- Part 3: For the preceeding part double click ID
forecasts completed on this basis show that the Group will be able to operate within the
current committed debt facilities and show continued compliance with the financial covenants. In addition, management
has
considered various mitigating actions that could be taken in the event that end-market conditions are worse than their
current assessment. Such measures include reductions in costs, reductions in capital expenditure and reductions in those
items of working capital within management's control.
On the basis of the exercise as described above and the available committed debt facilities, the Directors have a
reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt a going concern basis in preparing the financial statements of
the
Group and the Company.
1.4 DISCLOSURE OF EXCEPTIONAL ITEMS
IAS 1, Presentation of Financial Statements, provides no definitive guidance as to the format of the income statement,
but
states key lines which should be disclosed. It also encourages the disclosure of additional line items and the
re-ordering
of items presented on the face of the income statement when appropriate for a proper understanding of the entity's
financial performance. In accordance with IAS 1 (Revised), the Company has adopted a policy of disclosing separately on
the
face of its Group Income Statement the effect of any components of financial performance considered by the Directors to
be
exceptional, or for which separate disclosure would assist both in a better understanding of the financial performance
achieved and in making projections of future results.
Both materiality and the nature and function of the components of income and expense are considered in deciding upon
such
presentation. Such items may include, inter alia, the financial effect of major restructuring and integration activity,
inventory fair value adjustments, profits or losses relating to non-current assets, amortisation and impairment charges
relating to intangible assets, exceptional gains or losses relating to employee benefits plans, finance costs, any
profits
or losses arising on business disposals, and other items, including the taxation impact of the aforementioned items,
which
have a significant impact on the Group's results of operations either due to their size or nature.
1.5 USE OF NON-GAAP FINANCIAL MEASURES
The Company uses a number of non-Generally Accepted Accounting Practice ("non-GAAP") financial measures in addition to
those reported in accordance with IFRS. Because IFRS measures reflect all items which affect reported performance, the
Directors believe that certain non-GAAP measures, which reflect what they view as the underlying performance of the
Group,
are important and should be considered alongside the IFRS measures. The following non-GAAP measures are used by the
Company.
(a) Net sales value
Net sales value is calculated as the total of revenue less the amount included therein related to any precious
metalcomponent. The Directors believe that net sales value provides an important measure of the underlying sales
performance of the Group's Precious Metals division.
(b) Return on sales and return on net sales value
Return on sales is calculated as trading profit divided by revenue. Return on net sales value is calculated as trading
profit divided by net sales value. The Directors believe that return on sales provides an important measure of the
underlying trading performance of the Group and the Group's Ceramics and Electronics divisions and that return on net
sales
value provides an important measure of the underlying trading performance of the Group's Precious Metals division.
© Underlying revenue growth
Underlying revenue growth measures the organic growth in revenue from one year to the next after eliminating the effects
of
changes in exchange rates and metals prices and the effects of business acquisitions, disposals and closures. The
Directors
believe that underlying revenue growth gives an important measure of the organic revenue generation capacity of the
Group.
(d) Trading profit
Trading profit, defined as profit from operations before restructuring and integration costs, inventory fair value
adjustments, profits or losses relating to non-current assets, charges relating to the amortisation and impairment of
intangible assets and exceptional gains or losses relating to employee benefits plans, is separately disclosed on the
face
of the Group Income Statement. The Directors believe that trading profit is an important measure of the underlying
trading
performance of the Group.
(e) Headline profit before tax
Headline profit before tax is calculated as the net total of trading profit, plus the Group's share of post-tax profit
of
joint ventures and total net finance costs associated with ordinary activities. The Directors believe that headline
profit
before tax provides an important measure of the underlying financial performance of the Group.
(f) Headline earnings per share
Headline earnings per share is calculated as headline profit before tax after income tax costs associated with ordinary
activities and profit attributable to non-controlling interests, divided by the weighted average number of ordinary
shares
in issue during the year. The Directors believe that headline earnings per share provides an important measure of the
underlying earnings capacity of the Group.
(g) Free cash flow
Free cash flow, defined as net cash flow from operating activities after net outlays for the purchase and sale of
property,
plant and equipment, dividends from joint ventures and dividends paid to non-controlling shareholders, but before
additional funding contributions to Group pension plans, is disclosed on the face of the Group Statement of Cash Flows.
The
Directors believe that free cash flow gives an important measure of the underlying cash generation capacity of the
Group.
(h) Average working capital to sales ratio
The average working capital to sales ratio is calculated as the percentage of average working capital balances (being
inventories, trade and other receivables, and trade and other payables) to the annualised reported revenue for the
period.
The Directors believe that the average working capital to sales ratio provides an important measure of the underlying
effectiveness with which working capital balances are managed throughout the Group.
(i) EBITDA
EBITDA is calculated as the total of trading profit before depreciation charges. The Directors believe that EBITDA
provides
an important measure of the underlying financial performance of the Group.
(j) Net interest
Net interest is calculated as interest payable on borrowings less interest receivable, excluding any item therein
considered by the Directors to be exceptional.
(k) Interest cover
Interest cover is the ratio of EBITDA to net interest. The Directors believe that interest cover provides an important
measure of the underlying financial position of the Group.
(l) Net debt
Net debt comprises the net total of current and non-current interest-bearing loans and borrowings and cash and
short-term
deposits. The Directors believe that net debt is an important measure as it shows the Group's aggregate net indebtedness
to
banks and other external financial institutions.
(m) Net debt to EBITDA
Net debt to EBITDA is the ratio of net debt at the year-end to EBITDA for that year. The Directors believe that net debt
to
EBITDA provides an important measure of the underlying financial position of the Group.
(n) Return on net assets
Return on net assets ("RONA") is calculated as trading profit plus the Group's share of post-tax profit of
joint-ventures
divided by average operating net assets (being property, plant and equipment, trade working capital and other operating
receivables and payables). The Directors believe that RONA provides an important measure of the underlying financial
performance of the Group's divisions.
(o) Return on investment
Return on investment ("ROI") is calculated as trading profit plus the Group's share of post-tax profit of joint-ventures
divided by invested capital (being shareholders' funds plus net debt, employee benefits net surpluses and net
liabilities
and goodwill previously written-off to, or amortised against, reserves). The Directors believe that ROI provides an
important measure of the underlying financial performance of the Group.
2 SEGMENT INFORMATION
For reporting purposes, the Group is organised into three main business segments: Ceramics, Electronics and Precious
Metals. The Chief Executive of each of these business segments reports to the Chief Executive of the Group and it is the
Cookson Board which makes the key operating decisions in respect of these segments. The information used by the Cookson
Board to review performance and determine resource allocation between the business segments is presented with the
Group's
activities segmented between the three business segments, Ceramics, Electronics and Precious Metals. Taking into
account,
not only the basis on which the Group's activities are reported to the Cookson Board, but also the nature of the
products
and services of the product lines within each of these segments, the production processes involved in each and the
nature
of their end-markets, the Directors believe that these three business segments are the appropriate way to analyse the
Group's results.
In addition to the Group's three business segments, corporate costs, being the costs directly related to managing the
parent company, are reported separately in the reconciliation of segment result to (loss)/profit before tax.
Segment revenue represents revenue from external customers (inter-segment revenue is not material) and segment result is
equivalent to trading profit prior to corporate costs. Segment assets exclude cash and short-term deposits, employee
benefits net surpluses, deferred tax assets, income tax recoverable, investments in joint ventures, assets classified as
held for sale and corporate assets that cannot be allocated on a reasonable basis to a business segment. These items are
shown collectively in the following tables as "unallocated assets". Segment result and segment assets include items
directly attributable to a segment as well as those items that can be allocated on a reasonable basis.
2.1 SEGMENT REVENUE AND SEGMENT RESULT
Segment revenue Segment result
2009 2008 2009 2008
£m £m £m £m
Ceramics 1,130.8 1,264.3 70.9 167.7
Electronics 529.9 620.3 39.2 51.7
Precious Metals 299.9 317.9 8.9 4.5
Segment totals 1,960.6 2,202.5 119.0 223.9
299.9
317.9
8.9
4.5
Segment totals
1,960.6
2,202.5
119.0
223.9
2.2 RECONCILIATION OF SEGMENT RESULT TO (LOSS)/PROFIT BEFORE TAX
2009 2008
£m £m
Segment result 119.0 223.9
Corporate costs (7.3) (7.6)
Trading profit 111.7 216.3
Restructuring and integration costs (75.6) (39.6)
Inventory fair value adjustment - (2.6)
(Loss)/profit relating to non-current assets (2.8) 3.4
Amortisation and impairment of intangible assets (17.6) (52.5)
Exceptional gains relating to employee benefits plans 9.7 6.0
Profit from operations 25.4 131.0
Finance costs - ordinary activities (75.6) (85.3)
- exceptional items (14.0) (2.2)
Finance income 38.6 44.5
Share of post-tax profit of joint ventures 1.0 0.7
Net profit on disposal of continuing operations 3.7 0.9
(Loss)/profit before tax (20.9) 89.6
- exceptional items
(14.0)
(2.2)
Finance income
38.6
44.5
Share of post-tax profit of joint ventures
1.0
0.7
Net profit on disposal of continuing operations
3.7
0.9
(Loss)/profit before tax
(20.9)
89.6
2.3 SEGMENT CAPITAL EXPENDITURE, DEPRECIATION AND TOTAL ASSETS
Capital expenditure Depreciation Total assets
2009 2008 2009 2008 2009 2008
£m £m £m £m £m £m
Ceramics 28.7 57.9 40.7 34.8 1,541.7 1,761.5
Electronics 4.8 11.7 9.3 9.3 506.8 566.9
Precious Metals 1.5 3.2 3.6 3.1 92.9 120.1
Unallocated - - - - 218.1 249.7
Discontinued operations - - - - 0.5 0.3
Total Group 35.0 72.8 53.6 47.2 2,360.0 2,698.5
218.1
249.7
Discontinued operations
-
-
-
-
0.5
0.3
Total Group
35.0
72.8
53.6
47.2
2,360.0
2,698.5
3 RESTRUCTURING AND INTEGRATION COSTS
The restructuring and integration costs of £75.6m (2008: £39.6m) comprise £4.9m (2008: £17.1m) of costs associated with
the
integration of Foseco into the Group's Ceramics division; £22.0m (2008: £nil) in respect of onerous lease costs; and
£48.7m
(2008: £22.5m) for the cost of a number of initiatives throughout the Group aimed at reducing the Group's cost base and
re-aligning its manufacturing capacity with its customers' markets. These latter initiatives included redundancy
programmes, the downsizing or closure of facilities, the streamlining of manufacturing processes and the rationalisation
of
product lines. The cost of these initiatives included £37.1m associated with the reduction of headcount throughout the
Group by some 3,000 employees, representing nearly 20% of the workforce. Of the total charge in the year, £nil (2008:
£8.2m) related to asset write-downs.
Of the costs associated with onerous leases, £16.3m arises in the Electronics division's UK operations. Consequent to
the
recent restructuring of the Electronics division's manufacturing operations in the UK, a significant amount of UK
production has been transferred to other existing Electronics division facilities outside of the UK. As a result, there
is
significant unutilised space at the division's facility in Woking. This property is subject to a lease, under the terms
of
which the future rentals that relate to the now unutilised part of this facility represent an onerous obligation.
Cash costs of £49.3m (2008: £23.0m) were incurred in the year in respect of the restructuring and integration
initiatives
commenced both in 2009 and in prior years, leaving provisions made but unspent of £44.5m as at 31 December 2009 (31
December 2008: £19.5m). The net tax credit attributable to these restructuring and integration costs was £3.7m (2008:
£2.9m).
4 INVENTORY FAIR VALUE ADJUSTMENT
On the acquisition of Foseco in 2008, the value of inventory acquired was increased by £2.6m in order to restate the
value
of finished goods inventory from cost, as it had been valued in Foseco's balance sheet immediately prior to acquisition,
to
its fair value as recognised on acquisition by Cookson, in accordance with the requirements of IFRS 3,Business
Combinations. The inventory that was subject to this valuation adjustment had all been sold by 31 December 2008. The tax
credit attributable to this adjustment was £0.8m.
5 (LOSS)/PROFIT RELATING TO NON-CURRENT ASSETS
The net loss relating to non-current assets of £2.8m in 2009 principally comprised asset write-downs. The net profit of
£3.4m in 2008 comprised net profits of £8.4m arising on the sale of investments and surplus property, and asset
write-downs
of £5.0m. The tax credit attributable to non-current assets was £1.3m (2008: £0.2m charge).
6 EXCEPTIONAL GAINS RELATING TO EMPLOYEE BENEFITS PLANS
The net exceptional gain relating to employee benefits plans of £9.7m in 2009 principally arose in relation to the
reduction in the costs of providing benefits under the Group's US post-retirement medical arrangements. The exceptional
gain of £6.0m in 2008 resulted from reductions in liabilities arising from the freezing of benefits for existing members
of
the Group's two largest Foseco US defined benefit pension plans, together with reductions arising from business
disposals
and redundancy programmes.
7 FINANCE COSTS AND FINANCE INCOME
Included within finance costs from ordinary activities of £75.6m (2008: £85.3m) is the interest cost associated with the
liabilities of the Group's defined benefit pension and other post-retirement benefit plans of £34.2m (2008: £33.4m) and
included within finance income of £38.6m (2008: £44.5m) is the expected return on the assets of the Group's defined
benefit
pension plans of £29.4m (2008: £29.7m).
On 6 March 2009, the Group came to an agreement with the banks that provide its syndicated facility whereby the Group
agreed to prepay, in March 2009, the £75.0m and E37.5m instalments originally due to be repaid in October 2010. The
interest payable in relation to these instalments had been hedged by means of interest rate swaps, in respect of which
cash
flow hedge accounting had been applied.
In April 2009, the Group converted the remainder of its foreign currency-denominated borrowings under its syndicated
bank
facility into sterling. The interest payable in relation to these borrowings had also been hedged by means of interest
rate
swaps in respect of which cash flow hedge accounting had been applied.
Subsequent to the repayment of the instalments and the conversion of the remaining foreign currency-denominated
borrowings
into sterling, as outlined above, the associated hedge accounting was discontinued. As a result, the cumulative loss of
£12.8m, that had been recognised in other reserves from changes in the fair value of the interest rate swaps during the
period when they were effective hedges, was reclassified to the Group Income Statement as an exceptional finance cost,
together with £0.5m of capitalised borrowing costs related to the prepaid instalments of the syndicated facility and
£0.7m
of early repayment break costs.
The exceptional charge of £2.2m in 2008, related to the write-off of costs associated with the arrangement of a tranche
of
the Group's syndicated facility, which was cancelled during the first half of 2008 without being utilised.
The tax associated with these exceptional finance costs was £nil (2008: £nil).
8 NET PROFIT ON DISPOSAL OF CONTINUING OPERATIONS
The net profit on disposal of continuing operations of £3.7m (2008: £0.9m) related to a number of small disposals from
each
of the Group's divisions, which generated £6.2m (2008: £21.2m) of net proceeds.
The net profit on disposal of continuing operations of £0.9m reported for 2008 related to the sale of the Group's
Hi-Tech
ceramic filters business, formerly part of the Ceramics division, and to the disposal of Foseco's Carbon Bonded Ceramics
business. Both of these disposals were required for compliance with anti-trust clearances in relation to the acquisition
of
Foseco, together with net costs associated with a number of other small business disposals.
The tax charge associated with these disposals was £0.9m (2008: £0.3m).
9 INCOME TAX COSTS
The Group's total income tax cost of £20.4m (2008: £40.2m) includes a credit of £5.9m (2008: £8.1m) relating to
exceptional
items comprising a credit of £3.7m (2008: £2.9m) in relation to restructuring and integration costs, a credit of £nil
(2008: £0.8m) relating to the inventory fair value adjustment, a credit of £5.1m (2008: £3.7m) relating to the
amortisation
and impairment of intangible assets, a charge of £3.3m (2008: credit of £1.2m) relating to deferred tax on goodwill, a
credit of £1.3m (2008: charge of £0.2m) relating to non-current assets and a charge of £0.9m (2008: £0.3m) relating to
the
net profit on disposal of continuing operations.
Tax credited in the Group Statement of Comprehensive Income in the year amounted to £21.8m, all of which related to
actuarial losses on employee benefits plans. Of the £20.5m charged in 2008, £19.9m related to actuarial gains on
employee
benefits plans and £0.6m related to exchange differences on translation of the net assets of foreign operations.
10 DISCONTINUED OPERATIONS
The net post-tax loss attributable to discontinued operations of £3.4m (2008: £nil) related to additional costs in
respect
of prior years' disposals. The tax charge associated with discontinued operations was £nil (2008: £nil).
11 EARNINGS PER SHARE ("EPS")
11.1 BASIC AND DILUTED EPS
The EPS figures for 2008 presented in the table below have been restated by multiplying those reported previously by 10
to
take account of the 10 for 1 share consolidation that took effect on 14 May 2009.
Continuing Discontinued Total Continuing Discontinued Total
operations operations 2009 operations operations 2008
pence pence pence pence pence pence
Basic (loss)/earnings per share (17.8) (1.4) (19.2) 32.7 - 32.7
Diluted (loss)/earnings per share (17.8) (1.4) (19.2) 32.7 - 32.7
Headline earnings per share 18.0 - 18.0 88.5 - 88.5
Diluted headline earnings per share 18.0 - 18.0 88.4 - 88.4
32.7
Headline earnings per share
18.0
-
18.0
88.5
-
88.5
Diluted headline earnings per share
18.0
-
18.0
88.4
-
88.4
11.2 EARNINGS FOR EPS
2009 2008
£m £m
Earnings for the purposes of calculating basic and diluted EPS (48.5) 46.1
Adjustments:
Restructuring and integration costs 75.6 39.6
Inventory fair value adjustment - 2.6
Loss/(profit) relating to non-current assets 2.8 (3.4)
Amortisation and impairment of intangible assets 17.6 52.5
Exceptional gains relating to employee benefits plans (9.7) (6.0)
Exceptional finance costs 14.0 2.2
Net profit on disposal of continuing operations (3.7) (0.9)
Net post-tax loss on disposal of discontinued operations 3.4 -
Tax relating to exceptional items (5.9) (8.1)
Earnings for the purposes of calculating headline and diluted headline EPS 45.6 124.6
Net profit on disposal of continuing operations
(3.7)
(0.9)
Net post-tax loss on disposal of discontinued operations
3.4
-
Tax relating to exceptional items
(5.9)
(8.1)
Earnings for the purposes of calculating headline and diluted headline EPS
45.6
124.6
11.3WEIGHTED AVERAGE NUMBER OF SHARES
The weighted average number of ordinary shares for 2008 presented in the table below has been restated by dividing the
previously reported number by 10 to take account of the 10 for 1 share consolidation that took effect on 14 May 2009.
2009 2008
m m
Weighted average number of ordinary shares for calculating basic and headline EPS 252.8 140.8
Adjustments for dilutive weighted average number of shares relating to the Company's share schemes - 0.1
Weighted average number of ordinary shares for calculating diluted and diluted headline EPS 252.8 140.9
0.1
Weighted average number of ordinary shares for calculating diluted and diluted headline EPS
252.8
140.9
For the purposes of calculating diluted EPS, the weighted average number of ordinary shares is adjusted to include the
weighted average number of ordinary shares that would be issued on the conversion of all dilutive potential ordinary
shares. Potential ordinary shares are only treated as dilutive when their conversion to ordinary shares would decrease
earnings per share, or increase loss per share, from continuing operations.
In addition to the shares shown as being dilutive in the table above, the Company has outstanding options in relation to
its share option schemes that could dilute EPS in the future, but which are not included in the calculation of diluted
EPS
above because they were antidilutive in the years presented.
12 DIVIDENDS
The dividend per ordinary share amounts in the table below have been restated by multiplying those reported previously
by
10 to take account of the 10 for 1 share consolidation that took effect on 14 May 2009.
2009 2008
£m £m
Amounts recognised as distributions to equity holders during the year:
Final dividend for the year ended 31 December 2008 of nil (2007: 13.2p) per ordinary share - 18.6
Interim dividend for the year ended 31 December 2009 of nil (2008: 8.8p) per ordinary share - 12.4
- 31.0
-
12.4
-
31.0
In respect of the year ending 31 December 2009, the Directors did not declare an interim dividend (2008: 8.8p per
ordinary
share) and will recommended to shareholders at the Company's Annual General Meeting that no final dividend is paid
(2008:
nil).
13 INTANGIBLE ASSETS
Intangible assets comprise goodwill and other intangible assets that have been acquired through business
combinations.Goodwill is initially recognised as an asset at cost and subsequently measured at cost less any accumulated
impairment losses, with impairment testing carried out annually, or more frequently when there is an indication that the
cash-generating unit may be impaired. Other intangible assets are initially measured at cost, which is equal to the
acquisition date fair value, and subsequently measured at cost less accumulated amortisation charges and any accumulated
impairment losses. Other intangible assets are subject to impairment testing when there is an indication that an
impairment
loss may have been incurred.
13.1 MOVEMENT IN NET BOOK VALUE
31 December 2009 31 December 2008
Other Other
intangible intangible
Goodwill assets Total Goodwill assets Total
£m £m £m £m £m £m
Cost
As at 1 January 962.8 278.0 1,240.8 430.8 - 430.8
Exchange adjustments (54.3) (5.5) (59.8) 202.3 20.6 222.9
Business acquisitions 3.0 - 3.0 332.3 257.4 589.7
Business disposals (2.2) - (2.2) (2.6) - (2.6)
As at 31 December 909.3 272.5 1,181.8 962.8 278.0 1,240.8
Amortisation and impairment
As at 1 January 39.6 13.6 53.2 - - -
Exchange adjustments (3.6) (0.3) (3.9) - 0.7 0.7
Amortisation charge for the year - 17.6 17.6 - 12.9 12.9
Impairment loss - - - 39.6 - 39.6
Business disposals (0.7) - (0.7) - - -
As at 31 December 35.3 30.9 66.2 39.6 13.6 53.2
Net book value
As at 31 December 874.0 241.6 1,115.6 923.2 264.4 1,187.6
Business disposals
(0.7)
-
(0.7)
-
-
-
As at 31 December
35.3
30.9
66.2
39.6
13.6
53.2
Net book value
As at 31 December
874.0
241.6
1,115.6
923.2
264.4
1,187.6
13.2 ANALYSIS OF GOODWILL BY CASH-GENERATING UNIT ("CGU")
Goodwill acquired in a business combination is allocated to each of the Group's CGUs expected to benefit from the
synergies
of the combination. For the purposes of impairment testing, the Directors consider that the Group has four CGUs: the
Ceramics division, the Chemistry product line of the Electronics division, the Assembly Materials product line of the
Electronics division and the Precious Metals division. These CGUs represent the lowest level within the Group at which
goodwill is monitored. For the Group's Precious Metals division CGU, after recording an impairment in 2008, goodwill
recognised in the balance sheet is £nil (2008: £nil).
2009 2008
£m £m
Ceramics 585.5 613.9
Chemistry 227.3 242.7
Assembly Materials 61.2 66.6
Total goodwill 874.0 923.2
61.2
66.6
Total goodwill
874.0
923.2
13.3 AMORTISATION OF OTHER INTANGIBLE ASSETS
Other intangible assets are amortised over their useful lives as summarised below.
Fair value on Remaining Charged in
acquisition useful life 2009
£m years £m
Foseco - customer relationships 103.7 18.3 6.0
- trade name 72.4 18.3 3.6
- intellectual property rights 80.3 8.3 8.0
256.4 17.6
- intellectual property rights
80.3
8.3
8.0
256.4
17.6
14 IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS
14.1 IMPAIRMENT POLICY
At each balance sheet date, the Group reviews the carrying value of its tangible and other intangible assets to
determine
whether there is any indication that those assets have suffered an impairment loss. If such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent, if any, of the impairment loss. Where it
is
not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of
the
CGU to which the asset belongs.
The Group also carries out impairment testing of the carrying value of its CGUs annually, to assess the need for any
impairment of the carrying value of goodwill, and other intangible and tangible assets associated with these CGUs.
For the purpose of impairment testing, the recoverable amount of an asset or CGU is the higher of (i) its fair value
less
costs to sell and (ii) its value in use. If the recoverable amount of a CGU is less than the carrying amount of that
unit,
the resulting impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and
then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.
The value in use calculations of the Group's CGUs are based on detailed business plans covering a three year period from
the balance sheet date, higher level assumptions covering a further two year period and perpetuity calculations beyond
this
five year projection. The cash flows in the calculations are discounted to their current value using pre-tax discount
rates.
14.2 KEY ASSUMPTIONS
The key assumptions used in determining value in use are returns on sales, growth rates and discount rates.
Returns on sales are based on historic financial information, adjusted to factor in the anticipated impact of
restructuring
and rationalisation plans already announced at the balance sheet date.
Growth rates are determined with reference to: current market conditions; external forecasts and historical trends for
the
Group's key end-markets of steel, foundry castings, automotive and electronics; and expected growth in output within the
industries in which each major Group business unit operates. A perpetuity growth rate of 3% (2008: 3%) has been applied
based on the long-term growth rates experienced in the Group's end-markets. The Group's projections are based on
historical
trends and external forecasts. End-market conditions for the fourth quarter of 2009 were considerably better than the
fourth quarter of 2008 and the first three quarters of 2009. Further improvements in trading are expected in 2010 as
end-markets recover.
Discount rates are calculated for each CGU, reflecting market assessments of the time value of money and the risks
specific
to each CGU. The pre-tax discount rate used for the Ceramics CGU was 12.9% (2008: 13.0%), for the Chemistry CGU 13.0%
(2008: 12.5%) and for the Assembly Materials CGU 11.4% (2008: 11.1%).
14.3 GOODWILL IMPAIRMENT
In assessing goodwill for potential impairment as at 31 December 2009, the Directors made use of the most recent
detailed
calculations of the recoverable amount of the Group's CGUs, prepared as at 31 December 2009. Those calculations resulted
in
recoverable amounts that exceeded the carrying values of each of the Group's CGUs.
During the first half of 2009, the key end-markets for the Group's Chemistry CGU, which is the CGU most sensitive to
risk
of impairment, were weak compared to the same period in 2008, giving rise to an indication of possible impairment in the
carrying value of its goodwill. In the second half of 2009, these key end-markets evidenced recovery which had a
positive
impact on Chemistry's results. As a result, in the December 2009 impairment test, the Chemistry CGU's recoverable amount
exceeded its carrying value by £39m (2008: £4m). A change in the perpetuity growth rate from 3.0% to 1.0%, or an
increase
in the discount factor assumption from 13.0% to 14.6%, would result in its recoverable amount being equal to its
carrying
value. The Group's Ceramics and Assembly Materials CGUs each had significant headroom of recoverable amount over
carrying
value.
15 RECONCILIATION OF MOVEMENT IN NET DEBT
Balance as at Foreign Balance as at
1 January exchange Non-cash 31 December
2009 adjustment movements Cash flow 2009
£m £m £m £m £m
Cash and cash equivalents
Short-term deposits 41.5 (1.7) - 5.0 44.8
Cash at bank and in hand 74.3 (3.5) - 44.6 115.4
Bank overdrafts (10.2) 0.6 - 7.1 (2.5)
56.7
Borrowings, excluding bank overdrafts
Current (53.1) 5.9 (86.2) 43.9 (89.5)
Non-current (791.4) 20.7 86.2 240.2 (444.3)
Capitalised borrowing costs 7.2 - (2.5) - 4.7
284.1
Net debt (731.7) 22.0 (2.5) 340.8 (371.4)
Capitalised borrowing costs
7.2
-
(2.5)
-
4.7
284.1
Net debt
(731.7)
22.0
(2.5)
340.8
(371.4)
Net debt is a measure that shows the Group's net indebtedness to banks and other external financial institutions and
comprises the total of cash and short-term deposits and current and non-current interest-bearing loans and borrowings.
16 EMPLOYEE BENEFITS
The net employee benefits balance as at 31 December 2009 of £137.7m (2008: £95.3m) in respect of the Group's defined
benefit pension and other post-retirement benefit obligations, results from an interim actuarial valuation of the
Group's
defined benefit pension and other post-retirement obligations as at that date. As analysed in the following table, the
net
employee benefits balance comprised net surpluses (assets) of £nil (2008: £70.6m), relating almost entirely to the
Group's
main pension plan in the UK, together with net liabilities (deficits) of £137.7m (2008: £165.9m).
2009 2008
£m £m
Employee benefits - net surpluses
UK defined benefit pension plans - 70.0
US defined benefit pension plans - 0.6
- 70.6
Employee benefits - net liabilities
UK defined benefit pension plans 22.3 1.3
US defined benefit pension plans 54.1 89.5
ROW defined benefit pension plans 46.0 46.0
Other post-retirement benefit obligations, mainly US healthcare arrangements 15.3 29.1
137.7 165.9
ROW defined benefit pension plans
46.0
46.0
Other post-retirement benefit obligations, mainly US healthcare arrangements
15.3
29.1
137.7
165.9
The total net charge in respect of the Group's defined benefit pension and other post-retirement benefit obligations was
£2.1m (2008: £5.5m), as shown in the table below.
2009 2008
£m £m
Charged in arriving at trading profit:
- within other manufacturing costs 2.3 3.2
- within administration, selling and distribution costs 3.9 4.4
Charged/(credited) in arriving at profit from operations:
- within restructuring and integration costs 0.8 0.2
- as exceptional gains relating to employee benefits plans (9.7) (6.0)
Charged/(credited) in arriving at profit before tax:
- within ordinary finance costs 34.2 33.4
- within finance income (29.4) (29.7)
Total net charge 2.1 5.5
- within ordinary finance costs
34.2
33.4
- within finance income
(29.4)
(29.7)
Total net charge
2.1
5.5
17 RELATED PARTIES
All transactions with related parties are conducted on an arm's length basis and in accordance with normal business
terms.
Transactions between related parties that are Group subsidiaries are eliminated on consolidation and are not disclosed
in
this note.
During the year, Group subsidiaries made sales of products and services to Group joint venture companies of £1.1m (2008:
£1.5m) and made purchases of goods and services from Group joint venture companies of £12.3m (2008: £1.8m). As at 31
December 2009, amounts owed by the Group's joint ventures to Group subsidiaries was £nil (2008: £nil) and amounts owed
to
Group joint ventures by Group subsidiaries was £nil (2008: £nil).
18 CONTINGENT LIABILITIES
Guarantees given by the Group under property leases of discontinued operations amounted to £3.9m (2008: £4.3m).
The Group has extensive international operations and several companies within the Group are parties to legal
proceedings,
certain of which are insured claims arising in the ordinary course of the operations of the Group company involved.
While
the outcome of litigation can never be predicted with certainty, having regard to legal advice received and the Group's
insurance arrangements, the Directors believe that none of these matters will, either individually or in the aggregate,
have a materially adverse effect on the Group's financial position or results of operations.
Legal claims have been brought against Group companies by third parties alleging that persons have been harmed by
exposure
to hazardous materials. Two of the Group's subsidiaries are subject to lawsuits in the US relating to a small number of
products containing asbestos manufactured prior to the acquisition of those subsidiaries by the Group. To date, there
have
been no liability verdicts against either of these subsidiaries. A number of lawsuits have been withdrawn, dismissed or
settled, and the amount paid, including costs, in relation to this litigation has not had a materially adverse effect on
the Group's financial position or results of operations.
19 EXCHANGE RATES
The Group reports its results in pounds sterling. A substantial portion of the Group's revenue and profits are
denominated
in currencies other than pounds sterling. It is the Group's policy to translate the income statements and cash flow
statements of its overseas operations into pounds sterling using average exchange rates for the year reported (except
when
the use of average rates does not approximate the exchange rate at the date of the transaction, in which case the
transaction rate is used) and to translate balance sheets using year end rates. The principal exchange rates used were
as
follows:
Year end rates of exchange Average rates of exchange
2009 2008 2009 2008
US dollar 1.61 1.46 1.57 1.86
Euro 1.13 1.04 1.12 1.26
Czech Republic koruna 29.69 27.99 29.70 31.44
Polish zloty 4.63 4.33 4.86 4.42
Chinese renminbi 11.03 9.95 10.70 12.92
4.63
4.33
4.86
4.42
Chinese renminbi
11.03
9.95
10.70
12.92
This information is provided by RNS
The company news service from the London Stock Exchange
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