Registered number: M Health Care Limited Annual report and financial statements for the year ended 31 December 201 0

Transcription

1 Registered number: M Health Care Limited Annual report and financial statements for the year ended 31 December 201 0

2 Annual report and financial statements for the year ended 31 December 2010 Contents Directors' report Independent auditors' report Profit and loss account Statement of total recognised gains and losses Balance sheet Noles to the financial statements Pages

3 1 Directors' report for the year ended 31 December 2010 The directors present their report and lhe audited financial statements of the company for the year ended 31 December Principal activities 3M Health Care Limited manufactures, procures and markets products thai serve markets that include medical clinics and hospitals, pharmaceuticals, dental and orthodontic practitioners, and health information systems. Products and services provided to these and other markets are internally categorised and managed as "Drug Delivery Systems~ ("DDSD~), "Medical" (comprising of skin and wound products, infection prevention products, food safety products and health information systems), "Oral Care" (comprising of dental and orthodontic products), and "Other Markets". From July 2010 following the strategic change in direction by the ultimate parent company regarding the DDSD business, the UK operations of the DDSD business ceased to trade directly with its former third party customers and instead entered into various sub contract arrangements with 3M Innovation Singapore PTE Ltd ("3M IS") to process materials supplied by 3MIS on their behalf. Review of business and future developments The change in DDSD global strategic direction was supported by the Board of Directors as being in the best long term interests of 3M Health Care Limited and to help secure the additional manufacturing opportunities that the global DDSD business aim to achieve through better penetration of the markets in the Asia Pacific territory. This decision was also supported on the basis of changing demands seen in the European Markets previously served by the DDSD business in the UK which indicated that changes in strategic direction were necessary to secure the longer term future of the UK DDSD business and also on the basis that the Intellectual Property (IP) required to develop and manufacture such products is only licensed in by 3M Health Care Ltd from another group company,_ This has effectively transformed the DDSD business in the UK to selling manufacturing and R&D services instead of product, but has reduced the risk profile that it previously carried. The other Health Care businesses in the UK remain unaffected by these changes which are specifically targeted and confined to the DDSD business. In order to facilitate better understanding of the financial performance of the company in 2010 and to ensure compliance with UK reporting requirements, the DDSD business operated under the framework prevailing in the period from January to June 2010 has been classified as "discontinued operations". The DDSO business from July to December 2010 conducted under the terms of the new arrangements with 3MIS is included as Continued Operations together with the Medical, Oral care and Other Markets business which are included for the full reporting period. For 2009 all of the DDSO business has been reclassified as "discontinued operations" to facilitate comparisons.

4 Directors' report 2 Review of business and future developments (continued) Business environment, strategy and key performance indicators Key Indices Key Indices Deflnltion j method of calculation Continued Total Contin Total ued Sales Growth % 18.1% -7.0% nla 18.6% Year-an-year sales growth expressed as a percentage Gross Profit % 26.3% 28.7% 29.0% 37.3% Gross Profit is the ratio of sales less cost of sales before exceptional costs expressed as a percentage of sales Operating Expenses % 10.0% 11.3% 10.5% 12.3% Operating Expenses before exceptional items expressed as a percentage of sales Operating Profit % 16.3% 17.4% 18.5% 24.90/0 Operating Profit before exceptional items expressed as a percentage of sales Overall sales growth in the year was -7.0% including the discontinued OOSO business or 30.6% excluding it. The core Medical and Oral Care business showed steady growth of 6.3% and 10.6% respectively which given the uncertain economic backdrop that prevailed is considered to be a successful performance. In 2009 the main driver for growth had been in respect of demand for products required lor personal protection from the Swine Flu Influenza (H1N1) epidemic which was not repeated 10 the same extent in 2010 causing a reduction in Other Markets of -72.2%, which although disappointing was slightly belter than had been forecasted for the year. The apparent growth in Continued Operations for 2010 is attributable to the inclusion of six months worth of sales with 3MIS which is not included in the 2009 comparatives. The overall change In gross prolit as a percentage of sales is mainly attributable to the change in the ODSO business model which changed to a ~cost plus" bitting model. Although this generates a lower gross profit % than previously enjoyed, it does have benefits in protecting the OOSO business from many of the risks previously experienced. The comparison on continued Operations is more meaningful, and the slight drop year on year is mainly attributable 10 the inclusion of the six months worth of lower margin 3MIS sales in 2010, without there being similar sales in Operating expenses decreased as a percentage 01 sales which was as a result 01 efforts 10 examine and control costs effectively in challenging times and also from lower pension cost charges than had been experienced in Operating Prolil decreased to 17.4% for the year or 16.3% in respect of the Continuing Operations. The change in the OOSO business model accounts for the significant change seen on a year on year basis, and sets the tone for expectations going forward..

5 Directors' report 3 Review of business and future developments (continued) Outlook The main priorities for 2011 continue 10 be Continuing to build on the underlying growth trends across all divisions; Incremental growth through strategic group acquisitions; Improving gross margins and maintaining the good cost disciplines of the company; Flawless execution and operational excellence combined with good business conduct and legal compliance; and Creating an environment where creativity is strongly encouraged and increases the number of new products launched, whilst reducing the lime to market on such new product introductions. Principal risks and uncertainties 3M Health Care Limited produces diverse products for a wide range of markets and is thus well positioned to withstand sudden downturns in any single business area. Performance is monitored on a regular basis and appropriate actions taken. Financial risk management The company's operations expose it to a variety of financial risks that include the effects of changes in debt market prices, credit risk, liquidity risk and interest rate risk. The company has in place a risk management programme that seeks to limit the adverse effects on the financial perlormance of the company by monitoring levels of debt finance and the related finance costs. The change in the DDSD business model has significantly removed or reduced the risk in about half of the overall business. In order to ensure stability of cash out flows and hence manage interest rale risk, the company has a policy of obtaining any necessary funding from within the 3M group where interest is chargeable at the USOR rate. Price risk The company is exposed to commodity price risk as a result of its operations. The company sourcing department negotiates fixed price contracts whenever feasible. The change in the DDSD business model has reduced the exposure by about hall. The company has no exposure to equity securities price risk as it holds no listed or other equity investments. Credit risk The company has implemented policies that require appropriate credit checks on potential customers before sales are made. The amount of exposure to any individual counterparty is subject to a limit, which is reassessed annually by the directors. The change in the DDSD business model has reduced the exposure by about half The Customer Financial Services Department will notify the directors of any concerns regarding the financial stability of customers. Liquidity risk The company obtains any necessary finance from within the 3M group. Interest is chargeable at the USOR rate.

6 Directors' report 4 Review of business and future developments (continued) Interest rate cash fjow risk The company has both inlerest bearing assets and interest bearing liabilities. Interest bearing assets include cash balances and intergroup loans, all of which earn inlerest at a variable rate. The company has a policy of obtaining debt finance from within the 3M group and operates a cash pooling policy on company cash balances. This policy is considered appropriate considering the size and nature of the company operations. Results and dividends The profit and loss account for the year is set out on page 9. There have been nil interim dividends paid (2009: nil). Nil final dividend (2009: Enil) is proposed. Charitable contributions Charitable contributions paid during the year amounted to 105,622 (2009: 60,737). The purposes lor which these contributions were given are: Environment Education Relief of suffering ,525 39,682 53, , ,666 24,130 32,941 60,737 The company did not make any political contributions during the year. Research and development The company has a strong commitment to research and development, the cost of which is mainly borne by the ultimate parent company, 3M Company, USA. Directors The directors of the company al 31 December 2010, all of whom have been directors for the year ended on that date and up to the date of signing the financial statements unless otherwise stated, are listed below: K Brownlee (resigned 29 April 201 1) M Chambers S Evans o Gray (appointed 29 April 2011) D Mitchell (resigned 31 March 2010) G M Stapleton (resigned 29 April 2011) P Williams J McSheffrey (appointed 13 April 2010) o Smith (appointed 11 May 2010)

7 5 Directors' report Directors' indemnities The company maintains liability insurance for ils directors and officers in accordance with the Articles of the company. The company has also provided an indemnity for jts directors and the secretary, which is a qualifying third party indemnity provision for the purposes of the Companies Act Employment policy 11 is the policy of the company that disabled people shall be considered for all job vacancies and subsequent career and promotion opportunities on the basis of their aptitudes and abilities. The company continues to assist with the retraining and rehabilitation of slaff who become disabled whilst in the company's employment. Additionally, it is the policy of the company that there shall be no unjustifiable discrimination in any aspect of employment on the grounds of race, colour, religion, national origin, gender or marital status. Employee involvement The company continues to attach great importance to the quality of its communications with all employees. Employees are provided with information about the performance of the company through regular management briefing notes. More specific issues are communicated by means of corporate or divisional publications and videos. RegUlar consultation takes place with employees concerning work methods and organisation so that their views can be taken into account in all matters which may affect their interests. The company also encourages involvement of employees in the company's performance by offering schemes such as General Employee Stock Purchase Plan, Management Stock Option Plan, performance related pay and annual incentive programmes. Creditor payment polley The company is a registered supporter of the Better Payment Practice Group's 'Better Payment Practice Code' to which it subscribes when dealing with the majority of its trade creditors. Copies of the Better Payment Practice Group's code are available from the Department of Trade and Industry. For other suppliers, the company's policy is to: (a) (b) (c) settle the terms of payment with those suppliers when agreeing the terms of each transaction; ensure that those suppliers are made aware of the terms of payment by inclusion of the relevant terms in contracts; and pay in accordance with its contractual and other legal obligations. The payment policy applies to all payments to creditors for revenue and capital supplies of goods and services w~hout exception. The company's average creditor payment period at 31 December 2010 was 52 days (2009: 54 days).

8 6 Directors' report Post balance sheet event Further to the changes to the UK corporation tax system that were announced in the June 2010 Emergency Budget Statement, and partially substantively enacted at the balance sheet date, the March 2011 Budget Statement announced an additional change, effective 1 April The enacted parts have been reflected in the financial statements. The cumulative effect of these changes would be to reduce the deferred tax asset at 31 December 2010 by a maximum of 0.8 million. This decrease in deferred lax is due to the reduction in the corporation lax rate from 28% to 26% with effect from 1 April 2011 with further reductions to the main rate proposed to reduce the rale by 1% per annum to 23% by 1 April 2014, Statement of directors' responsibilities in respect of the Annual Report and the financial statements The directors are responsible for preparing the Directors' report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the company's website. legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Statement of disclosure of infonnation to auditors So far as each director in office at the date of approval is aware, there is no relevant audit information (that is, information needed by the company's auditors in connection with preparing their report) of which the company's auditors are unaware. Each director has taken all the steps that he ought to have taken in his duty as a director in order to make himself aware of any relevant audit information and to establish that the company's auditors are aware of that information. By 0fr(.I\0~t;; Board C Pi~ \.l;1 lit- Company Secretary

9 Independent auditors' report to the members of 3M Care Limited 7 Health We have audited the financial statements of 3M Health Care Umited for the year ended 31 December 2010 which comprise the Profit and loss account, the Statement of total recognised gains and losses. the Balance sheet, and the related notes. The financial reporting frameworl< that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of directors and auditors As explained more fully in the Directors' Responsibilities Statement set out on page 6 the directors are responsible for the preparation 01 the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the company's members as a body in accordance with Chapter 3 Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or inlo whose hands it may come save where expressly agreed by our prior consent in writing. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition. we read all the financial and non financial information in the annual report to identify malerial inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the company's affairs as at 31 December 2010 and of its profit for the year then ended; have been properly prepared in accordance wilh United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006.

10 Independent auditors' report to the members of 3M Care Limited (continued) 8 Health Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing 10 report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or certain disclosures of directors' remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Other maners The company has passed a resolution in accordance with section 506 of the Companies Act 2006 that the senior statutory auditor's name should not be stated. PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Reading t June 2011

11 Profit and loss account for the year ended 31 December Notes Continuing Operations Discontinued Operations Total ConnUlng Operations Discontinued Operations Turnover 107,210 Cost of sales (54,610) Exceptional cost of sales Total cost ofsales (54,610) Gross profit Operating expenses (16,056) Exceptional operating ncome Total net opera'ng expenses (16,056) (32.043) Operating profit Interesl receivable and similar income Interest payable and similar charges Other finance charges 2, , (1) (627) Profit on ordinary activities before taxation 58,727 65,197 Tax on profit on ordlnary activities 8 (11,931) (8,737) Profit for the financial year 20, ,460 There is no material difference between the profit on ordinary activities before taxation and the profit for the financial year stated above and their historical costs equivalents.

12 Statement of total recognised gains and losses For the year ended 31 December Note Profit for the financial year 46,796 56,460 Actuarial gains I (losses) recognised in the pension scheme 18 13,387 (19,332) Current tax deductions allocated to actuarial losses 3,007 Movement on deferred lax asset 17 (6,171) 2,406 Total recognised gains relating to the year 54,012 42,541

13 11 Balance sheet as at 31 December 2010 Noles Fixed assets Intangible assets 9 Tangible assets 10 Current assets Stock 11 Debtors: Amounts falling due within one year 12 Debtors: Amounts falling due after more than one year 12 Cash at bank and in hand Creditors Amounts falling due within one year 13,14 Net current assets Total assets less current liabilities Creditors: Amounts falling due after more than one year 15 Provisions for liabilities and charges 16 Net assets excluding pension liability Pension liability 18 Net assets InCluding pension liability ,862 6,852 35,186 38,902 41,048 45,754 4,631 24, , ,051 5,90' 9,010 3, , ,393 (46,877) (60,482) 184, , , ,665 (493) (631) (501) (1,133) 224, ,901 (2,593) (24,026) 221, ,875 Capital and reserves Called up share capital Profit and loss account Other reserve , ,68' 3,150 13, ,678 3,197 Total shareholders' funds , ,875 The financial statements on pages were approved by the board of directors on 3 June 2011 and were signed on its behalf by: o Gray Director Registered campan ber

14 12 for the year ended 31 December Accounting policies These financial statements have been prepared on the going concern basis, under the historical cost convention and in accordance with the Companies Act 2006 and applicable accounting standards in the United Kingdom. The principal accounting policies are sel Qut below and have been applied consistently throughoullhe year. Cash flows 3M Health Care Limited is a wholly owned subsidiary of 3M Company. The financial statements of 3M Company include a consolidated cash flow statement which includes those of the company and its subsidiaries. Consequently, in accordance with FRS 1 (Revised 1996) 'Cash Flow Statements', the company is exempt from preparing a cash flow statement. Goodwill Goodwill represents the excess of the fair value of the consideration given over the fair value of identifiable net assets acquired. Under the accounting standard FRS 10 'Goodwill and Intangible Assets', goodwill arising on acquisitions has been capitalised and is being amortised through the profit and loss account on a straight line basis over its estimated economic life, usually ten years. The company evaluates the carrying value of goodwill in each financial year to determine if there has been an impairment in value. The impairment reviews are performed by the directors on an annual basis. Tangible fixed assets Certain fixed assets are stated at a valuation made by professional valuers on the transfer of the assets from 3M Products Limited. The company has adopted the option within the transitional arrangements of FRS 15 'Tangible Fixed Assets' to retain the book values of fixed assets at their previously revalued amounts. The cost of other tangible fixed assets is their purchase cos!, together with any incidental expenses of acquisition. Tangible fixed assets are stated at historic purchase costs less accumulated depreciation. Depreciation is calculated so as to write off the cost of tangible fixed assets, less their estimated residual values, on a straight line basis over the expected useful economic lives of the assets concerned. The principal estimated lives used for this purpose are: Freehold {leasehold buildings Plant and machinery Fixtures and fitlings Years Depreciation is not provided in respect of freehold land. Impairment reviews are conducted only where there is an indication that assets are impaired, in accordance with FRS 11. Where impairments are identified, the carrying amount of the asset is immediately written down to recoverable amount, being the higher of value in use and net realisable value. The impairment loss is recognised in the profit and loss account.

15 13 1 Accounting policies (continued) Turnover Turnover, which excludes value added lax and trade discounts, represents the invoiced value of goods and services supplied. Turnover is recognised on delivery of the product or service or once all risks and rewards have passed to the customer. Maintenance income is deferred 10 the future periods to which it relates. The company recognises turnover from sales of software licenses to end-users or resellers upon persuasive evidence of an arrangement. delivery of the software and determination that collection of a fixed or determinable fee is reasonably assured. When the fees for software upgrades and enhancements, maintenance, consulting and training are bundled with the license fee. they are unbundled using the company's objective evidence of the fair value of the elements represented by the company's customary pricing for each element in separate transactions. If evidence of fair value exists lor all undelivered elements and there is no such evidence of fair value established for delivered elements, turnover is first allocated to the elements where fair value has been established and the residual amount is allocated 10 the delivered elements. If evidence of lair value for any undelivered element of the arrangement does not exist all turnover from the arrangement is deferred until such time that evidence of lair value exists or undelivered elements of the arrangement are delivered. If Ihe arrangement includes acceptance criteria, turnover is not recognised unlil the company can objectively demonstrate thai the software or service can meet the acceptance criteria, or the acceptance period lapses, whichever is earlier. Deferred taxation Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date, where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. A nel deferred tax asset is recognised as recoverable and therefore recognised only when. on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits against which to recover carried forward tax losses and from which the luture reversal of underlying timing differences can be deducted. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected 10 reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on an undiscounted basis.

16 14 1 Accounting policies (continued) Finance and operating leases Costs in respect of operating leases are charged to the profit and toss account on a straight line basis over the lease term. Leasing agreements which transfer 10 the company SUbstantially all the benefits and risks of ownership of an asset are treated as jf the asset had been purchased outright. The assets are included in fixed assets and the capital element of the leasing commitments is shown as obligations under finance leases. The lease rentals are treated as consisting of capital and interest elements. The capital element is applied to reduce the outstanding obligations and the interest element is charged against profit so as to give a constant periodic rate of charge on the remaining balance outstanding at each accounting period. Assets held under finance leases are depreciated over the shorter of the lease terms and the useful lives of equivalent owned assets. Stock and work in progress Stock and work in progress are stated at the lower of cost and net realisable value. In general cost is determined on a first in first out basis and includes transport and handling costs. In the case of manufactured products, costs include all direct expenditure and production overheads based on the normal level of activity. Net realisable value is the price at which stock can be sold in the normal course of business after allowing for the costs of realisation and, where appropriate, the costs of conversion from their existing state to a finished condition. Where necessary, provision is made for obsolete. slow moving and defective stock. Foreign currencies Transactions denominated in foreign currencies are translated into sterling at the exchange rate ruling on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rate of exchange ruling at the balance sheet date. All foreign exchange differences are taken to the profit and loss account in the period in which they arise. Research and development Expenditure on research and development is charged to the profit and loss account as incurred. Dividends Interim dividends are recognised when they are paid. company has declared them in a general meeting. Final dividends are recognised when the Provisions Provisions are recognised when the company has a present obligation as a result of a past event, it is probable that a transler of economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

17 15 1 Accounting policies (continued) Share-based payments The ultimate parent company, 3M Company, operates an equity-settled, share-based compensation plan. Certain employees of the company are awarded options over the shares in the ultimate parent. The fair value of the employee services received in exchange for these grants of options is recognised as an expense over lhe vesting period, with a corresponding increase in Other Reserves (representing a capital contribution by the parent). The lotal amount to be expensed over the vesting period is determined by reference 10 the lair value of lhe options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each balance sheet date, the company revises its estimates 01 the number of options that are expected to vest. It recognises the impact of the revision to original estimates, il any, in the profit and loss account, with a corresponding adjustment to Other Reserves. In accordance with FRS 20 'Share based payments'. lair value calculations have only been made in respect of share options awarded after 7 November 2002 that remained unvested at 1 January For all other options, the company recognises within Other Reserves the potential recharge from the ultimate parent company for the cost of options outstanding at the year end (based upon the difference between the option exercise prices and the market value at the year end). Movements in the underlying potential recharge are reflected in the profit and loss account for Ihe year. Upon exercise, 3M Company makes a recharge to the company in respect of share options granted to the company's employees. When incurred. Ihese intercompany charges are offset in Other Reserves against the relevant capital contribution. If the amount of the intercompany charge exceeds the original capital contribution. that excess is treated as a distribution from the company 10 its ultimate parent. Deferred Income Turnover is recognised when it is realised or realisable, earned and meets the following criteria: Persuasive evidence of an economic arrangement exists; The price between the seller and the buyer is substantially fixed or determinable; Delivery has occurred or services have been rendered. Physical destruction. damage. or theft of the merchandise would not change the buyer's obligation to the seller. In other words. the risks and rewards of ownership have passed 10 the buyer; No significant obligations exist for the seller to help the buyer resell the merchandise; Colleclibility is reasonably assured. The seller has received full payment. or the buyer is indebted to the seller and the indebtedness is not contingent on the resale of the merchandise; and A reasonable estimate can be made of the amount of luture returns. Any turnover not meeting these criteria would be deferred.

18 16 1 Accounting policies (continued) Pensions The company operates a defined benefit pension scheme funded by both employer's and employees' contributions. The obligations of defined benefit schemes are measured at discounted present value while scheme assets afe measured at their fair value. The operating and financing costs of such plans are recognised separately in the income statement; service costs are spread systematically over the working lives of the employees concerned and financing costs are recognised in the periods in which they arise. Actuarial gains and losses arising from either experiences differing from previous actuarial assumptions or changes to those assumptions are recognised immediately in the statement of recognised income and expense. The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation. The company also operates a stakeholder pension scheme which is a defined contribution scheme. The expenditure relating to this scheme is charged to the profit and loss account in the period to which it relates. 2 Turnover The analysis by geographical area of the company's turnover is set out below. Geographical area Sales by Sales by Sales by Sales by destination origin destination origin United Kingdom and Ireland 106, , , ,053 Rest of Europe 47,235 60,787 Rest of World 88,323 61, , , , ,053 The analysis by class of business of the company's turnover is set out below. Class of business Sales to external customers Contract manufacturing ,818 30, , , ,053

19 17 3 Net operating expenses 2010 Total Turnover 241,740 Cost of sales (172,427) Exceptional cost of sales 9,299 Tolal cost of sales (163,128) Gross profit 78,612 Distribution costs (19,943) Exceptional distribution income 3,055 Tolal distribution costs (16,888) Administrative expenses (15,589) Exceptional administrative 1,066 income Total administrative expenses (14,523) Total operating expenses (31,411) Charged to group undertakings 8,323 Total net operating expenses (23,088) Operating profit 55, Total 260,053 (163,167) (163,167) 96,886 (21,575) (21,575) ('6,560) (16,560) (38,135) 6,092 (32,043) 64,843 Exceptional income relates 10 a gain lotalling 13,420,000 which has arisen due to changes in the assumptions of the defined benefit pension scheme. 01 this 9,299,000 is shown as exceptional cost 01 sales and 4,121,000 is shown as exceptional operating income.

20 18 4 Operating profit Operating profit is stated after charging/{crediting): Wages and salaries 35,704 36,231 Social security costs 3,490 3,320 Other pension costs - defined benefit (note 18) (7,718) 4,428 Other pension costs - defined contribution (note 18) Share based payment - fair value of employee services Share based payment - movement in potential recharge 10 ultimate parent in respect of options not being fair valued 60 1,342 Staff costs 32,540 46,289 Profit on disposal of tangible assets (297) (101) Amortisation of intangible fixed assets (note 9) Depreciation of tangible fixed assets - owned (note 10) 7,251 7,307 Operating lease charges: Land and buildings Other Foreign exchange losses Social security costs exclude the movement in the provision for Employer's National Insurance on share options (see note 16).

21 19 4 Operating profit (continued) Services provided by the company's auditor and network firms During the year lhe company obtained the following services from the company's auditor at costs as detailed below: Payable to PrlcewaterhouseCoopers LLP and network firms: Audit services: tees payable for the audit of the company Non-audit services: Other services provided pursuant to legislation Services relaling 10 taxation Total services In addition, the company's auditor acted as audllor of the 3M UK group pension scheme. The fees paid 10 the company's audilor for audit services to the pension scheme during the year were 42,000 (2009: 38,550). 5 Directors' emoluments Aggregate emoluments and benefits The emoluments of K Brownlee, D Mitchell and P Williams are paid by 3M United Kingdom PLC (a sisler company) and they are deemed to be wholly attributed to services to that company. Retirement benefits are accruing to 4 (2009: 4) of the directors under defined benefit schemes. No directors (2009: nil) are accruing benefits under the money purchase scheme.

22 20 5 Directors' emoluments (continued) 3 directors exercised share options in the ultimate parent company during the year (2009: 1). Highest paid director Aggregate emoluments and benefits The accrued pension liability at year end for the highest paid director was 83,138 (2009: 65,0(0). The highest paid director did (2009: did not) exercise share options during the year. 6 Employee information The average monthly number of persons (including executive directors) employed by the company during the year was: By activity Production Distribution and selling Laboratory Administration 2010 Number Number ,015 7 Net Interest receivable and similar income Interest receivable on bank deposits Interest receivable on loans 10 group undertakings Total interest receivable and similar income Interest payable on bank loans and overdrafts Total interest payable and similar charges Net interest receivable and similar income (15) (15) (1) (1) 981

23 21 8 Tax on profit on ordinary activities Current tax: UK corporation lax on profits for the year Adjustment in respect of previous years Total current tax Deferred tax: Origination and reversal of timing differences Adjustment in respect of previous years Changes in lax rates or laws Total deferred tax (note 17) Tax on profit on ordinary activities ,642 10,512 (25) (2,071) 6,617 8,441 4, (6) 5, ,931 8,737 The lax assessed for the year is lower (2009: lower) than the standard rate of corporation tax in the United Kingdom 28% (2009: 28%). The differences are explained below: Profit on ordinary activities before tax Profrt on ordinary activities before tax multiplied by standard rate of corporation tax in UK of 28% (2009: 28%) Effects 01: Amounts not deductible for tax purposes Accelerated capital allowances and other timing differences Other timing differences Group relief claimed for nil consideration Adjustments in respect of previous years Pension spreading Current tax charge for the year 58,726 65,197 16,443 18, (148) (302) (4,826) (2,415) (7,566) (25) (2,071) (2,651) 6,617 8,441 Factors affecting future lax charges are shown in note 25.

24 22 9 Intangible assets Cost At 1 January and 31 December 2010 Accumulated amortisation and impairment At 1 January 2010 Charge for the year At 31 December Net book amount At 31 December 2010 At 31 December 2009 Purchased Goodwill 16,659 9, ,797 5,862 6,852 In M Health Care Limited purchased trade, assets and liabilities from Biotrace Limited. The goodwill arising on the acquisition is being amortised on a straight line basis over 10 years. In 2008 consideration of 7,786,000 was paid to Biotrace Limited for further intellectual property and customer relationships. The goodwill arising on the acquisition is being amortised on a straight line basis over 10 years. In M Health Care Limited purchased trade, assets and liabilities of Acolyte Biomedica Umited. The goodwill arising on the acquisition of 8,319,000 has been amortised for 10 months, 709,000, and then impaired in full ( 7,610,000) during 2008.

25 23 10 Tangible assets Cost Fixtures Land and Plant and and Buildings Machinery Fittings Total At 1 January ,898 79,633 2, ,050 Additions 754 2, ,637 Disposals (50) (1,773) (9) (1,832) At 31 December ,602 80,707 2, ,855 Accumulated depreciation At 1 January ,815 58,279 2,054 86,148 Charge for the year 2,020 5, ,251 Disposals (41) (1,680) (9) (1,730) At 31 December ,794 61,613 2,262 91,669 Net book amount at 31 December ,808 19, ,186 Net book amount al 31 December ,083 21, , Analysis of land and buildings 'DOD Net book amount Freehold 15,624 16,967 Long leasehold ,808 17,083 Of the 15,808,000 held under land and buildings 1,631,000 relales to freehold land. 11 Stocks Raw materials and consumablas Work in progress Finished goods and goods for resale ,870 4, ,494 13,593 6,386 24,473 The replacement cost of stock is not substantially different from its book value.

26 24 12 Debtors Amounts falling due within one year: Trade debtors Amounts owed by group undertakings Other debtors Prepayments Amounts tailing due after more than one year: Deferred lax (see note 17) Total debtors , , ,254 5, ,163 24, , , ,051 9, ,061 Amounts owed by group undertakings bear interest at the UBOR rate (2009: USOR) with the exception of 18,405,000 (2009: 7,223,000) which is unsecured, repayable on demand and interest free. 13 Creditors - Amounts falling due within one year Bank loans and overdrafts (unsecured) Trade creditors Amounts owed to group undertakings Corporation tax Other laxation and social security Finance leases (note 14) Other creditors Accruals and deferred income ,338 27,079 6,609 2, ,252 46, ,684 12,324 33,582 7,230 2, ,291 60,482 Amounts owed 10 group undertakings are unsecured, interest free and repayable on demand.

27 25 14 Finance leases Future aggregate minimum payments under finance leases are as follows: Less than 1 year Within one 10 two years Within two to live years Finance charges (165) ~OOO (180) Creditors - Amounts falling due after more than one year Accruals and deferred income Finance Lease (note 14) Provisions for liabilities At 1 January 2010 Reorganisation provision 984 National Insurance on share options 149 Total 1,133 Charged 10 the profit and loss account Released to prolit and loss account (70) (70) Utilised in the year (722) (722) At 31 December Reorganisation provision The reorganisation provision relates to certain restructuring actions announced in The reorganisation provision remaining at 31 December 2010 is expected to be utilised during 2011.

28 26 16 Provisions for liabilities and charges (continued) Employer's National Insurance on share options The ultimate parent company, 3M Company, operates an unapproved share-based compensation plan. Under an unapproved share option scheme, the company is required to pay National Insurance on the difference between the exercise price and market value at the exercise date of the shares issued. The company becomes unconditionally liable to pay the National Insurance upon exercise of the options. The company therefore calculates the provision by applying the latest enacted National Insurance rate to the difference between the market value of the underlying options al the balance sheet dale and the option exercise prices. A full provision is made upon grant of the option as there is no underlying performance period. The amount of the National Insurance actually payable will depend on the number of employees who remain with the company and exercise their options, the market price of the ultimate parent company's shares at the time of exercise and the prevailing National Insurance rates at the time. The provision is not discounted. 17 Deferred tax The deferred tax asset recognised in the financial statements is as follows: Excess of depreciation over capital allowances Share options provision Other short-term timing differences Total deferred tax asset Deferred tax asset in respect of pensions liability Total deferred tax asset (Including pensions) At 1 January Deferred tax charge to profit and loss account (note 8) Deferred tax credit to statement of total recognised gains and losses At 31 December ,113 5, ,868 18,353 (5,314) (6,171) 6, ,145 9,010 9,343 18,353 16,243 (296) 2,406 18,353 The directors believe it is appropriate to recognise the deferred tax assets of 5,909,000 (2009: 9,010,000) as there will be sufficient future profits to utilise the provision.

29 27 18 Pension and similar obligations The company operates a defined benefit pension scheme with assets held in a separately administered fund. The scheme provides retirement benefits on the basis of members' final salary. On 30 June 2003, the defined benefit pension scheme was closed to new entrants. At the same time. the company established a defined contribution scheme 10 provide benefits 10 new employees. Defined benefit scheme An actuarial valuation of the 3M Pension and Ute Assurance scheme using the projected unit basis, was carried out at 5 April 2009 by Aon Consulting, independent consulting actuaries. The major assumptions used by the actuary were: % % Rate of increase in salaries Rate 01 increase in pensions in payment - Pension accrued after 6 April Pension accrue after 5 April Discount rale Rate of inflation The mortality assumptions used were as follows: years years Longevity at age 65 for current pensioners Men Women Longevity at age 65 for future pensioners Men Women

30 28 18 Pension and similar obligations (continued) The assets in the scheme and the expected rales of return were: Long-term Long-term rate of return rate of return Value at expected Value at 31 expected December December 31 December December % 000 % 000 Equities , Bonds , ,168 Other , ,343 Total market value of assets 282, ,171 Present value of scheme liabilities (285,861 ) (284,540) Deficit in scheme (3,552) (33,369) Related deferred tax asset 959 9,343 Net pension deficit (2,593) (24.026) Reconciliation of present value of scheme liabilities 1 January Current service cost Past service cost Curtailments and settlements Member contributions Interest cost Benefits paid Actuarial loss 31 December ,540 5,702 (13,420) 50 16,512 (12,041) 4, , ,405 4, ,837 (12,647) 30, ,540

31 29 18 Pension and similar obligations (continued) Reconciliation of fair value of scheme assets 1 January Expected return on scheme assets Actuarial gain Benefits paid Member contributions Contributions paid by employer 31 December ,171 19,114 17,904 (12,041) 50 6, , '()()() 193,229 15,210 11,130 (12,647) 55 44, ,171 Scheme assets do not include any of 3M Health eare Umited's own financial instruments, Of any property occupied by 3M Health eare Umited. The expected return on scheme assets is determined by considering the expected returns available on the assets underlying the current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance sheet dale. Expected returns on equity investments reflect long-term real rates of return experienced in the respective mari<ets. The actual return on scheme assets in the year was 37,018,000 (2009: 26,340,<XX». Amounts recognised in profit and loss account: Current service cost Past service cost Curtailments and settlements Expected return on pension scheme assets Interest on pension scheme liabilities Total ,702 (13,420) (19,114) 16,512 (10,320) ,428 (15,210) ,055 Of the total current service cost, past service cost and curtailments and settlements, (5,348,O<X» (2009: 3.122,000) is included within cost 01 sales, (1,757,000) (2009: 878,000) is included within distribution expenses and (613,000) (2009: 428,000) is included within administrative expenses. Actuarial gains and losses The cumulative amount of actuarial losses recognised in the statement of recognised gains and losses ;8 100,659,000 (2009: (00)

32 18 Pensions and similar obligations (continued) Amounts for current and previous four years: Defined Benefit Obligation (285,861) (284,540) (246,405) (274,882) (265,378) Plan Assets 282, , , , ,354 Deficit (3,552) (33,369) (53,176) (16,248) (19,024) Experience adjustments on plan assets Amount 17,904 11,130 (82,524) (4,037) 6,735 Experience adjustments on plan liabilities Amount (188) 4, (4,627) 2,012 Total amount recognised in the statement of total recognised gains and losses Amount 13,387 (19,332) (41,249) (2,342) (5,779) Actuarial valuation The full actuarial valuation at 5 April 2009 showed an increase in the deficit from a surplus 13,580,000 to a deficrt 88,564,000. The company made additional contributions of 37,800,000 during 2009 to reduce this shortfall. It has been agreed with the trustees thai contributions will be increased by 2,839,200 in 2012 and 1,800,400 from 2013 till 2018 to make good the deficit. The total contributions expected to be made to the scheme by 3M Health Care Umited in the year to 31 December 2011 is therefore 5,948,750. Defined contribution scheme The cost of contributions to the defined contribution scheme amounts to 595,000 (2009: 535,000). There were no amounts outstanding or prepaid at the end of the year. 19 Called up share capital Allotted, called up and fully paid ,000,000 ordinary shares of 1 each 13,000 13,000

33 31 20 Reserves All January 2010 as previously reported Profit for the financial year Aetuarialloss on pension scheme Movement on deferred tax relating to pension liability Current tax deduction allocated to actuarial losses Share based payment: services provided Share based payment: recharge from ultimate parent At 31 December 201 a Profit and loss Reserve 151,678 46,796 13,386 (6,171) 205,689 Other Reserve 3, (516) 3, Reconciliation of movement in total shareholders' funds Profit tor the financial year Other recognised gains and losses retating 10 the year Net addition to shareholders' funds Opening shareholders' funds Closing shareholders' funds ,796 7,215 53, , , ,460 (13,919) 44, , ,875

34 32 22 Share-based payments The parent company issues Management Stock Ownership Plan (MSOP) options 10 eligible employees annually in May. Under the plan, the parent company has principally issued stock options to management employees that are granted at market value on the date of grant. In addition 10 grants to management employees, the company makes other minor stock options grants to employees, for which vesting terms and option lives are not substantially different, and also makes minor grants of restricted stock units and other slock-based grants. Prior , under previous plans, lhese options were generally exercisable one year after the date of the grant, with expiration 10 years from the date of the grant. Effective with the May 2005 grant the company changed its vesting period from one to three years with the expiration date remaining at 10 years from the date of the grant. Outstanding shares under the option include grants from the previous plans. There were 99 (2009: 101) participants in the plan with outstanding options at 31 December. Exercise of an option is subject to continued employment. A reconciliation of option movements over the year to 31 December 2010 is shown below: Weighted Weighted Number of Average Number of Average Options Exercise Price Options Exercise Price $ $ Outstanding at start of the year 287, , Granted 24, Cancelled (3,508) (5,239) Exercised (40,113) (24,708) Outstanding at end of the year 267, , Exercisable at end of the year 222, , The weighted average fair value of options granted in the year was $397,650 (2009: $332,800).

35 33 22 Share based payments (continued) For options outstanding at the end of the year, the range of exercise prices and weighted average remaining contractual life are as follows: 31 December 2010: Options Outstanding Options Exercisable Weighted Weighted average Weighted average Weighted remaining average remaining average contractual exercise contractual exercise life price life price Range of exercise Number Months $ Number Months $ prices $ $ , , $ $ , , $60.00 $ , , $75.00 $ , n.49 46, SBO.OO. $ , , $85.00 $ , , , , December 2009: Options Outstanding Options Exercisable Weighted Weighted Weighted average average average Weighted remaining exercise remaining average contractual price contractual exercise life life price Range of exercise Number Months $ Number Months $ prices $40.00 $ , , $50.00 $ $ $ $ $8.62 $ $ $75.00 $ , $BO.OO $ $85.00 $

36 34 22 Share based payments (continued) The weighted average share price during the year for options exercised over the year was $58.26 (2009: $47.95). The total charge for the year relaling to employee share based payment plans for which fair value accounting is being applied was 177,000 (2009: 193,000), all of which related to equitysettled share based payment transactions. Options were valued using the Black-Scholes option-pricing model. No performance conditions were included in the fair value calculations. The fair value per options granted and the assumptions used in the calculation afe as follows: Share price at grant date $78.72 $54.11 Exercise price $78.72 $54.11 Number of employees Shares under option 24, Vesting period (years) 3 3 Expected volatility 25.7% 30.3% Option life (years) Expected life (months) Risk free rate 2.8% 2.2% Expected dividend yield 2.5% 2.3% Fair value per option $16.50 $13.00 Expected volatility is a statistical measure of the amount by which a stock price is expected to fluctuate during a period. For the 2010 and 2009 annual grant date, the company estimated the expected volatility based upon the average of the most recent one year volatility, the median of the term of the expected life rolling volatility, the median of the most recent term of the expected life volatility of 3M Company's shares, and the implied volatility on the grant date. The expected term assumption is based on the weighted average of historical grants and assuming that options outstanding are exercised at the mid point of the future remaining term. The risk free rate of return is the average return on zero-eoupon US Treasury bonds. Restricted stock units Beginning in 2007, the company began reducing the number of traditional stock options granted under its long-term incentive compensation plan by reducing the number of employees eligible to receive annual grants and by shifting a portion of the annual grant away from traditional stock options primarily to restricted stock units. Associated with the reduction in the number of eligible employees the company provided a one-time "buyouf' grant to the impacted employees which resulted in an increased stockbased compensation expense in The following lable summarises the MSOP restricted stock and restricted stock unit activity during the twelve months ended 31 December 2010:

37 35 22 Share based payments (continued) Weighted Weighted average average Number of exercise Number of exercise stock units price slock units price $ $ Outstanding at start of the year 23, , Granted 5, , Cancelled (407) (569) Exercised (3,149) Outstanding at end of the year 25, Exercisable at end of the year The weighted average fair value of stock units granted in the year was $ (2009: $346,304). 31 December 2010 Siock units outstanding Weighted average Weighted remaining average contractual exercise life price Stock units exercisable Weighted average Weighted remaining average contractual exercise life price Range of exercise Number Months $ Number Months $ prices $50.00' $ , $60.00 $ , $70.00 $ , $75.00 $ , $ , ,088

38 36 22 Share based payments (continued) 31 December 2009 Stock units outstanding Weighted average Weighted remaining average contractual exercise life price Stock units exercisable Weighted average Weighted remaining average contractual exercise life price Range of exercise prices Number Months $ Number Months $ $ $ , $ $ , $ $ , $ $ , ,235 The lotal charge for the year relating to stock unit employee share based payment plans for which fair value accounting is being applied was 174,000 (2009: 240,000), all of which related to equity-settled share based payment transactions. Options were valued using the Black-Scholes option-pricing model. No pertormance conditions were included in the fair value calculations. The fair value per options granted and the assumptions used in the calculation are as follows: Weighted average share price at grant date Weighted average exercise price Number of employees Shares under option Vesting period (years) Option life (years) Expected life (months) Fair value per option 2010 $78.74 $ , $ $54.11 $ , $54.11

39 37 23 Capital commitments Contracts placed for future capilal expenditure not provided for in the financial statements 1, Financial commitments AI 31 December, the company had annual commitments under non-eancellable operating leases expiring as follows: Within one year Land and Land and Buildings Other Buildings Other Within two to five years After live years Post Balance Sheet Events Further to the changes 10 the UK corporation tax system that were announced in the June 2010 Emergency Budget Statement, and partially substantively enacted althe balance sheet date, the March 2011 Budget Statement announced an additional change, effective 1 April The enacted parts have been reflected in the financial statements. The cumulative effect 01 these changes would be to reduce the deferred lax assel al31 December 2010 by a maximum of 0.8 million. This decrease in deferred tax is due 10 the reduction in the corporation lax rate from 28% to 26% with effect from 1 April 2011 with further reductions to the main rate proposed to reduce the rate by 1% per annum to 23% by 1 April 2014.

40 38 26 Ultimate and immediate parent companies 3M Health eare Umited is a wholly owned subsidiary 01 3M UK Holdings Umited. a company incorporated in the United Kingdom. The directors regard 3M Company, a company incorporated in the United Slates of America, as the ultimate parent company and controlling party. This is the largest, and also the smallest, group of which the company is a member and for which group financial statements are prepared. Copies of the consolidated financial statements of the ultimate parent company may be obtained from 3M Investor Relations. 3M Center, Building 22S SN Paul. MN , USA. Financial statements of certain of the US and UK companies are also available on the internet at htlp:/fwww.3m.comluk. The company has taken advantage of the exemption allowed by FRS 8 'Related Party Disclosures' from disclosing transactions with other group companies that are also wholly owned by 3M Company.