TIDMELM
RNS Number : 6646F
Elementis PLC
24 February 2015
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
Elementis plc (ELM.L), a global specialty chemicals company,
announces its results for the year ended 31 December 2014.
HIGHLIGHTS
-- Group earnings per share* increased by 8 per cent to 24.8 cents per share.
-- Good growth in Specialty Products:
o North America coatings up 7 per cent.
o Asia Pacific coatings up 5 per cent.
o Personal care up 8 per cent.
-- Another year of excellent cash generation:
o Net cash position increased to $64.2 million.
-- Total dividends for the year increased by 11 per cent to 15.40 cents per share:
o Special dividend increased by 19 per cent.
FINANCIAL SUMMARY
2014 2013 change
Sales $790.4m $776.8m +2%
Operating profit* $150.1m $146.6m +2%
Profit before tax* $141.9m $136.0m +4%
Diluted earnings per share* 24.8c 23.0c +8%
Operating cash flow $144.4m $143.9m -
Net cash $64.2m $54.1m +$10.1m
Profit for the year $175.4m $106.7m
Basic earnings per share 38.1c 23.3c
Dividends to shareholders:
- Interim dividend 2.70c 2.57c +5%
- Final proposed 5.75c 5.50c +5%
- Special dividend 6.95c 5.86c +19%
- Total for the year 15.40c 13.93c +11%
* before exceptional items
Commenting on the results, Group Chief Executive, David Dutro
said:
"Elementis delivered another year of solid financial
performance. The Group continues to benefit from its strategy of
creating its own growth opportunities through innovation and
investment to support our strong and diverse market positions. This
has been central to our ability to deliver a fifth consecutive year
of EPS* growth, a further improvement in our year end net cash
balance and a material increase in the total dividend. This
continuous improvement has been achieved despite uneven regional
and market growth, which further validates our strategy and
underlines the resilience of Elementis.
Elementis Specialty Products delivered excellent growth in its
North America coatings additives business (+7 per cent) where we
recently completed our new coatings additives facility in New
Martinsville, which has helped us to launch further new products
into the decorative coatings market. In fact, new products as a
percentage of sales achieved a record high of 9 per cent in 2014.
Asia Pacific coatings also delivered good growth (+5 per cent)
reflecting our strong market position in that region. In oilfield
drilling, after a slower start to the year, second half sales grew
by 9 per cent compared to the same period last year as our newly
established management team in Houston, Texas, made good progress
in targeting key customer accounts. Finally, following a strong
2013, personal care continued to deliver attractive growth with an
8 per cent improvement in sales.
The Chromium business has once again delivered a good financial
performance in line with its strategy of producing stable earnings
and cash flow. This was achieved by operating at consistently high
rates of capacity utilisation and serving a diverse range of
customers, geographies and applications, allowing it to quickly
shift products and resources towards those areas with the greatest
opportunities.
Cash generation was again a strong feature of our overall
performance in 2014 with the Group increasing its net cash balance
at the end of the year by $10.1 million to $64.2 million. We are
continuing with our dividend policy of paying approximately one
third of earnings each year as the combined interim and final
dividend, plus a special dividend of up to 50 per cent of the year
end net cash balance. As a result our shareholders will receive a
19 per cent increase in the special dividend and an 11 per cent
increase in total dividends for the year.
Although economic uncertainties in Europe and evolving dynamics
in the oilfield sector remain evident, the current year has started
on a solid footing and we are confident that the Group will make
further progress in the coming year. We are fully committed and
well positioned to maintain our record of delivering profitable
growth and industry leadership and would like to thank our
shareholders and customers for their continued confidence and
support."
ENDS
Enquiries: + 44 (0) 203 727 1000
Elementis
David Dutro, Group Chief Executive
Brian Taylorson, Finance Director
FTI Consulting
Deborah Scott
Matthew Cole
Chairman's statement
After my first year as Chairman, I am pleased to report that
2014 has been another year of sales and earnings growth for
Elementis. Since becoming Chairman I have enjoyed getting to know
the Group through visits to our various sites around the globe,
meeting our people and engaging with the management team and my
fellow directors. I have found the Group to be well managed, with a
clear strategy and people around the world who are hardworking,
talented and enthusiastic about the Group and its prospects.
In 2014, Group sales were $790.4 million, an improvement of 2
per cent over the previous year, largely driven by the further
progress achieved in Specialty Products while Chromium and
Surfactants delivered sales and cash generation in line with their
respective strategies. Group operating profit* for the year was
$150.1 million compared to $146.6 million in the previous year,
whilst the Group's operating margin* remained stable at 19 per
cent. Diluted earnings per share* for the year improved by 8 per
cent to 24.8 cents.
The Group is recording a number of pension, tax and legacy items
under the heading 'exceptional items' in this year's Income
statement. These items are discussed more fully in the Finance
report. After taking account of these items, Group operating profit
for the year was $156.4 million, compared to $144.9 million in the
previous year, and diluted earnings per share was 37.7 cents,
compared to 23.0 cents in 2013.
Balance sheet
One of the Group's core strengths is its strong balance sheet,
supported by positive cash flow generation. In 2014 this was once
again demonstrated with the Group's net cash position increasing
from $54.1 million at the end of 2013 to $64.2 million at the end
of 2014. This was achieved despite financing a robust capital
expenditure programme and an additional one time UK pension
contribution. Under our current dividend policy, this increase in
net cash results in a similar increase in the special dividend.
Once again the deficit on Group retirement plans, under IAS 19,
improved in 2014, going from $99.3 million at the end of 2013 to
$65.8 million at the end of 2014. The improvement was largely the
result of favourable asset returns and Company contributions.
Dividends
The Board is continuing with the dividend policy introduced in
2012, which is to pay approximately one third of earnings, before
exceptional items, each year in a combination of interim and final
dividends. In addition, a special dividend is paid each year of up
to 50 per cent of the net cash balance at the end of the year,
provided there are no immediate investment plans for that cash.
Consequently, the Board is recommending a final dividend for 2014
of 5.75 cents per share (2013: 5.50 cents) and a special dividend
of 6.95 cents per share or $32.1 million (2013: 5.86 cents or $27.1
million). These will be paid on 22 May 2015, in pounds sterling at
an exchange rate of GBP1.00:$1.5429 (equivalent to a sterling
amount of 8.2313 pence per share), to shareholders on the register
on 24 April 2015. This brings the total dividends for the year to
15.40 cents per share (2013: 13.93 cents), representing an increase
of 11 per cent over the previous year.
Health, safety and the environment
Since becoming Chairman, it has been gratifying to learn that
the Group is achieving high standards of performance, compared to
the industry, in this important area of our business and has
developed a culture throughout the organisation that recognises
that zero incidents must be the ultimate goal. As such, lessons
learned from even the most minor incidents are used to continuously
improve our processes and activities, ensuring that the protection
of our employees and the environment remains a high priority.
Board changes
As previously announced, Ian Brindle and Kevin Matthews retired
as Board members on 15 December and 31 October 2014 respectively.
Both Ian and Kevin were key members of the Board since their
appointments in 2005. Kevin served as Chairman of the Remuneration
Committee from April 2008 to September 2013, while Ian served as
Chairman of the Audit Committee, Senior Independent Director and,
more recently, Chairman of the Board. On behalf of the Board, I
would like to thank both of them for their dedication and support
during their tenure as Board members.
To replace Ian and Kevin, I am delighted to welcome Nick Salmon
and Steve Good to the Board as from 20 October 2014. Both Nick and
Steve have impressive backgrounds as successful executives and
directors and I look forward to working closely with them in
support of the Group's continuing success.
Governance
The Board considers that it has applied all the principles and
provisions of the Corporate Governance Code (2012 version) in 2014,
with one exception on audit tenders. Further information about this
and other aspects of our governance arrangements are set out in the
Corporate governance report in the 2014 Annual Report and
Accounts.
People
The Group's continued success is due in no small part to the
hard work, dedication and skill of its people and I would therefore
like to give them my sincere thanks on behalf of the Board.
Outlook
As the new Chairman, I have inherited a Group with a clear and
ambitious strategy that focuses on profitable growth, attractive
returns on capital and shareholder value. These are all themes that
I wholly support and the Board is fully engaged in helping the
Group to deliver on this strategy. The quality of our existing
businesses, combined with its strong cash flow generation and
balance sheet, ensures that we have both the platform and the
flexibility to make progress and to pursue profitable
opportunities, both organic and inorganic as they arise.
Andrew Duff
Chairman
24 February 2015
* before exceptional items
Group Chief Executive's overview
Dear Shareholders,
Once again, it is my privilege to report that Elementis has
delivered another year of solid financial performance. The Group's
strategy is centred on creating its own growth opportunities based
upon its strong and diverse market positions. This has been pivotal
in enabling us to deliver a fifth consecutive year of EPS* growth,
a further improvement in our year end net cash balance and a
material increase in the total dividend. This progress has been
achieved despite uneven regional and market segment growth, which
further validates our strategy and underlines the resilience of
Elementis.
We remain resolute in our commitment to outperform the market
and deliver profitable growth across all stages of the economic
cycle and we have continued to invest to achieve that objective.
While our global capability enables us to develop and leverage
solutions for our customers around the world, our local presence
allows us to truly understand our customers and their specific
needs.
2014 highlights:
-- Another strong financial performance:
o 5th consecutive year of EPS* growth.
o Stable operating margin* at 19 per cent.
o Strong cash flow from operations saw net cash increase by
$10.1 million.
o Final dividend increased by 5 per cent.
o Special dividend paid for the 3rd successive year and
increased by 19 per cent.
-- Specialty Products:
o North America coatings up 7 per cent, driven in part by sales
of innovative products from the newly commissioned decorative
coatings facility.
o Asia Pacific coatings up 5 per cent with sales and profits
from Chinese manufactured organoclays reaching their highest levels
to date.
o Good international sales growth from Hi-Mar, our recently
acquired US based defoamer business.
-- Chromium:
o Optimising product and sales mix to produce stable earnings
and cash flow.
o Cash generation was 117 per cent of operating profit*.
-- Maintaining a strong focus on improving our excellent health and safety performance.
Consistent with our strategic focus on growth, Specialty
Products introduced new products, expanded its geographic presence
and made further investments to serve our customers' growing
demand. As a result of these initiatives we:
-- Achieved a record level of new products as a percentage of
sales, with new products accounting for 9 per cent of total revenue
in the Specialty Products business.
-- Opened a new sales office in Houston, Texas, led by a new
business director and sales team in order to focus more intensely
on oilfield customers.
-- Prepared Watercryl, our recently acquired coatings additives
company in Brazil, to begin exporting throughout Latin America,
which included the installation of a comprehensive ERP system.
-- Expanded the scope of the New Martinsville project to broaden
its product range capabilities for US decorative coatings. All 3
phases of construction are now successfully completed and customer
approvals are ramping up quickly.
-- Our manufacturing facility in Livingston, Scotland, achieved
certification for RSPO (Roundtable for Sustainable Palm Oil) and
CGMP (consumer good manufacturing practices), further
differentiating and protecting our line of proprietary personal
care products.
The Specialty Products business provides high value functional
additives used in coatings, oilfield and personal care applications
that improve the physical properties and performance of our
customers' products or production processes. The business provides
a strong growth platform with its balanced geographic exposure
across both mature and emerging economies, strong technology base
and strategic market diversification. Specialty Products has a
significant technical service and application support presence in
its chosen markets that is built on long term relationships of
trust, collaboration and technical expertise. We help our customers
improve the performance of their products, lower costs or improve
regulatory compliance by introducing additives that represent a low
percentage of the formula cost but are critical to product
performance. Our differentiated, innovative product offering is
supported by excellent process technology and tightly held
manufacturing know how. The majority of our new products are
covered by intellectual property and, with over 2,500 products in
our portfolio, the business is well positioned to be the industry's
"one stop solution provider".
The strategy of our Chromium business is focused on reducing
cyclical fluctuations and consistently delivering predictable and
therefore higher quality earnings and cash flow. The business
operates at consistently high rates of capacity utilisation and
serves a diverse number of customers, geographies and applications,
allowing it to quickly shift products and resources towards market
segments and regions with the greatest opportunities.
As the only locally based manufacturer of chromium chemicals,
the business is able to provide its North American customers with a
differentiated and highly valued closed loop delivery model which
offers them significant advantages and benefits. This model would
be extremely difficult for a non-domestic supplier to replicate and
therefore provides a long term competitive advantage. The business
has a significant proportion of its chromium chemicals sales in
North America and 65 per cent of its sales were to customers in the
region during the year.
Regardless of the overall global economic conditions, Elementis
will continue its focus on driving continuous improvement in the
areas we can control, including sustainable operating improvements,
market share gains, the introduction of innovative new products and
expansion into new geographic markets. We are positive about our
future, due in large part to the hard work, ingenuity and unbounded
energy of the global Elementis team. Every day, throughout the
year, our people deliver the quality and service that builds
customer loyalty and market strength.
Although economic uncertainties in Europe and evolving dynamics
in the oilfield sector remain evident, the current year has started
on a solid footing and we are confident that the Group will make
further progress in the coming year. We are fully committed and
well positioned to maintain our record of delivering profitable
growth and industry leadership and would like to thank our
shareholders and customers for their continued confidence and
support.
David Dutro
Group Chief Executive
24 February 2015
* before exceptional items
Business commentaries
Revenue
Effect
of Increase/
Revenue Exchange (decrease) Revenue
2013 Rates 2014 2014
$million $million $million $million
------------------------ ---------- ------------ ----------
Specialty
Products 502.8 1.4 15.5 519.7
Chromium 214.8 - 1.7 216.5
Surfactants 72.2 0.3 (5.4) 67.1
Inter-segment (13.0) - 0.1 (12.9)
--------------- ------- ---------- ------------ ----------
776.8 1.7 11.9 790.4
--------------- ------- ---------- ------------ ----------
Operating profit
Effect Increase/ Operating
Operating of
Profit Exchange (decrease) Profit
2013* Rates 2014 2014*
$million $million $million $million
---------------------- --------- ------------- -----------
Specialty
Products 99.1 (0.5) (0.1) 98.5
Chromium 55.1 - 3.2 58.3
Surfactants 5.6 - (0.7) 4.9
Central
costs (13.2) (0.6) 2.2 (11.6)
------------- ------- --------- ------------- -----------
146.6 (1.1) 4.6 150.1
------------- ------- --------- ------------- -----------
* before exceptional items
Elementis Specialty Products
Sales in 2014 were $519.7 million compared to $502.8 million in
the previous year, which is an increase of 3 per cent. Currency
movements had no material impact on sales for the year as a whole,
although euro exchange rates had a positive influence for the first
9 months of 2014 but this was offset in the final 3 months when the
value of the euro declined against the US dollar. Overall pricing
during the year was relatively stable and therefore higher volumes
were the main driver of the improved sales.
In North America, sales of coatings additives improved by 7 per
cent compared to the previous year. The business experienced good
sales growth throughout the year due, in part, to new innovative
products introduced into the decorative coatings market, utilising
the recently completed facility in New Martinsville, US, and solid
industrial activity from the underlying economy.
In Europe, coatings additives sales improved by 2 per cent over
the previous year as the business made good progress despite a more
challenging economic environment. The period saw a marked reduction
in demand in the final 3 months of the year as European economic
concerns resurfaced. Overall, the business continued to benefit
from strong customer relationships, new product sales and
additional sales into the Middle East and Eastern Europe.
Sales of coatings additives in Asia Pacific improved by 5 per
cent as the business benefited from its strong position in China
and expanding sales in the rest of Asia Pacific, driven by a
differentiated product offering, exemplary customer service and
high quality technical support.
In Latin America, coatings additives sales were 3 per cent lower
than the previous year as good progress in expanding sales outside
Brazil was offset by weak underlying economic activity and adverse
currency movements.
Following a slow start to the year that was impacted by poor
weather in North America, Oilfield sales returned to robust growth
in the second half of the year with sales for the final 6 months 9
per cent higher than the same period last year. This brought the
full year result to within 3 per cent of the previous year with
robust activity evident in shale, deep offshore and seasonal
Canadian drilling.
In Personal care, sales were 8 per cent higher than the previous
year with particularly strong growth in Latin America and Asia
Pacific, where commercial resources were recently added to further
expand the geographic presence of the business. This attractive
growth rate was achieved despite a temporary downturn in European
demand during the final 3 months of the year, due to renewed
concerns about the European economy.
Operating profit* for the year was similar to the previous year
at $98.5 million. There were no material changes in raw material
and energy costs during the year, but the start-up effects of the
recent investments in the coatings additives plant in New
Martinsville had a short term dampening effect on operating
margin*, which ended the year at 19.0 per cent compared to 19.7 per
cent in the previous year.
Elementis Chromium
Consistent with the strategy of delivering stable earnings and
cash flow, sales in Chromium in 2014 were 1 per cent higher than
the previous year at $216.5 million, with similar volumes sold in
each year. Currency movements had no material impact on sales or
operating profit as the majority of the business is transacted in
US dollars.
Following a slow start to the year due to adverse weather
conditions, sales in North America finished the year 14 per cent
higher than the previous year. Strong demand for refractory grade
oxide and chromic acid for timber treatment were the key drivers of
the improvement, while chrome sulphate sales into leather tanning
were relatively stable, having shown a weaker trend in previous
periods. As the strategy also includes the optimisation of
Chromium's flexible operating base in North America, utilising a
relatively fixed manufacturing output, higher sales in North
America naturally resulted in lower sales in both Europe and Asia
Pacific, where markets have generally been more challenging. In
2014, 65 per cent of Chromium's sales were in North America,
compared to 57 per cent in 2013.
Operating profit* for 2014 was 6 per cent higher than the
previous year at $58.3 million and benefited from an enhanced sales
mix, due to the trends already described, while improvements in the
overall cost base offset marginally lower average selling
prices.
Elementis Surfactants
Sales in Surfactants in 2014 were $67.1 million compared to
$72.2 million in the previous year, which is a reduction of 7 per
cent with volumes lower by 11 per cent. This is consistent with the
Group's strategy of utilising more of the Delden facility to
produce higher margin additives for the Specialty Products business
and hence gradually reduce the volume of surfactants produced and
sold.
Operating profit* in 2014 was $4.9 million compared to $5.6
million in the previous year, consistent with the lower sales
volumes, while average selling prices improved by 3 per cent in
response to higher raw material prices. Currency movements had no
material impact on sales and operating profit, despite the fact
that the majority of the business is transacted in euros, because
the average euro/US dollar exchange rate was at a similar level in
both years.
* before exceptional items
Finance Report
Revenue 2014 2013
$million $million
------------------- --------- ---------
Specialty Products 519.7 502.8
Chromium 216.5 214.8
Surfactants 67.1 72.2
Inter-segment (12.9) (13.0)
------------------- --------- ---------
790.4 776.8
------------------- --------- ---------
Operating 2014 2013
profit Underlying Underlying
Operating Exceptional operating Operating Exceptional operating
profit items profit profit items profit
$million $million $million $million $million $million
------------ ---------- ----------- ----------- --------- ----------- -----------
Specialty
Products 100.1 (1.6) 98.5 99.8 (0.7) 99.1
Chromium 56.8 1.5 58.3 44.6 10.5 55.1
Surfactants 8.2 (3.3) 4.9 6.9 (1.3) 5.6
Central
costs (8.7) (2.9) (11.6) (6.4) (6.8) (13.2)
------------ ---------- ----------- ----------- --------- ----------- -----------
156.4 (6.3) 150.1 144.9 1.7 146.6
------------ ---------- ----------- ----------- --------- ----------- -----------
Group results
Group sales in 2014 were $790.4 million compared to $776.8
million in the previous year, an increase of 2 per cent with no
material impact from currency movements. Sales in Specialty
Products improved by 3 per cent on higher volumes while, in line
with their respective strategies, sales in Chromium were relatively
stable and in Surfactants reduced by 7 per cent.
Group operating profit* was $150.1 million compared to $146.6
million in the previous year, with no material impact from currency
movements, and Group operating margin* was stable at 19 per cent in
each year.
Currency hedging
Although a large proportion of the Group's business is
transacted in US dollars, the Group also transacts in other
currencies, in particular euros, pounds sterling and Chinese
renminbi. In order to reduce earnings volatility from these
currency exposures, the Group takes out cash flow hedges each year
where these are readily available. In 2014, overall currency
movements were such that the net impact of these hedge transactions
was a credit to operating profit of $1.9 million, while in 2013
there was no material impact.
Central costs
Central costs are those costs that are not identifiable as
expenses of a particular business and comprise expenditures of the
Board of directors and the corporate office. In 2014 central costs*
were $11.6 million, which was lower than the previous year by $1.6
million due to a reduction in the cost of variable compensation
plans and other central provisions which offset an increase of $0.6
million due to currency movements.
* before exceptional items
Exceptional items
A number of items have been recorded under 'exceptional items'
in the 2014 Consolidated income statement by virtue of their size
and/or one time nature, in order to provide a better understanding
of the Group's results. The net impact of these items on the Group
profit before tax for the year is a credit of $6.3 million. The
before tax items fall into 3 categories, as summarised below.
Post
employment Environmental
Credit/(charge) benefits provisions Other Total
------------------- ----------- ------------- ----- -----
Specialty Products 1.6 - - 1.6
Surfactants 3.3 - - 3.3
Chromium - (1.5) - (1.5)
Central costs - (0.4) 3.3 2.9
------------------- ----------- ------------- ----- -----
Total 4.9 (1.9) 3.3 6.3
------------------- ----------- ------------- ----- -----
Post employment benefits - net credit of $4.9 million
In the Netherlands the arrangement with the previous insurers of
the defined benefit pension scheme came to an end on 31 December
2014 and the Group has contracted with a new industry wide pension
fund for 2015 onwards. As a result, the plan will in future be
accounted for as a defined contribution plan. Consequently, a
deficit amount of $4.1 million relating to the original plan has
been reversed in 2014 and the resulting credit recorded as an
exceptional item. More details on this can be found later in this
report. In addition, a legacy provision of $0.8 million relating to
a 2005 claim made by a group of pensioners in the Netherlands has
also been reversed and credited to Group profit because the matter
has now been settled. The total amount of $4.9 million has been
allocated between Specialty Products and Surfactants in a manner
that is consistent with how fixed costs in the Netherlands are
allocated between these two businesses.
Environmental provisions - charge of $1.9 million
The Group's environmental provisions are calculated on a
discounted basis, reflecting the time period over which spending is
estimated to take place. As a result of a decline in the underlying
market interest rates that are utilised in the discount rate
calculation, it was concluded that the discount rate applied to
future spending should be further reduced. This resulted in a
charge of $1.9 million in 2014 which was allocated between Chromium
and central costs based on the properties to which the spending
relates.
Other adjustments - net credit of $3.3 million
The liquidations of a number of legacy subsidiaries no longer
involved in Group activities resulted in one time credits totalling
$3.3 million being recorded in Group profit.
Taxation - net credit of $53.5 million
Tax related items that result in a net credit of $53.5 million
have also been recorded as exceptional items. The net credit arises
from the recognition of UK advance corporation tax credits
amounting to $42.0 million with an additional credit of $12.3
million in respect of UK tax assets. The surplus ACT arose in
respect of tax paid under the prior imputation system, which
allowed for ACT credits to be offset against mainstream UK tax
liabilities. The ACT not previously used under that imputation
system had been written off at the time when there was no UK
corporation tax liability anticipated in the foreseeable future. It
is now the Board's view that taxable profits will arise in the UK
in the future and, as such, surplus ACT previously written off
should now be recognised as a tax asset. Offsetting these credits
is the tax cost associated with the pre-tax exceptional items
listed above.
Other expenses
Other expenses are administration costs incurred and paid by the
Group's pension schemes, whose members are primarily former
employees of legacy businesses. Total costs were $1.9 million in
2014 compared to $2.0 million in the previous year, reflecting the
stable nature of this cost category.
Net finance costs
2014 2013
$million $million
------------------------------ ---------- ----------
Finance income 0.3 0.2
Finance cost of borrowings (1.6) (2.5)
------------------------------ ---------- ----------
(1.3) (2.3)
Net pension finance costs (3.1) (4.5)
Discount unwind on provisions (1.9) (1.8)
------------------------------ ---------- ----------
(6.3) (8.6)
------------------------------ ---------- ----------
Net finance costs declined by $2.3 million in 2014 to $6.3
million, mainly due to a decline in the financial cost of pension
deficits and a reduction in interest on bank borrowings. Net
pension finance costs were lower than the previous year largely
because, under IAS 19, the charge is based on the deficit value at
the beginning of the year and the opening deficit in 2014 was
approximately 28 per cent lower than it was in 2013. Finance cost
of borrowings largely relate to amortised arrangement and
commitment fees on unutilised borrowing facilities, as the Group is
in a net cash position, and came down as a result of the
refinancing of the Group's main borrowing facility in the second
half of 2013. Average borrowings in the year and borrowing rates
were also marginally lower than the previous year. Discount on
provisions relates to the annual time value of the Group's
environmental provisions, which are calculated on a discounted
basis.
Taxation
Tax charge 2014 2013
Effective Effective
rate rate
$million per cent $million per cent
------------------- -------- ---------- -------- ----------
Before exceptional
items 26.3 18.5 29.4 21.6
Exceptional items (53.5) (36.9) (1.8) (1.0)
------------------- -------- ---------- -------- ----------
Total (27.2) (18.4) 27.6 20.6
------------------- -------- ---------- -------- ----------
The tax credit of $27.2 million (2013: charge $27.6 million)
includes a significant UK exceptional tax credit of $54.3 million.
Before this exceptional tax credit and the tax charge of $0.8
million in relation to exceptional items, the tax charge was $26.3
million (2013: $29.4 million) and represents an effective tax rate
of 18.5 per cent (2013: 21.6 per cent). The decrease in tax rate
results from certain additional and permanent tax benefits arising
from both overseas tax allowances as well as changes in the
geographic mix of profits.
Earnings per share
Note 7 to the Consolidated financial statements 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 24.8
cents compared to 23.0 cents in the previous year, with the
improvement due mainly to an increase in operating profit, lower
finance costs and a reduction in the tax rate. Basic earnings per
share was 38.1 cents compared to 23.3 cents in 2013 and included
13.0 cents (2013: nil) relating to exceptional items as described
earlier in this report.
Distributions to shareholders
During 2014 the Group paid a final dividend in respect of the
year ended 31 December 2013 of 5.50 cents per share (2013: 5.32
cents) and a special dividend of 5.86 cents per share (2013: 4.79
cents). An interim dividend of 2.70 cents per share (2013: 2.57
cents) was paid on 3 October 2014 and the Board is recommending a
final dividend for 2014 of 5.75 cents per share and a special
dividend of 6.95 cents per share, both of which will be paid on 22
May 2015.
Cash flow
The cash flow is summarised below.
2014 2013
$million $million
--------------------------- ---------- ----------
EBITDA(1) 175.3 170.5
Change in working capital 4.3 6.5
Capital expenditure (34.9) (35.0)
Other (0.3) 1.9
--------------------------- ---------- ----------
Operating cash flow 144.4 143.9
Pension deficit payments (49.5) (26.8)
Interest and tax (13.3) (14.6)
Other (0.8) (1.5)
--------------------------- ---------- ----------
Free cash flow 80.8 101.0
Dividends paid (64.7) (58.3)
Acquisitions and disposals (4.1) (32.8)
Currency fluctuations (1.9) 0.2
--------------------------- ---------- ----------
Movement in net cash 10.1 10.1
Net cash at start of year 54.1 44.0
--------------------------- ---------- ----------
Net cash at end of year 64.2 54.1
--------------------------- ---------- ----------
(1) EBITDA - earnings before interest, tax, exceptional items,
depreciation and amortisation
Group cash flow was again positive for the year, increasing the
net cash balance at the end of the year by $10.1 million to $64.2
million. Contributing to this positive outcome, EBITDA in 2014 was
$4.8 million higher than the previous year at $175.3 million, in
line with the improved operating profit for the year. Cash flow
relating to working capital was an inflow of $4.3 million compared
to an inflow of $6.5 million in the previous year. Inventories at
the end of 2014 were $9.2 million higher than the previous year
end, largely due to production and purchasing patterns towards the
end of the year. Consequently creditor balances also increased by a
similar amount. Trade debtor balances declined by $4.8 million over
the same period, consistent with lower sales in the final 3 months
of 2014 as compared to the same period in 2013. In combination,
these changes resulted in the working capital cash inflow of $4.3
million for the year. Capital expenditure in 2014 was similar to
the previous year at $34.9 million, while total depreciation for
the year was $25.4 million, including $3.6 million relating to
amortisation of intangibles. $11.2 million was invested in the year
in growth projects in Specialty Products (2013: $12.6 million), of
which $8.0 million related to the third phase of our new decorative
additives facility in New Martinsville, US, and $2.4 million
related to plant upgrades in Asia Pacific. Investments in plant
maintenance and productivity across the Group totalled $23.7
million in 2014, compared to $21.8 million in the previous
year.
Pension deficit payments in 2014 were $22.7 million higher than
the previous year at $49.5 million and the increase included an
additional one time payment to the UK Scheme of $15.2 million and
additional payments to the US Scheme of $4.7 million. Going
forward, total contributions in 2015 are expected to be in the
range $25-$30 million. Interest and tax payments totalled $13.3
million in 2014 compared to $14.6 million in the previous year, of
which $12.0 million (2013: $12.3 million) related to tax payments.
This level of tax outflow represents a relatively low rate of cash
tax (8.5 per cent ) and is a result of the Group being able to
access certain overseas tax credits. Utilisation of these credits
is close to an end and therefore it is expected that the rate of
cash tax will increase going forward. The recognition and expected
utilisation of the aforementioned ACT and tax assets is not
expected to have a material impact on the Group's cash tax rate.
Dividends paid in 2014 were $6.4 million higher than the previous
year at $64.7 million and represents the payment of the final and
special dividends for 2013 and the interim dividend for 2014, all
of
which were higher than in the previous year. Acquisition
spending in 2014 was $4.1 million and represented the purchase of a
minority interest in a majority owned business in China, while
spending in 2013 of $32.8 million related to the acquisition of
Hi-Mar in the US.
Balance sheet
2014 2013
$million $million
-------------------------------------------- ---------- ----------
Intangible fixed assets 373.0 382.1
Tangible fixed assets 211.7 202.6
Working capital 137.4 143.7
Net tax liabilities (41.4) (99.3)
Provisions & retirement benefit obligations (100.8) (137.7)
Net cash 64.2 54.1
-------------------------------------------- ---------- ----------
Total Equity 644.1 545.5
-------------------------------------------- ---------- ----------
Group equity increased by $98.6 million in 2014 (2013: $64.7
million) consistent with the profit for the year, dividends paid
and changes in pension liabilities. Intangible fixed assets
declined by $9.1 million due mostly to a currency translation cost
of $6.6 million and amortisation charges of $3.6 million. Tangible
fixed assets increased by $9.1 million in the year, largely as a
result of capital spending for the year exceeding the depreciation
charge by $13.6 million, while currency translation reduced the
year on year balance by $5.5 million. Working capital decreased by
$6.3 million, with an increase in Specialty Products' inventories
of $10.5 million to assist stock availability being offset by an
overall increase in trade and other payables of $10.9 million and
reduced trade and other debtors of $4.8 million. Net tax
liabilities decreased by $57.9 million, driven by the recognition
of UK advance corporation tax credits and deferred tax assets.
Movements in provisions and retirement benefit obligations are
discussed elsewhere in this report. Net cash increased by $10.1
million as described in the previous section.
The main dollar exchange rates relevant to the Group are set out
below.
2014 Year 2013
Year end Average end Average
---------------- --------- --------- ----- ---------
Pounds sterling 0.64 0.60 0.60 0.64
Euro 0.83 0.75 0.73 0.75
---------------- --------- --------- ----- ---------
Provisions
The Group records a provision in the balance sheet when it 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. The Group calculates provisions on a discounted basis.
At the end of 2014 the Group held provisions of $35.0 million
(2013: $38.1 million), consisting of environmental provisions of
$31.7 million (2013: $34.9 million) and self insurance provisions
of $3.3 million (2013: $3.2 million). In 2014 environmental
provisions reduced by $3.2 million as a result of spending of $5.1
million (2013: $5.2 million) and favourable currency movements of
$1.3 million (2013: unfavourable $0.3 million). These were partly
offset by increases in the provision due to a time value of money
charge of $1.9 million (2013: $1.8 million) and a structural charge
of $1.9 million to reflect a change in the underlying discount
rate. This latter charge is treated as an exceptional item in the
Group results as described earlier in this report. The self
insurance provision represents the Group's estimate of its
liability arising from retained liabilities under the Group's
insurance programme.
Pensions and other post retirement benefits
2014 2013
$million $million
----------------- ---------- ----------
Net liabilities:
UK 28.4 66.1
US 31.1 23.1
Other 6.3 10.1
----------------- ---------- ----------
65.8 99.3
----------------- ---------- ----------
UK plan
The largest of the Group's retirement plans is the UK defined
benefit pension scheme ("UK Scheme") which had a deficit under IAS
19 of $28.4 million at the end of 2014, compared to $66.1 million
at the end of 2013. The UK Scheme is relatively mature, with
approximately two thirds of its gross liabilities represented by
pensions in payment, and is closed to new members. The deficit
under IAS 19 declined in 2014 due mainly to a positive return on
assets of 13 per cent (2013: 7 per cent) and deficit contributions
from the Company of $41.9 million (2013: $21.4 million). These more
than offset the financial cost of the liabilities of $35.6 million
(2013: $30.6 million) and other liability adjustments of $70.7
million (2013: $26.9 million). Deficit contributions in 2014 were
made as part of the current funding agreement, which was concluded
with the trustees of the scheme following the triennial valuation
exercise as of 30 September 2011, and included an additional one
time payment of $15.2 million. Other liability adjustments included
the impact of a fall in real corporate bond yields during the year
by 60 basis points (2013: decline of 20 basis points). The next
triennial valuation exercise will be completed during 2015, based
on a valuation as of 30 September 2014. Early indications are that
the deficit value at that date is in line with that anticipated by
the current funding agreement. Under that agreement the Company has
agreed to make the following contributions in pounds sterling in
order to bring the funding deficit to zero:
Amount
Year payable (GBPmillion)
------------- --------------
2015 14.9
2016 11.0
2017 9.8
2018 9.8
------------- --------------
US plans
In the US, the Group reports 2 post retirement plans under IAS
19: a defined benefit pension plan with a deficit value at the end
of 2014 of $23.7 million (2013: $15.6 million); and a post
retirement medical plan with a liability value of $7.4 million
(2013: $7.5 million). The US pension plan is smaller than the UK
plan and is closed to future accruals. In 2014 the overall deficit
value increased by $8.0 million (2013: decreased by $28.2 million)
due to the anticipated financial cost of the liabilities of $5.6
million (2013: $5.1 million) and actuarial increases of $16.9
million (2013: decrease of $11.5 million). Other liability
increases consisted mostly of a revision to mortality assumptions
costing approximately $5.8 million and a decline in real corporate
bond yields of 55 basis points (2013: increase of 80 basis points).
These increases in the liability were offset by positive asset
returns of 7 per cent (2013: 22 per cent) and employer
contributions of $7.8 million (2013: $2.9 million).
Other plans
In the Netherlands, the Group operated an insured defined
benefits pension plan as is customary in that country. On 1 January
2015 the Group contracted with an industry wide pension fund in the
Netherlands to provide pension benefits for its employees as they
relate to future accruals. This fund has a number of other
participant companies and risks are shared across all of the
participants. As such the fund is unable to provide the information
required in the future to allow the Group to account for the plan
benefits as a defined benefit scheme under IAS 19. Consequently,
going forward the Group will account for these benefits as though
the plan was a defined contribution scheme, in accordance with IAS
19, recording future contributions by the Group as an operating
expense. Under this method of accounting the Group will no longer
record any asset or liability relative to this plan and hence has
recorded an income statement credit in 2014 of $4.1 million in
order to reverse the liability that would have been shown at 31
December 2014 had this change in accounting not been made. This
credit has been recorded as an exceptional item in 2014 and is
referred to in the earlier section of this report that covers this
topic. A liability of $3.7 million was recorded in the Group
balance sheet as of 31 December 2013 in relation to these pension
benefits.
Other liabilities at 31 December 2014 amounted to $6.3 million
(2013: $6.4 million) and relate to pension arrangements for a
relatively small number of employees in Germany and certain legacy
benefits in the UK.
Consolidated income statement
for the year ended 31 December 2014
Exceptional
2014 items 2013
Before After Before After
exceptional Exceptional exceptional exceptional (note exceptional
items items items items 5) items
(note
Note $million 5) $million $million $million $million $million
--------------- ----- ------------- -------------- -------------- ------------- ------------ --------------
Revenue 790.4 - 790.4 776.8 - 776.8
Cost of
sales (486.1) - (486.1) (487.7) - (487.7)
--------------- ----- ------------- -------------- -------------- ------------- ------------ --------------
Gross
profit 304.3 - 304.3 289.1 - 289.1
Distribution
costs (92.3) - (92.3) (83.6) - (83.6)
Administrative
expenses (61.9) 6.3 (55.6) (58.9) (1.7) (60.6)
--------------- ----- ------------- -------------- -------------- ------------- ------------ --------------
Operating
profit 150.1 6.3 156.4 146.6 (1.7) 144.9
Other
expenses (1.9) - (1.9) (2.0) - (2.0)
Finance
income 3 0.3 - 0.3 0.2 - 0.2
Finance
costs 4 (6.6) - (6.6) (8.8) - (8.8)
--------------- ----- ------------- -------------- -------------- ------------- ------------ --------------
Profit
before
income
tax 141.9 6.3 148.2 136.0 (1.7) 134.3
Tax 6 (26.3) 53.5 27.2 (29.4) 1.8 (27.6)
--------------- ----- ------------- -------------- -------------- ------------- ------------ --------------
Profit
for the
year 115.6 59.8 175.4 106.6 0.1 106.7
--------------- ----- ------------- -------------- -------------- ------------- ------------ --------------
Attributable
to:
Equity
holders
of the
parent 115.6 59.8 175.4 106.6 0.1 106.7
--------------- ----- ------------- -------------- -------------- ------------- ------------ --------------
115.6 59.8 175.4 106.6 0.1 106.7
--------------- ----- ------------- -------------- -------------- ------------- ------------ --------------
Earnings
per share
--------------- ----- ------------- -------------- -------------- ------------- ------------ --------------
Basic
(cents) 7 38.1 23.3
Diluted
(cents) 7 37.7 23.0
--------------- ----- ------------- -------------- -------------- ------------- ------------ --------------
Consolidated statement of comprehensive income
for the year ended 31 December 2014
2014 2013
$million $million
----------------------------------------------------------------------- ---------- ----------
Profit for the year 175.4 106.7
----------------------------------------------------------------------- ---------- ----------
Other comprehensive income:
Items that will not be reclassified subsequently to profit and loss:
Remeasurements of retirement benefit obligations (18.5) 19.3
Deferred tax associated with retirement benefit obligations 14.1 (10.3)
Items that may be reclassified subsequently to profit and loss:
Exchange differences on translation of foreign operations (11.6) (1.2)
Effective portion of changes in fair value of cash flow hedges 0.1 0.3
Fair value of cash flow hedges transferred to income statement (0.3) 0.5
Tax benefit associated with exercise of share options 2.8 4.4
Other comprehensive income (13.4) 13.0
----------------------------------------------------------------------- ---------- ----------
Total comprehensive income for the year 162.0 119.7
----------------------------------------------------------------------- ---------- ----------
Attributable to:
Equity holders of the parent 162.0 119.7
----------------------------------------------------------------------- ---------- ----------
Total comprehensive income for the year 162.0 119.7
----------------------------------------------------------------------- ---------- ----------
Consolidated balance sheet
as at 31 December 2014
2014 2013
31 December 31 December
$million $million
----------------------------------------------------------- --------------- ---------------
Non-current assets
Goodwill and other intangible assets 373.0 382.1
Property, plant and equipment 211.7 202.6
ACT recoverable 42.0 -
Deferred tax assets 14.4 8.6
----------------------------------------------------------- --------------- ---------------
Total non-current assets 641.1 593.3
----------------------------------------------------------- --------------- ---------------
Current assets
Inventories 137.5 128.3
Trade and other receivables 121.4 126.2
Derivatives 0.7 0.4
Cash and cash equivalents 73.7 64.5
----------------------------------------------------------- --------------- ---------------
Total current assets 333.3 319.4
----------------------------------------------------------- --------------- ---------------
Total assets 974.4 912.7
----------------------------------------------------------- --------------- ---------------
Current liabilities
Bank overdrafts and loans (8.1) (8.7)
Trade and other payables (122.0) (111.1)
Derivatives (0.2) (0.1)
Current tax liabilities (5.1) (14.4)
Provisions (6.7) (6.0)
----------------------------------------------------------- --------------- ---------------
Total current liabilities (142.1) (140.3)
----------------------------------------------------------- --------------- ---------------
Non-current liabilities
Loans and borrowings (1.4) (1.7)
Retirement benefit obligations (65.8) (99.3)
Deferred tax liabilities (92.7) (93.5)
Provisions (28.3) (32.1)
Government grants - (0.3)
----------------------------------------------------------- --------------- ---------------
Total non-current liabilities (188.2) (226.9)
----------------------------------------------------------- --------------- ---------------
Total liabilities (330.3) (367.2)
----------------------------------------------------------- --------------- ---------------
Net assets 644.1 545.5
----------------------------------------------------------- --------------- ---------------
Equity
Share capital 44.4 44.1
Share premium 18.7 16.7
Other reserves 116.4 129.9
Retained earnings 464.6 353.2
----------------------------------------------------------- --------------- ---------------
Total equity attributable to equity holders of the parent 644.1 543.9
Non-controlling interests - 1.6
----------------------------------------------------------- --------------- ---------------
Total equity 644.1 545.5
----------------------------------------------------------- --------------- ---------------
Consolidated statement of changes in equity
Share Share Translation Hedging Other Retained Non-controlling Total
capital premium reserve reserve reserves earnings Total interest equity
$million $million $million $million $million $million $million $million $million
Balance at 1
January 2013 43.7 14.7 (27.6) (7.5) 165.4 290.5 479.2 1.6 480.8
--------------- -------- -------- ----------- -------- -------- --------- --------- --------------- ---------
Comprehensive
income
Profit for the
year - - - - - 106.7 106.7 - 106.7
Other
comprehensive
income
Exchange
differences - - (1.2) - - - (1.2) - (1.2)
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 - - - 0.3 - - 0.3 - 0.3
Remeasurements
of retirement
benefit
obligations - - - - - 19.3 19.3 - 19.3
Tax benefit
associated
with
exercise of
share options - - - - - 4.4 4.4 - 4.4
Deferred tax
adjustment on
pension scheme
deficit - - - - - (10.3) (10.3) - (10.3)
Transfer - - - - (3.2) 3.2 - - -
--------------- -------- -------- ----------- -------- -------- --------- --------- --------------- ---------
Total other
comprehensive
income - - (1.2) 0.8 (3.2) 16.6 13.0 - 13.0
--------------- -------- -------- ----------- -------- -------- --------- --------- --------------- ---------
Total
comprehensive
income - - (1.2) 0.8 (3.2) 123.3 119.7 - 119.7
--------------- -------- -------- ----------- -------- -------- --------- --------- --------------- ---------
Transactions
with owners
Issue of shares
by the Company 0.4 2.0 - - (0.2) - 2.2 - 2.2
Share based
payments - - - - 3.4 - 3.4 - 3.4
Deferred tax
on share based
payments
recognised
within equity - - - - - (2.5) (2.5) - (2.5)
Dividends paid - - - - - (58.1) (58.1) - (58.1)
--------------- -------- -------- ----------- -------- -------- --------- --------- --------------- ---------
Total
transactions
with owners 0.4 2.0 - - 3.2 (60.6) (55.0) - (55.0)
--------------- -------- -------- ----------- -------- -------- --------- --------- --------------- ---------
Balance at 31
December 2013 44.1 16.7 (28.8) (6.7) 165.4 353.2 543.9 1.6 545.5
--------------- -------- -------- ----------- -------- -------- --------- --------- --------------- ---------
Balance at 1
January 2014 44.1 16.7 (28.8) (6.7) 165.4 353.2 543.9 1.6 545.5
--------------- -------- -------- ----------- -------- -------- --------- --------- --------------- ---------
Comprehensive
income
Profit for the
year - - - - - 175.4 175.4 - 175.4
Other
comprehensive
income
Exchange
differences - - (11.5) - (0.1) - (11.6) - (11.6)
Fair value of
cash flow
hedges
transferred
to the income
statement - - - (0.3) - - (0.3) - (0.3)
Effective
portion
of changes in
fair value of
cash flow
hedges - - - 0.1 - - 0.1 - 0.1
Remeasurements
of retirement
benefit
obligations - - - - - (18.5) (18.5) - (18.5)
Tax benefit
associated
with
exercise of
share options - - - - - 2.8 2.8 - 2.8
Deferred tax
adjustment on
pension scheme
deficit - - - - - 14.1 14.1 - 14.1
Transfer - - - - (4.1) 4.1 - - -
--------------- -------- -------- ----------- -------- -------- --------- --------- --------------- ---------
Total other
comprehensive
income - - (11.5) (0.2) (4.2) 2.5 (13.4) - (13.4)
--------------- -------- -------- ----------- -------- -------- --------- --------- --------------- ---------
Total
comprehensive
income - - (11.5) (0.2) (4.2) 177.9 162.0 - 162.0
--------------- -------- -------- ----------- -------- -------- --------- --------- --------------- ---------
Transactions
with owners
Issue of shares
by the Company 0.3 2.0 - - (0.1) - 2.2 - 2.2
Share based
payments - - - - 2.5 - 2.5 - 2.5
Deferred tax
on share based
payments
recognised
within equity - - - - - (1.8) (1.8) - (1.8)
Dividends paid - - - - - (64.7) (64.7) - (64.7)
Change in
ownership
interests in
subsidiaries - - - - - - - (1.6) (1.6)
--------------- -------- -------- ----------- -------- -------- --------- --------- --------------- ---------
Total
transactions
with owners 0.3 2.0 - - 2.4 (66.5) (61.8) (1.6) (63.4)
--------------- -------- -------- ----------- -------- -------- --------- --------- --------------- ---------
Balance at 31
December 2014 44.4 18.7 (40.3) (6.9) 163.6 464.6 644.1 - 644.1
--------------- -------- -------- ----------- -------- -------- --------- --------- --------------- ---------
Consolidated cash flow statement
for the year ended 31 December 2014
2014 2013
$million $million
-------------------------------------------------------------- ---------- ----------
Operating activities:
Profit for the year 175.4 106.7
Adjustments for:
Other expenses 1.9 2.0
Finance income (0.3) (0.2)
Finance costs 6.6 8.8
Tax (credit)/charge (27.2) 27.6
Depreciation and amortisation 25.2 23.9
Decrease in provisions (2.8) (1.5)
Pension payments net of current service cost (49.5) (26.8)
Share based payments 2.5 3.4
Exceptional items (6.3) 1.7
Cash flow in respect of exceptional items excluding pensions (3.1) (3.9)
-------------------------------------------------------------- ---------- ----------
Operating cash flow before movement in working capital 122.4 141.7
(Increase)/decrease in inventories (12.7) 2.8
Increase in trade and other receivables (0.1) (4.3)
Increase in trade and other payables 17.1 8.0
-------------------------------------------------------------- ---------- ----------
Cash generated by operations 126.7 148.2
Income taxes paid (12.0) (12.3)
Interest paid (1.6) (2.8)
-------------------------------------------------------------- ---------- ----------
Net cash flow from operating activities 113.1 133.1
-------------------------------------------------------------- ---------- ----------
Investing activities:
Interest received 0.3 0.5
Disposal of property, plant and equipment 0.9 0.6
Purchase of property, plant and equipment (35.4) (34.1)
Purchase of business (4.1) (32.8)
Acquisition of intangible assets (0.4) (1.5)
-------------------------------------------------------------- ---------- ----------
Net cash flow from investing activities (38.7) (67.3)
-------------------------------------------------------------- ---------- ----------
Financing activities:
Issue of shares by the Company and the ESOT 2.1 2.2
Dividends paid (64.7) (58.3)
Receipt of unclaimed dividends 0.2 0.2
Decrease in borrowings (0.3) (8.7)
-------------------------------------------------------------- ---------- ----------
Net cash used in financing activities (62.7) (64.6)
-------------------------------------------------------------- ---------- ----------
Net increase in cash and cash equivalents 11.7 1.2
Cash and cash equivalents at 1 January 64.5 63.1
Foreign exchange on cash and cash equivalents (2.5) 0.2
-------------------------------------------------------------- ---------- ----------
Cash and cash equivalents at 31 December 73.7 64.5
-------------------------------------------------------------- ---------- ----------
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
2014 or 2013 but is derived from those accounts. Statutory accounts
for 2013 have been delivered to the Registrar of Companies, and
those for 2014 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 24 February 2015.
2 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 2014 which
will be made available to shareholders on 19 March 2015.
Reporting currency
As a consequence of the majority of the Group's sales and
earnings originating in US dollars or US dollar linked currencies,
the Group has chosen the US dollar as its reporting currency. This
aligns the Group's external reporting with the profile of the
Group, as well as with internal management reporting.
3 Finance income
2014 2013
$million $million
-------------------------- ---------- ----------
Interest on bank deposits 0.3 0.2
-------------------------- ---------- ----------
4 Finance costs
2014 2013
$million $million
----------------------------------------------- ---------- ----------
Interest on bank loans 1.6 2.5
Pension and other post retirement liabilities 3.1 4.5
Unwind of discount on provisions 1.9 1.8
----------------------------------------------- ---------- ----------
6.6 8.8
----------------------------------------------- ---------- ----------
5 Exceptional items
2014 2013
$million $million
----------------------------------------------------- ---------- ----------
Post employment benefits 4.9 0.1
Environmental provisions (1.9) (0.2)
Other 3.3 (1.6)
----------------------------------------------------- ---------- ----------
6.3 (1.7)
Tax (charge)/credit in relation to exceptional items (0.8) 1.8
Recognition of further UK tax assets 12.3 -
Recognition of ACT 42.0 -
----------------------------------------------------- ---------- ----------
59.8 0.1
----------------------------------------------------- ---------- ----------
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.
Post employment benefits
In the Netherlands the arrangement with the previous insurers of
the defined benefit pension scheme came to an end on 31 December
2014 and the Group has contracted with a new industry wide pension
fund for 2015 onwards. As a result, the plan will in future be
accounted for as a defined contribution plan. Consequently, a
deficit amount of $4.1 million relating to the original plan has
been reversed in 2014 and the resulting credit recorded as an
exceptional item. In addition, a legacy provision of $0.8 million
relating to a 2005 claim made by a group of pensioners in the
Netherlands has also been reversed and credited to Group profit
because the matter has now been settled
Environmental provisions
The Group's environmental provisions are calculated on a
discounted basis, reflecting the time period over which spending is
estimated to take place. As a result of a decline in the underlying
market interest rates that are utilised in the discount rate
calculation, it was concluded that the discount rate applied to
future spending should be further reduced. This resulted in a
charge of $1.9 million in 2014.
Other adjustments
The liquidations of a number of legacy subsidiaries no longer
involved in Group activities resulted in one time credits totalling
$3.3 million being recorded in Group profit.
Taxation - net credit of $53.5 million
Tax related items that result in a net credit of $53.5 million
have also been recorded as exceptional items. The net credit arises
from the recognition of UK advance corporation tax credits
amounting to $42.0 million with an additional credit of $12.3
million in respect of further UK tax assets. The surplus ACT arose
in respect of tax paid under the prior imputation system, which
allowed for ACT credits to be offset against mainstream UK tax
liabilities. The ACT not previously used under that imputation
system had been written off at the time when there was no UK
corporation tax liability anticipated in the foreseeable future. It
is now the Board's view that taxable profits will arise in the UK
in the future and, as such, surplus ACT previously written off
should now be recognised as a tax asset. Offsetting these credits
is the tax cost of $0.8 million associated with the pre-tax
exceptional items listed above.
6 Income tax expense
2014 2013
$million $million
--------------------------------------------------------------------- ---------- ----------
Current tax:
--------------------------------------------------------------------- ---------- ----------
Recognition of UK Advance Corporation Tax credits (exceptional item) (42.0) -
Tax recoverable (exceptional item) (6.0) -
Overseas corporation tax* 14.5 21.3
Adjustments in respect of prior years:
Overseas - (0.5)
--------------------------------------------------------------------- ---------- ----------
Total current tax (33.5) 20.8
--------------------------------------------------------------------- ---------- ----------
Deferred tax:
Recognition of further deferred tax assets (exceptional item) (6.3) -
United Kingdom 1.5 0.9
Adjustment in respect of prior year - 0.4
Overseas 11.4 4.1
Adjustments in respect of prior years (0.3) 1.4
--------------------------------------------------------------------- ---------- ----------
Total deferred tax 6.3 6.8
--------------------------------------------------------------------- ---------- ----------
Income tax expense for the year (27.2) 27.6
--------------------------------------------------------------------- ---------- ----------
Comprising:
Before exceptional items 26.3 29.4
Exceptional items** (53.5) (1.8)
--------------------------------------------------------------------- ---------- ----------
(27.2) 27.6
--------------------------------------------------------------------- ---------- ----------
* exceptional debit of $0.8 million included within overseas
corporation tax and overseas deferred tax
** see Note 5 for details of exceptional items
The tax charge on profit represents an effective tax rate on
profit before exceptional items for the year ended 31 December 2014
of 18.5 per cent (2013: 21.6 per cent). As a Group involved in
overseas operations, the amount of profitability in each
jurisdiction, transfer pricing regulations and local tax rate
changes, will affect future tax charges.
The total charge for the year can be reconciled to the
accounting profit as follows:
2014 2014 2013 2013
$million per cent $million per cent
-------------------------------------------------------------------- ---------- ----------- ---------- -----------
Profit before tax 148.2 134.3
-------------------------------------------------------------------- ---------- ----------- ---------- -----------
Tax on ordinary activities at 21.5 per cent (2013: 23.25 per cent)* 31.9 21.5 31.2 23.3
Difference in overseas effective tax rates 10.8 7.3 10.9 8.1
Income not chargeable for tax purposes (6.8) (4.6) (9.8) (7.3)
Expenses not deductible for tax purposes - - 0.5 0.4
Tax losses and other deductions (9.2) (6.2) (6.1) (4.5)
Tax rate adjustments to deferred tax 0.7 0.5 - -
Adjustments in respect of prior years (0.3) (0.2) 0.9 0.6
Recognition of exceptional tax items (54.3) (36.7) - -
-------------------------------------------------------------------- ---------- ----------- ---------- -----------
Tax charge and effective tax rate for the year (27.2) (18.4) 27.6 20.6
-------------------------------------------------------------------- ---------- ----------- ---------- -----------
* tax rate reflects reduction in UK corporation tax rate from 23
per cent to 21 per cent with effect from April 2014. The UK
corporation tax rate from 1 April 2015 has been substantively
enacted at 20 per cent
7 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:
2014 2013
$million $million
----------------------------------------------------- ---------- ----------
Earnings:
Earnings for the purpose of basic earnings per share 175.4 106.7
Exceptional items net of tax (59.8) (0.1)
----------------------------------------------------- ---------- ----------
Adjusted earnings 115.6 106.6
----------------------------------------------------- ---------- ----------
2014 2013
million million
--------------------------------------------------------------------------------- --------- ---------
Number of shares:
Weighted average number of shares for the purposes of basic earnings per share 460.7 456.9
Effect of dilutive share options 4.7 6.8
--------------------------------------------------------------------------------- --------- ---------
Weighted average number of shares for the purposes of diluted earnings per share 465.4 463.7
--------------------------------------------------------------------------------- --------- ---------
2014 2013
cents cents
--------------------------------- ------- -------
Earnings per share:
Basic 38.1 23.3
Diluted 37.7 23.0
Basic before exceptional items 25.1 23.3
Diluted before exceptional items 24.8 23.0
--------------------------------- ------- -------
8 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. No contingent liability was
considered to be reportable at 31 December 2014.
*****************************************************
Annual Financial Report
In accordance with Disclosure and Transparency Rule 6.3.5, the
following additional information is required to be made through a
Regulatory Information Service ("RIS"): Principal risks and
uncertainties; and Directors' responsibility statement. The
information below, which is summarised and extracted from the 2014
Annual report and accounts that is to be published on 19 March
2015, is included solely for the purpose of complying with DTR
6.3.5(2) and the requirements it imposes on issuers on what
material is to be communicated to the media in unedited full text
through a RIS. A fuller description is set out in the 2014 Annual
report and accounts.
Risk management
Our risk management process follows an Enterprise Risk
Management model comprising the following steps:
1. Risk identification and communication.
2. Risk evaluation and prioritisation.
3. Risk management analysis and discussion (consideration of all
options for prevention/mitigation/ treatment/transfer).
4. Risk strategy resourcing and implementation.
5. Monitoring, review and updating of the risk management
process.
The management of risk is a responsibility that is incorporated
into the general management function and shared between the
different levels of management, at the site, business and corporate
level. Certain risks or risk areas are managed by more specialised
teams or functions.
As well as the day to day responsibilities for risk management,
there are formal risk review programmes operated throughout the
year. The Specialties and Chromium business leadership teams meet
separately at least twice a year and during one of their meetings a
formal risk review exercise is carried out. This assessment looks
at the major risks facing the business (strategic, financial,
operational, hazard and compliance), their likelihood of
occurrence, severity of impact and mitigation controls (to reduce
likelihood as well as financial impact). The output from these
reviews is consolidated into a Group risk register comprising
business risks (which include supply chain and operations/HSE risk
assessments) and risks from corporate functions (legal, finance,
IT, HR and governance). The management team then carries out an
annual risk review in one of its two formal risk review meetings
each year, focused on the Group risk register and risk maps.
Benchmarking and other best practice materials are used to support
its review process. The output of management's annual review is
submitted to the Board which carries out its risk oversight review
in December.
The principal risks and uncertainties identified by the
management team and approved by the Board are listed below.
Principal risks and uncertainties
The following is a summary of the principal risks agreed by the
Board: global economic conditions and competitive pressure in the
marketplace; growth opportunities and product innovation may not
materialise; raw materials and supply chain; major regulatory
enforcement action, litigation and/or other claims arising from
products and/or historical and ongoing operations; UK pension fund;
regulation/technological advances; major event or catastrophe (eg
IT failure or operations incident); major disruption to global or
regional banking systems; and increasing scrutiny of corporate tax
affairs due to the current political and financial environment. A
full description of these risks and the mitigating actions taken by
the Company will appear in the 2014 Annual report and accounts.
Related party transactions
The Company is a guarantor to the UK pension scheme under which
it guarantees all current and future obligations of UK subsidiaries
currently participating in the pension scheme to make payments to
the scheme, up to a specified maximum amount. The maximum amount of
the guarantee is that which is needed (at the time the guarantee is
called on) to bring the scheme's funding level up to 105 per cent
of its liabilities, calculated in accordance with section 179 of
the Pensions Act 2004. This is also sometimes known as a Pension
Protection Fund ("PPF") guarantee, as having such a guarantee in
place reduces the annual PPF levy on the scheme.
Directors' responsibility statement
The following is an extract of the full statement prepared in
connection with the Company's Annual Report and Accounts
(comprising both consolidated and parent company financial
statements) for the year ended 31 December 2014. The full text of
the Directors' responsibility statement will appear in the 2014
Annual report and accounts.
The Directors of the Company confirm that to the best of their
knowledge:
-- The financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole.
-- The management report includes a fair review of the
development and performance of the business and the position of the
issuer and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face.
ENDS
This information is provided by RNS
The company news service from the London Stock Exchange
END
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