designed <strong>to</strong> incentivise<br />
<strong>the</strong> executive Direc<strong>to</strong>rs <strong>to</strong> perform at <strong>the</strong> highest level, and <strong>to</strong> align<br />
executive rewards with enhanced shareholder value in both <strong>the</strong> short<br />
and long-term.<br />
Basic salary is reviewed annually by <strong>the</strong> Committee after a review of<br />
<strong>the</strong> individual executive Direc<strong>to</strong>r’s performance and <strong>the</strong> overall<br />
performance of <strong>the</strong> business. Where appropriate, <strong>the</strong> Committee has<br />
regard <strong>to</strong> published remuneration information and <strong>to</strong> specific advice<br />
from independent remuneration consultants. Inflation is also taken in<strong>to</strong><br />
consideration.<br />
The Committee determines a bonus for each executive Direc<strong>to</strong>r based<br />
on criteria agreed with that executive Direc<strong>to</strong>r at <strong>the</strong> beginning of <strong>the</strong><br />
<strong>financial</strong> year. These criteria include <strong>the</strong> achievement of budgeted<br />
profits and earnings per share. Bonuses are uncapped. The<br />
Committee also awards one-off bonuses for any major activities, such<br />
as acquisitions, not taken in<strong>to</strong> consideration in <strong>the</strong> budget.<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Remuneration report<br />
20<br />
Performance chart<br />
The chart below compares <strong>the</strong> growth in value of £100 invested in<br />
ordinary shares in <strong>Plasmon</strong> Plc on 1 April 1998 with <strong>the</strong> performance<br />
of a similar investment in <strong>the</strong> shares of <strong>the</strong> constituents of <strong>the</strong> FTSE<br />
Small Cap index. The Direc<strong>to</strong>rs are of <strong>the</strong> view that this constitutes a<br />
relevant broad equity market.<br />
600<br />
500<br />
400<br />
300<br />
200<br />
100<br />
0<br />
April<br />
1998<br />
April<br />
1999<br />
April<br />
2000<br />
April<br />
2001<br />
<strong>Plasmon</strong> Plc Ordinary Shares FTSE Small Cap Index<br />
April<br />
2002<br />
April<br />
2003<br />
Pension provisions<br />
The executive Direc<strong>to</strong>rs receive pension contributions equal <strong>to</strong> 15 per<br />
cent of basic salary which are paid in<strong>to</strong> <strong>the</strong>ir personal money purchase<br />
pension plans. Details of <strong>the</strong> schemes are given in Note 26.<br />
Service contracts<br />
The executive Direc<strong>to</strong>rs are employed under <strong>the</strong> terms of service<br />
agreements dated 19 July 1996 which may be terminated by<br />
12 months’ notice from ei<strong>the</strong>r party. None of <strong>the</strong> Direc<strong>to</strong>rs’ service<br />
contracts provides for predetermined amounts of compensation in <strong>the</strong><br />
event of early termination.<br />
Policy on outside appointments<br />
It is <strong>the</strong> policy of <strong>the</strong> Committee that executive Direc<strong>to</strong>rs should not<br />
take more than one outside appointment, which it is believed can<br />
provide valuable experience. Nigel Street is a non-executive Direc<strong>to</strong>r of<br />
Streason Limited, <strong>the</strong> holding company of his family’s business<br />
interest.<br />
Non executive fees<br />
The Board determines remuneration of <strong>the</strong> non-executive Direc<strong>to</strong>rs.<br />
The Company has a contract with MAHE-Morgans Limited, dated<br />
1 July 1997, which provides <strong>the</strong> services of John Barrie Morgans as a<br />
non-executive Direc<strong>to</strong>r and which can be terminated by 6 months’<br />
notice from ei<strong>the</strong>r party. Henri Zinsli and Chris<strong>to</strong>pher McFadden have<br />
contracts with <strong>the</strong> Company, dated 1 April 1999 and 19 July 2001,<br />
respectively, terminable by three months’ notice from ei<strong>the</strong>r party.
Direc<strong>to</strong>rs’ emoluments<br />
The remuneration of <strong>the</strong> Direc<strong>to</strong>rs, excluding pension contributions, was as follows:<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Remuneration report<br />
21<br />
Total Total<br />
Salary Benefits (i) 2003 2002<br />
£ £ £<br />
Executive Direc<strong>to</strong>rs<br />
Nigel Street (Chief Executive) 215,000 21,239 236,239 240,154<br />
Timothy Arthur (Finance Direc<strong>to</strong>r)<br />
Non-executive Direc<strong>to</strong>rs<br />
141,094 16,326 157,420 163,580<br />
John Barrie Morgans (Chairman) (ii) 20,004 – 20,004 20,004<br />
Henri Zinsli (Switzerland) 15,000 – 15,000 15,000<br />
Chris<strong>to</strong>pher McFadden (appointed 19 July 2001) 15,000 – 15,000 10,519<br />
Paul Robert Nailor (resigned 19 July 2001) – – – 4,558<br />
406,098 37,565 443,663 453,815<br />
(i) Benefits comprise disability and medical insurance, life insurance cover and fully expensed cars or equivalent allowance.<br />
(ii) Fees payable in respect of John Barrie Morgans are paid <strong>to</strong> MAHE-Morgans Limited.<br />
Direc<strong>to</strong>rs’ pension entitlements<br />
Pension contributions <strong>to</strong> money purchase pension schemes for <strong>the</strong> year ended 31 March 2003 were as follows:<br />
Total Total<br />
2003 2002<br />
£ £<br />
Nigel Street 32,250 32,250<br />
Timothy Arthur 21,164 21,164<br />
Interest in shares<br />
The interest of <strong>the</strong> Direc<strong>to</strong>rs in <strong>the</strong> shares of <strong>the</strong> company at 31 March 2003 were as follows:<br />
53,414 53,414<br />
Number of Number of<br />
shares shares<br />
31 March 31 March<br />
2003 2002<br />
Nigel Street 91,885 91,885<br />
Timothy Arthur 131,092 131,092<br />
John Barrie Morgans 111,885 101,885<br />
Henri Zinsli (Switzerland) 7,500 7,500<br />
There have been no movements in <strong>the</strong> Direc<strong>to</strong>rs’ interest as shown above since 31 March 2003.
Remuneration report continued<br />
Interest in share options<br />
Details of options held by Direc<strong>to</strong>rs at 31 March 2003 are set out below:<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Subscription Number Number<br />
price per of shares of shares<br />
share 1 April 2002 Granted Lapsed 31 March 2003 Periods within which exercisable<br />
Nigel Street £1.25 100,000 100,000 – 14 April 1995 and 13 April 2002<br />
£2.50 50,000 50,000 – 14 April 1995 and 13 April 2002<br />
£1.25 126,000 126,000 21 May 1996 and 20 May 2003<br />
£2.50 60,000 60,000 21 May 1996 and 20 May 2003<br />
£0.77 600,000 600,000 13 January 2002 and 12 January 2009<br />
£1.37 70,000 70,000 5 August 2002 and 4 August 2010<br />
£0.875 – 500,000 500,000 18 June 2005 and 17 June 2012<br />
Timothy Arthur £1.25 40,000 40,000 5 September 1997 and 4 September 2004<br />
£2.50 20,000 20,000 5 September 1997 and 4 September 2004<br />
£1.25 20,000 20,000 9 April 1999 and 8 April 2006<br />
£2.50 30,000 30,000 9 April 1999 and 8 April 2006<br />
£1.25 20,000 20,000 20 June 1999 and 19 June 2006<br />
£0.77 400,000 400,000 13 January 2002 and 12 January 2009<br />
£1.37 35,000 35,000 5 August 2002 and 4 August 2010<br />
£0.875 – 300,000 300,000 18 June 2005 and 17 June 2012<br />
The performance criteria attached <strong>to</strong> <strong>the</strong> options with a subscription price of £0.77, £1.37 and £0.875 are outlined in Note 20 <strong>to</strong> <strong>the</strong> <strong>financial</strong><br />
<strong>statements</strong>.<br />
The o<strong>the</strong>r options shown above have no performance criteria attached <strong>to</strong> <strong>the</strong>m. No initial consideration was required for <strong>the</strong> options.<br />
The only change in <strong>the</strong> interests set out above between 31 March 2003 and 28 May 2003 is with repect <strong>to</strong> Nigel Street’s £1.25 and £2.50 options<br />
which lapsed on 20 May 2003.<br />
The market price of <strong>the</strong> Company’s shares at <strong>the</strong> end of <strong>the</strong> <strong>financial</strong> year was 100.0p and <strong>the</strong> range of market prices during <strong>the</strong> year was between<br />
57.0p and 107.0p.<br />
Remuneration report<br />
22
Direc<strong>to</strong>rs’ report<br />
for <strong>the</strong> year ended 31 March 2003<br />
The Direc<strong>to</strong>rs present <strong>the</strong>ir report <strong>to</strong>ge<strong>the</strong>r with <strong>the</strong> audited <strong>financial</strong><br />
<strong>statements</strong> for <strong>the</strong> year ended 31 March 2003.<br />
Activities, business review and product development<br />
<strong>Plasmon</strong> Plc is <strong>the</strong> holding company of a group of companies involved<br />
in professional data s<strong>to</strong>rage solutions. The Group is active in <strong>the</strong><br />
development, manufacture and selling of both optical disk and<br />
magnetic tape data s<strong>to</strong>rage systems. The Group operates principally<br />
in <strong>the</strong> UK and USA but also has operations in Belgium, France,<br />
Germany and Italy.<br />
A review of <strong>the</strong> Group’s activities and its future development is<br />
contained on pages 1 <strong>to</strong> 16. During <strong>the</strong> year, £10,139,000<br />
(2002: £11,408,000) was spent on development of which £6,495,000<br />
(2002: £5,246,000) related <strong>to</strong> <strong>the</strong> UDO drive and media programme.<br />
Results for <strong>the</strong> year<br />
The Group made a loss of £3,406,000 (2002 loss: £5,757,000) after<br />
taxation and no dividends have been declared.<br />
Annual General Meeting<br />
Notice of <strong>the</strong> Annual General Meeting is enclosed <strong>to</strong>ge<strong>the</strong>r with a form<br />
of proxy.<br />
Share capital<br />
Changes in <strong>the</strong> share capital of <strong>the</strong> Company are detailed on page 41.<br />
Direc<strong>to</strong>rs and <strong>the</strong>ir interests<br />
The present Direc<strong>to</strong>rs are listed on page 17 and <strong>the</strong>ir beneficial<br />
interests in <strong>the</strong> shares of <strong>the</strong> Company are given on pages 21 and 22.<br />
Re-election<br />
John Barrie Morgans is due <strong>to</strong> retire by rotation at <strong>the</strong> forthcoming<br />
Annual General Meeting and, being eligible, offers himself for reelection.<br />
Charitable and political contributions<br />
The Group has made no charitable or political contributions during <strong>the</strong><br />
year.<br />
Substantial shareholdings<br />
As at 27 May 2003, <strong>the</strong> following had notified <strong>the</strong> Company of interest<br />
in 3% or more of <strong>the</strong> ordinary share capital of <strong>the</strong> Company:<br />
Ordinary shares<br />
Number %<br />
Amvescap Plc and subsidiary companies 8,370,628 15.46<br />
Global Asset Management Ltd 5,195,000 9.60<br />
Herald Investment Trust plc 3,350,000 6.19<br />
BriTel Fund Nominees Ltd<br />
The Trustees of <strong>the</strong> BT Pension Scheme 2,760,321 5.10<br />
Possfund Nominees Ltd<br />
Post Office Pension Trustees 2,088,755 3.86<br />
The family interests of JP Lobbenberg 1,893,852 3.50<br />
Royal Bank of Scotland Group plc 1,675,290 3.09<br />
Legal & General Group Plc 1,637,000 3.02<br />
Employees<br />
The Group’s policy is <strong>to</strong> consult and discuss with employees those<br />
matters likely <strong>to</strong> affect employees’ interests. These meetings also seek<br />
<strong>to</strong> achieve a common awareness on <strong>the</strong> part of all employees of <strong>the</strong><br />
<strong>financial</strong> and economic fac<strong>to</strong>rs affecting <strong>the</strong> Group’s performance. The<br />
employee share scheme encourages <strong>the</strong> involvement of employees in<br />
<strong>the</strong> Group’s performance.<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Direc<strong>to</strong>rs’ report<br />
23<br />
It is <strong>the</strong> policy of <strong>the</strong> Group that disabled people, whe<strong>the</strong>r registered or<br />
not, should receive full and fair consideration for all job vacancies for<br />
which <strong>the</strong>y are suitable applicants. Employees who become disabled<br />
during <strong>the</strong>ir working life will be retained in employment wherever<br />
possible and will be given help with any necessary rehabilitation and<br />
retraining. The Group is prepared <strong>to</strong> modify procedures and<br />
equipment, wherever this is practicable, so that full use can be made<br />
of an individual’s abilities. Training, career development and promotion<br />
are, as far as practicable, identical for all employees according <strong>to</strong> <strong>the</strong>ir<br />
skills and abilities.<br />
Credi<strong>to</strong>r payment policy<br />
The Group’s current policy concerning <strong>the</strong> payment of credi<strong>to</strong>rs for<br />
revenue and capital suppliers for goods and services is as follows:<br />
• <strong>to</strong> pay in accordance with its contractual and legal obligations;<br />
• wherever it is reasonable <strong>to</strong> do so, <strong>to</strong> settle <strong>the</strong> terms of payments<br />
with those suppliers when agreeing terms for each transaction and<br />
<strong>to</strong> ensure that those suppliers are made aware of <strong>the</strong> terms of<br />
payments by <strong>the</strong>ir inclusion in <strong>the</strong> relevant contracts.<br />
Credi<strong>to</strong>r days for <strong>the</strong> Company and Group at 31 March 2003 were 43<br />
and 49, respectively (2002: 14 and 54) as calculated in accordance<br />
with <strong>the</strong> Companies Act 1985.<br />
Statement of Direc<strong>to</strong>rs’ responsibilities<br />
The Direc<strong>to</strong>rs are required by UK company law <strong>to</strong> prepare <strong>financial</strong><br />
<strong>statements</strong> for each <strong>financial</strong> year that give a true and fair view of <strong>the</strong><br />
state of affairs of <strong>the</strong> Company and <strong>the</strong> Group as at <strong>the</strong> end of <strong>the</strong><br />
<strong>financial</strong> year and of <strong>the</strong> profit or loss of <strong>the</strong> Group for that period.<br />
The Direc<strong>to</strong>rs confirm that suitable accounting policies have been<br />
applied consistently, and reasonable and prudent judgements and<br />
estimates have been made in <strong>the</strong> preparation of <strong>the</strong> <strong>financial</strong><br />
<strong>statements</strong> for <strong>the</strong> year ended 31 March 2003. The Direc<strong>to</strong>rs also<br />
confirm that applicable accounting standards have been followed and<br />
that <strong>the</strong> <strong>financial</strong> <strong>statements</strong> have been prepared on <strong>the</strong> going<br />
concern basis.<br />
The Direc<strong>to</strong>rs are responsible for keeping proper accounting records,<br />
for taking reasonable steps <strong>to</strong> safeguard <strong>the</strong> assets of <strong>the</strong> Company<br />
and <strong>the</strong> Group, and <strong>to</strong> prevent and detect fraud and o<strong>the</strong>r irregular<br />
activities.<br />
The maintenance and integrity of <strong>the</strong> Group’s websites are <strong>the</strong><br />
responsibility of <strong>the</strong> Direc<strong>to</strong>rs. Legislation in <strong>the</strong> United Kingdom<br />
governing <strong>the</strong> preparation and dissemination of <strong>financial</strong> <strong>statements</strong><br />
may differ from legislation in o<strong>the</strong>r jurisdictions.<br />
Audi<strong>to</strong>rs<br />
Following <strong>the</strong> conversion of our audi<strong>to</strong>rs PricewaterhouseCoopers <strong>to</strong> a<br />
Limited Liability Partnership (LLP) from 1 January 2003,<br />
PricewaterhouseCoopers resigned on 30 January 2003 and <strong>the</strong><br />
Direc<strong>to</strong>rs appointed its successor, PricewaterhouseCoopers LLP, as<br />
audi<strong>to</strong>rs.<br />
A resolution <strong>to</strong> reappoint PricewaterhouseCoopers LLP as audi<strong>to</strong>rs <strong>to</strong><br />
<strong>the</strong> Company will be proposed at <strong>the</strong> Annual General Meeting.<br />
By order of <strong>the</strong> board<br />
T Arthur<br />
Company Secretary<br />
28 May 2003
Independent audi<strong>to</strong>rs’ report <strong>to</strong> <strong>the</strong> members of <strong>Plasmon</strong> Plc<br />
We have audited <strong>the</strong> <strong>financial</strong> <strong>statements</strong> which comprise <strong>the</strong> profit<br />
and loss account, <strong>the</strong> balance sheet, <strong>the</strong> cash flow statement, <strong>the</strong><br />
statement of recognised gains and losses and <strong>the</strong> related notes and<br />
<strong>the</strong> accounting policies set out in <strong>the</strong> statement of accounting policies.<br />
We have also audited <strong>the</strong> disclosures required by Part 3 of Schedule<br />
7A <strong>to</strong> <strong>the</strong> Companies Act 1985 contained in <strong>the</strong> Remuneration report<br />
(“<strong>the</strong> auditable part”).<br />
Respective responsibilities of direc<strong>to</strong>rs and audi<strong>to</strong>rs<br />
The direc<strong>to</strong>rs’ responsibilities for preparing <strong>the</strong> annual report and <strong>the</strong><br />
<strong>financial</strong> <strong>statements</strong> in accordance with applicable United Kingdom<br />
law and accounting standards are set out in <strong>the</strong> statement of<br />
direc<strong>to</strong>rs’ responsibilities. The direc<strong>to</strong>rs are also responsible for<br />
preparing <strong>the</strong> Remuneration report.<br />
Our responsibility is <strong>to</strong> audit <strong>the</strong> <strong>financial</strong> <strong>statements</strong> and <strong>the</strong> auditable<br />
part of <strong>the</strong> direc<strong>to</strong>rs’ remuneration report in accordance with relevant<br />
legal and regula<strong>to</strong>ry requirements and United Kingdom Auditing<br />
Standards issued by <strong>the</strong> Auditing Practices Board. This report,<br />
including <strong>the</strong> opinion, has been prepared for and only for <strong>the</strong><br />
Company’s members as a body in accordance with Section 235 of <strong>the</strong><br />
Companies Act 1985 and for no o<strong>the</strong>r purpose. We do not, in giving<br />
this opinion, accept or assume responsibility for any o<strong>the</strong>r purpose or<br />
<strong>to</strong> any o<strong>the</strong>r person <strong>to</strong> whom this report is shown or in<strong>to</strong> whose hands<br />
it may come save where expressly agreed by our prior consent in<br />
writing.<br />
We report <strong>to</strong> you our opinion as <strong>to</strong> whe<strong>the</strong>r <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
give a true and fair view and whe<strong>the</strong>r <strong>the</strong> <strong>financial</strong> <strong>statements</strong> and <strong>the</strong><br />
auditable part of <strong>the</strong> Remuneration report have been properly<br />
prepared in accordance with <strong>the</strong> Companies Act 1985. We also report<br />
<strong>to</strong> you if, in our opinion, <strong>the</strong> Direc<strong>to</strong>rs’ report is not consistent with <strong>the</strong><br />
<strong>financial</strong> <strong>statements</strong>, if <strong>the</strong> Company has not kept proper accounting<br />
records, if we have not received all <strong>the</strong> information and explanations<br />
we require for our audit, or if information specified by law regarding<br />
Direc<strong>to</strong>rs’ remuneration and transactions is not disclosed.<br />
We read <strong>the</strong> o<strong>the</strong>r information contained in <strong>the</strong> annual report and<br />
consider <strong>the</strong> implications for our report if we become aware of any<br />
apparent mis<strong>statements</strong> or material inconsistencies with <strong>the</strong> <strong>financial</strong><br />
<strong>statements</strong>. The o<strong>the</strong>r information comprises only <strong>the</strong> Direc<strong>to</strong>rs’<br />
report, <strong>the</strong> unaudited part of <strong>the</strong> Remuneration report, <strong>the</strong> Chairman’s<br />
Statement, <strong>the</strong> Chief Executive’s review, Finance Direc<strong>to</strong>r’s review and<br />
<strong>the</strong> Corporate Governance statement.<br />
We review whe<strong>the</strong>r <strong>the</strong> Corporate Governance statement reflects <strong>the</strong><br />
Company’s compliance with <strong>the</strong> seven provisions of <strong>the</strong> Combined<br />
Code specified for our review by <strong>the</strong> Listing Rules of <strong>the</strong> Financial<br />
Services Authority, and we report if it does not. We are not required <strong>to</strong><br />
consider whe<strong>the</strong>r <strong>the</strong> board’s <strong>statements</strong> on internal control cover all<br />
risks and controls, or <strong>to</strong> form an opinion on <strong>the</strong> effectiveness of <strong>the</strong><br />
Group’s corporate governance procedures or its risk and control<br />
procedures.<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Basis of audit opinion<br />
We conducted our audit in accordance with auditing standards issued<br />
by <strong>the</strong> Auditing Practices Board. An audit includes examination, on a<br />
test basis, of evidence relevant <strong>to</strong> <strong>the</strong> amounts and disclosures in <strong>the</strong><br />
<strong>financial</strong> <strong>statements</strong> and <strong>the</strong> auditable part of <strong>the</strong> Remuneration<br />
report. It also includes an assessment of <strong>the</strong> significant estimates and<br />
judgements made by <strong>the</strong> direc<strong>to</strong>rs in <strong>the</strong> preparation of <strong>the</strong> <strong>financial</strong><br />
<strong>statements</strong>, and of whe<strong>the</strong>r <strong>the</strong> accounting policies are appropriate <strong>to</strong><br />
<strong>the</strong> company’s circumstances, consistently applied and adequately<br />
disclosed.<br />
We planned and performed our audit so as <strong>to</strong> obtain all <strong>the</strong> information<br />
and explanations which we considered necessary in order <strong>to</strong> provide<br />
us with sufficient evidence <strong>to</strong> give reasonable assurance that <strong>the</strong><br />
<strong>financial</strong> <strong>statements</strong> and <strong>the</strong> auditable part of <strong>the</strong> Remuneration report<br />
are free from material misstatement, whe<strong>the</strong>r caused by fraud or o<strong>the</strong>r<br />
irregularity or error. In forming our opinion we also evaluated <strong>the</strong> overall<br />
adequacy of <strong>the</strong> presentation of information in <strong>the</strong> <strong>financial</strong><br />
<strong>statements</strong>.<br />
Opinion<br />
In our opinion:<br />
• <strong>the</strong> <strong>financial</strong> <strong>statements</strong> give a true and fair view of <strong>the</strong> state of affairs<br />
of <strong>the</strong> Company and <strong>the</strong> Group at 31 March 2003 and of <strong>the</strong> loss<br />
and cash flows of <strong>the</strong> group for <strong>the</strong> year <strong>the</strong>n ended;<br />
• <strong>the</strong> <strong>financial</strong> <strong>statements</strong> have been properly prepared in accordance<br />
with <strong>the</strong> Companies Act 1985; and<br />
• those parts of <strong>the</strong> Remuneration report required by Part 3 of<br />
Schedule 7A <strong>to</strong> <strong>the</strong> Companies Act 1985 have been properly<br />
prepared in accordance with <strong>the</strong> Companies Act 1985.<br />
PricewaterhouseCoopers LLP<br />
Chartered Accountants and Registered Audi<strong>to</strong>rs<br />
London<br />
28 May 2003<br />
Independent audi<strong>to</strong>rs’ report <strong>to</strong> <strong>the</strong> members of <strong>Plasmon</strong> Plc<br />
24
Consolidated profit and loss account<br />
for <strong>the</strong> year ended 31 March 2003<br />
Before Before<br />
goodwill Goodwill goodwill Goodwill<br />
amortisation amortisation amortisation amortisation<br />
and and and and<br />
exceptional exceptional exceptional exceptional<br />
costs costs Total costs costs Total<br />
2003 2003 2003 2002 2002 2002<br />
<strong>Notes</strong> £’000 £’000 £’000 £’000 £’000 £’000<br />
Turnover 2 60,083 – 60,083 61,554 – 61,554<br />
Cost of sales (38,258) – (38,258) (38,985) – (38,985)<br />
Gross profit 21,825 – 21,825 22,569 – 22,569<br />
Operating expenses<br />
Existing 3,4 (16,360) (1,619) (17,979) (18,368) (4,713) (23,081)<br />
UDO development 3 (6,495) – (6,495) (5,246) – (5,246)<br />
Net operating expenses (22,855) (1,619) (24,474) (23,614) (4,713) (28,327)<br />
Operating profit/(loss)<br />
Existing 5,465 (1,619) 3,846 4,201 (4,713) (512)<br />
UDO (6,495) – (6,495) (5,246) – (5,246)<br />
Operating loss (1,030) (1,619) (2,649) (1,045) (4,713) (5,758)<br />
Interest receivable 7 – 36<br />
Interest payable 8 (737) (577)<br />
Loss on ordinary activities<br />
before taxation 2,6 (3,386) (6,299)<br />
Tax on ordinary activities 9 (20) 542<br />
Retained loss for <strong>the</strong> year 21 (3,406) (5,757)<br />
Basic and diluted losses<br />
per Ordinary share (p) 10 (6.41) (12.28)<br />
Basic earnings per Ordinary share (p)<br />
excluding UDO development costs,<br />
exceptional costs and goodwill<br />
amortisation 10 8.86 8.96<br />
There is no difference between <strong>the</strong> loss on ordinary activities before taxation and <strong>the</strong> retained loss for <strong>the</strong> year stated above and <strong>the</strong>ir his<strong>to</strong>rical<br />
cost equivalents. All <strong>the</strong> Group’s operations are continuing.<br />
The Company has taken advantage of Section 230 of <strong>the</strong> Companies Act 1985 not <strong>to</strong> present its own profit and loss account.<br />
The amount of loss dealt with in <strong>the</strong> <strong>financial</strong> <strong>statements</strong> of <strong>the</strong> holding company was £247,000 (2002 loss: £3,365,000).<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Consolidated profit and loss account<br />
25
Statement of <strong>to</strong>tal recognised gains and losses<br />
for <strong>the</strong> year ended 31 March 2003<br />
2003 2002<br />
£’000 £’000<br />
Loss for <strong>the</strong> year (3,406) (5,757)<br />
Currency translation differences on foreign currency net investments (1,563) (288)<br />
Total recognised losses relating <strong>to</strong> <strong>the</strong> year (4,969) (6,045)<br />
Reconciliation of movements in shareholders’ funds<br />
for <strong>the</strong> year ended 31 March 2003<br />
2003 2002<br />
£’000 £’000<br />
Loss for <strong>the</strong> year (3,406) (5,757)<br />
Currency translation differences (1,563) (288)<br />
Nominal value of new share capital placed 128 660<br />
Premium on share placing 1,634 10,296<br />
Expenses on share placing (84) (673)<br />
Nominal value of s<strong>to</strong>ck options 26 –<br />
Premium on exercise of s<strong>to</strong>ck options 347 4<br />
Net (reductions)/additions <strong>to</strong> shareholders’ funds (2,918) 4,242<br />
Opening shareholders’ funds 41,157 36,915<br />
Closing shareholders’ funds 38,239 41,157<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Statement of <strong>to</strong>tal recognised gains and losses<br />
26
Consolidated balance sheet<br />
at 31 March 2003<br />
2003 2002<br />
<strong>Notes</strong> £’000 £’000<br />
Fixed assets<br />
Intangible assets 11 7,204 9,209<br />
Tangible assets 12 26,117 24,421<br />
33,321 33,630<br />
Current assets<br />
S<strong>to</strong>cks 14 16,455 18,854<br />
Deb<strong>to</strong>rs 15 14,955 15,861<br />
Cash at bank and in hand 1,171 1,668<br />
32,581 36,383<br />
Credi<strong>to</strong>rs: amounts falling due within one year 16 (19,843) (21,883)<br />
Net current assets 12,738 14,500<br />
Total assets less current liabilities 46,059 48,130<br />
Credi<strong>to</strong>rs: amounts falling due after more than one year 17 (7,741) (5,620)<br />
Provisions for liabilities and charges 18 (79) (1,353)<br />
Net assets 38,239 41,157<br />
Capital and reserves<br />
Called-up share capital 20 2,707 2,553<br />
Share premium account 21 42,069 40,172<br />
Profit and loss account 21 (6,537) (1,568)<br />
Equity shareholders’ funds 38,239 41,157<br />
The <strong>financial</strong> <strong>statements</strong> on pages 25 <strong>to</strong> 48 were approved by <strong>the</strong> Board of Direc<strong>to</strong>rs on 28 May 2003 and are signed on its behalf by:<br />
J B Morgans<br />
N Street }<br />
Direc<strong>to</strong>rs<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Consolidated balance sheet<br />
27
Company balance sheet<br />
at 31 March 2003<br />
2003 2002<br />
<strong>Notes</strong> £’000 £’000<br />
Fixed assets<br />
Investments 13 29,203 17,548<br />
Current assets<br />
Deb<strong>to</strong>rs 15 13,359 22,872<br />
Cash at bank and in hand 283 586<br />
13,642 23,458<br />
Credi<strong>to</strong>rs: amounts falling due within one year 16 (139) (104)<br />
Net current assets 13,503 23,354<br />
Net assets 42,706 40,902<br />
Capital and reserves<br />
Called-up share capital 20 2,707 2,553<br />
Share premium account 21 42,069 40,172<br />
O<strong>the</strong>r reserves 21 1,116 1,116<br />
Profit and loss account 21 (3,186) (2,939)<br />
Equity shareholders’ funds 42,706 40,902<br />
The <strong>financial</strong> <strong>statements</strong> on pages 25 <strong>to</strong> 48 were approved by <strong>the</strong> Board of Direc<strong>to</strong>rs on 28 May 2003 and are signed on its behalf by:<br />
J B Morgans<br />
N Street<br />
}<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Direc<strong>to</strong>rs<br />
Company balance sheet<br />
28
Consolidated cash flow statement<br />
for <strong>the</strong> year ended 31 March 2003<br />
2003 2002<br />
<strong>Notes</strong> £’000 £’000<br />
Net cash inflow/(outflow) from operating activities 22 924 (399)<br />
Returns on investments and servicing of finance<br />
Interest received – 41<br />
Interest paid on bank loans and overdrafts (569) (476)<br />
Interest paid on finance leases (183) (165)<br />
Net cash outflow from returns on investments and servicing of finance (752) (600)<br />
Taxation<br />
UK corporation tax received/(paid) 60 (306)<br />
Overseas tax received/(paid) 479 (195)<br />
Tax received/(paid) 539 (501)<br />
Capital expenditure<br />
Purchase of intangible fixed assets (24) (967)<br />
Purchase of tangible fixed assets (5,081) (7,352)<br />
Proceeds from sale of fixed assets 120 68<br />
Net cash outflow from investing activities (4,985) (8,251)<br />
Net cash outflow before financing (4,274) (9,751)<br />
Financing<br />
Issue of Ordinary shares 2,135 10,960<br />
Expenses on issue of Ordinary shares (84) (673)<br />
New bank loans 3,550 1,910<br />
Payment of principal under bank loans (145) (508)<br />
Payment of principal under finance leases (1,371) (1,324)<br />
Net cash inflow from financing 4,085 10,365<br />
(Decrease)/increase in cash (189) 614<br />
Reconciliation of net cash flow <strong>to</strong> movement in net debt:<br />
(Decrease)/increase in cash (189) 614<br />
Cash outflow from decrease in debt and lease financing (2,034) (78)<br />
Changes in net debt resulting from cash flows (2,223) 536<br />
Inception of finance leases (1,439) (973)<br />
Foreign exchange differences 598 66<br />
Movement in net debt in period (3,064) (371)<br />
Opening net debt (9,897) (9,526)<br />
Closing net debt 23 (12,961) (9,897)<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
Consolidated cash flow statement<br />
29
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
for <strong>the</strong> year ended 31 March 2003<br />
1 Principal accounting policies<br />
The <strong>financial</strong> <strong>statements</strong> have been prepared in accordance with applicable Accounting Standards in <strong>the</strong> United Kingdom. A summary of <strong>the</strong> more<br />
important Group accounting policies, which have been consistently applied, is set out below.<br />
Basis of accounting<br />
The <strong>financial</strong> <strong>statements</strong> have been prepared under <strong>the</strong> his<strong>to</strong>ric cost basis of accounting.<br />
Basis of consolidation<br />
The consolidated <strong>financial</strong> <strong>statements</strong> include <strong>the</strong> <strong>financial</strong> <strong>statements</strong> of <strong>Plasmon</strong> Plc and all of its subsidiaries, made up <strong>to</strong> 31 March 2003. The<br />
results of subsidiaries and businesses acquired are included in <strong>the</strong> consolidated profit and loss account from <strong>the</strong> date control passes <strong>to</strong> <strong>the</strong><br />
Group. Intra-Group sales and profits are eliminated fully on consolidation.<br />
Turnover<br />
Turnover, which excludes sales between Group companies and trade discounts, represents <strong>the</strong> invoiced value of goods and services net of value<br />
added tax. Turnover in respect of <strong>the</strong> sale of goods is recognised when <strong>the</strong> goods are dispatched <strong>to</strong> <strong>the</strong> cus<strong>to</strong>mer, whilst turnover in respect of <strong>the</strong><br />
sale of services is recognised over <strong>the</strong> period <strong>the</strong> related work is performed. Turnover from longer-term development work is recognised in<br />
proportion <strong>to</strong> <strong>the</strong> costs of <strong>the</strong> development work undertaken. Turnover in respect of royalties receivable is recognised on an accruals basis as<br />
earned.<br />
Development expenditure<br />
Expenditure on research or development is written off as incurred.<br />
Tangible fixed assets<br />
Fixed assets are stated at cost less accumulated depreciation.<br />
Depreciation is provided on fixed assets when placed in<strong>to</strong> effective use, on a straight-line basis, at rates calculated <strong>to</strong> reduce each asset at <strong>the</strong><br />
end of its effective useful life <strong>to</strong> its estimated net realisable value. The rates used are as follows:<br />
Land Not depreciated<br />
Buildings 2%<br />
Building improvements 4%–15%<br />
Short leasehold improvements 20%–33%<br />
Office equipment 20%–33%<br />
Research and development, manufacturing and test plant and machinery 10%–25%<br />
Mo<strong>to</strong>r vehicles 25%–33%<br />
Leased assets<br />
Assets acquired under finance leases and hire purchase agreements are capitalised and depreciated over <strong>the</strong> shorter of <strong>the</strong> lease term and <strong>the</strong><br />
useful life of <strong>the</strong> asset. The capital element of <strong>the</strong> leasing commitment is shown as obligations under finance leases. The lease rentals are treated<br />
as consisting of capital and interest elements. The capital element is applied <strong>to</strong> reduce <strong>the</strong> outstanding obligations and <strong>the</strong> interest element is<br />
charged against profit so as <strong>to</strong> give a constant periodic charge on <strong>the</strong> remaining balance outstanding for each accounting period.<br />
Rental payments under operating leases are charged <strong>to</strong> <strong>the</strong> profit and loss account on a straight-line basis.<br />
Purchased goodwill<br />
Goodwill arising on acquisitions represents <strong>the</strong> excess of <strong>the</strong> fair market value of <strong>the</strong> consideration over <strong>the</strong> fair value of <strong>the</strong> identifiable assets and<br />
liabilities acquired.<br />
FRS 10 “Goodwill and intangible assets” has been adopted from 1 April 1998 and purchased goodwill arising from acquisitions after this date has<br />
been capitalised as intangible assets and is amortised over its useful economic life.<br />
The useful economic life of goodwill arising on acquisitions after 1 April 1998 is estimated <strong>to</strong> be between eight and ten years from <strong>the</strong> date of<br />
acquisition which is primarily based on <strong>the</strong> number of future generations of products expected <strong>to</strong> be based on <strong>the</strong> acquired technologies.<br />
Purchased goodwill arising on acquisitions prior <strong>to</strong> <strong>the</strong> adoption of FRS10 remains eliminated against reserves. This goodwill will be charged in <strong>the</strong><br />
profit and loss account on any subsequent disposal of <strong>the</strong> related business.<br />
Licences<br />
Licences acquired for use in proprietary software or manufacturing processes are capitalised at cost. Amortisation commences when <strong>the</strong> related<br />
product is commercially launched with <strong>the</strong> cost being amortised on a straight-line basis over <strong>the</strong> expected life cycle of <strong>the</strong> product. Current<br />
licences are being amortised over five years.<br />
Fixed asset investments<br />
Fixed asset investments are stated at cost less any amount written-off <strong>to</strong> reflect a permanent impairment.<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
30
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong> continued<br />
for <strong>the</strong> year ended 31 March 2003<br />
S<strong>to</strong>cks<br />
S<strong>to</strong>cks are valued at <strong>the</strong> lower of cost and net realisable value. Cost comprises expenditure incurred in bringing s<strong>to</strong>cks and work in progress <strong>to</strong><br />
<strong>the</strong>ir present location and condition. Net realisable value represents <strong>the</strong> estimated selling price less fur<strong>the</strong>r production costs <strong>to</strong> completion and<br />
appropriate selling and distribution costs. Provision is made where necessary for obsolete, slow-moving and defective s<strong>to</strong>cks.<br />
Deferred taxation<br />
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at <strong>the</strong> balance sheet date where transactions or<br />
events that result in an obligation <strong>to</strong> pay more, or a right <strong>to</strong> pay less, tax in <strong>the</strong> future have occurred at <strong>the</strong> balance sheet date. Deferred tax assets<br />
are recognised <strong>to</strong> <strong>the</strong> extent that <strong>the</strong> Direc<strong>to</strong>rs consider that it is more likely than not that <strong>the</strong>re will be suitable taxable profits from which <strong>the</strong> future<br />
reversal of <strong>the</strong> underlying timing differences can be deducted. Provision is made for <strong>the</strong> tax that would arise on <strong>the</strong> remittance of <strong>the</strong> retained<br />
earnings of overseas subsidiaries only <strong>to</strong> <strong>the</strong> extent that, at <strong>the</strong> balance sheet date, dividends have been accrued as receivable. Deferred tax is<br />
measured on a non-discounted basis at <strong>the</strong> tax rates that are expected <strong>to</strong> apply in <strong>the</strong> periods in which <strong>the</strong> timing differences reverse, based on<br />
<strong>the</strong> tax rates and laws enacted or substantively enacted at <strong>the</strong> balance sheet date.<br />
Foreign currency translation<br />
Assets and liabilities are translated in<strong>to</strong> sterling at <strong>the</strong> rate of exchange ruling at <strong>the</strong> balance sheet date and <strong>the</strong> results of foreign subsidiaries are<br />
translated at <strong>the</strong> average rate of exchange for <strong>the</strong> year. Foreign currency trading transactions are translated at <strong>the</strong> rate ruling at <strong>the</strong> time of <strong>the</strong><br />
transaction. All foreign currency exchange differences are dealt with in <strong>the</strong> profit and loss account for <strong>the</strong> period with <strong>the</strong> exception of those arising<br />
on consolidation which are shown as movements on reserves.<br />
Patent fees<br />
Costs of acquiring patents are written off as incurred.<br />
Pension costs<br />
Pension costs in respect of <strong>the</strong> defined benefit pension scheme are accounted for on <strong>the</strong> basis of charging <strong>the</strong> expected cost of providing<br />
pensions over <strong>the</strong> period during which <strong>the</strong> Group expects <strong>to</strong> benefit from <strong>the</strong> employees’ services. This treatment follows <strong>the</strong> requirements of<br />
SSAP 24 “Accounting for pension costs”. In addition, <strong>the</strong> notes <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong> provide <strong>the</strong> transitional disclosures prepared under <strong>the</strong><br />
accounting standard FRS 17 “Retirement benefits”. As permitted by this standard, <strong>the</strong> Group has decided <strong>to</strong> defer full implementation until <strong>the</strong><br />
<strong>financial</strong> year ending 31 March 2005.<br />
Pension costs in respect of defined contribution schemes and employees’ personal pension plans are charged on an accrual basis in line with<br />
amounts payable in respect of <strong>the</strong> accounting period.<br />
National Insurance and Share Options<br />
Provision is made for future employer’s National Insurance liabilities in respect of certain outstanding unapproved employee share options. The<br />
provision is calculated at <strong>the</strong> current National Insurance rate applied <strong>to</strong> <strong>the</strong> difference between <strong>the</strong> market value of <strong>the</strong> underlying shares at <strong>the</strong><br />
balance sheet date and <strong>the</strong> option exercise prices.<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
31
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong> continued<br />
for <strong>the</strong> year ended 31 March 2003<br />
2 Turnover, profit/(loss) before taxation and net assets<br />
The analysis by geographical area of <strong>the</strong> Group’s turnover, (loss)/profit before taxation and net assets is set out below:<br />
Total Total<br />
2003 2002<br />
£’000 £’000<br />
Turnover by destination<br />
Europe 18,736 15,773<br />
United States of America 37,106 42,712<br />
Rest of World 4,241 3,069<br />
60,083 61,554<br />
Turnover by origin<br />
Europe 20,517 17,599<br />
United States of America 39,566 43,955<br />
60,083 61,554<br />
Profit/(loss) before taxation<br />
Europe 2,528 686<br />
United States of America (5,177) (6,444)<br />
Loss before interest (2,649) (5,758)<br />
Net interest payable (737) (541)<br />
(3,386) (6,299)<br />
Net assets by origin<br />
Europe 29,763 27,878<br />
United States of America 19,962 21,902<br />
Net operating assets 49,725 49,780<br />
Bank loans and overdrafts (11,388) (8,961)<br />
Current tax (payable)/receivable (67) 485<br />
Deferred tax position (31) (147)<br />
38,239 41,157<br />
The Group operates in one business segment, professional data s<strong>to</strong>rage solutions. The Group derives income of a consultancy nature from <strong>the</strong><br />
sale of “know-how” as a result of and incidental <strong>to</strong> its normal production activities and <strong>the</strong>refore, this is not considered <strong>to</strong> be a separate business<br />
segment. Consultancy income in <strong>the</strong> year amounted <strong>to</strong> £3,935,000 (2002: £3,607,000). Intra segment turnover for year ended 31 March 2003<br />
was £5,325,000 (2002: £7,487,000) from Europe <strong>to</strong> <strong>the</strong> United States of America and £4,033,000 (2002: £5,072,000) from <strong>the</strong> United States of<br />
America <strong>to</strong> Europe.<br />
3 Net operating expenses<br />
Total Total<br />
2003 2002<br />
£’000 £’000<br />
Administrative expenses 3,747 4,264<br />
Selling and distribution costs 8,993 7,816<br />
UDO product development costs 6,495 5,246<br />
O<strong>the</strong>r product development costs 3,644 6,162<br />
Total product development costs 10,139 11,408<br />
O<strong>the</strong>r operating (income) / expenses (24) 126<br />
Net operating expenses 22,855 23,614<br />
The costs of <strong>the</strong> UDO development programme have been separately disclosed due <strong>to</strong> <strong>the</strong>ir significance <strong>to</strong> <strong>the</strong> Group. This programme is<br />
developing next generation 5 1 ⁄4" drive and media technology that will supercede existing products currently sourced from third party suppliers.<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
32
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong> continued<br />
for <strong>the</strong> year ended 31 March 2003<br />
4 Goodwill amortisation and exceptional operating costs<br />
2003 2002<br />
£’000 £’000<br />
US Reorganisations 520 2,888<br />
Toolex International bad debt – 629<br />
Exceptional operating costs 520 3,517<br />
Goodwill amortisation 1,099 1,196<br />
Goodwill amortisation and exceptional operating costs 1,619 4,713<br />
The exceptional operating costs during <strong>the</strong> year ended 31 March 2003 arose from <strong>the</strong> transfer of US library development from Minneapolis <strong>to</strong><br />
Colorado Springs, principally comprising employment related severance costs.<br />
The exceptional operating costs during <strong>the</strong> year ended 31 March 2002 arose from <strong>the</strong> transfer of US library manufacturing from Minneapolis <strong>to</strong><br />
Colorado Springs, principally comprising employment related transition and relocation costs. The bad debt charge arose from <strong>the</strong> bankruptcy of<br />
Toolex International NV.<br />
5 Direc<strong>to</strong>rs and employees<br />
The average monthly number of employees (including Direc<strong>to</strong>rs) employed by <strong>the</strong> Group during <strong>the</strong> year was:<br />
2003 2002<br />
Number Number<br />
Sales and marketing 90 75<br />
Office and management 51 57<br />
Manufacturing, research and development 317 364<br />
Staff costs for <strong>the</strong> above employees:<br />
458 496<br />
2003 2002<br />
£’000 £’000<br />
Wages and salaries 16,850 18,481<br />
Social security costs 2,938 2,588<br />
O<strong>the</strong>r pension costs 424 881<br />
Included in staff costs is remuneration paid <strong>to</strong> <strong>the</strong> Direc<strong>to</strong>rs of <strong>Plasmon</strong> Plc as follows:<br />
20,212 21,950<br />
2003 2002<br />
£’000 £’000<br />
Executive direc<strong>to</strong>rs<br />
– aggregate emoluments 394 404<br />
– pension contributions 53 53<br />
Non-Executive direc<strong>to</strong>rs<br />
– aggregate fees 50 50<br />
For fur<strong>the</strong>r information on Direc<strong>to</strong>rs’ emoluments see <strong>the</strong> Remuneration report on pages 20 <strong>to</strong> 22.<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
33<br />
497 507
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong> continued<br />
for <strong>the</strong> year ended 31 March 2003<br />
6 Loss on ordinary activities before taxation<br />
Loss on ordinary activities before taxation is stated after charging/(crediting):<br />
2003 2002<br />
£’000 £’000<br />
Research and development expenditure 10,139 11,408<br />
Depreciation<br />
– leased assets 1,094 828<br />
– owned assets 3,606 3,749<br />
Amortisation<br />
– goodwill 1,099 1,196<br />
– intangibles 208 70<br />
Fees paid <strong>to</strong> Audi<strong>to</strong>rs for:<br />
– audit (Company: 2003: £29,000, 2002 £29,000) 158 189<br />
– o<strong>the</strong>r services (Company: 2003: £37,000, 2002: £40,000) 68 131<br />
Operating lease payments<br />
– plant and machinery 203 219<br />
– o<strong>the</strong>r 1,034 1,238<br />
(Profit)/loss on sale of fixed assets (24) 32<br />
Foreign exchange gains (441) (121)<br />
Exceptional operating costs (see Note 4) 520 3,517<br />
7 Interest receivable<br />
2003 2002<br />
£’000 £’000<br />
Bank deposits – 36<br />
8 Interest payable<br />
2003 2002<br />
£’000 £’000<br />
Bank loans and overdrafts 564 417<br />
Finance leases and hire purchase contracts 173 160<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
34<br />
737 577
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong> continued<br />
for <strong>the</strong> year ended 31 March 2003<br />
9 Taxation<br />
a) Analysis of tax charge/(credit) in <strong>the</strong> year<br />
2003 2002<br />
£’000 £’000<br />
UK Corporation tax at 30% (2002: 30%)<br />
Current 7 –<br />
Deferred (116) 147<br />
Under/(over) provision in respect of prior years<br />
Current 14 (107)<br />
(95) 40<br />
Overseas taxation<br />
Current 81 (432)<br />
Under/(over) provision in respect of prior years<br />
Current 34 (150)<br />
115 (582)<br />
Tax on ordinary activities 20 (542)<br />
The overseas tax credit in <strong>the</strong> year ended 31 March 2002 arose in <strong>the</strong> US where under <strong>the</strong> Job Creation and Worker Assistance Act of 2002, <strong>the</strong><br />
US subsidiaries were able <strong>to</strong> carry back net operating losses for <strong>the</strong> preceding five years.<br />
b) Fac<strong>to</strong>rs affecting <strong>the</strong> tax charge/(credit) in <strong>the</strong> year<br />
The tax credit for <strong>the</strong> period is lower than <strong>the</strong> standard rate of corporation tax in <strong>the</strong> UK (30%). The differences are explained below:<br />
2003 2002<br />
£’000 £’000<br />
Loss on ordinary activities before tax (3,386) (6,299)<br />
Loss on ordinary activities multiplied by <strong>the</strong> standard rate of (1,016) (1,890)<br />
corporation tax in <strong>the</strong> UK of 30% (2002: 30%)<br />
Effects of:<br />
Adjustments <strong>to</strong> tax in respect of <strong>the</strong> prior period 14 (107)<br />
Enhanced deduction for research and development (134) –<br />
Expenses not deductible for tax purposes 104 25<br />
Losses (utilised)/carried forward (56) 43<br />
Difference between capital allowance and depreciation (309) (177)<br />
Overseas differences 1,533 1,417<br />
Current tax charge/(credit) for period 136 (689)<br />
c) Fac<strong>to</strong>rs that may affect future tax charge<br />
At present it is envisaged that any future tax charge will be reduced by <strong>the</strong> losses carried forward in <strong>the</strong> US.<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
35
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong> continued<br />
for <strong>the</strong> year ended 31 March 2003<br />
10 Earnings per share<br />
Basic earnings per share are calculated by dividing earnings (loss on ordinary activities after tax) by <strong>the</strong> weighted average number of Ordinary<br />
shares in issue during <strong>the</strong> year.<br />
Given <strong>the</strong> losses incurred during <strong>the</strong> year, <strong>the</strong>re is no dilution of earnings per share in <strong>the</strong> year ended 31 March 2003 or in <strong>the</strong> previous year.<br />
Adjusted earnings per share figures are presented which exclude <strong>the</strong> effect of goodwill amortisation, UDO development costs and exceptional<br />
operating costs. The Direc<strong>to</strong>rs consider that <strong>the</strong> adjusted earnings per share figures provide a useful additional indication of performance.<br />
Weighted Weighted<br />
average (Losses)/ average (Losses)/<br />
(Losses)/ number earnings (Losses)/ number earnings<br />
earnings of shares per share earnings of shares per share<br />
2003 2003 2003 2002 2002 2002<br />
£’000 ‘000 pence £’000 ‘000 pence<br />
Basic losses per share (3,406) 53,140 (6.41) (5,757) 46,900 (12.28)<br />
Adjusted earnings per share<br />
Basic losses per share (3,406) 53,140 (6.41) (5,757) 46,900 (12.28)<br />
Effect of:<br />
goodwill amortisation 1,099 2.07 1,196 2.55<br />
UDO development costs 6,495 12.22 5,246 11.19<br />
exceptional operating costs 520 0.98 3,517 7.50<br />
Adjusted earnings per share 4,708 53,140 8.86 4,202 46,900 8.96<br />
11 Intangible fixed assets<br />
The Company has no intangible fixed assets. Details of those relating <strong>to</strong> <strong>the</strong> Group are as follows:<br />
Purchased Development Software Manufacturing<br />
goodwill costs code licences licences Total<br />
£’000 £’000 £’000 £’000 £’000<br />
Cost<br />
At 1 April 2002 11,328 1,949 349 967 14,593<br />
Acquisitions – – – 24 24<br />
Currency changes (937) – – (91) (1,028)<br />
At 31 March 2003 10,391 1,949 349 900 13,589<br />
Amortisation<br />
At 1 April 2002 3,346 1,949 89 – 5,384<br />
Charge for <strong>the</strong> year 1,099 – 71 137 1,307<br />
Currency changes (304) – – (2) (306)<br />
At 31 March 2003 4,141 1,949 160 135 6,385<br />
Net book value<br />
At 31 March 2003 6,250 – 189 765 7,204<br />
At 31 March 2002 7,982 – 260 967 9,209<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
36
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong> continued<br />
for <strong>the</strong> year ended 31 March 2003<br />
12 Tangible fixed assets<br />
The Company has no tangible fixed assets. Details of those relating <strong>to</strong> <strong>the</strong> Group are as follows:<br />
Freehold Leasehold Plant & Plant &<br />
land and improve- Office Mo<strong>to</strong>r machinery Construction machinery<br />
buildings ments equipment vehicles owned in progress leased Total<br />
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000<br />
Group<br />
Cost<br />
At 1 April 2002 8,029 719 5,582 318 19,429 2,360 9,624 46,061<br />
Additions – 73 317 39 566 5,525 – 6,520<br />
Disposals – (171) (567) (96) (687) – – (1,521)<br />
Transfer of assets 1,347 – (471) – 462 (1,338) – –<br />
Currency changes 78 (64) (249) – (88) (17) (7) (347)<br />
At 31 March 2003 9,454 557 4,612 261 19,682 6,530 9,617 50,713<br />
Depreciation<br />
At 1 April 2002 628 540 3,893 106 10,978 – 5,495 21,640<br />
Charge for <strong>the</strong> year 154 115 600 59 2,721 – 1,051 4,700<br />
Disposals – (169) (531) (43) (682) – – (1,425)<br />
Transfer of assets – – (226) – 226 – – –<br />
Currency changes 4 (48) (174) – (99) – (2) (319)<br />
At 31 March 2003 786 438 3,562 122 13,144 – 6,544 24,596<br />
Net book value<br />
At 31 March 2003 8,668 119 1,050 139 6,538 6,530 3,073 26,117<br />
At 31 March 2002 7,401 179 1,689 212 8,451 2,360 4,129 24,421<br />
Tangible fixed assets include leased assets with a cost of £11,405,000 (2002: £9,919,000) and net book value of £4,432,000 (2002: £4,325,000).<br />
Depreciation of £1,094,000 (2002: £828,000) has been charged against <strong>the</strong>se assets in <strong>the</strong> year.<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
37
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong> continued<br />
for <strong>the</strong> year ended 31 March 2003<br />
13 Fixed asset investments<br />
Investment in<br />
subsidiaries<br />
£’000<br />
Company<br />
Cost<br />
At 1 April 2002 23,052<br />
Additions 17,216<br />
At 31 March 2003 40,268<br />
Provisions for permanent diminution in value<br />
At 1 April 2002 5,504<br />
Provisions created during year 5,561<br />
At 31 March 2003 11,065<br />
Net book value<br />
At 31 March 2003 29,203<br />
At 31 March 2002 17,548<br />
The movement in investments during <strong>the</strong> year resulted from an increase in <strong>the</strong> investment in <strong>Plasmon</strong> Inc of $8,500,500 (£5,716,000), in <strong>Plasmon</strong><br />
Data Systems Limited of £10,000,000 and in <strong>Plasmon</strong> Data Limited of £1,500,000.<br />
The principal subsidiaries of <strong>the</strong> Group at 31 March 2003 were:<br />
Company Country of incorporation Main activity<br />
<strong>Plasmon</strong> Inc. USA Holding company<br />
<strong>Plasmon</strong> Data Systems Limited England & Wales Media manufacturing and development<br />
Plamson OMS Sarl France Mastering manufacturing and development<br />
<strong>Plasmon</strong> Data Limited England & Wales Sales and marketing<br />
Alls<strong>to</strong>r Software Limited England & Wales Software development<br />
<strong>Plasmon</strong> IDE Inc. USA Jukebox manufacturing and development<br />
<strong>Plasmon</strong> LMS Inc. USA Drive manufacturing and development<br />
<strong>Plasmon</strong> Data Srl Italy Sales and marketing<br />
<strong>Plasmon</strong> Data NV Belgium Sales and marketing<br />
<strong>Plasmon</strong> Data Sarl France Sales and marketing<br />
All <strong>the</strong> principal subsidiaries of <strong>the</strong> Group only have ordinary share capital, are 100% owned, including voting rights, within <strong>the</strong> Group and have<br />
been included in <strong>the</strong> consolidated <strong>financial</strong> <strong>statements</strong>.<br />
With <strong>the</strong> exception of <strong>Plasmon</strong> IDE Inc., <strong>Plasmon</strong> LMS Inc., <strong>Plasmon</strong> OMS, <strong>Plasmon</strong> Data Sarl and 25% of <strong>Plasmon</strong> Data Srl all <strong>the</strong> interests in <strong>the</strong><br />
principal subsidiaries are held directly by <strong>Plasmon</strong> Plc.<br />
14 S<strong>to</strong>cks<br />
2003 2002<br />
£’000 £’000<br />
Group<br />
Raw materials and consumables 4,143 5,096<br />
Work in progress 2,509 1,889<br />
Finished goods and goods for resale 9,803 11,869<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
38<br />
16,455 18,854
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong> continued<br />
for <strong>the</strong> year ended 31 March 2003<br />
15 Deb<strong>to</strong>rs: amounts falling due within one year<br />
2003 2002<br />
£’000 £’000<br />
Group<br />
Trade deb<strong>to</strong>rs 9,912 10,898<br />
Corporation tax 14 538<br />
O<strong>the</strong>r deb<strong>to</strong>rs 948 1,303<br />
Prepayments and accrued income 4,081 3,122<br />
14,955 15,861<br />
2003 2002<br />
£’000 £’000<br />
Company<br />
Amounts owed by Group undertakings 13,287 22,759<br />
O<strong>the</strong>r deb<strong>to</strong>rs 72 113<br />
16 Credi<strong>to</strong>rs: amounts falling due within one year<br />
13,359 22,872<br />
2003 2002<br />
£’000 £’000<br />
Group<br />
Bank overdraft 4,088 4,901<br />
Bank loans 1,294 262<br />
Obligations under finance leases 1,009 782<br />
Trade credi<strong>to</strong>rs 5,708 8,545<br />
Corporation tax 81 53<br />
O<strong>the</strong>r taxation and social security 182 141<br />
Accruals and deferred income 7,481 7,199<br />
19,843 21,883<br />
2003 2002<br />
£’000 £’000<br />
Company<br />
Bank overdraft 3 –<br />
Trade credi<strong>to</strong>rs 66 21<br />
Corporation tax 7 –<br />
O<strong>the</strong>r taxation and social security 18 19<br />
Accruals and deferred income 45 64<br />
Bank borrowings are secured by fixed and floating charges over <strong>the</strong> Group’s assets.<br />
17 Credi<strong>to</strong>rs: amounts falling due after more than one year<br />
139 104<br />
2003 2002<br />
£’000 £’000<br />
Group<br />
Bank loans 6,006 3,798<br />
Obligations under finance leases 1,735 1,822<br />
Bank loans are secured by fixed and floating charges over <strong>the</strong> Group’s assets.<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
39<br />
7,741 5,620
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong> continued<br />
for <strong>the</strong> year ended 31 March 2003<br />
18 Provisions for liabilities and charges<br />
US<br />
Deferred tax restructuring Total<br />
£’000 £’000 £’000<br />
Group<br />
At 1 April 2002 147 1,206 1,353<br />
Provided in year – 520 520<br />
Utilised in year (116) (1,598) (1,714)<br />
Currency changes – (80) (80)<br />
At 31 March 2003 31 48 79<br />
Deferred tax<br />
All potential deferred tax liabilities have been recognised in <strong>the</strong> <strong>financial</strong> <strong>statements</strong>. These liabilities relate wholly <strong>to</strong> accelerated capital allowances.<br />
Potential deferred tax assets have not been recognised but are set out below:<br />
2003 2002<br />
£’000 £’000<br />
Group<br />
Research and development tax credits 1,149 987<br />
Trading losses 3,623 1,597<br />
Accelerated capital allowances 416 232<br />
O<strong>the</strong>r short term timing differences 569 1,653<br />
The Company had no deferred tax balances at 31 March 2003 and 31 March 2002.<br />
5,757 4,469<br />
US restructuring provision<br />
The US restructing provision was set up during <strong>the</strong> year ended 31 March 2002 as an exceptional cost relating <strong>to</strong> <strong>the</strong> transfer of <strong>the</strong> library<br />
manufacturing facilities previously located in Minneapolis <strong>to</strong> <strong>the</strong> Group’s o<strong>the</strong>r US location in Colorado Springs. During <strong>the</strong> year ended 31 March<br />
2003, additional provisions were made relating <strong>to</strong> <strong>the</strong> transfer of <strong>the</strong> library development facility also originally located in Minneapolis <strong>to</strong> Colorado<br />
Springs. The cash impact of <strong>the</strong> remaining provision is expected <strong>to</strong> be a cash outflow of £48,000 in 2003/4 (2002/3: £1,206,000). Fur<strong>the</strong>r details<br />
of <strong>the</strong> US restructuring costs are given in Note 4.<br />
19 Lease commitments<br />
Obligations under finance leases are repayable as follows:<br />
2003 2002<br />
£’000 £’000<br />
Group<br />
Within one year 1,009 782<br />
One <strong>to</strong> two years 840 754<br />
Two <strong>to</strong> five years 895 1,068<br />
Obligations under operating leases payable in <strong>the</strong> next year where <strong>the</strong> commitment expires as follows:<br />
2,744 2,604<br />
2003 2002<br />
£’000 £’000<br />
Group<br />
Within one year 253 163<br />
One <strong>to</strong> two years 24 71<br />
Two <strong>to</strong> five years 903 1,110<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
40<br />
1,180 1,344
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong> continued<br />
for <strong>the</strong> year ended 31 March 2003<br />
Included in <strong>the</strong> above is <strong>the</strong> following amount for <strong>the</strong> lease of land and buildings:<br />
2003 2002<br />
£’000 £’000<br />
Group<br />
Within one year 72 137<br />
One <strong>to</strong> two years – 71<br />
Two <strong>to</strong> five years 902 917<br />
20 Called-up share capital<br />
974 1,125<br />
2003 2002<br />
£’000 £’000<br />
Authorised<br />
80,000,000 Ordinary shares of 5p each (2002: 75,000,000) 4,000 3,750<br />
Allotted, called-up and fully paid<br />
54,142,704 Ordinary shares of 5p each (2002: 51,064,957) 2,707 2,553<br />
During <strong>the</strong> year <strong>the</strong> Company issued 2,553,247 5p Ordinary shares following a 5% placing <strong>to</strong> fund <strong>the</strong> UDO drive and media development<br />
programme. A fur<strong>the</strong>r 524,500 5p Ordinary shares were issued upon <strong>the</strong> exercise of employee share options. Net of expenses <strong>the</strong> £2,051,000 of<br />
cash received in <strong>to</strong>tal represented £154,000 of nominal value and £1,897,000 of share premium.<br />
The Company operates share option schemes for Direc<strong>to</strong>rs and employees. Options <strong>to</strong> purchase <strong>the</strong> Company’s 5p Ordinary shares in issue at<br />
31 March 2003 were as follows:<br />
Subscription Number Number<br />
price per of shares of shares<br />
share 1 April 2002 Granted Exercised Cancelled 31 March 2003 Periods within which exercisable<br />
£1.25 132,000 – – 132,000 – 14 April 1995 and 13 April 2002<br />
£2.50 90,000 – – 90,000 – 14 April 1995 and 13 April 2002<br />
£1.25 187,000 – – – 187,000 21 May 1996 and 20 May 2003<br />
£2.50 80,000 – – – 80,000 21 May 1996 and 20 May 2003<br />
£1.25 40,000 – – – 40,000 5 September 1997 and 4 September 2004<br />
£2.50 20,000 – – – 20,000 5 September 1997 and 4 September 2004<br />
£1.25 47,500 – – 27,500 20,000 9 April 1999 and 8 April 2006<br />
£2.50 121,914 – – 59,000 62,914 9 April 1999 and 8 April 2006<br />
£1.25 30,000 – – 5,000 25,000 20 June 1999 and 19 June 2006<br />
£2.50 20,000 – – 10,000 10,000 20 June 1999 and 19 June 2006<br />
£0.465 227,000 – 99,500 44,000 83,500 15 November 2000 and 14 November 2007<br />
£0.465 57,000 – – – 57,000 15 November 2000 and 14 November 2004<br />
£0.77 1,995,000 425,000 123,000 1,447,000 13 January 2002 and 12 January 2009<br />
£1.37 360,000 – – 150,000 210,000 5 August 2002 and 4 August 2009<br />
£2.74 25,000 – – 25,000 – 15 February 2003 and 14 February 2010<br />
£1.14 805,250 – – 169,000 636,250 21 December 2003 and 20 December 2010<br />
£0.765 1,470,000 36,000 1,434,000 22 December 2004 and 21 December 2011<br />
£0.875 927,500 – – 927,500 18 June 2005 and 17 June 2012<br />
£0.765 542,000 – – 542,000 29 July 2005 and 28 July 2012<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
5,707,664 1,469,500 524,500 870,500 5,782,164<br />
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
41
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong> continued<br />
for <strong>the</strong> year ended 31 March 2003<br />
1,469,500 share options were granted during <strong>the</strong> year under <strong>the</strong> 1998 Employee Share Option Scheme (<strong>the</strong> "1998 Scheme"). The 1998<br />
Scheme allows for <strong>the</strong> granting of share options up <strong>to</strong> 15% of <strong>the</strong> issued ordinary share capital, normally within 42 days following <strong>the</strong><br />
preliminary announcement of <strong>the</strong> final or interim results of <strong>the</strong> Company. No payment is required for <strong>the</strong> grant of <strong>the</strong> share options and<br />
subscription price per share is set at prevailing market rates. These options, as with those issued during <strong>the</strong> previous year, require <strong>the</strong> launch of<br />
UDO drives and media before <strong>the</strong> options can be exercised.<br />
The share options granted in <strong>the</strong> four years ended 31 March 2001 (at subscription prices per share of £0.465, £0.77, £1.37, £2.74 and £1.14)<br />
also have performance criteria attached <strong>to</strong> <strong>the</strong>m. Exercise of <strong>the</strong>se share options is conditional on earnings per share for <strong>the</strong> Group over any<br />
three consecutive years following grant having grown by an average of at least 6 percentage points above inflation. The earnings per share<br />
criteria will be adjusted <strong>to</strong> remove <strong>the</strong> impact of <strong>the</strong> UDO programme. In addition group profits for any <strong>financial</strong> year have <strong>to</strong> exceed <strong>the</strong> levels<br />
shown in <strong>the</strong> table below:<br />
Granted during Subscription price<br />
<strong>the</strong> year ended per share Measure of group profits Level of group profits<br />
31 March 1998 £0.465 Before interest and tax £1 million<br />
31 March 1999 £0.77 Before goodwill amortisation,<br />
interest, tax and exceptional items £2.5 million<br />
31 March 2000 £1.37 Before goodwill amortisation, £2.5 million<br />
£2.74 interest, tax and exceptional items £4.0 million<br />
31 March 2001 £1.14 Before goodwill amortisation, £7.0 million<br />
interest, tax and exceptional items<br />
The performance criteria attached <strong>to</strong> <strong>the</strong> share options granted during <strong>the</strong> year ended 31 March 1998 and 1999 have been met. The share<br />
options granted at £1.25 and £2.50 do not have performance conditions attached <strong>to</strong> <strong>the</strong>m.<br />
21 Reserves<br />
Share premium Profit and loss<br />
account account<br />
£’000 £’000<br />
Group<br />
At 1 April 2002 40,172 (1,568)<br />
Premium on share placing 1,634 –<br />
Issue costs of share placing (84) –<br />
Premium on exercise of share options 347 –<br />
Currency translation differences – (1,563)<br />
Retained loss for <strong>the</strong> year – (3,406)<br />
At 31 March 2003 42,069 (6,537)<br />
Cumulative goodwill arising on consolidation which has been written off <strong>to</strong> reserves amounted <strong>to</strong> £1,301,500 at 31 March 2003 and 31 March<br />
2002.<br />
Share Profit<br />
premium O<strong>the</strong>r and loss<br />
account reserves account<br />
£’000 £’000 £’000<br />
Company<br />
At 1 April 2002 40,172 1,116 (2,939)<br />
Premium on share placing 1,634 – –<br />
Issue costs of share placing (84) – –<br />
Premium on exercise of share options 347 – –<br />
Retained loss for <strong>the</strong> year – – (247)<br />
At 31 March 2003 42,069 1,116 (3,186)<br />
There were no distributable reserves at 31 March 2003 and 2002.<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
42
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong> continued<br />
for <strong>the</strong> year ended 31 March 2003<br />
22 Reconciliation of operating loss <strong>to</strong> net cash inflow from operating activities<br />
2003 2002<br />
£’000 £’000<br />
Operating loss (2,649) (5,758)<br />
Amortisation of intangible fixed assets 1,307 1,266<br />
Depreciation of tangible fixed assets 4,700 4,577<br />
(Profit)/loss on sale of fixed assets (24) 32<br />
Decrease/(increase) in s<strong>to</strong>cks 1,214 (4,085)<br />
Decrease/(increase) in trade deb<strong>to</strong>rs 575 (34)<br />
Increase in prepayments and o<strong>the</strong>r deb<strong>to</strong>rs (1,011) (2,527)<br />
(Decrease)/increase in trade credi<strong>to</strong>rs (2,252) 1,417<br />
Increase/(decrease) in o<strong>the</strong>r taxation and social security 41 (7)<br />
Increase in accruals and deferred income 845 3,557<br />
(Decrease)/increase in provisions for liabilities and charges (1,194) 1,223<br />
O<strong>the</strong>r non-cash items (628) (60)<br />
Net cash inflow/(outflow) from operating activities 924 (399)<br />
23 Analysis of net debt<br />
Inception Foreign<br />
At 1 April Cash of finance exchange At 31 March<br />
2002 flow leases gain/(loss) 2003<br />
£’000 £’000 £’000 £’000 £’000<br />
Cash at bank and in hand 1,668 (562) – 65 1,171<br />
Overdrafts (4,901) 373 – 440 (4,088)<br />
(3,233) (189) – 505 (2,917)<br />
Debt due within one year (262) (1,045) – 13 (1,294)<br />
Debt due after one year (3,798) (2,360) – 152 (6,006)<br />
Finance leases due within one year (782) 494 (706) (15) (1,009)<br />
Finance leases due after one year (1,822) 877 (733) (57) (1,735)<br />
Net debt (9,897) (2,223) (1,439) 598 (12,961)<br />
24 Financial instruments<br />
The following information, with <strong>the</strong> exception of that concerning currency exposures, excludes short term deb<strong>to</strong>rs and credi<strong>to</strong>rs. Narrative<br />
disclosures explaining <strong>the</strong> role that <strong>the</strong> <strong>financial</strong> instruments play in creating and changing <strong>the</strong> risks faced by <strong>the</strong> group in its activities <strong>to</strong>ge<strong>the</strong>r with<br />
an explanation of <strong>the</strong> direc<strong>to</strong>rs’ approach <strong>to</strong> managing <strong>the</strong>se risks, are given in paragraphs 5 <strong>to</strong> 10 on page 16 within <strong>the</strong> Finance Direc<strong>to</strong>r’s review<br />
under <strong>the</strong> heading of Financial Instruments. No derivatives have been utilised <strong>to</strong> hedge ei<strong>the</strong>r foreign exchange or interest rate movements and<br />
<strong>the</strong>refore <strong>the</strong>re are no unrecognised gains or losses.<br />
Financial assets<br />
The interest rate and currency profiles of <strong>the</strong> Group’s <strong>financial</strong> assets, excluding short term deb<strong>to</strong>rs were:<br />
Floating Non-interest Floating Non-interest<br />
rate bearing Total rate bearing Total<br />
2003 2003 2003 2002 2002 2002<br />
£’000 £’000 £’000 £’000 £’000 £’000<br />
Currency<br />
Sterling 283 25 308 543 41 584<br />
US dollar 241 77 318 189 229 418<br />
O<strong>the</strong>r – 545 545 – 666 666<br />
524 647 1,171 732 936 1,668<br />
The <strong>financial</strong> assets shown in <strong>the</strong> table above consist solely of cash at bank and in hand. The US dollar denominated floating rate deposits earn<br />
interest based on US prime rates.<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
43
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong> continued<br />
for <strong>the</strong> year ended 31 March 2003<br />
Financial liabilities<br />
The Group’s <strong>financial</strong> liabilities, excluding short term credi<strong>to</strong>rs were:<br />
2003 2002<br />
£’000 £’000<br />
Bank overdraft 4,088 4,901<br />
Bank loans 7,300 4,060<br />
Obligations under finance leases 2,744 2,604<br />
US restructuring provision 48 1,206<br />
14,180 12,771<br />
The interest rate and currency profiles of <strong>the</strong>se <strong>financial</strong> liabilities were:<br />
Floating Non-interest Fixed Floating Non-interest Fixed<br />
rate bearing rate Total rate bearing rate Total<br />
2003 2003 2003 2003 2002 2002 2002 2002<br />
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000<br />
Currency<br />
Sterling 6,797 – 1,069 7,866 2,540 – 1,593 4,133<br />
US dollar 5,546 48 68 5,662 6,721 1,206 – 7,927<br />
Euro – – 652 652 – – 711 711<br />
12,343 48 1,789 14,180 9,261 1,206 2,304 12,771<br />
The sterling and US dollar denominated floating rate liabilities consist principally of bank overdrafts and loans that bear interest based on UK Base<br />
and US Prime rates respectively.<br />
The sterling denominated fixed rate liabilities are obligations under finance leases that have a weighted average interest rate of 7.3% (2002: 7.3%)<br />
and a weighted average period of 2.4 years (2002: 3.4 years) until <strong>the</strong> end of <strong>the</strong> leases. The Euro denominated fixed rate liabilities are obligations<br />
under a finance lease that has a weighted average interest rate of 6.5% (2002: 6.5%) and a weighted average period of 3.8 years (2002: 4.8 years)<br />
until <strong>the</strong> end of <strong>the</strong> lease.<br />
The US restructuring provision consists principally of building rental costs that will be paid within one year.<br />
Maturity of <strong>financial</strong> liabilities<br />
The maturity profile of <strong>the</strong> Group’s <strong>financial</strong> liabilities was as follows:<br />
2003 2002<br />
£’000 £’000<br />
In one year or less, or on demand 6,439 7,151<br />
In more than one year but not more than two years 2,136 1,041<br />
In more than two years but not more than five years 2,809 1,926<br />
In more than five years 2,796 2,653<br />
14,180 12,771<br />
The UK bank loans denominated in sterling and US dollars <strong>to</strong>tal £7,300,000 (2002: £4,060,000) and have a weighted average repayment period<br />
of 9.4 years (14.3 years).<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
44
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong> continued<br />
for <strong>the</strong> year ended 31 March 2003<br />
Currency exposures<br />
The table below shows <strong>the</strong> extent <strong>to</strong> which Group companies have monetary assets and liabilities in currencies o<strong>the</strong>r than <strong>the</strong>ir local currency.<br />
Foreign exchange differences on <strong>the</strong> translation of <strong>the</strong>se assets and liabilities are taken <strong>to</strong> <strong>the</strong> profit and loss account.<br />
Foreign currency monetary assets/(liabilities) at 31 March 2003<br />
O<strong>the</strong>r<br />
Sterling US dollars Euro zone currencies Total<br />
£’000 £’000 £’000 £’000 £’000<br />
Functional currency of Group company<br />
Sterling – (1,623) 3,476 (5) 1,848<br />
US dollar – – – – –<br />
Foreign currency monetary assets/(liabilities) at 31 March 2002<br />
– (1,623) 3,476 (5) 1,848<br />
O<strong>the</strong>r<br />
Sterling US dollars Euro zone currencies Total<br />
£’000 £’000 £’000 £’000 £’000<br />
Functional currency of Group company<br />
Sterling – (887) 696 (2) (193)<br />
US dollar – – – – –<br />
– (887) 696 (2) (193)<br />
Borrowings facilities<br />
To manage <strong>the</strong> liquidity risk <strong>the</strong> Group has arranged various borrowing facilities. These facilities have various asset related covenants and <strong>the</strong>refore<br />
<strong>the</strong> available facilities may be limited.<br />
Maximum Maximum<br />
potential Available Undrawn potential Available Undrawn<br />
facility facility facility facility facility facility<br />
2003 2003 2003 2002 2002 2002<br />
£’000 £’000 £’000 £’000 £’000 £’000<br />
Sterling facilities 7,000 5,867 2,867 2,500 2,500 2,460<br />
US dollar facilities 6,325 5,843 2,189 6,954 6,609 1,748<br />
Total 13,325 11,710 5,056 9,454 9,109 4,208<br />
In March 2003 <strong>the</strong> £2,500,000 HSBC overdraft facility was replaced with a £7,000,000 debt and working capital facility with Venture Finance PLC<br />
that is committed for three years.<br />
The sterling and US dollar overdrafts are renewable on 13 April 2006 and 8 May 2004 respectively (2002: 3 April 2003 and 30 September 2003).<br />
Fair values of <strong>financial</strong> assets and <strong>financial</strong> liabilities<br />
Due <strong>to</strong> <strong>the</strong> floating rate and short term nature of <strong>the</strong> majority of <strong>the</strong> Group’s <strong>financial</strong> assets and liabilities <strong>the</strong>re are no material differences between<br />
<strong>the</strong>ir book and fair values.<br />
25 Capital commitments and contingent liabilities<br />
At 31 March 2003 <strong>the</strong> Group had contracted but not provided for capital commitments of £1,956,000 (2002: £1,553,000).<br />
Guarantees have been given by <strong>the</strong> Company <strong>to</strong> finance companies, where amounts owned by <strong>Plasmon</strong> Data Systems Limited under sale and<br />
lease-back transactions are payable on demand. Total amounts outstanding at 31 March 2003 were £2,599,000 (2002: £2,376,000).<br />
The Company guarantees a working capital facility provided by Silicon Valley Bank on behalf of <strong>Plasmon</strong> Data Inc and subsidiaries for a <strong>to</strong>tal value<br />
of US$10,000,000.<br />
The Company has given a guarantee <strong>to</strong> Sony Electronics Inc in favour of <strong>Plasmon</strong> Data Inc <strong>to</strong> cover all amounts outstanding. At 31 March 2003<br />
US$579,440 was outstanding (2002: US$1,029,850).<br />
The Company has given an unlimited Deed of Guarantee and Indemnity <strong>to</strong> Venture Finance PLC covering <strong>the</strong> Company, <strong>Plasmon</strong> Data Systems<br />
Limited and <strong>Plasmon</strong> Data Limited <strong>to</strong> secure all loans and facilities of each o<strong>the</strong>r. At 31 March 2003, £3,000,000 was outstanding.<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
45
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong> continued<br />
for <strong>the</strong> year ended 31 March 2003<br />
The Company has given an unlimited Multilateral Guarantee <strong>to</strong> HSBC Bank plc covering <strong>Plasmon</strong> Data Systems Limited, Alls<strong>to</strong>r Software Limited<br />
and <strong>Plasmon</strong> Data Limited <strong>to</strong> secure all bank loans and overdrafts of each o<strong>the</strong>r. At 31 March 2003, £3,765,000 was outstanding<br />
(2002: £2,903,000).<br />
The Company guarantees a mortgage provided by <strong>the</strong> Cambridge Building Society <strong>to</strong> <strong>Plasmon</strong> Data Systems Limited. The <strong>to</strong>tal amount<br />
outstanding at 31 March 2003 was £535,000 (2002: nil)<br />
The Company has a contingent liability in respect of employer’s National Insurance contributions on certain Unapproved Share Options Schemes.<br />
At 31 March 2003 no amount was accrued (2002: £nil). A 10% rise in <strong>the</strong> Company’s share price above <strong>the</strong> option price of £1.36 would require a<br />
provision of £3,000.<br />
26 Pension Commitments<br />
The Group operates three pension schemes of a defined contribution nature (including two 401K plans in <strong>the</strong> United States) and also makes<br />
contributions <strong>to</strong> <strong>the</strong> private pension plans of a small number of employees (including <strong>the</strong> two executive Direc<strong>to</strong>rs). The <strong>to</strong>tal pension cost charge<br />
relating <strong>to</strong> <strong>the</strong>se arrangements was £515,000 (2002: £596,000). There were no material outstanding or prepaid contributions in respect of <strong>the</strong>se<br />
arrangements at ei<strong>the</strong>r 31 March 2003 or 31 March 2002.<br />
The Group also operates a pension scheme of a defined benefit nature for <strong>the</strong> US employees who transferred from Philips as part of <strong>the</strong><br />
acquisition of Philips LMS. In May 2002, <strong>the</strong> Group announced <strong>the</strong> freezing of benefits in this scheme, before on 31 December 2002, announcing<br />
<strong>the</strong> termination of <strong>the</strong> scheme, which should be completed by 31 March 2004. As a result of <strong>the</strong> termination, a net pension credit was recorded in<br />
<strong>the</strong> year ended 31 March 2003 of £91,000 (2002 cost: £285,000). In setting <strong>the</strong> funding policy of <strong>the</strong> scheme, <strong>the</strong> actuarial method used was <strong>the</strong><br />
projected unit cost method and <strong>the</strong> main actuarial assumptions used were that <strong>the</strong> investment return will be 8.00% (2002: 8.75%) and that <strong>the</strong><br />
pensionable salaries would increase by a weighted average of 4.69% (2002: 4.69%). As part of <strong>the</strong> termination planning, a formal actuarial<br />
valuation has been performed that shows <strong>the</strong>re is no material difference between <strong>the</strong> fund’s assets and its accrued liabilities. There were<br />
outstanding contributions of £167,000 in respect of this scheme at 31 March 2003 (2002: £460,000).<br />
The assets of all <strong>the</strong> Group’s pension schemes are held separately from those of <strong>the</strong> Group.<br />
The Company has continued <strong>to</strong> account for pensions in accordance with SSAP 24 “Accounting for Pension Costs”. The new standard for pension<br />
accounting, FRS 17 “Retirement Benefits”, is not yet manda<strong>to</strong>ry, however, <strong>the</strong> Company is following <strong>the</strong> extended transitional arrangements under<br />
which additional disclosures on retirement benefits are required. These disclosures are as follows:<br />
The Group operates a defined benefit scheme in <strong>the</strong> US. A full actuarial valuation was carried out at 31 March 2003 by qualified independent<br />
actuaries. The main <strong>financial</strong> assumptions used in <strong>the</strong> valuation of <strong>the</strong> liabilities of <strong>the</strong> company’s pension schemes under FRS 17 are:<br />
31 March 31 March<br />
2003 2002<br />
Rate of increase in salaries 4.69% pa 4.69% pa<br />
Rate of increase in pensions in payment 0% pa 0% pa<br />
Discount rate 5.5% pa 7% pa<br />
Inflation assumption 3.0% pa 3% pa<br />
The assets in <strong>the</strong> scheme and <strong>the</strong> expected rate of return were:<br />
Long term Long term<br />
rate of return Value at rate of return Value at<br />
expected 31 March expected 31 March<br />
at 31 March 2003 at 31 March 2002<br />
2003 £’000 2002 £’000<br />
Contributions due 0% pa 167 0% pa 460<br />
Equities 8.5% pa 448 9.5% pa 444<br />
Bonds 5.5% pa 156 6.5% pa 162<br />
O<strong>the</strong>r (mainly property) 7.8% pa 55 8.8% pa 55<br />
Total 826 1,121<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
46
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong> continued<br />
for <strong>the</strong> year ended 31 March 2003<br />
The following amounts at 31 March 2003 were measured in accordance with <strong>the</strong> requirements of FRS 17:<br />
31 March 31 March<br />
2003 2002<br />
£’000 £’000<br />
Total market value of assets 826 1,221<br />
Present value of scheme liabilities (710) (1,402)<br />
Surplus/(deficit) in <strong>the</strong> scheme 116 (281)<br />
Related deferred tax (liability)/asset (46) 112<br />
Net pension surplus/(deficit) 70 (169)<br />
Analysis of amounts (credited)/charged <strong>to</strong> operating profit in respect of defined benefit schemes<br />
Current service 65<br />
Past service cost –<br />
Curtailment gain (728)<br />
Total operating credit (663)<br />
Analysis of <strong>the</strong> amount credited <strong>to</strong> o<strong>the</strong>r finance income<br />
Expected return on pension scheme assets 60<br />
Interest on pension scheme liabilities (50)<br />
Net return 10<br />
Analysis of amount recognised in statement of <strong>to</strong>tal recognised gains and losses<br />
Actual return less expected return on pension scheme assets (153)<br />
Experience gains and losses arising on <strong>the</strong> scheme liabilities (115)<br />
Changes in <strong>the</strong> assumptions underlying <strong>the</strong> present value of <strong>the</strong> scheme liabilities (195)<br />
Actuarial loss recognised in statement of <strong>to</strong>tal recognised gains and losses (463)<br />
Movement in surplus/(deficit) during <strong>the</strong> year<br />
Deficit in scheme at <strong>the</strong> beginning of year (281)<br />
Movement:<br />
Current service cost (65)<br />
Contributions 165<br />
Past service cost –<br />
O<strong>the</strong>r finance income 10<br />
Actuarial loss (463)<br />
Curtailment gain 728<br />
Foreign exchange gain 22<br />
Surplus in scheme at end of year 116<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
47<br />
2003<br />
£’000<br />
2003<br />
£’000<br />
2003<br />
£’000<br />
2003<br />
£’000
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong> continued<br />
for <strong>the</strong> year ended 31 March 2003<br />
His<strong>to</strong>ry of experience losses<br />
Difference between <strong>the</strong> expected and actual return on scheme assets:<br />
Amount (£’000) (153)<br />
Percentage of scheme assets at 31 March 2003 (18.2%)<br />
Experience losses of scheme liabilities:<br />
Amount (£’000) (115)<br />
Percentage of scheme assets at 31 March 2003 (15.9%)<br />
Total amount recognised in statement of <strong>to</strong>tal recognised gains and losses:<br />
Amount (£’000) (463)<br />
Percentage of scheme assets at 31 March 2003 (64.1%)<br />
If <strong>the</strong> above amounts had been recognised in <strong>the</strong> <strong>financial</strong> <strong>statements</strong>, <strong>the</strong> group’s net assets and profit and loss reserve at 31 March 2003 would<br />
be as follows:<br />
31 March 31 March<br />
2003 2002<br />
£’000 £’000<br />
Net assets<br />
Net assets excluding net pension surplus/(deficit) under SSAP 24 38,239 41,157<br />
Pension surplus/(deficit) under FRS 17 70 (169)<br />
Net assets including net pension surplus/(deficit) under FRS 17 39,309 40,988<br />
Reserves<br />
Profit and loss account recognised in <strong>the</strong> <strong>financial</strong> <strong>statements</strong> (6,537) (1,568)<br />
Pension surplus/(deficit) under FRS 17 70 (169)<br />
Profit and loss account including net pension surplus/(deficit) under FRS 17 (6,467) (1,737)<br />
<strong>Plasmon</strong> Plc<br />
Annual Report 2003<br />
<strong>Notes</strong> <strong>to</strong> <strong>the</strong> <strong>financial</strong> <strong>statements</strong><br />
48
Direc<strong>to</strong>rs<br />
John Barrie Morgans<br />
(Chairman)<br />
Nigel Street<br />
Timothy Arthur<br />
Henri Zinsli (Switzerland)<br />
Chris<strong>to</strong>pher McFadden<br />
Secretary<br />
Timothy Arthur<br />
Registered No 2100291<br />
Registered Office<br />
Whiting Way<br />
Melbourn<br />
Nr Roys<strong>to</strong>n<br />
Hertfordshire<br />
SG8 6EN<br />
Audi<strong>to</strong>rs<br />
PricewaterhouseCoopers LLP<br />
1 Embankment Place<br />
London<br />
WC2N 6RH<br />
Principal Bankers<br />
Venture Finance Plc<br />
Sussex House<br />
Perrymount Road<br />
Haywards Heath<br />
West Sussex<br />
RH16 1DN<br />
HSBC Bank Plc<br />
City Office<br />
Cambridge<br />
CB2 3HZ<br />
Silicon Valley Bank<br />
4410 Araphoe Avenue<br />
Suite 200<br />
Boulder<br />
CO 80303<br />
United States of America<br />
Solici<strong>to</strong>rs<br />
SJ Berwin<br />
222 Grays Inn Road<br />
London<br />
WC1X 8HB<br />
Financial Advisers<br />
Investec Investment Banking<br />
Corporate Finance Department<br />
2 Gresham Street<br />
London<br />
EC2V 7QP<br />
S<strong>to</strong>ckbrokers<br />
Investec Securities<br />
2 Gresham Street<br />
London<br />
EC2V 7QP<br />
Registrars<br />
Capita Registrars<br />
34 Beckenham Road<br />
Beckenham<br />
Kent<br />
BR3 4TU<br />
Shareholder helpline: 0870 162 3100<br />
www.capitaregistrars.com
<strong>Plasmon</strong> Plc<br />
Whiting Way<br />
Melbourn<br />
Hertfordshire<br />
SG8 6EN<br />
Telephone 01763 261466<br />
Facsimile 01763 260336<br />
Internet: www.plasmon.co.uk<br />
Email: sales@plasmon.co.uk<br />
<strong>Plasmon</strong> Inc<br />
4425 Arrowswest Drive<br />
Colorado Springs<br />
CO 80907-3489<br />
USA<br />
Telephone 001 719 593 7900<br />
Facsimile 001 719 593 4597<br />
Internet: www.plasmon.com<br />
Email: sales@plasmon.com<br />
P asmon P c Annua Report 2003