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Elementis PLC (ELM)

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Tuesday 01 March, 2011

Elementis PLC

Final Results

RNS Number : 0331C
Elementis PLC
01 March 2011
 



PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2010

 

 

Elementis plc, a global specialty chemicals company, announces its results for the year ended

31 December 2010.

 

HIGHLIGHTS

·      Significant improvement in Group sales and operating profit

Sales up 24 per cent; Operating profit* up 183 per cent

·      Operating margin continued to improve as the year progressed

First half 13.6 per cent; Second half 15.8 per cent

·      Record performance in Specialty Products

Sales up 30 per cent; Operating profit up 132 per cent

·      Chromium saw good profit and margin growth

·      Strong cash generation with year end net debt reduced to $79.3 million

Net debt to EBITDA 0.6 times               

·      Full year dividend increased by 7 per cent

 

FINANCIAL SUMMARY


2010

2009

 change

Sales

$697.4m

$563.7m

+ 24%

Operating profit

$102.3m

$36.2m*

+ 183%*

Profit before tax

$96.0m

$28.3m*

+ 239%*

Diluted earnings per share

15.2c*

4.3c*

+ 253%*

Net debt

$79.3m

$106.3m






Profit/(loss) for the year

Basic earnings/(loss) per share

$74.1m

16.7c

$(57.4)m

(12.9)c


 

Dividend to shareholders - final proposed

                                     - full year

 

2.6c/1.6p

4.9c/3.1p

 

1.4p

2.9p

 

+ 14%

+ 7%

  * before exceptional items

 

 

Commenting on the results, Group Chief Executive, David Dutro said:

 

"We are pleased to report such strong results for 2010, demonstrating the inherent quality of our core businesses. The Group has taken bold strategic steps over the last three years including investing in high growth markets, restructuring segments of our business portfolio and also strengthening our business teams, thereby positioning Elementis to deliver further profitable growth. These actions are already making a significant contribution to our progress.

 

Specialty Products delivered its best ever year in terms of sales and operating profit, as our unique market position, product innovation and powerful Asia Pacific growth platform combined to produce impressive results. The very positive Chromium results reflect the benefits of the 2009 restructuring, giving us greater confidence that the business can deliver more stable earnings and cash flow. Surfactants has also made good progress in its strategic intent to improve its product and market mix.

 

Operating cash conversion has been a strong theme in our overall performance in 2010. Our focus on working capital management has helped us generate more operating cash flow in the year than operating profit, further strengthening our balance sheet and providing the financial flexibility to support future growth.

 

The positive momentum and market demand we have experienced in 2010 has continued into the early part of 2011. Our revenues and margins continue to show improvement over the same period in 2010 - despite the first half of last year being a period of significant customer restocking. Coupled with our robust order book, these trends give us confidence in our ability to deliver further good progress in 2011.

 

END

 

 

Enquiries

 

Elementis
020 7408 9300
David Dutro, Group Chief Executive
 

Brian Taylorson, Finance Director

 
 
 
Financial Dynamics
020 7831 3113

Greg Quine

 


 
 

 

Chairman's statement

 

I am very pleased to report on the significant improvement in the Group's financial performance in 2010, following the effects of the general economic downturn in 2009. The results are particularly satisfying to the Board because at the core of the improvement are a number of strategic actions that have been undertaken by management over the last three years to improve the level and quality of the Group's earnings. These actions have also positioned us for growth by placing talented business teams in high growth markets and geographies, where our inherent skills can be fully leveraged to produce exceptional performance. Such actions have included the acquisition of Deuchem in Taiwan and China, the acquisition of Fancor in personal care, the reorganisation of the Chromium business and several high quality additions to our business teams. All of these actions combined to make a significant contribution to this year's excellent results and ensure the Group is well positioned for further profitable growth.

 

Results

Revenues in the period were $697.4 million compared to $563.7 million in the previous year, which is an increase of 23 per cent after adjusting for currency and acquisitions. Operating profit in 2010 improved by 183 per cent to $102.3 million, compared to $36.2 million in the previous year, before exceptional items. In Specialty Products, the Group's largest business, sales volumes were well ahead of the previous year in both the first and second halves of the year, demonstrating solid underlying growth in this business. In Chromium, the 2009 restructuring exercise is already showing positive results with good earnings and cash flow improvements in the year.

 

Earnings per share, before exceptional items, in 2010 improved to 15.2 cents, compared to 4.3 cents in 2009. During the year the Group concluded that it should recognise the value of certain deferred tax assets relating to past losses, resulting in a tax credit of $5.8 million. As this is a non-recurring, one-time event it has been recorded as an exceptional item in our financial statements. Basic earnings per share in 2010, including the tax credit, was 16.7 cents compared to a loss of 12.9 cents in 2009, which also included a number of one-time charges.

 

Balance sheet

As a result of the Group's strong earnings and cash generation in 2010 the balance sheet has continued to strengthen and at the end of the year the ratio of net debt to EBITDA had fallen to 0.6x (2009: 1.9x). In addition, the deficit in the Group's pension schemes, as measured under IAS 19, declined by $44.3 million to $67.4 million at the end of the year.

 

Having concluded a new four year, $200 million bank financing facility in July 2010, the Board is very confident of the Group's ability to finance further growth.

 

Dividend

In 2009 the Board decided to maintain the dividend payout at the 2008 level of 2.9 pence, despite the economic downturn, because of its confidence in the Group's strategy and ability to make rapid progress as global economies recovered. This has clearly been borne out by the excellent results reported for this year and so the Board feels it is appropriate to recommence dividend growth. The Board is therefore recommending a final dividend of 2.6 cents per share which will be paid on 3 June 2011 in pounds sterling at an exchange rate of £1:$1.619 (equivalent to a sterling amount of 1.6 pence per share), to shareholders on the register on 6 May 2011. This brings the total return to shareholders for the year to 4.9 cents (3.1 pence), representing an increase of 7 per cent over the previous year. Going forward the Board intends to continue to progress the dividend as the Group's dollar earnings and cash flow permit.

 

Health, safety and the environment

I am happy to report that our activities in this important area of our business have continued to be of a high standard in 2010 with, again, no significant incidents reported by any of our businesses.

 

People

The first rate results reported by the Group this year are, in no small part, the result of the efforts, dedication and skill of our people around the world. On behalf of the Board I would like to thank them all for their tremendous contribution to our success.

 

Outlook

The positive momentum and market demand experienced in 2010 has continued into the early part of 2011. Even though the first half of 2010 was positively impacted by customer restocking, our revenues and margins in the early part of this year are, nevertheless, showing an improvement over the previous year and our order book is currently robust. The Board remains confident in the Group's strategy of continuing to focus on leveraging the unique characteristics of the Specialty Products business to generate further added value and growth. We are therefore confident of the Group's ability to make further good progress in 2011.

 

Robert Beeston

Chairman

 

 

 

Business review

 

Group Chief Executive's overview

 

 

Dear Shareholders,

 

In last year's report, I wrote of our resolute commitment to enter 2010 in a stronger competitive position and poised to generate material growth, during what we anticipated to be a period of modest progress in global GDP. I am pleased to report that we successfully executed that strategy in 2010, yielding strong financial results across all of the Group's activities. Group operating profit, operating margin, free cash flow and EPS all improved sharply over 2009, and these improving trends for the Group resulted in several earnings upgrades over the course of the year. All three Elementis businesses made material contributions to the improvementand amongst the highlights were:

 

·       The significant improvement in Group sales and operating profit.

·       A continued improvement in Group operating margin with an accelerating trend across the year.

·       Strong operating cash flow performance which was enhanced by structural improvements to working capital.

·       A record performance in Specialty Products with sales up 30 per cent and operating profit up 132 per cent.

·       The solid performance from Chromium which delivered strong cash flow and good profit and margin growth.

·       The significant reduction in our net debt position, which reduced by $27 million to $79.3 million.

 

Specialty Products, which is our largest business representing 70 per cent of Group operating profit, reported its best year ever in terms of sales and operating profit. This record performance is even more notable given that the recovery in the critical North American coatings market in 2010 was from a much lower base than other regions and therefore bodes well for our future as that region continues to recover. The 2008 Asia Pacific based acquisitions of Deuchem, a specialty additives company, and Yuhong, a local organoclay producer, have proven instrumental in providing Elementis with a powerful growth platform in Asia Pacific. Asia Pacific is a key component of our future growth strategy and is now Specialty Products' largest sales region, delivering growth in 2010 of 20 per cent year on year.

 

Innovation has been and will continue to be at the heart of our success in Specialty Products. Our product portfolio, new product development and investment in technology are unified by one simple over-arching theme: to make our customers more successful. We are aligned with the market leaders on a global basis and have long term relationships with these customers. We have cultivated a reputation as the company that provides the most comprehensive and value added solutions for their formulary challenges. This focus on delivering value to our customers resulted in significant new business. An example is in the shale gas drilling sector where our innovative products allow customers to drill faster, further and more efficiently. We are investing behind these innovative products to build profitable market share and have implemented a number of productivity initiatives and capacity expansion projects, including a significant capacity expansion at our Charleston, West Virginia facility to support the growth of our shale gas drilling product range. As strong as the innovation programme has been to date, we are equally pleased with the quality of our new product pipeline going forward.

 

The acquisition of Fancor in December 2009 strengthened the product offering of our profitable personal care business and is consistent with our strategy to preferentially invest and grow the Specialty Products business. The quality of the Specialty Products business is reflected in its margins, which are moving back to the peak levels experienced in 2007/8, a level that we believe is sustainable based on the value we deliver to our customers. While our products are a small percentage of the overall cost of our customers' formulations they are critical to the performance and therefore highly valued. This characteristic allows the business to pass through increases in our input cost and maintain true specialty chemical margins.

 

Rheology, the science of flow and viscosity, is a key component of our product offering and value proposition in Specialty Products.  Elementis owns and operates the only commercial grade hectorite clay mine in the world, a substance that has unique rheological properties, giving Elementis a sustainable competitive advantage. Currently we estimate the productive life of the hectorite mine to be in excess of 50 years.

 

Elementis Chromium delivered excellent results in 2010 reflecting the benefits of the restructured business, further validating the new business model and giving us greater confidence in the ability of the business to deliver more stable earnings and cash flow. The business delivered operating margins of 17 per cent and a return on capital of 44.8 per cent in 2010. The strong demand from our customers experienced in 2010 is expected to continue into the foreseeable future and confidence in our ability to pass through any cost increases and maintain margins is high. We have also invested in an alternative energy project that will allow the Castle Hayne, North Carolina facility to operate on natural gas as well as fuel oil. This capital investment will give the business greater flexibility to procure energy in a more cost effective manner going forward.  Moreover, the move to natural gas will not only save money for Elementis, given present energy costs, it also has the potential to reduce greenhouse gas emissions at Castle Hayne by as much as 25 per cent.

 

The Surfactants business, based in the Netherlands, made good progress in 2010 in its strategic intent to improve its product and market mix, effectively selling less volume into the lowest margin commodity segments and more into the better margin markets.  The business also improved its operational productivity compared to 2009, as volumes improved in key operational segments.  As such, earnings showed good improvement over the near break-even level in 2009.  This business shares its production facility with the Specialty Products business and the goal remains to utilise more of the facility over time to support the coatings additives that are used by Specialty Products.

 

While we are encouraged and proud of the Group's continuing progress and that our 2010 results are ahead of expectations on almost every performance measure, we are certainly not satisfied and believe that there is much more that we can achieve.The reality is we still have significant opportunities to drive further improvement in performance and results for our shareholders. Elementis is strategically well placed to benefit from the powerful global trends of robust growth in shale gas drilling, the opportunities provided by our established position in emerging and high growth markets, especially in Asia, and our portfolio of highly valued and innovative products particularly in all-natural personal care formulations and high performance coatings.

 

We have a collective sense of optimism within Elementis about the near and long term future of the Group. This optimism is based on the ongoing positive transformation of our company into a business that can reliably generate strong profits and cash flow, giving us the financial flexibility to invest for future growth to deliver shareholder value.

 

The positive momentum in market demand and growth that we experienced in 2010 has continued into the early part of 2011. Our revenues and margins continue to show improvement over the same period in 2010 - despite the first half of last year being a period of significant customer restocking. Coupled with our robust order book, these trends give us confidence in our ability to deliver further good progress in 2011.  Moreover, our financial strength, unique competitive advantages, reputation in the global marketplace and, most importantly, the quality and character of our people, give us confidence in our ability to deliver further growth well into the future.

 

I would like to sincerely thank our shareholders and customers for their continued confidence and support.

 

 

David Dutro

Group Chief Executive

 

 

Chart images (re-presented here in tabular format) with the following information: 


2007

2008

2009

2010

Group operating profit* ($ million)

76.2

98.3

36.2

102.3

Group operating margin* (%)

12.7

13.0

6.4

14.7

Group operating cash flow ($ million)

94.0

93.0

49.5

112.9

Group net debt ($ million)

32.4

92.0

106.3

79.3

 * 2007 to 2009 before exceptional items

 

 

Business commentaries

 

 

Revenue







Effect of



Revenue

exchange

Increase

Revenue

2009

rates

2010

2010


$million

$million

$million

£million

Specialty Products

315.2

(4.3)

99.9

410.8

Surfactants

76.3

(4.1)

15.9

88.1

Chromium

183.4

(0.2)

26.5

209.7

Inter-segment

(11.2)

-

-

(11.2)


563.7

(8.6)

142.3

697.4

 

Operating profit






Operating

Effect of

Increase)/

Operating

profit*

exchange

(decrease)

profit

2009

rates

2010

2010


$million

$million

$million

$million

Specialty Products

30.9

3.8

37.1

71.8

Surfactants

0.1

(0.3)

6.3

6.1

Chromium

13.9

5.0

16.9

35.8

Central costs

(8.7)

-

(2.7)

(11.4)


36.2

8.5

57.6

102.3

 

* before exceptional items

 

 

Elementis Specialty Products

Elementis Specialty Products is a leading manufacturer of rheology control additives that are used to enhance the performance of our customers' products. It is the global leader in organoclay technology, with a unique position in hectorite clay, owning the only rheology grade hectorite mine in the world. Best in class technical support and customer service are critical core competencies of the business and provide the platform to deliver added value in the coatings, oilfield drilling and personal care markets.  The strategy of the business is to grow in high value rheology products and complementary additives through new product innovation, expansion into new geographies and bolt on acquisitions.  In coatings, the largest of its markets, Elementis has a unique global position, providing technical service and a broad product offering to both multinational and regional coatings companies. Its position in high growth markets was significantly enhanced by acquisitions in Taiwan and China in 2008. In personal care, Elementis is a significant player based on its expertise in hectorite rheology and further expanded this position in 2009 with the acquisition of Fancor, which added a number of eco-friendly, plant seed oil based products for skin and hair care. In oilfield drilling, Elementis is the preferred supplier to oil service companies for high performance rheological additives used in drilling. The business's unique technology and strong alignment with key industry players have allowed it to benefit from the recent increase in drilling activity for shale gas resources in North America.

 

Sales in Specialty Products for 2010 were $410.8 million compared to $315.2 million in the previous year, an increase of 30 per cent or 32 per cent on a constant currency basis. The acquisition of Fancor in December 2009 contributed 3 per cent to current year sales, while improvements in volume contributed 26 per cent and pricing 2 per cent. Successful execution of its core strategy has allowed the business to fully leverage the economic recovery, which led to especially strong customer demand in the first half of 2010 when sales increased by 49 per cent compared to the same period in 2009.  Sales in the second half were 14 per cent better than the same period in 2009, demonstrating strong underlying demand.

 

Sales in the Americas coatings market showed a strong recovery with volumes improving by 20 per cent on a year on year basis. A similar pattern was evident in coatings sales in Europe where full year volumes improved by 21 per cent. Asia Pacific is now our largest coatings market in terms of sales following our acquisition of Deuchem in 2008.  Sales volumes to the Asia Pacific coatings market grew by a robust 19 per cent, with additives growing by 25 per cent, demonstrating the continued attractiveness of this market and the strong position that Elementis enjoys.  Overall sales to the global coatings market represented 77 per cent of Specialty Products' total sales and coatings volumes grew by 20 per cent.

 

Sales volumes to the oilfield drilling sector grew by 68 per cent in 2010, with sales in the Americas growing by 83 per cent due to significantly increased activity in shale gas drilling and a general recovery of market activity coupled with rising oil prices.  In Europe sales volumes grew by 20 per cent due to increased demand from North Sea drilling activities. 

 

Sales volumes in personal care improved by 78 per cent in 2010 or 22 per cent excluding the acquisition of Fancor. Sales in Europe, where the business has its strongest customer base, showed particularly good growth (+ 38 per cent) and the acquisition of Fancor is already providing synergistic benefits from a broadened product offering and an enhanced position in North America.

 

Operating profit in Specialty Products was $71.8 million in 2010, an increase of 132 per cent over the previous year. The strong increase in sales volumes was the main driver of the improvement, with higher selling prices offsetting raw material and energy inflation. In addition, margins were improved in selected markets where tight supply conditions prevailed.  The year on year comparison also benefited from $3.8 million of net currency movements, with 2009 incurring currency hedging costs of $5.3 million. As the business continues to expand in high margin areas, additional investments in high quality people and other resources have been made, along with plant resources to meet additional volume, which increased fixed costs by approximately $4 million. Operating margin for Specialty Products was 17.5 per cent in 2010 (2009: 9.8 per cent) and improved throughout the year due to strong demand and improved pricing. Operating margin in the first half of 2010 was 17.3 per cent compared to 17.7 per cent in the second half.

 

Elementis Chromium

Elementis Chromium is one of the world's largest suppliers of chrome chemicals, which are used in a variety of end markets including metal alloys, metal finishing, leather tanning and refractory applications.  Supply/demand balances are a significant driver of margins in the global chromium chemical market and Elementis Chromium seeks to produce stable earnings and cash flow by serving higher value markets and by utilising its flexible manufacturing base to adjust to changes in demand. As the only global producer with its manufacturing base located in the United States, Elementis Chromium is uniquely positioned to serve this market with value added products, offering just in time service via custom designed delivery systems.

 

Sales in 2010 were $209.7 million compared to $183.4 million in the previous year, which is an increase of 14 per cent, with currency having no material impact on the comparison. Volumes recovered strongly in the first half of the year, driven by the economic recovery and customer restocking, and demand generally remained strong throughout the year. All of our markets, with the exception of US construction, showed a year on year improvement. Consequently plant operating rates remained close to capacity for most of the year. Overall, volumes for the year were 12 per cent higher than in 2009, with first half volumes 45 per cent higher than the same period last year. Sales volumes in the second half of 2010 remained at, or near, plant capacity but were nevertheless 10 per cent lower than the previous year due to the closure of Eaglescliffe and sale of the remaining inventory at the site during the latter part of 2009. Regionally, volumes to North America and Asia Pacific grew by 32 per cent and 25 per cent respectively, with volumes to Europe 31 per cent lower than the previous year as a result of the UK plant closure.

 

Operating profit in 2010 improved by 158 per cent over the previous year to $35.8 million. Operating margin for 2010 was 17.0 per cent compared to 7.6 per cent in the previous year. The margin in the second half of the year was 18.7 per cent compared to 15.4 per cent in the first half. (All 2009 comparatives here are before exceptional items.) Strong volume gains and improved pricing contributed most of the improvement and margins were improved by the closure of the Eaglescliffe plant which reduced sales of non-differentiated products. The year on year result also benefited from relatively stable energy and raw material costs during 2010. These costs were fixed for the year, mostly during the second half of 2009, as part of the business's annual hedging programme to help minimise cost volatility and stabilise earnings. As these contracts expire, variable costs will trend higher, but will be offset by selling price initiatives. In addition the year on year comparison was positively impacted by $5.2 million of currency hedging costs incurred in 2009.

 

Elementis Surfactants

Elementis Surfactants is a specialty surfactant manufacturer offering innovative products to markets, such as oilfield chemicals, textile and leather, construction and household products.  Its strategy is to focus on higher margin markets, such as agro-chemicals, feed, plastic and resins, and over time reduce higher volume, low margin applications.  At the same time the business seeks to reduce operating costs by improving the productivity of its manufacturing facility in Delden, the Netherlands, which it shares with the Specialty Products business.

 

Surfactant sales in 2010 were $88.1 million compared to $76.3 million in the previous year, representing an increase of 15 per cent, or 21 per cent on a constant currency basis. Sales volumes increased by 1 per cent with volumes in oil service chemicals improving by 31 per cent compared to the previous year, while volumes sold in other, low margin sectors reduced by 11 per cent.  This improvement in the mix of products sold was in line with management's strategy.  Selling prices were increased throughout the year in response to petrochemical raw material cost inflation.

 

Operating profit in 2010 was $6.1 million compared to $0.1 million in 2009.  During the year the business benefited from its share of a one-time legal settlement with a former owner of the Delden site in the amount of $2.7 million (see below) and excluding this gives an underlying result for 2010 of $3.4 million. The net increase over 2009 of $3.3 million is the result of improvements in productivity and product mix, as mentioned above, and tightly controlled fixed costs.

 

 

Finance report

 

Revenue



$million

2010

2009

Specialty Products

410.8

315.2

Surfactants

88.1

76.3

Chromium

209.7

183.4

Inter-segment

(11.2)

(11.2)


697.4

563.7

 

Group results

Group sales in 2010 were $697.4 million compared to $563.7 million in the previous year, an increase of 24 per cent, or 23 per cent on a constant currency basis after excluding acquisitions. All three Group businesses showed a strong rebound in sales following the economic downturn of 2009. Customer restocking was a prominent feature during the first half of 2010, in both Specialty Products and Chromium, but customer demand remained robust throughout the balance of the year. Selling prices across the Group improved by 5 per cent in response to raw material inflation and sales volumes increased by 17 per cent compared to 2009.

 

Group operating profit was $102.3 million in 2010 compared to $36.2 million (before exceptional items) in 2009. Strong growth in volumes, combined with higher selling prices were the main drivers of the improvement. Group operating margin for 2010 was 14.7 per cent compared to 6.4 per cent (before exceptional items) in 2009 and showed improvement throughout the year due to strong market demand for our differentiated products, high plant utilisation rates and selective price increases. Operating margin in the first half of 2010 was 13.6 per cent and increased to 15.8 per cent in the second half. The price of energy across the Group remained relatively stable in 2010, compared to 2009, due to the Group's policy of fixing energy costs ahead of time in order to reduce earnings volatility. In the second half of 2010 the Group reached a settlement with a former owner of the Delden site, in which Elementis received Euro 2.75 million ($3.8 million) in return for releasing that party from certain historical indemnities relating to the site. This amount was added to operating profit in the year and, as the site serves both businesses, was allocated between Specialty Products ($1.1 million) and Surfactants ($2.7 million). These amounts were not treated as exceptional items as they did not meet the relevant materiality threshold.

 

Currency hedging

Following the Group's decision in February 2010 to change its reporting currency to US dollars, currency hedging activities have been significantly reduced, focussing mostly on exposures to the euro and pounds sterling. However in 2008, when the reporting currency was still pounds sterling, currency hedges in US dollar/sterling were transacted by the Group to hedge its anticipated dollar earnings for 2009. The net cost of these hedges in 2009 was $10.2 million, resulting from the strengthening of the dollar in that year, and was divided equally between Specialty Products and Chromium. Consequently, the year on year comparison of operating profits in 2010 is positively impacted by these amounts.

 

 

Operating profit



2010



2009

 

 

$million

 

Operating

profit

 

Exceptional

items

Adjusted

operating

profit

 

Operating

profit

 

Exceptional

items

Adjusted

Operating

profit

Specialty Products

71.8

-

71.8

30.9

-

30.9

Surfactants

6.1

-

6.1

0.1

-

0.1

Chromium

35.8

-

35.8

(30.6)

44.5

13.9

Central costs

(11.4)

-

(11.4)

(40.9)

32.2

(8.7)


102.3

-

102.3

(40.5)

76.7

36.2

 

Central costs

Central costs are costs that are not identifiable as expenses of a particular business, and are comprised of expenditures of the Board of directors and the corporate office. In 2010 central costs increased by $2.7 million to $11.4 million largely as a result of an increase in the value of performance related compensation programmes, reflecting the Group's improved share price and earnings performance.

 

Exceptional items

An exceptional tax credit of $5.8 million has been recognised during the year in respect of deferred tax assets relating to past losses and other timing differences which are now considered recoverable against future UK trading profits. It has been treated as an exceptional item on account of its size and non-recurring nature. Exceptional items in 2009 consisted of $33.5 million relating to European Commission fines and $44.5m associated with the strategic review and subsequent closure of the Eaglescliffe chromium plant.

 

Interest


2010


2009


$million


$million

Finance income

0.4


1.2

Finance cost of borrowings

(3.7)


(3.1)


(3.3)


(1.9)

Net pension finance expense

(1.9)


(6.0)

Discount on provisions

(1.1)


-


(6.3)


(7.9)

 

Net interest costs reduced by $1.6 million to $6.3 million.  The net cost of borrowing increased by $1.4 million to $3.3 million due mainly to increased margins on the Group's main borrowing facility, which was renewed in July 2010, and additional costs from interest rate hedges transacted in September 2010.  The interest rate hedges were entered into in order to swap $51 million of Group debt from floating to four year fixed rates.

 

Net pension finance expense reduced by $4.1 million in 2010 to $1.9 million.  The decline was largely due to an improvement in the expected return on pension assets between the two periods.

 

Discount on provisions of $1.1 million relates to environmental provisions on the balance sheet which are calculated on a discounted basis, hence the cost of the discount is recognised each year as an interest charge.  In 2009 the charge was adjusted to zero as part of a provision rebalancing exercise.

 

Taxation

Tax charge


2010


2009



Effective


Effective



rate


rate


$million

per cent

$million

per cent

Before exceptional items

27.7

28.9

9.3

32.8

Exceptional items

(5.8)

(6.1)

(0.3)

(1.1)

Total

21.9

22.8

9.0

31.7

 

The pre-exceptional tax charge which is an effective tax rate of 28.9 per cent (2009: 32.8 per cent) reflects a reduction in levels of taxation due to the geographical split of profits and changes to underlying rates of tax payable.

 

The exceptional item relates to the credit arising on the recognition of a UK deferred tax asset in respect of UK losses and other timing differences which are now considered recoverable against future UK trading profits. In addition a further UK deferred tax asset has been established in respect of the UK pension fund deficit and the related credit accounted for within the consolidated statement of comprehensive income.

 

Earnings per share

Note 8 to the Financial Statement sets out a number of calculations of earnings per share.  To better understand the underlying performance of the Group, earnings per share reported under IFRS is adjusted for items classified as exceptional. 

 

Diluted earnings per share, before exceptional items, was 15.2 cents compared to 4.3 cents in the previous year and the improvement was mainly due to the operating profit performance noted above.

 

Basic earnings per share including exceptional items is after taking account of the one-time tax credits noted below and was 16.7 cents compared to a loss of 12.9 cents in 2009. The impact of exceptional items was to increase basic earnings per share by 1.5 cents (2009: reduce by 17.2 cents).

 

Distribution to shareholders

During 2010 the Group paid a final dividend in respect of the year ended 31 December 2009 of 2.2 cents (1.4 pence) per share.  An interim dividend of 2.3 cents (1.5 pence) per share was paid on 8 October 2010 and the Board is recommending a final dividend of 2.6 cents (1.6 pence) per share which will be paid on       3 June 2011.

 

Cash flow

The cash flow is summarised below:


2010


2009


$million


$million

EBITDA1

123.7


56.7

Change in working capital

1.9


8.1

Capital expenditure

(14.0)


(13.8)

Other

1.3


(1.5)

Operating cash flow

112.9


49.5

Pension deficit payments

(18.4)


(10.7)

Interest and tax

(8.8)


(8.6)

Exceptional items

(40.7)


(22.8)

Other

(1.8)


-

Free cash flow

43.2


7.4

Dividends paid

(20.0)


(20.0)

Receipt of unclaimed dividends

0.8


-

Acquisitions and disposals

1.1


(8.6)

Currency fluctuations

1.9


6.9

Movement in net borrowings

27.0


(14.3)

Net borrowings at start of year

(106.3)


(92.0)

Net borrowings at end of year

(79.3)


(106.3)

1 EBITDA - earnings before interest, tax, exceptional items, depreciation and amortisation

 

Net borrowings reduced by $27.0 million in 2010 to $79.3 million, resulting in a ratio of net debt to EBITDA of 0.6x (2009: 1.9x). In 2009 net debt increased by $14.3 million. This positive outcome for the year was generated by a significant improvement in Group EBITDA and a positive performance in working capital management. EBITDA improved from $56.7 million in 2009 to $123.7 million in 2010 as a result of the increase in operating profit for the year, while the Group's excellent progress in working capital management delivered a positive cash flow of $1.9 million in a year when sales grew by 24 per cent. In other categories of cash flow, payments towards the Group's pension deficit were $18.4 million in 2010 compared to $10.7 million in the previous year (see comments later in this section). Interest and tax payments increased by $0.2 million  to $8.8 million, largely due to increases in tax payments as a result of the higher earnings in the year. Cash outflows related to exceptional items were $40.7 million and included the EU fine ($33.5 million) and spending on the closure of the Eaglescliffe site, both of which were reported on in the 2009 Annual Report.

 

All of the Group's businesses made good progress in working capital management during 2010 due to continued emphasis on high quality supply chain management and rigorous credit management.  As a result, inventory days for the Group reduced by 15 days to 75 days, debtor days remained stable at 50 days and creditor days improved by 9 days to 60 days. All of this was achieved during a period of rapid sales growth, further demonstrating the high quality of our efforts in this area.

 

Balance sheet


2010

2009


$million

$million

Intangible fixed assets

338.1

339.5

Other net assets

120.9

53.1


459.0

392.6

Equity

379.7

286.3

Net borrowings

79.3

106.3


459.0

392.6

Gearing 2

17%

27%

2 the ratio of net borrowings to equity plus net borrowings

 

Group equity increased by $93.4 million in 2010 (2009: decreased by $99.6 million) mainly due to the current year profit after tax of $74.1 million (2009: loss of $57.4 million), a decrease in Group liabilities for retirement benefits of $44.3 million (2009: increase of $40.7 million) and dividends paid or accrued of $20.0 million (2009: $20.0 million). Other net assets increased by $67.8 million in 2010 (2009: decreased by $98.0 million) mainly due to a decrease in retirement benefit liabilities, a decrease in Group provisions of $42.3 million (2009: increase of $59.4 million) and an increase in net deferred tax liabilities of $16.1 million. Comments on the changes in Group provisions and deferred tax are included elsewhere in this report.

 

The main dollar exchange rates relevant to the Group are set out below:


2010

2009


Year


Year



end

Average

end

Average

Sterling

0.64

0.65

0.62

0.65

Euro

0.75

0.75

0.70

0.72

 

Provisions

A provision is recognised in the balance sheet when the Group has a present obligation as a result of past events which is expected to result in an outflow of economic benefits in order to settle the obligation.  At the end of 2010 the Group held provisions of $48.5 million (2009: $90.8 million).

 

During the year an amount of Euro 23.5 million was paid in respect of the European Commission's fines following on from their investigation into heat stabilisers, which were highlighted in last year's Annual Report and had been provided for in the 2009 accounts.  The Group has since filed an appeal with the General Court of the EU, vigorously asserting its position that the EU Commision was precluded from imposing any fine on the Group.

 

The Group's environmental provision has been calculated using a methodology consistent with previous years and with the Group's external consultants having performed an updated assessment of liabilities during the latter part of the year. Including the costs associated with the closure of the Eaglescliffe facility, the Group had a provision for environmental costs of $46.2 million at 31 December 2010 (2009: $54.7 million) of which $31.2 million relates to sites maintained by the Group (2009: $38.3 million) with the remainder relating to sites no longer under Group control. $7.1m was spent on the Eaglescliffe closure programme with an anticipated spend in 2011 of $7.1 million.

 

 

Pensions and other post retirement benefits


2010


2009


$million


$million

Net liabilities:




UK

28.9


69.4

US

34.4


39.4

Other

4.1


2.9


67.4


111.7

 

The Group operates several pension plans in different countries and a retirement medical scheme in the US. The largest of these is the UK defined benefit pension scheme ("UK Scheme") which had a deficit under IAS 19 of $28.9 million at the end of 2010, a decrease of $40.5 million compared to 2009. The UK Scheme is relatively mature with approximately 68 per cent of its gross liabilities represented by pensions in payment. During 2010 the Group concluded the latest triennial valuation and funding agreement, in pounds sterling, with the Trustees of the UK Scheme. The valuation exercise resulted in an agreed deficit, for funding purposes, of £101.7 million as at 30 September 2008. Under the related funding agreement the Group has agreed to make deficit contributions of £7.1 million in 2010 and, thereafter, an annual amount of either £8.0 million or £10.0 million, depending on whether an EBITDA threshold amount of £53.2 million is achieved by the Group in the previous financial year. The higher amount being paid for any year in which the threshold is exceeded. The agreement also includes a commitment to increase the annual contribution by the same percentage as any increase in shareholder dividend, once the annual dividend exceeds the equivalent of 3.5 pence per share. The next triennial valuation will be conducted as of 30 September 2011 and the related funding discussions with the Trustees should be concluded during 2012.

 

In 2010 the UK Scheme deficit, under IAS 19, declined mainly as a result of an increase in the scheme assets of $42.2 million (2009: $57.9 million) which more than offset an increase in scheme liabilities of $6.5 million (2009: $105.0 million).  Scheme liabilities were positively impacted by $11.7 million relating to a change in the basis for revaluing deferred pensions, which in the future will be based on CPI rather than on RPI.  This change in the treatment of deferred member pensions is as a result of recent announcements by the Government that it intends to use CPI as the "statutory rate" for pension purposes. The scheme assets increased in value largely as a result of a 12 per cent return on investments in the year (2009: 16 per cent). With the support of the Company the Trustees have developed an investment strategy that broadly includes 50 per cent of the assets being invested in a "liability matching fund" and 50 per cent in an "investment fund". The liability matching fund consists of bonds, gilts and liquid assets, plus a portfolio of interest and inflation swaps, constructed in such a way as to match the interest and inflation risks inherent in a similar percentage of the scheme liabilities. The purpose of this fund is to finance a portion of the liabilities without creating significant volatility in the reported deficit. The investment fund, on the other hand, consists of a portfolio of "return seeking" assets, largely equities, with the aim of funding part of the liabilities by generating higher returns at an acceptable risk while also contributing to reducing the deficit over time.

 

The US liabilities in 2010 consist of a pension plan, with a deficit value of $26.2 million (2009: $31.3 million) and a post retirement medical plan with a value of $8.2 million (2009: $8.1 million). The US pension plan is smaller than the UK Scheme and is closed to future accruals. The deficit in the plan declined by $5.1 million (2009: $10.2 million) during the year, due to an increase in the scheme assets of $11.2 million and an increase in the scheme liabilities of $6.1 million. The scheme assets were 74 per cent invested in equities and had a return of 15 per cent in the year (2009: 28 per cent), which was the main contributor to the increase in value. The scheme liabilities increased mainly due to a fall in real bond yields during the year.

 

Other liabilities amounted to $4.1 million (2009: $2.9 million) and relate to pension plans for a relatively small number of people in Germany and an insured plan in the Netherlands.

 

 

 

Consolidated income statement

for the year ended 31 December 2010

 

 




2010



2009

 


Before

exceptional

Exceptional

items

After

exceptional

Before

exceptional

Exceptional

items

After

exceptional

 


items

(note 6)

items

items

(note 5)

Items

 

Note

$million

$million

$million

$million

$million

$million

Revenue


697.4

-

697.4

563.7

-

563.7

Cost of sales


(445.0)

-

(445.0)

(385.3)

(2.9)

(388.2)

Gross profit


252.4

-

252.4

178.4

(2.9)

175.5

Distribution costs


(82.8)

-

(82.8)

(75.4)

-

(75.4)

Administrative expenses


(67.3)

-

(67.3)

(66.8)

(73.8)

(140.6)

Operating profit/(loss)


102.3

-

102.3

36.2

(76.7)

(40.5)

Finance income

4

0.4

-

0.4

1.2

-

1.2

Finance costs

5

(6.7)

-

(6.7)

(9.1)

-

(9.1)

Profit/(loss) before income tax


96.0

-

96.0

28.3

(76.7)

(48.4)

Tax

7

(27.7)

5.8

(21.9)

(9.3)

0.3

(9.0)

Profit/(loss) for the year


68.3

5.8

74.1

19.0

(76.4)

(57.4)

Attributable to:








Equity holders of the parent


68.3

5.8

74.1

19.0

(76.4)

(57.4)

Minority interests



-

-

-

-

-



68.3

5.8

74.1

19.0

(76.4)

(57.4)

Earnings per share








Basic (cents)

8



16.7



(12.9)

Diluted (cents)

8



16.5



(12.9)

 

 

Consolidated statement of comprehensive income

for the year ended 31 December 2010

 


2010


2009


$million


Profit/(loss) for the year

74.1

 

(57.4)

Other comprehensive income:


 

 

Exchange differences on translation of foreign operations

7.3

 

1.5

Actuarial gain/(loss) on pension and other post-retirement schemes

25.3


(51.1)

Effective portion of changes in fair value of cash flow hedges

0.9


(0.5)

Fair value of cash flow hedges transferred to income statement

0.5


29.2

Deferred tax associated with pension and other post-retirement schemes

3.4


(2.2)

Other comprehensive income

37.4


(23.1)

Total comprehensive income for the year

111.5


(80.5)





Attributable to:




Equity holders of the parent

111.5


(80.5)

Minority interests

-


-

Total comprehensive income for the year

111.5


(80.5)

 

 

Consolidated balance sheet

at 31 December 2010

 


2010

2009

2008


31 December

31 December

31 December


$million

$million

$million

Non-current assets




Goodwill and other intangible assets

338.1

339.5

327.3

Property, plant and equipment

163.1

168.7

174.1

Deferred tax assets

6.7

-

-

Interests in associates

-

0.1

0.1

Total non-current assets

507.9

508.3

501.5

 

Current assets




Inventories

102.3

103.9

144.9

Trade and other receivables

111.8

102.4

112.6

Derivatives

0.9

-

-

Cash and cash equivalents

40.8

28.8

48.4

Total current assets

255.8

235.1

305.9

Total assets

763.7

743.4

807.4

 

Current liabilities




Bank overdrafts and loans

(7.0)

(17.9)

(22.6)

Trade and other payables

(95.3)

(82.3)

(119.4)

Derivatives

-

(4.5)

(32.3)

Current tax liabilities

(4.2)

(6.5)

(8.2)

Provisions

(10.3)

(51.8)

-

Total current liabilities

(116.8)

(163.0)

(182.5)

 

Non-current liabilities

 



Loans and borrowings

(113.1)

(117.2)

(117.8)

Retirement benefit obligations

(67.4)

(111.7)

(71.0)

Deferred tax liabilities

(45.5)

(22.7)

(14.8)

Provisions

(38.2)

(39.0)

(31.4)

Government grants

(1.4)

(1.9)

(2.3)

Total non-current liabilities

(265.6)

(292.5)

(237.3)

Total liabilities

(382.4)

(455.5)

(419.8)

Net assets

381.3

287.9

387.6

 

Equity

 



Share capital

43.2

43.2

43.2

Share premium

11.6

11.0

11.0

Other reserves

126.7

116.0

85.7

Retained earnings

198.2

116.1

246.0

Total equity attributable to equity holders of the parent

379.7

286.3

385.9

Minority equity interests

1.6

1.6

1.7

Total equity

381.3

287.9

387.6

 

 

Consolidated statement of changes in equity

for the year ended 31 December 2010

 


Share Capital

Share premium

Trans-lation reserve

Hedging reserve

Other

reserves

Retained earnings

Total

Minority Interest

Total Equity


$million

$million

$million

$million

$million

$million

$million

$million

$million

Balance at 1 January 2009

43.2

11.0

(40.4)

(36.2)

162.3

246.0

385.9

2.2

388.1

Comprehensive income










Loss for the year

-

-

-

-

-

(57.4)

(57.4)

-

(57.4)

Other comprehensive income










Exchange differences

-

-

1.5

-

-

-

1.5

-

1.5

Fair value of cash flow hedges

transferred to the income statement

-

-

-

29.2

-

-

29.2

-

29.2

Effective portion of changes in fair

value of cash flow hedges

-

-

-

(0.5)

-

-

(0.5)

-

(0.5)

Actuarial loss on pension scheme

-

-

-

-

-

(51.1)

(51.1)

-

(51.1)

Tax credit on actuarial loss on pension scheme

-

-

-

-

-

(2.2)

(2.2)

-

(2.2)

Transfer

-

-

-

-

(0.8)

0.8

-

-

-

Total other comprehensive income

-

-

1.5

28.7

(0.8)

(52.5)

(23.1)

-

(23.1)

Total comprehensive income

-

-

1.5

28.7

(0.8)

(109.9)

(80.5)

-

(80.5)

Transactions with owners










Issue of shares

-

-

-

-

-

-

-

-

-

Share based payments

-

-

-

-

0.9

-

0.9

-

0.9

Dividends paid

-

-

-

-

-

(20.0)

(20.0)

-

(20.0)

Total contributions by and distributions to owners

-

-

-

-

0.9

(20.0)

(19.1)

-

(19.1)

Changes in ownership interests in subsidiaries that do not result in a loss of control










Acquisition of minority interests

-

-

-

-

-

-

-

(0.6)

(0.6)

Total transactions with owners



-

-

0.9

(20.0)

(19.1)

(0.6)

(19.7)

Balance at 31 December 2009

43.2

11.0

(38.9)

(7.5)

162.4

116.1

286.3

1.6

287.9





















Balance at 1 January 2010

43.2

11.0

(38.9)

(7.5)

162.4

116.1

286.3

1.6

287.9

Comprehensive income










Profit for the year

-

-

-

-

-

74.1

74.1

-

74.1

Other comprehensive income










Exchange differences

-

-

7.3

-

-

-

7.3

-

7.3

Fair value of cash flow hedges

transferred to the income statement

-

-

-

0.5

-

-

0.5

-

0.5

Effective portion of changes in fair

value of cash flow hedges

-

-

-

0.9

-

-

0.9

-

0.9

Actuarial gain on pension scheme

-

-

-

-

-

25.3

25.3

-

25.3

Tax credit on actuarial loss on pension scheme

-

-

-

-

-

3.4

3.4

-

3.4

Transfer

-

-

-

-

(1.2)

1.2

-

-

-

Total other comprehensive income

-

-

7.3

1.4

(1.2)

29.9

34.4

-

37.4

Total comprehensive income



7.3

1.4

(1.2)

104.0

108.5


111.5

Transactions with owners










Purchase of own shares

-

-

-

-

-

(2.4)

(2.4)

-

(2.4)

Issue of shares

-

0.6

-

-

-

-

0.6

-

0.6

Share based payments

-

-

-

-

3.2

-

3.2

-

3.2

Dividends paid

-

-

-

-

-

(19.5)

(19.5)

-

(19.5)

Total transactions with owners

-

0.6

-

-

3.2

(21.9)

(18.1)

-

(18.1)

Balance at 31 December 2010

43.2

11.6

(31.6)

(6.1)

164.4

198.2

379.7

1.6

381.3

 

 

Consolidated cash flow statement

for the year ended 31 December 2010

 


2010


2009

 

$million


$million

Operating activities:

 


 

Profit / (loss) for the year

74.1


(57.4)

Adjustments for:

 


 

Finance income

(0.4)


(1.2)

Finance costs

6.7


9.1

Tax charge

21.9


9.0

Depreciation and amortisation

21.4


20.5

Decrease in provisions

(0.7)


(2.4)

Pension contributions net of current service cost

(18.4)


(10.7)

Share based payments

2.0


0.9

Exceptional items

-


76.7

Cash flow in respect of exceptional items

(40.7)


(22.8)

Operating cash flow before movement in working capital

65.9


21.7

Decrease in inventories

1.7


44.0

(Increase)/decrease in trade and other receivables

(7.7)


7.3

Increase/(decrease) in trade and other payables

7.9


(43.2)

Cash generated by operations

67.8


29.8

Income taxes paid

(5.6)


(6.2)

Interest paid

(3.9)


(4.0)

Net cash flow from operating activities

58.3


19.6

Investing activities:



 

Interest received

0.7

 

1.6

Disposal of property, plant and equipment

2.1


 

Purchase of property, plant and equipment

(15.7)


(13.5)

Purchase of business

1.1


(8.7)

Disposal of investment in associate

-


0.1

Acquisition of intangible

(0.4)


(0.3)

Net cash flow from investing activities

(12.2)


(20.8)

Financing activities:



 

Issue of shares

0.6


-

Dividends paid

(20.0)


(20.0)

Receipt of unclaimed dividends

0.8


-

Purchase of own shares

(2.4)


-

Decrease in borrowings

(15.7)


(1.4)

Net cash used in financing activities

(36.7)


(21.4)

Net increase/(decrease) in cash and cash equivalents

9.4


(22.6)

Cash and cash equivalents at 1 January

28.8


48.4

Foreign exchange on cash and cash equivalents

2.6


3.0

Cash and cash equivalents at 31 December

40.8


28.8

 

 

Notes to the financial statements

 

1    Preparation of the preliminary announcement

 

The financial information in this statement does not constitute the Company's statutory accounts for the years ended 31 December 2010 or 2009 but is derived from those accounts. Statutory accounts for 2009 have been delivered to the Registrar of Companies, and those for 2010 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

This preliminary announcement was approved by the Board of Directors on 1 March 2011.

 

2    US dollar reporting

 

The Company decided to change the Group's reporting currency to US Dollars in 2010 and the financial information in this statement has been derived from the first full year financial statements to be reported in US Dollars.

 

The majority of the Group's sales and earnings originate in US Dollars or US Dollar linked currencies and the change of presentation currency to the US Dollar more closely aligns the Group's external reporting with the profile of the Group, as well as with current internal management reporting.

 

The change of the Group's presentation currency has been accounted for in accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates. In accordance with IAS 1, Presentation of Financial Statements, the Consolidated Balance Sheet for 2008 has also been disclosed along with those for 2009 and 2010 as a third statement of financial position.

 

The following methodology was used to re-present the 2009 financial statements and 2008 balance sheet, originally reported in Sterling, into US Dollars:

 

a)   Income and expenses were translated at the average exchange rate for the relevant period;

 

b)   Assets and liabilities were translated at the closing exchange rate for each balance sheet date: and

 

c)   Equity items were translated at historical exchange rates.

 

The relevant exchange rates used were as follows:

 


Year ended

31 December 2009

Year ended

31 December

2008


£1=US$

£1=US$

Average rate

1.55

1.89

Closing rate

1.61

1.44

 

 

3    Basis of preparation

 

Elementis plc (the "Company") is incorporated in the UK. The information within this document has been prepared under International Financial Reporting Standards as adopted by the EU (adopted IFRS).

 

The Group's financial statements have been prepared on the historical cost basis except that derivative financial instruments and financial instruments held for trading or available for sale are stated at their fair value.  Non-current assets held for sale are stated at the lower of carrying amount and fair value less costs to sell. The preparation of financial statements requires the application of estimates and judgements that affect the reported amounts of assets and liabilities, revenues and costs and related disclosures at the balance sheet date. The accounting policies have been consistently applied across group companies to all periods presented.

 

 

The Group and Company financial statements have been prepared on the going concern basis, as the directors are satisfied that the Group and Company have adequate resources to continue to operate for the foreseeable future as going concerns. An explanation of the directors' assessment of using the going concern basis is given in the Directors' report in the Annual Report and Accounts 2010 which will be made available to shareholders on 24 March 2011.

 

4    Finance income

 


Total


2010

2009


$million

$million

Interest on bank deposits

0.4

0.6

Other

-

0.6


0.4

1.2

 

5    Finance costs

 


Total


2010

2009


$million

$million

Interest on bank loans

3.7

3.1

Expected return on pension scheme assets

(42.9)

(37.5)

Interest on pension scheme liabilities

44.8

43.5

Pension and other post retirement liabilities

1.9

6.0

Unwind of discount on provisions

1.1

-


6.7

9.1

 

6    Exceptional items

 


Total


2010

2009


$million

$million

EU Commission fine and associated costs

-

(33.5)

Chromium restructuring 

-

(44.5)

Hedging costs

-

(7.2)

Pension adjustment relating to past service cost

-

8.5


-

(76.7)

Tax credit on exceptional items

-

0.3

Deferred tax asset

5.8

-


5.8

(76.4)

 

The Group has continued its separate presentation of certain items as exceptional.  These are items which, in management's judgement, need to be disclosed separately by virtue of their size or incidence in order for the reader to obtain a proper understanding of the financial information. 

 

A deferred tax asset of $5.8 million has been set up in the year to recognise the value of historic  losses and other tax attributes that are now believed to be of value following an increase in the profitability of the UK based Specialties business.

 

Exceptional items of $76.4m, which were charged to the income statement in 2009, included a charge of $33.5m relating to European Union Commission fines, Chromium restructuring costs of $44.5 million,  exceptional hedging costs of $7.2 million and a $8.5 million credit relating to the valuation of the UK pension. Full details of these can be found in the 2009 Annual Report.

 

7    Income tax expense

 


Total


2010

2009


$million

$million

Current tax:



Overseas corporation tax

5.8

5.6

Adjustments in respect of prior years:



United Kingdom

-

(0.6)

Overseas

(2.4)

(1.1)

Total current tax

3.4

3.9

Deferred tax:



United Kingdom

2.2

-

Adjustment in respect of prior year

(5.8)

-

Overseas

21.1

2.6

Adjustments in respect of prior years

1.0

2.5

Total deferred tax

18.5

5.1

Income tax expense for the year

21.9

9.0

Comprising:



Before exceptional items

27.7

9.3

Exceptional items

(5.8)

(0.3)


21.9

9.0

 

The tax charge on profit before exceptional items represents an effective tax rate on profit before exceptional items for the year ended 31 December 2010 of 28.9 per cent (2009: 32.8 per cent).  As a Group involved in overseas operations, the amount of profitability in each jurisdiction, transfer pricing legislation and local tax rate changes, will affect future tax charges.

 

A deferred tax credit of $3.4 million has been recognised in the statement of comprehensive income in the year of which $5.4 million relates to the initial setting up of a deferred tax asset (2009: nil), offset by a $2.0 million charge in respect of actuarial gains (2009: $2.2  million charge).

 

The total charge for the year can be reconciled to the accounting profit as follows:

 


2010

2010

2009

2009


$million

per cent

$million

per cent

Profit before tax

96.0


(48.4)


Tax on ordinary activities at 28.0 per cent (2009: 28.0 per cent)

26.9

28.0

(13.6)

28.0

Difference in overseas effective tax rates

6.2

6.5

1.4

(2.9)

Expenses not deductible for tax purposes

1.0

1.0

21.8

(45.0)

Tax losses and other deductions

(5.0)

(5.2)

(1.1)

2.3

Adjustments in respect of prior years

(1.4)

(1.5)

0.8

(1.6)

Exceptional tax credit

(5.8)

(6.0)

(0.3)

0.6

Tax charge and effective tax rate for the year

21.9

22.8

9.0

18.6

 

8    Earnings per share

 

The calculation of the basic and diluted earnings per share attributable to the ordinary equity holders of the parent is based on the following:


2010


2009


$million


$million

Earnings:




Earnings for the purpose of basic earnings per share

74.1


(57.4)

Exceptional items net of tax

(5.8)


76.4

Adjusted earnings

68.3


19.0

 

 

 


2010


2009

Number of shares:




Weighted average number of shares for the purposes of basic earnings per share

443.5


443.3

Effect of dilutive share options*

4.6


-

Weighted average number of shares for the purposes of diluted earnings per share

448.1


443.3

* Potential ordinary shares are not treated as being dilutive in 2009 as they would have had the effect of decreasing the loss per share.

 

The calculation of the basic and diluted earnings per share from continuing operations attributable to the ordinary equity holders of the parent is based on the following:

 


2010

cents

2009

Cents

Earnings per share:



Basic

16.7

(12.9)

Diluted

16.5

(12.9)

Basic before exceptional items

15.4

4.3

Diluted before exceptional items

15.2

4.3

 

9    Contingent liabilities

 

As is the case with other chemical companies, the Group occasionally receives notices of litigation relating to regulatory and legal matters.  A provision is recognised when the Group believes it has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation.  Where it is deemed that an obligation is merely possible and that the probability of a material outflow is not remote, the Group would disclose a contingent liability.

 

Elementis LTP Inc. ("LTP") has been named as a defendant in chromium-related litigation currently pending in the State of Missouri (the "Missouri Litigation").  The Missouri Litigation developed into the following types of cases:  (1) approximately a dozen cases involving over 180 individual plaintiffs alleging property and/or personal injury; (2) a class action seeking property damages for an unspecified number of putative class members; and (3) a class action seeking medical monitoring damages for putative class members who live in a four county area.  Between December 2010 and January 2011, three of the individual plaintiff cases (described in clause (1) above) involving approximately 130 individual plaintiffs and the medical monitoring class action (described in clause (3) above) were voluntarily dismissed.  In the remaining cases, the plaintiffs allege exposure to a chromium compound as the result of processes utilized by a tannery in St. Joseph, Missouri that was owned by Prime Tanning, Corp. ("Prime Tanning").  LTP has been named as the procurer of sodium dichromate for another defendant, Wismo Chemical Corp. ("Wismo").  Wismo was located onsite at the tannery and was in the business of converting sodium dichromate (upon delivery by LTP) into chromium sulphate - a chemical agent that is commonly used in the tanning of hides.  Wismo, in turn, sold the chromium sulphate to Prime Tanning.  Fifty percent of the shares of Wismo had been owned by LTP, its affiliates or its predecessors, but such shares were sold to Prime Tanning prior to LTP being named as a defendant in the Missouri Litigation proceedings.

 

Management, after consultation with legal counsel, has concluded that the proceedings are unlikely to be adversely determined against LTP and thus would not reasonably be expected to have a material impact on the Group's financial position. None of the proceedings is scheduled to go to trial before the beginning of 2012.

 

 

 

END


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