Interim Results
Yule Catto & Co PLC
08 September 2005
Yule Catto & Co plc
Interim Results for the six months ended 30 June 2005
Momentum has been sustained in the long-term development of the Group
HIGHLIGHTS
• Total revenue increased by 6% to £290.8m, (2004: £274.5m)
• Profit before taxation* £17.9m, (2004: £17.1m)
• Earnings per share* of 8.2p, (2004: 7.7p)
• Interim dividend 3.7p per share (2004: 5.5p)
• Strong volume growth in polymers
• Further improvement in pharma development infrastructure
• Modest increase in borrowings*
* Before special items, as defined in the glossary of terms on page 19
Anthony Richmond-Watson, Chairman, comments:
'Momentum has been sustained in the long-term development of the group, with
strong volume growth in polymers, further improvement in the infrastructure to
support the growing pipeline of pharmaceutical active ingredients and
performance chemicals has seen improved profits as the restructuring of the
division continues. However, to preserve our ability to invest in growth
initiatives and reduce debt during what remains an uncertain period, the Board
believes it is prudent to rebalance the proportion of cash generation applied to
the payment of dividends.
While concerns exist over the impact of a sustained high price of oil,
management action already in place provides the opportunity for modest growth
near term.'
8 September 2005
ENQUIRIES:
YULE CATTO Tel: 01279 442791
Alex Walker, Chief Executive
Sean Cummins, Finance Director
COLLEGE HILL Tel: 020 7457 2020
Gareth David email: gareth.david@collegehill.com
RESULTS SUMMARY
Underlying performance(2) IFRS
2005 2004 2005 2004
Notes: £'000 £'000 £'000 £'000
unaudited unaudited unaudited unaudited
Six months to 30 June
Revenue 290,765 274,544 290,765 274,544
Ebitda 1 34,426 33,792 33,700 33,792
Profit from operations 24,677 23,664 24,677 23,664
Operating profit 24,677 23,664 23,951 23,664
Profit before taxation 17,944 17,066 18,334 17,990
Net borrowings (191,057) (183,327) (190,424) (184,373)
Free cash flow before dividends (4,563) (4,074) (4,563) (4,074)
Earnings per share 8.2p 7.7p 8.3p 8.4p
Dividend per share 3 3.7p 5.5p 3.7p 5.5p
Notes:
1. Earnings before interest, tax, depreciation and amortisation
2. Underlying performance is before special items. (See
glossary in Section 9)
3. Interim dividend for 2005 of 3.7p per share will be paid on 18 November 2005
to members on the register at close of business on 21 October.
Under IFRS this is not accrued in the financial statements.
CHAIRMAN'S STATEMENT
Overview
Momentum has been sustained in the long-term development of the group, with
strong volume growth in polymers, further improvement in the infrastructure to
support the growing pipeline of pharmaceutical active ingredients and
performance chemicals has seen improved profits as the restructuring of the
division continues.
The inaugural financial statements prepared under International Financial
Reporting Standards show an underlying profit before taxation of £17.9 million,
5% ahead of the corresponding period, together with a small increase in
borrowings.
Review of Operations
Polymer Chemicals
For much of last year the raw material environment was extremely difficult.
Regular supply outages restricted availability, which was a significant
constraint to volume growth, and the cost of monomers rose persistently which
resulted in three consecutive reporting periods of margin decline. Against this
background, we are pleased that in the first six months of 2005 raw materials
have been more freely available, the rate of increase in monomer costs has
reduced and selling prices have been successfully raised.
Turnover was £179.7 million, a growth of 17%. Whilst the divisional margin of
8.6% is at the same level as the second half of last year, there has been some
improvement during the course of 2005 and we are better placed entering the
second half of the year. That said, the price of oil is at an unprecedented
level and any optimism remains tempered by caution regarding the continuing
impact this may have on input costs and the global economy in general.
Overall volume of synthetic latex grew by 11% compared to the corresponding
period last year. In Malaysia, production cycle times have been reduced by
recently introduced process developments, thereby increasing capacity to support
growing demand. The market for dipping latex in Asia remains strong which will
necessitate further investment in reactor capacity. In Europe, activity in the
carpet and construction sectors is solid and a re-entry to the paper market has
been successful for speciality applications.
Emulsion resins have experienced more mixed markets. With raw materials more
freely available, our operations have re-established their growth path in
Europe, and in South Africa we have benefited from the commissioning of new
reactor capacity, enabling new applications to be targeted. However, a slow
down in the construction industry in Malaysia has been mirrored in our output;
whilst in Saudi Arabia there has been a return to more normal activity in the
market after spectacular growth last year.
Pharma & Fine Chemicals
Omeprazole continues to play an important part in our portfolio. Volume sales
of active ingredient have held up across all regions, as the market continues to
follow the typical generic pricing characteristics. This will be partially
mitigated by process improvements but, inevitably, there will be an impact on
margins. The immediate release version, launched by our customer in USA, has
seen a slower than anticipated take up. However the introduction of new variants
may improve the market appeal and create steady growth.
Other generics have enjoyed solid demand, assisted by terbinafine, an antifungal
product, following patent expiry in various European countries. Patents in USA
relating to zolpidem and venlafaxcine fall away in late 2006/early 2007 which
should provide further support for sales growth.
The contract manufacturing sector continues to be affected as our customers
react to the slow down in approval of new chemical entities by reducing their
outsourcing requirements and taking more production in-house. Nevertheless, we
have been successful in winning new ethical contracts, whilst demonstrating an
ongoing ability to develop new processes within an agreed timeframe.
Long term success for our Pharma activities will only be achieved through an
extended pipeline of new product approvals. We have a clearly identified
development programme, stretching over many years, and in support of these
growth initiatives the construction of a new pilot plant in Italy and additional
laboratory facilities in Spain have been completed. This provides the platform
for an accelerated Drug Master File registration programme.
The flavour industry saw reduced demand as a result of continuing fallout from
last year's poor summer, which is leading to increased price pressure in the
supply chain. In fragrances, volumes are holding up and new cost saving
initiatives are being introduced to counteract the upward trend in prices on
petrochemical based raw materials.
Performance Chemicals
Divisional profit advanced by 10%, benefiting from a buoyant hair dye market,
exciting developments in the use of photochromic dyes and growth in metal salts
for flame retardant, catalyst and electronic applications. Activity in colour
developers continues to offer good prospects as we expand the customer base and
competitors indicate their intention to withdraw from the market.
Ultramarine pigment volume is in line with the corresponding period although
there has been a shift in the customer base from North America to Asia, where
prices tend to be more competitive and hence margins have come under pressure.
Competition from overseas for sulphur derivatives appears to have stabilised,
which combined with a lower cost base, has delivered better fortunes compared to
the second half of last year.
The reshaping of the performance chemicals business has continued during the
course of the year. In March we announced the sale of Brencliffe Limited for a
cash consideration of £2.5 million; in July we confirmed the closure of the
James Robinson facility in Huddersfield, UK; and in August we withdrew from the
loss-making pigment dispersion sector, obtaining proceeds of £1.1 million.
These initiatives are directed at delivering a more focussed, higher margin
division and further restructuring is anticipated.
Borrowings
Net underlying borrowings saw their customary modest increase during the first
six months of the year to £191.1 million. The normal seasonal increase in
working capital has been inflated by higher raw material costs, which increase
the unit carrying value. We continue to benefit short term from a reduced
capital requirement which has assisted in the free cash outflow being held at
£4.5 million, in line with last year. Careful cash control, combined with the
usual reversal in working capital should provide some positive movement in the
second half.
Dividend
We entered 2005 anticipating that input costs would moderate: this has not
happened. Whilst the operational performance of the business has improved,
continuing higher oil prices and reduced growth rates in the global economies
cause the outlook to be far from clear. To preserve our ability to invest in
growth initiatives and reduce debt during what remains an uncertain period, the
Board believes it is prudent to rebalance the proportion of cash generation
applied to the payment of dividends. Therefore, an interim dividend of 3.7
pence per share, being a reduction of 33 per cent against the same period last
year, will be paid on 18 November to members on the register at close of
business on 21 October. In the absence of unforeseen circumstances, we expect
the dividend for the full year to be reduced by a similar ratio. It is the
Board's intention that from this rebased level, the group will be able to resume
its progressive dividend policy.
Outlook
Polymer division has the infrastructure in place to continue the volume growth
seen in recent years. Monomer costs will trend upwards in the third quarter,
supported by the continued increase in the price of oil, therefore, additional
selling price rises will be pursued to maintain margin improvement. The
pipeline for pharmaceutical active ingredients is strengthening and patents
expiring in late 2006 and 2007 should provide additional sales. Thereafter, we
have a development programme focused on new generics stretching for many years.
Performance chemicals is being restructured to create a more focussed, higher
margin division.
While concerns exist over the impact of a sustained high price of oil,
management action already in place provides the opportunity for modest growth
near term.
Consolidated income statement for the six months ended 30 June 2005
2005 2004 restated
Underlying Special IFRS Underlying Special IFRS
performance items performance items
Six months to 30 June £'000 £'000 £'000 £'000 £'000 £'000
unaudited unaudited unaudited unaudited unaudited unaudited
Continuing operations
Subsidiaries 284,983 - 284,983 268,821 - 268,821
Joint ventures 5,782 - 5,782 5,723 - 5,723
Revenue 290,765 - 290,765 274,544 - 274,544
Subsidiaries 24,151 - 24,151 22,935 - 22,935
Joint ventures 526 - 526 729 - 729
Profit from operations 24,677 - 24,677 23,664 - 23,664
Profit or loss impact arising from
the sale or closure of an
operation - (726) (726) - - -
Operating profit 24,677 (726) 23,951 23,664 - 23,664
Finance costs (6,733) 1,116 (5,617) (6,598) 924 (5,674)
Profit before taxation 17,944 390 18,334 17,066 924 17,990
Taxation (5,563) (265) (5,828) (5,303) - (5,303)
Profit for the six months 12,381 125 12,506 11,763 924 12,687
Profit attributable to minority
interest (523) - (523) (571) - (571)
Profit attributable to equity
shareholders 11,858 125 11,983 11,192 924 12,116
Earnings per share
Basic 8.2p 0.1p 8.3p 7.7p 0.6p 8.4p
Diluted 8.1p 0.1p 8.2p 7.7p 0.6p 8.3p
Consolidated balance sheet as at 30 June 2005
30 June 2004 31 December
30 June 2005 restated 2004 restated
IFRS IFRS
£'000 £'000 £'000
unaudited unaudited unaudited
Non-current assets
Goodwill 172,443 172,983 172,443
Other intangible assets 748 828 773
Property, plant and equipment 142,731 149,016 148,729
Deferred tax assets 1,860 1,890 1,860
Investment in joint ventures 3,712 3,819 3,053
321,494 328,536 326,858
Current assets
Inventories 68,113 65,403 70,907
Trade and other receivables 122,786 108,493 109,517
Cash and cash equivalents 42,705 83,587 93,868
283,604 257,483 274,292
Current liabilities
Borrowings (39,554) (115,401) (102,244)
Derivatives at fair value (7,300) (5,565) (17,152)
Trade and other payables (119,470) (119,748) (122,645)
Dividends (11,440) (11,150) -
Taxation (50,138) (49,634) (52,512)
Net current assets 5,702 (44,015) (20,261)
Non-current liabilities
Borrowings (193,575) (152,559) (170,161)
Trade and other payables (1,044) (930) (436)
Deferred tax (13,482) (11,372) (14,279)
Post retirement benefits (78,431) (63,502) (75,802)
(286,532) (228,363) (260,678)
Net assets 40,664 56,158 45,919
Share capital 14,480 14,480 14,480
Share premium 31,829 31,829 31,829
Capital redemption reserve 949 949 949
Hedging and translation reserve (2,691) (2,158) (947)
Retained earnings (8,503) 7,059 (4,798)
Equity attributable to equity 36,064 52,159 41,513
shareholders
Minority interests 4,600 3,999 4,406
Total equity 40,664 56,158 45,919
Cash and cash equivalents 42,705 83,587 93,868
Current borrowings (39,554) (115,401) (102,244)
Non-current borrowings (193,575) (152,559) (170,161)
Net borrowings (190,424) (184,373) (178,537)
Add back special items (633) 1,046 (9,104)
Net borrowings (underlying (191,057) (183,327) (187,641)
performance)
Consolidated cash flow for the six months ended 30 June 2005
2005 2004 restarted
IFRS IFRS IFRS IFRS
Six months to 30 June £'000 £'000 £'000 £'000
unaudited unaudited unaudited unaudited
Operating
Cash generated from operations 12,731 15,364
Interest paid (6,566) (7,250)
Total tax paid (2,692) (4,346)
Net cash inflow from operating activities 3,473 3,768
Investing
Purchase of property, plant and equipment (7,494) (8,011)
Sale of property, plant and equipment 47 61
Net capital expenditure and financial (7,447) (7,950)
investment
Purchase of businesses - (1,343)
Sale of businesses 2,625 -
Net cash impact of acquisitions and disposals 2,625 (1,343)
Dividends received from joint ventures 44 124
Net cash outflow from financing activities (4,778) (9,169)
Financing
Dividends paid to minority interests (633) (16)
Purchase of own shares (381) (177)
Proceeds of short term borrowings - 12,000
Proceeds / (repayment) of long term borrowings 14,943 (1,107)
Net cash inflow from financing activities 13,929 10,700
Increase in cash and cash equivalents during 12,624 5,299
the year
Reconciliation of net cash flow from operating
activities to movement in net borrowings
Net cash inflow from operating activities 3,473 3,768
Add:
Dividends received from joint ventures 44 124
Less:
Net capital expenditure and financial
investment (7,447) (7,950)
Dividends paid to minority interests (633) (16)
Free cash flow before dividends (4,563) (4,074)
Net cash impact of acquisitions and disposals 2,625 (1,343)
Purchase of own shares (381) (177)
Exchange movements (1,097) (457)
Movement in net borrowings (before special (3,416) (6,051)
items)
Statement of changes in equity for the six months ended 30 June 2005
Share Share Capital Hedging and Retained Minority Total
capital premium redemption translation earnings interest
reserve reserve
Six months to 30 June £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 31 December 2004 14,480 31,829 949 (947) (4,798) 4,406 45,919
Retained profit for the six
months - - - - 11,983 523 12,506
Dividends declared - - - - (11,440) (633) (12,073)
Shares purchased by ESOP Trust - - - - 381 - 381
Amortisation of shares held for - - - - (381) - (381)
ESOP
Actuarial gains and losses - - - - (4,248) - (4,248)
Exchange differences on
translation of overseas
operations - - - (1,744) - 304 (1,440)
At 30 June 2005 14,480 31,829 949 (2,691) (8,503) 4,600 40,664
Notes to the financial statements
Basis of preparation
The restated financial information has been prepared in accordance with all
applicable IFRS and related interpretations in force at the date of this
announcement. The issue of any new or revised standards, or the publishing of
further interpretation guidance, could result in changes to the financial
information presented in this document. In addition, as the financial community
gains more experience, and best practice and interpretative guidance develop,
there may be consequential changes to the methodologies and approaches used in
preparing the financial information shown in this document.
A reconciliation of the 2004 comparatives included in these statements to their
equivalents under UK GAAP is presented in section 6.
Further guidance on the impact of the application of IFRS on the Group's
reported financial performance is given in a separate announcement issued today,
which presents and explains the adjustments to 31 December 2004 in detail. This
statement can be obtained by the public from the company's registered office
Temple Fields, Harlow, Essex, CM20 2BH, or on the company website
www.yulecatto.com
Segmental analysis
2005 2004
IFRS IFRS
Six months to 30 June £'000 £'000
unaudited unaudited
Revenue
Polymer Chemicals 179,712 153,693
Pharma & Fine Chemicals 43,824 48,652
Performance Chemicals 67,229 72,199
290,765 274,544
Operating profit
Polymer Chemicals 15,380 13,658
Pharma & Fine Chemicals 7,040 7,964
Performance Chemicals 4,553 4,137
Unallocated corporate expenses (2,296) (2,095)
24,677 23,664
Special items
These relate to the disposal of Brencliffe Ltd, the restructuring of Ditar
Ridderkerk BV, and the mark to market adjustments in respect of cross currency
and interest rate derivatives used for hedging purposes where IAS 39 hedge
accounting is not applied.
2005 2004
IFRS IFRS
Six months to 30 June £'000 £'000
unaudited unaudited
Profit or loss impact arising from the sale
or closure of an operation
Sale of Brencliffe Limited 347 -
Closure of Ditar Ridderkerk BV (1,073) -
(726) -
Mark to market adjustments in respect of 1,116 924
cross currency and interest rate swaps
390 924
Finance costs
2005 2004
UK GAAP IFRS UK GAAP IFRS
£'000 £'000 £'000 £'000
Six months to 30 June unaudited unaudited unaudited unaudited
Interest payable 8,457 8,422 8,315 8,311
Interest receivable (1,689) (1,689) (1,713) (1,713)
Interest payable (net) 6,768 6,733 6,602 6,598
Fair value gains on interest rate swaps - (1,116) - (924)
Finance costs 6,768 5,617 6,602 5,674
Reconciliation of operating profit to cash generated from operating activities
2005 2004
Six months to 30 June £'000 £'000
unaudited unaudited
Reconciliation of profit from operations
to cash generated from operating
activities
Profit from operations 24,677 23,664
Share of profits of joint ventures (526) (729)
24,151 22,935
Depreciation and impairment charges 9,749 10,174
Cash impact of closures (162) -
Amortisation of own shares held for ESOP 381 177
Pension funding in excess of IAS19 charge (1,728) (1,208)
Unrealised exchange (gains) / losses (1,338) 2,270
Decrease / (increase) in inventories 1,053 (156)
Increase in debtors (14,732) (13,185)
Decrease in creditors (4,643) (5,643)
Cash generated from operations 12,731 15,364
Further information
This statement can be obtained by the public from the company's registered
office Temple Fields, Harlow, Essex, CM20 2BH, or on the company website
www.yulecatto.com
An interim dividend of 3.7p (5.5p) per share, totalling £5.3m, (£7.9m) has been
declared by the directors.
Earnings per ordinary share are based on the attributable profit for the period
and the weighted average number of shares in issue during the period - 144.7m
(144.4m).
Reconciliation of UK GAAP to IFRS
Consolidated income statement for the six months ended 30 June 2004
As reported Pensions Goodwill and Net Financial Other Restated
under UK impairments investment instruments under IFRS
GAAP hedging
Six months to 30 June £'000 £'000 £'000 £'000 £'000 £'000 £'000
unaudited unaudited unaudited unaudited unaudited unaudited unaudited
Continuing operations
Subsidiaries 268,821 - - - - - 268,821
Joint ventures 5,723 - - - - - 5,723
Revenue 274,544 - - - - - 274,544
Subsidiaries 23,123 1,208 955 (2,270) - (81) 22,935
Joint ventures 799 - - - - (70) 729
Profit from operations 23,922 1,208 955 (2,270) - (151) 23,664
Amortisation of
goodwill (7,734) - 7,734 - - - -
Operating profit 16,188 1,208 8,689 (2,270) - (151) 23,664
Finance costs (6,602) - - - 924 4 (5,674)
Profit before taxation 9,586 1,208 8,689 (2,270) 924 (147) 17,990
Taxation (5,369) - - - - 66 (5,303)
Profit for the six
months 4,217 1,208 8,689 (2,270) 924 (81) 12,687
Profit attributable to
minority interest (571) - - - - - (571)
Profit attributable to 3,646 1,208 8,689 (2,270) 924 (81) 12,116
equity shareholders
Profit before taxation
and special items 17,320 1,208 955 (2,270) - (147) 17,066
Earnings per share
Basic 2.5p 8.4p
Before special items 7.9p 7.7p
Consolidated balance sheet as at 30 June 2004
As reported Pensions Goodwill and Financial Other Reclassifi- Restated
under UK impairments instruments cations under IFRS
GAAP
£'000 £'000 £'000 £'000 £'000 £'000 £'000
unaudited unaudited
Non-current assets
Goodwill 224,087 - (51,104) - - - 172,983
Other intangible assets - - - - 828 - 828
Property, plant and
equipment 166,700 - (11,789) (3,966) (1,929) - 149,016
Deferred tax assets - 1,890 - - - - 1,890
Financial assets 32 - - - (32) - -
Investments in joint
ventures 3,819 - - - - - 3,819
394,638 1,890 (62,893) (3,966) (1,133) - 328,536
Current assets
Inventories 65,731 - - - (328) - 65,403
Trade and other
receivables 110,426 - - - (1,933) - 108,493
Cash and cash equivalents 10,425 - - - - 73,162 83,587
186,582 - - - (2,261) 73,162 257,483
Current liabilities
Borrowings (42,239) - - - - (73,162) (115,401)
Derivatives at fair value - - - (5,565) - - (5,565)
Trade and other payables (120,857) - - 157 952 - (119,748)
Dividends (19,055) - - - 7,905 - (11,150)
Taxation (39,055) - - - (10,579) - (49,634)
Net current assets (34,624) - - (5,408) (3,983) - (44,015)
Non-current liabilities
Borrowings (151,513) - - (1,046) - - (152,559)
Trade and other payables (80) - - - (850) - (930)
Provisions (26,004) 3,972 - - 22,032 - -
Deferred tax - (11,372) - (11,372)
Post retirement benefits - (63,502) - - - (63,502)
(177,597) (59,530) - (1,046) 9,810 - (228,363)
Net assets 182,417 (57,640) (62,893) (10,420) 4,694 - 56,158
Share capital 14,480 - - - - - 14,480
Share premium 31,829 - - - - - 31,829
Capital redemption 949 - - - - - 949
reserve
Revaluation reserve 2,520 (2,520) - -
Hedging and translation
reserve - - - (2,158) - - (2,158)
Retained earnings 128,640 (57,640) (62,893) (8,262) 7,214 - 7,059
Equity attributable to 178,418 (57,640) (62,893) (10,420) 4,694 - 52,159
equity shareholders
Minority interests 3,999 - - - - - 3,999
Total equity 182,417 (57,640) (62,893) (10,420) 4,694 - 56,158
Net borrowings (183,327) - - (1,046) - - (184,373)
Consolidated balance sheet as at transition, 1 January 2004
As Pensions Goodwill and Financial Dividends Other Reclassi-fications Restated
reported impairments instruments under IFRS
under UK
GAAP
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
audited audited audited audited audited audited audited audited
Non-current assets
Goodwill 231,821 - (58,838) - - - - 172,983
Intangible assets - - - - - 782 - 782
Property, plant and
equipment 175,067 - (12,744) - - (6,113) - 156,210
Deferred tax assets - - - - - 5,490 - 5,490
Financial assets 38 - - - - (38) - -
Investment in joint
ventures 3,252 - - - - - - 3,252
410,178 - (71,582) - - 121 - 338,717
Current assets
Inventories 66,947 - - - - (328) - 66,619
Trade and other
receivables 100,182 - - - - (2,005) - 98,177
Cash and cash
equivalents 9,856 - - - - - 79,987 89,843
176,985 - - - - (2,333) 79,987 254,639
Current liabilities
Borrowings (34,271) - - - - - (79,987) (114,258)
Derivatives at fair
value - - - (4,595) - - - (4,595)
Trade and other
payables (127,695) - - 232 11,150 (24) - (127,487)
Dividends (11,150) - - - - - - -
Taxation (43,271) - - - - - (10,579) (53,850)
Net current assets (39,402) - - (4,363) 11,150 (2,357) (10,579) (45,551)
Non-current
liabilities
Borrowings (152,861) - - (3,009) - - - (155,870)
Trade and other
payables (594) - - - - (175) (87) (856)
Provisions (26,757) 4,133 - - - 34,582 (11,958) -
Deferred tax - - - - - (34,582) 22,624 (11,958)
Post retirement
benefits - (80,400) - - - - - (80,400)
(180,212) (76,267) - (3,009) - (175) 10,579 (249,084)
Net assets 190,564 (76,267) (71,582) (7,372) 11,150 (2,411) - 44,082
Share capital 14,480 - - - - - - 14,480
Share premium 31,829 - - - - - - 31,829
Capital redemption
reserve 949 - - - - - - 949
Revaluation reserve 2,525 - - - - (2,525) - -
Hedging and
translation reserve - - - - - - - -
Retained earnings 137,337 (76,267) (71,582) (7,372) 11,150 114 - (6,620)
Equity attributable to 187,120 (76,267) (71,582) (7,372) 11,150 (2,411) - 40,638
equity shareholders
Minority interests 3,444 - - - - - - 3,444
Total equity 190,564 (76,267) (71,582) (7,372) 11,150 (2,411) - 44,082
Net borrowings (177,276) - - (3,009) - - - (180,285)
Changes to accounting policies resulting from the implementation of IFRS
All accounting policies not detailed below remain consistent with their
application under UK GAAP.
Foreign currencies
Transactions in currencies other than pounds sterling are recorded at the rates
of exchange prevailing on the dates of the transactions. At each balance sheet
date, monetary assets and liabilities denominated in foreign currencies are
retranslated at the rates prevailing on the balance sheet date. Non-monetary
assets and liabilities carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the date when the fair
value was determined. Gains and losses arising on retranslation are included in
net profit or loss for the period, except for exchange differences arising on
non-monetary assets and liabilities where the changes in fair value are
recognised directly in equity.
In order to hedge its exposure to certain foreign exchange risks, the group
enters into forward contracts and options (see below for details of the group's
accounting policies in respect of such derivative financial instruments).
On consolidation, the assets and liabilities of the group's overseas operations
are translated at exchange rates prevailing on the balance sheet date. Income
and expense items are translated at the average exchange rates for the period
unless exchange rates fluctuate significantly. Exchange differences arising, if
any, are classified as equity and transferred to the group's translation
reserve. Such translation differences are recognised as income or as expenses in
the period in which the operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
Revenue
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for goods and services provided in
the normal course of business, net of discounts, VAT and other sales-related
taxes. Sales of goods are recognised when goods are delivered and title has
passed.
Finance costs
Finance costs of debt are recognised in the income statement over the term of
such instruments at a constant rate on the carrying amount. Finance costs that
are directly attributable to the construction of tangible fixed assets are
capitalised as part of the cost of those assets in accordance with IAS 32 / 39.
All other borrowing costs are recognised in the income statement in the period
in which they are incurred.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of
acquisition over the group's interest in the fair value of the identifiable
assets and liabilities of a subsidiary, associate or jointly controlled entity
at the date of acquisition. Goodwill is recognised as an asset and reviewed for
impairment at least annually. Any impairment is recognised immediately in the
income statement and is not subsequently reversed.
On disposal of a subsidiary, associate or jointly controlled entity, the
attributable amount of goodwill is included in the determination of the profit
or loss on disposal.
Goodwill arising on acquisitions before the date of transition to IFRSs has been
retained at the previous UK GAAP amounts subject to being tested for impairment
at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has
not been reinstated and is not included in determining any subsequent profit or
loss on disposal.
Intangible assets
Research and development
Research expenditure, undertaken with the prospect of gaining new scientific or
technical knowledge and understanding, is charged to income in the year in which
it is incurred. Internal development expenditure, whereby research findings are
applied to a plan for the production of new or substantially improved products
or processes, is charged to the income statement in the year in which it is
incurred unless it meets the recognition criteria of IAS 38 'Intangible Assets'.
Measurement and other uncertainties generally mean that such criteria are not
met. Where, however, the recognition criteria are met, intangible assets are
capitalised and amortised over their useful economic lives. Intangible assets
relating to products in development are subject to impairment testing at each
balance sheet date or earlier upon indication of impairment. Any impairment
losses are written off immediately to income.
Computer software
Acquired computer software licences covering a period of greater than one year
are capitalised on the basis of the costs incurred to acquire and bring to use
the specific software. These costs are amortised over their estimated useful
lives (three to five years).
Impairment of intangible assets
At each balance sheet date, the group reviews the carrying amounts of its
tangible and intangible assets to determine whether there is any indication that
those assets have suffered an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated in order to determine the
extent of the impairment loss (if any). Where the asset does not generate cash
flows that are independent from other assets, the group estimates the
recoverable amount of the cash-generating unit to which the asset belongs. An
intangible asset with an indefinite useful life is tested for impairment
annually and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to
be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised as an expense immediately, unless the relevant asset is carried at
a revalued amount, in which case the impairment loss is treated as a revaluation
decrease.
Debt
Borrowings are recorded at the proceeds received, net of direct issue costs.
Finance charges, including premiums payable on settlement or redemption and
direct issue costs, are accounted for on an accruals basis to the income
statement using the effective interest method and are added to the carrying
amount of the instrument to the extent that they are not settled in the period
in which they arise.
Net borrowings
Net borrowings represents cash and cash equivalents together with short and long
term borrowings, as adjusted for the effect of related derivative instruments
irrespective of whether they qualify for hedge accounting.
Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from net profit as reported in the income statement because it
excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates that have been
enacted or substantially enacted by the balance sheet date.
Deferred taxation
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary differences
can be utilised.
Deferred tax liabilities are recognised for taxable temporary differences
arising on investments in subsidiaries and associates, and interests in joint
ventures, except where the group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax is
charged or credited in the income statement, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also
dealt with in equity.
Derivative financial instruments
The group uses derivative financial instruments to reduce exposure to foreign
exchange risk and interest rate movements. The group does not hold or issue
derivative financial instruments for speculative purposes.
The use of financial derivatives is governed by the group's policies approved by
the board of directors, which provide written principles on the use of financial
derivatives.
Financial instruments are recorded initially at cost. Subsequent measurement
depends on the designation of the instrument as either: (i) a hedge of the fair
value of recognised assets or liabilities or a firm commitment (fair value
hedge); or (ii) a hedge of highly probable forecast transactions (cash flow
hedge);
(i) Fair value hedge
Changes in the fair value of derivatives, for example interest rate swaps and
foreign exchange contracts, that are designated and qualify as fair value hedges
are recorded in the income statement, together with any changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk.
(ii) Cash flow hedge
The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedges are recognised in equity. The gain or
loss relating to the ineffective portion is recognised immediately in the income
statement. Amounts accumulated in equity are recycled in the income statement in
the periods when the hedged item will affect profit or loss (for instance when
the forecast sale that is hedged takes place). However, when the forecast
transaction that is hedged results in the recognition of a non-financial asset
(for example, inventory) or a liability, the gains and losses previously
deferred in equity are transferred from equity and included in the initial
measurement of the cost of the asset or liability. When a hedging instrument
expires or is sold, or when a hedge no longer meets the criteria for hedge
accounting, any cumulative gain or loss existing in equity at that time remains
in equity and is recognised when the forecast transaction is ultimately
recognised in the income statement. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss that was reported in equity is
immediately transferred to the income statement.
Where derivative instruments do not qualify for hedge accounting changes in
their fair value are recognised immediately in the income statement.
Retirement benefit costs
The costs of contributions to the group's pension schemes and of augmenting
existing pensions are charged to the income statement on a systematic basis over
the expected period of benefits from employees' service.
The UK defined benefit scheme is funded, with the assets of the scheme held
separately from those of the group, in separate trustee-administered funds. For
the German schemes, the assets are included within the assets of the respective
companies, as permitted under local laws. The assets of the other overseas
schemes are held separately from those of the group.
For defined benefit retirement schemes, the cost of providing benefits is
determined using the projected unit credit method, with actuarial valuations
being carried out at each balance sheet date. Actuarial gains and losses are
recognised in full in the period in which they occur.
Past service cost is recognised immediately to the extent that the benefits are
already vested, and otherwise is amortised on a straight line basis over the
average period until the benefits become vested.
The retirement benefit scheme recognised in the balance sheet represents the
present value of the defined benefit scheme obligation as adjusted for
unrecognised past service cost, and as reduced by the fair value of scheme
assets. Any asset resulting from this calculation is limited to past service
cost, plus the present value of available refunds and reductions in future
contributions to the plan.
Share based payments
The group has applied the requirements of IFRS 2 Share-based Payments. In
accordance with the transitional provisions, IFRS 2 has been applied to all
grants of equity instruments after 7 November 2002 that were unvested as of 1
January 2005. There is no change in the treatment for options granted before 7
November 2002.
The group issues equity-settled share-based payments to certain employees.
Equity-settled share-based payments are measured at fair value at the date of
grant. The fair value determined at the grant date of the equity-settled
share-based payments is expensed on a straight-line basis over the vesting
period, based on the group's estimate of shares that will eventually vest.
Glossary of terms
Operating profit Operating profit represents profit before finance costs and taxation.
Profit from operations Profit from operations represents profit before non-recurring items, financing costs, and
taxation. When referring to UK GAAP values, profit from operations is also stated before
amortisation of goodwill.
Non-recurring items Non-recurring items are defined as:
• Profit or loss impact arising from the sale or closure of an operation;
• Impairment of non-current assets; and
• Other non-operating or one-off items.
Special items The following are disclosed separately as special items in order to provide a clearer
indication of the Group's underlying performance:
• Non-recurring items;
• Mark to market adjustments in respect of cross currency and interest rate
derivatives used for hedging purposes where IAS 39 hedge accounting is not applied;
• Revaluation of USD loan notes from the rate of the related cross currency swaps
to the year end rate; and
• The transitional adjustment required to reflect movements in fair value caused
by variations in interest rates, and subsequent amortisation thereof, to the extent
that these constituted effective hedges under UK GAAP.
When referring to UK GAAP numbers, special items also includes amortisation of goodwill.
Free cash flow Free cash flow represents cash flow before cash impact of acquisitions and disposals,
purchase of own shares, equity dividends paid and exchange movements.
This information is provided by RNS
The company news service from the London Stock Exchange
Friday, 31st May 2024
COMPANIES COVERED:
Latest directors dealings
- 1 day ago FDM Group (Holdings)
- 1 day ago Neo Energy Metals
- 1 day ago DCC (CDI)
- 1 day ago 3i Group
- 1 day ago 3i Group