Interim Results

Tate & Lyle PLC Tate & Lyle PLC - 3 November 2005 ANNOUNCEMENT OF INTERIM RESULTS For the six months ended 30 September 2005 INTERIM RESULTS TO 30 SEPTEMBER (UNAUDITED) 2005 2004 --------------------------------------------------------------------------------------- Profit before tax, exceptional items and amortisation of patents(1) Â£136m Â£127m Profit before taxation Â£135m Â£83m Diluted earnings per share before exceptional items and amortisation of patents 19.5p 18.2p Diluted earnings per share 19.5p 12.5p Interim dividend per share 5.9p 5.7p (1) Before exceptional credit of Â£1 million (2004 - net exceptional charges of Â£42 million) and amortisation of patents of Â£2 million (2004 - Â£2 million) -- Profit before tax, exceptional items and amortisation of patents up 7% at Â£136 million -- SPLENDA(R)Sucralose sales growth of 19% -- Food & Industrial Ingredients Americas profit before interest, exceptional items and amortisation of patents up 20% -- Strong balance sheet and financial ratios -- Â£100 million expansion in US Loudon and Sagamore facilities announced -- Interim dividend increased by 3.5% (0.2p) to 5.9p per share 'We have delivered a good start to the financial year despite higher energy and transport costs across our businesses with Food & Industrial Ingredients Americas and SPLENDA(R)Sucralose continuing to make good progress. The Â£100 million expansion programme at our Loudon and Sagamore facilities in the USA is underway and on track. Both these investments will increase efficiency, the production of value added products, and will offer significant environmental benefits. Whilst higher energy and transport costs will continue to impact profitability in the second half of this financial year, we expect the results of the Group for the year as a whole to reflect satisfactory progress.' Sir David Lees Iain Ferguson CBE Chairman Chief Executive An interim statement for the six months ended 30 September 2005 will be posted to shareholders shortly, and will be obtainable from The Company Secretary, Tate & Lyle PLC, Sugar Quay, Lower Thames Street, London EC3R 6DQ. SPLENDA(R) is a trademark of McNeil Nutritionals, LLC Webcast and Conference Call A presentation of the results by Chief Executive, Iain Ferguson and Group Finance Director, Simon Gifford will be audio webcast live at 10.00am (GMT) today. To view the presentation slides and/or listen to a live audio webcast of the presentation, visit http://cm01.vavos.net/xl?preid=102050 or http://www.tateandlyle.com/TateAndLyle/ir_investor_relations/results/default.htm. Please note that remote listeners will not be able to ask questions during the Q&A session. A webcast replay of the presentation will be available for six months, at the links above. In addition a conference call for analysts and investors will be held today at 15.00 (GMT), 10.00am (Eastern). Dial In (US): 718-354-1172 Dial In (UK): +44(0)20 7365 1849 A replay is scheduled to run from 4 November to 11 November, 2005 Replay (US): 718-354-1112 Replay (UK): +44(0)20 7784 1024 Passcode: 3240227 STATEMENT OF INTERIM RESULTS Basis of preparation From 1 April 2005, Tate & Lyle PLC adopted International Financial Reporting Standards ('IFRS') having previously reported results under UK GAAP. These results are therefore prepared for the first time under IFRS. Further details are set out in Note 1. Comparatives figures refer to the six months to 30 September 2004 unless otherwise stated. The comparative figures have been restated on an IFRS basis. Overview Profit before tax, exceptional items and amortisation of patents for the six months to 30 September 2005 was 7% higher at Â£136 million (Â£127 million). A good first half in Food & Industrial Ingredients Americas and SPLENDA(R)Sucralose was partially offset by lower profit from Sugars Europe. Profit before tax was Â£135 million (Â£83 million) benefiting from the absence of last year's exceptional charge of Â£42 million which mainly related to the settlement of the US high fructose corn syrup civil class action suit. As anticipated, the financial year ending 31 March 2006 is proving to be a year of consolidation as we increase our investment in value added products to generate future profit growth. Our capital expenditure expansion projects are on schedule and within budget. Capital expenditure in the first half of Â£111 million was, as expected, nearly double depreciation of Â£63 million. The adoption of IFRS increased net debt of Â£451 million at 31 March 2005, as previously reported under UK GAAP, by Â£20 million due to the proportional consolidation of joint ventures. An additional increase of Â£58 million took place on 1 April 2005 following the adoption of IAS39. The cash outflow during the six month period to 30 September 2005 was Â£83 million, partly due to capital expenditure initiatives, leading to net debt at 30 September 2005 of Â£612 million. At 30 September 2005, the net debt to earnings before interest, tax, depreciation and total amortisation ('EBITDA') multiple was 1.4 times (1.3 times). Following our announcement on 23 June 2005 regarding the potential effect on our businesses of the proposed changes to the EU sugar regime, there has been no new information on, or clarification of, the proposals by the European Commission. Our vigorous efforts to achieve an equitable solution for our European Food & Industrial Ingredients and Sugar businesses continue. The EU Commission has stated that it expects to announce final proposals for the EU sugar regime towards the end of November 2005. When we have sufficient clarity over the final regime reform we will be in a position to begin the process of consulting with the workforce of the affected businesses and to finalise our plans to mitigate the actual impact on our various businesses. We will make a further announcement on developments following publication of the final proposals. The Board has declared an interim dividend of 5.9p per share, an increase of 0.2p (3.5%). This will be paid on 10 January 2006 to shareholders registered on 9 December 2005. Results for the six months to 30 September 2005 Sales were Â£1,868 million (Â£1,665 million). Exchange translation increased sales by Â£17 million. Profit before interest and exceptional items was Â£153 million (Â£140 million) before a Â£2 million (Â£2 million) charge for amortisation of patents. The net interest charge increased to Â£17 million (Â£13 million) due mainly to higher interest rates. Interest cover was 9.0 times (10.8 times). Profit before tax, exceptional items and amortisation of patents was Â£136 million (Â£127 million). Exchange translation increased profit before interest and profit before tax by Â£2 million. Profit before tax was Â£135 million (Â£83 million). The effective rate of tax on profit before exceptional items and amortisation of patents was 29.0% (year to 31 March 2005 28.4%). Diluted earnings per share before exceptional items and amortisation of patents were 19.5p (18.2p), and after exceptional items and amortisation of patents were 19.5p (12.5p). Operating profit before depreciation, exceptional items and total amortisation provided cash flow of Â£217 million (Â£204 million). Cash generated from operations was Â£166 million. Capital expenditure totalled Â£111 million (Â£63 million) and there was no investment expenditure in the period (Â£75 million). The cash outflow for the six months was Â£83 million leading to a net debt at 30 September 2005 of Â£612 million. Segmental Analysis of Profit before Interest, Exceptional Items and Amortisation of Patents Food & Industrial Ingredients, Americas Profits of Â£55 million were Â£9 million higher. Profitability from both value added food and industrial ingredients continued to grow with higher volumes and total gross margins. Volumes and total gross margins on commodity products have also increased. In the latter part of the period, sales of ethanol benefited from higher fuel prices and lower corn costs. The cost of corn less by-product revenues was lower. These benefits were partially offset by higher energy and transport costs which we will seek to recover in the 2006 calendar year sweetener pricing round. The improvement in citric acid continued with higher selling prices and volumes. The Aquasta(TM)astaxanthin plant made a small loss. Almex, our Mexican joint venture, made a small profit. Construction of the Bio-PDO(TM) plant in Loudon, Tennessee for our joint venture with DuPont is well underway and on schedule for completion in March 2006. The Xanthan semi-works facility in Decatur, Illinois has commenced industrial sales. Work has started on the expansion and efficiency project in Loudon and the Sagamore food ingredient expansion in Lafayette, Indiana, which together have a total project cost of Â£100 million. Food & Industrial Ingredients, Europe Profits of Â£28 million were Â£6 million higher with exchange translation accounting for Â£1 million of that improvement. Sales volumes were slightly higher, particularly from value added products and alcohol, the latter benefiting from the EU biofuel programme. These were partially offset by lower selling prices on commodity products following the competitive 2005 calendar year pricing round. Compared to the prior period, raw material prices were somewhat lower. Looking ahead, higher energy and transport costs will need to be recovered through increased selling prices if margins are to be maintained. Profits in the joint venture business in Central Europe were similar to the comparative period. In response to the oversupply in the European sugar market, the EU has declassified 1.9 million tonnes (approximately 11%) of quota reducing product for sale on domestic markets or for export restitution. This is intended to balance supply and demand in the total European sugar market. Isoglucose produced by Food & Industrial Ingredients Europe is one of the products covered by this order and, as a result, profitability will be impacted in the second half year. Sucralose Profits of Â£33 million from our SPLENDA(R)Sucralose business were Â£7 million higher than in the comparative period. Â£4 million of the increase was due to an IFRS stock adjustment in the comparative period. Market share increased in all three sectors (food, beverage and pharmaceutical). There have been a number of major US diet beverage product launches with SPLENDA(R)Sucralose in the period as well as flavoured waters. During the last eighteen months the 'Sweetened with SPLENDA(R)' brand logo has been approved for use on over 1,200 consumer products. Sales totalled Â£74 million (Â£62 million). Demand continued to outstrip production even though capacity was increased during the period as part of the first expansion project at the McIntosh, Alabama plant was brought on stream. The completion of this and the second expansion project at McIntosh, both due to be finished by April 2006, are on schedule and on budget, as is the building of a new plant in Singapore with a completion date of January 2007. Start-up costs were Â£2 million in the first half and are expected to total Â£7 million in the full year. We expect profit in the second half to be slightly ahead of the first half, benefiting from higher production as the first expansion project at McIntosh is gradually implemented during the second half. Sugars, Americas & Asia Profits of Â£13 million were Â£1 million below the comparative period. Exchange translation increased profit by Â£1 million. Profits at Tate & Lyle Canada were slightly lower with reduced volumes caused by US Sugar being attracted into Canada by higher world raw sugar prices and a favourable exchange rate. The mark to market gain on raw sugar stocks was Â£2 million (Â£2 million). Occidente, our Mexican joint venture, and Nghe An Tate & Lyle in Vietnam performed broadly in line with the comparative period. Sugars, Europe Profits of Â£24 million were Â£8 million lower with reduced earnings from EU Sugar refining operations being partially mitigated by improved profits from sugar trading and our joint venture East European sugar beet operations. The EU sugar refining businesses were impacted by a combination of oversupply in the market and an increase in export licence costs. The latter have subsequently reduced slightly. The declassification of quota detailed under Food & Industrial Ingredients Europe is intended to balance supply and demand and should also lead to an easing of pressure for export licences. Energy costs were higher. A fire at our Portuguese refinery resulted in a loss of raw sugar stock and a small loss in our reinsurance business. The sugar trading and molasses businesses reported strong performances. Our Eastern Sugar joint venture also improved profits in the first half although the full year performance is expected to be broadly in line with the prior year. Energy We continue to strive to reduce our energy costs through our efficiency programme, capital expenditure initiatives and taking forward cover where appropriate. However, whilst these have acted as mitigating factors, if prices remain at current levels energy costs are expected to be Â£30 million higher in the year ending March 2006 and result, as we stated in our September 2005 trading update, in a further Â£40 million costs in the year ending March 2007. We aim to recover this through product pricing. Retirement Benefits After a negative exchange translation impact of Â£11 million, the deficit for pension and healthcare liabilities under IAS19 during the last six months has increased by Â£3 million to Â£247 million at September 2005. Pension liabilities have decreased by Â£6 million whilst healthcare liabilities have increased by Â£9 million. Directors As previously announced, Dr. Barry Zoumas was appointed as a Non-Executive Director from 1 May 2005 and Allen Yurko retired from the Board on 28 July 2005. On 2 November 2005 we announced the appointment of Robert Walker as a Non-Executive Director with effect from 1 January 2006. His extensive international business experience will be of great benefit to the Board. Outlook We have delivered a good start to the financial year despite higher energy and transport costs across our businesses with Food & Industrial Ingredients Americas and SPLENDA(R)Sucralose continuing to make good progress. The Â£100 million expansion programme at our Loudon and Sagamore facilities in the USA is underway and on track. Both these investments will increase efficiency, the production of value added products, and will offer significant environmental benefits. Whilst higher energy and transport costs will continue to impact profitability in the second half of this financial year, we expect the results of the Group for the year as a whole to reflect satisfactory progress. Sir David Lees Iain Ferguson CBE Chairman Chief Executive INDEPENDENT REVIEW REPORT TO TATE & LYLE PLC Introduction We have been instructed by the Company to review the financial information for the six months ended 30 September 2005 on pages 7 to 20 which comprises the consolidated interim income statement, the consolidated interim balance sheet, the consolidated interim statement of recognised income and expense, the consolidated interim statement of changes in equity, the consolidated interim cashflow statement and the notes to the interim statement. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority. As disclosed in note 1, the next annual financial statements of the Group will be prepared in accordance with accounting standards adopted for use in the European Union. This interim report has been prepared in accordance with the basis set out in note 1. The accounting policies are consistent with those that the directors intend to use in the next annual financial statements. As explained in note 1, there is, however, a possibility that the directors may determine that some changes are necessary when preparing the full annual financial statements for the first time in accordance with accounting standards adopted for use in the European Union. The IFRS standards and IFRIC interpretations that will be applicable and adopted for use in the European Union at 31 March 2006 are not known with certainty at the time of preparing this interim financial information. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of Group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Listing Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 September 2005. PricewaterhouseCoopers LLP Chartered Accountants London 3 November 2005 TATE & LYLE PLC CONSOLIDATED INTERIM INCOME STATEMENT Six months Six months to to 30 Year to 31 30 September September March Notes 2005 2004 2005 Â£m Â£m Â£m unaudited(1) unaudited(2) unaudited(2) ------------------------------------------------------------------------------------------------------- Sales 3 1,868 1,665 3,339 ------------- ------------ ----------- Operating profit 3 152 96 229 Interest income 5 23 6 34 Finance expense 5 (40) (19) (58) ------------- ------------ ----------- Profit before tax 135 83 205 Income tax expense (39) (21) (55) ------------- ------------ ----------- Profit for the period 96 62 150 ============= ============ =========== Profit for the period attributable to: Equity holders of the Company 94 59 146 Minority interest 2 3 4 ------------- ------------ ----------- Profit for the period 96 62 150 ============= ============ =========== Earnings per share attributable to the equity pence pence pence holders of the Company - basic 6 19.8 12.5 31.0 ============= ============ =========== - diluted 6 19.5 12.5 30.6 ============= ============ =========== Proposed dividend per share 7 5.9 5.7 19.4 ============= ============ =========== All activities relate to continuing operations. (1) Reflects the adoption of IAS32 and IAS39. Refer to note 10. (2) Does not reflect the adoption of IAS32 and IAS39. Refer to note 10. Analysis of profit before tax Profit before tax 135 83 205 Exceptional items (1) 42 45 Amortisation of patents 2 2 4 ------------- ------------- ------------ Profit before tax, exceptional items and amortisation of patents 136 127 254 ============= ============= ============ CONSOLIDATED INTERIM BALANCE SHEET 30 September 30 September 1 April 31 March Notes 2005 2004 2005 2005 Â£m Â£m Â£m Â£m unaudited(1) unaudited(2) unaudited(1) unaudited(2) ------------------------------------------------------------------------------------------------------- ASSETS Non-current assets Property, plant and equipment 1,353 1,266 1,262 1,262 Intangible assets 193 210 194 194 Investments in associates 3 3 3 3 Available-for-sale financial assets 18 - 17 - Derivative financial instruments 8 32 - 33 - Loans and receivables 7 - 10 - Other non-current assets - 37 - 29 ------------- ------------ ------------ ---------------- 1,606 1,516 1,519 1,488 ------------- ------------ ------------ ---------------- Current assets Inventories 378 321 372 372 Trade and other receivables 501 418 449 418 Derivative financial instruments 8 34 - 35 - Cash and cash equivalents 8 290 130 375 384 Current asset investments 8 - 14 - 1 ------------- ------------ ------------ ---------------- 1,203 883 1,231 1,175 ------------- ------------ ------------ ---------------- TOTAL ASSETS 2,809 2,399 2,750 2,663 ============= ============ ============ ================ SHAREHOLDERS' EQUITY Capital and reserves attributable to the Company's equity holders: Share capital and capital reserves 489 465 481 483 Other reserves 167 124 132 124 Retained earnings 374 314 346 345 ------------- ------------ ------------ ---------------- 1,030 903 959 952 Minority Interest 31 30 29 29 ------------- ------------ ------------ ---------------- TOTAL SHAREHOLDERS' EQUITY 1,061 933 988 981 ------------- ------------ ------------ ---------------- LIABILITIES Non-current liabilities Trade and other payables 4 2 3 8 Borrowings 8 820 527 803 788 Derivative financial instruments 8 14 - 20 - Deferred income tax liabilities 40 35 33 29 Retirement benefit obligations 247 245 244 244 Provisions for other liabilities and charges 114 115 118 118 ------------- ------------ ------------ ---------------- 1,239 924 1,221 1,187 ------------- ------------ ------------ ---------------- Current liabilities Trade and other payables 377 358 369 404 Current income tax liabilities 9 27 23 23 Borrowings and overdrafts 8 107 157 134 68 Derivative financial instruments 8 16 - 15 - ------------- ------------ ------------ ---------------- 509 542 541 495 ------------- ------------ ------------ ---------------- TOTAL LIABILITIES 1,748 1,466 1,762 1,682 ------------- ------------ ------------ ---------------- TOTAL EQUITY AND LIABILITIES 2,809 2,399 2,750 2,663 ============= ============ ============ ================ (1) Reflects the adoption of IAS32 and IAS39. Refer to note 10. (2) Does not reflect the adoption of IAS32 and IAS39. Refer to note 10. CONSOLIDATED INTERIM STATEMENT OF RECOGNISED INCOME AND EXPENSE Six months Six months to to 30 Year to 31 30 September September March 2005 2004 2005 Â£m (1) Â£m (2) Â£m (2) unaudited unaudited unaudited -------------------------------------------------------------------------------------------------------- Exchange differences 49 22 1 Employee post-employment benefits: -- net actuarial losses in post-employment benefit plans (1) (7) (19) -- deferred taxation recognised directly in equity - 3 5 Cash flow hedges: -- net gains recognised directly in equity 6 - - -- deferred taxation recognised directly in equity (2) - - Net investment hedges (18) - - ------------- ------------ --------------- Net profit/(loss) recognised directly in equity 34 18 (13) Profit for the period 96 62 150 ------------- ------------ --------------- Total recognised income and expense for the period 130 80 137 ============= ============ =============== (1) Reflects the adoption of IAS32 and IAS39. Refer to note 10. (2) Does not reflect the adoption of IAS32 and IAS39. Refer to note 10. CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY Six months Six months to to 30 Year to 31 30 September September March 2005 2004 2005 Â£m Â£m Â£m unaudited(1) unaudited(2) unaudited(2) ----------------------------------------------------------------------------------------------------- Balance at beginning of period 981 921 921 Impact of IAS 32/39 adoption (note 10) 7 - - ------------- ------------ --------------- Balance at beginning of period, restated 988 921 921 Net profit/(loss) recognised directly in equity 34 18 (13) Profit for the period (3) 96 62 150 Employee share option schemes: - value of employee services 3 2 4 - deferred taxation recognised directly in equity 1 1 2 Dividends (65) (62) (90) Ordinary shares issued 4 - 15 Ordinary shares acquired - (7) (7) Deferred taxation on unremitted earnings - (2) (1) ------------- ------------ --------------- Balance at end of period 1,061 933 981 ============= ============ =============== (1) Reflects the adoption of IAS32 and IAS39. Refer to note 10. (2) Does not reflect the adoption of IAS32 and IAS39. Refer to note 10. (3) Includes Â£2 million attributable to minority interests (six months to 30 September 2004: Â£3 million; year to 31 March 2005: Â£4 million). CONSOLIDATED INTERIM CASHFLOW STATEMENT Six months Six months to to 30 Year to 31 30 September September March Notes 2005 2004 2005 Â£m Â£m Â£m unaudited(1) unaudited(2) unaudited(2) -------------------------------------------------------------------------------------------------------- Cash flows from operating activities Profit before tax for the period 135 83 205 Adjustments for: Depreciation and impairment losses 63 64 127 Amortisation (including patents) 3 2 5 Cost of employee share schemes 2 2 4 (Profit)/loss on disposal of property, plant and equipment (1) 2 6 Profit on sale of other non-current assets - (16) (16) Interest income 5 (23) (6) (34) Interest expense 5 40 19 58 Changes in working capital (53) (40) (38) ------------- ----------- ----------------- Cash generated from operations 166 110 317 Interest paid (22) (12) (42) Income tax paid (52) (42) (84) ------------- ----------- ----------------- Net cash generated from operating activities 92 56 191 ------------- ----------- ----------------- Cash flows from investing activities Proceeds on disposal of property, plant and equipment 1 3 4 Proceeds on disposal of non-current assets - 22 21 Proceeds on disposal of current asset - investments - - 13 Interest received 12 1 21 Acquisitions of subsidiaries, net of cash acquired 3 (74) (73) Purchase of property, plant and equipment (111) (63) (141) Purchase of other non-current assets - (1) (1) ------------- ----------- ----------------- Net cash used in investing activities (95) (112) (156) ------------- ----------- ----------------- Cash flows from financing activities Proceeds from issuance of ordinary shares 4 1 11 (Repayments)/proceeds from borrowings (30) 91 258 Cash paid to acquire own shares - (6) (1) Dividends paid to minority shareholders of subsidiaries - - (1) Dividends paid to the Company's equity holders (65) (62) (89) Cash settlement of debt-related derivative instruments (7) - - ------------- ----------- ----------------- Net cash (used in)/from financing activities (98) 24 178 ------------- ----------- ----------------- Net (decrease)/increase in cash and cash equivalents 8 (101) (32) 213 ============= =========== ================= Cash and cash equivalents: Balance at beginning of period 384 157 157 Impact of IAS32/39 adoption (note 10) (9) - - ------------- ----------- ----------------- Balance at beginning of period, restated 375 157 157 Effect of changes in foreign exchange rates 16 5 14 Net (decrease)/increase in cash and cash equivalents (101) (32) 213 ------------- ----------- ----------------- Balance at end of period 290 130 384 ============= =========== ================= (1) Reflects the adoption of IAS32 and IAS39. Refer to note 10. (2) Does not reflect the adoption of IAS32 and IAS39. Refer to note 10. NOTES TO INTERIM STATEMENT (UNAUDITED) For the six months to 30 September 2005 1. Presentation of interim financial statements General information The principal activities of Tate & Lyle PLC (the Company), its subsidiaries and joint ventures (together the Group) and its associates are the development, manufacture and marketing of food and industrial ingredients that have been made from renewable resources. The Group operates through 41 manufacturing plants and 20 additional production facilities in 28 countries, and in numerous partnerships and joint ventures, located predominantly in Europe, the Americas and in South East Asia. The Company is a public limited company incorporated and domiciled in the United Kingdom. The address of its registered office is Sugar Quay, Lower Thames Street, London EC3R 6DQ. The Company has its primary listing on the London Stock Exchange. Basis of presentation As previously reported, the Group will be presenting its financial statements prepared on the basis of International Financial Reporting Standards ('IFRS') and of Interpretations ('IFRIC') for the first time for the year to 31 March 2006. These condensed consolidated interim financial statements, which are unaudited (hereafter 'interim financial statements'), have been prepared in accordance with the listing rules of the UK Financial Services Authority and using the accounting policies referred to below, which are expected to be in place for use by EU-listed companies at 31 March 2006. The Group has adopted the following amendments to IFRS earlier than required: - December 2004 amendment to IAS19 Employee Benefits permitting the recognition of actuarial gains and losses directly in equity (from 1 April 2004); - April 2005 amendment to IAS39 Financial Instruments: Recognition and Measurement concerning cash flow hedges of forecast intra-group transactions (from 1 April 2005); and - June 2005 amendment to IAS39 concerning the fair value option (from 1 April 2005). Those IFRS and IFRIC applied in the preparation of these interim financial statements are subject to ongoing review and endorsement by the European Commission and are, therefore, still subject to potential change. These consolidated interim financial statements have been prepared under the historical cost convention, except in respect of certain financial instruments. The consolidated financial statements of the Group for periods up to and including 31 March 2005 had been prepared in accordance with the Companies Act 1985 and United Kingdom Accounting Standards ('UK GAAP'). UK GAAP differs in certain respects from IFRS. When preparing the Group's consolidated financial statements, management has amended certain accounting, valuation and consolidation methods applied in the UK GAAP financial statements to comply with IFRS. To explain how the Group's reported financial performance and position are affected by these changes, an appendix to the Group's most recent Annual Report for the year to 31 March 2005 set out restatements to IFRS of key audited financial information under UK GAAP, together with explanations of the principal differences between UK GAAP and IFRS and the accounting policies which are used under IFRS. A copy of that Annual Report may be obtained from the Company or via the Group's web site: www.tateandlyle.com. The comparative information in these consolidated interim financial statements is as previously reported with the exception of a revision relating to goodwill and deferred taxation which results in a reduction in net assets and profit for the year to 31 March 2005 of Â£4 million (six months to 30 September 2004 - Â£2 million). In addition a Â£2 million credit has been reclassified from retained earnings to other reserves relating to accumulated translation differences. With the exception of the adoption on 1 April 2005 of IAS32 Financial Instruments: Disclosure and Presentation and IAS39 Financial Instruments: Recognition and Measurement, the consolidated comparative information in respect of the year to 31 March 2005 and the six months to 30 September 2004 has also been restated to reflect these adjustments. The effects of the adoption of IAS32 and IAS39 on the Group's equity as at 1 April 2005 are described in note 10. At the same date the Group adopted IFRS4 Insurance Contracts, which did not result in a material change in the Group's accounting policies. These consolidated interim financial statements are presented in pounds sterling which is the Group's presentation currency. Statutory financial statements The financial information presented here does not represent statutory accounts as defined in the Companies Act 1985. The Group's statutory financial statements for the year to 31 March 2005 were prepared under UK GAAP and filed with the Registrar of Companies. The auditors, PricewaterhouseCoopers LLP, reported on those accounts and their report was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. 2. Accounting policies These consolidated interim financial statements have been prepared on a basis consistent with the IFRS accounting policies described in the appendix to the Group's most recent Annual Report for the year to 31 March 2005, with the exception of the Group's definition of exceptional items and the accounting policies applied to certain financial instruments from 1 April 2005, which are set out below. Exceptional items Exceptional items comprise items of income and expense that are material in amount and unlikely to recur and which merit separate disclosure in order to provide a better understanding of the Group's financial performance. Examples of events giving rise to the disclosure of material items of income and expense as exceptional items include, but are not limited to, impairment events, disposals of operations or individual assets, litigation claims by or against the Group and the restructuring of components of the Group's operations. Available-for-sale financial assets Equity instruments held by the Group that are designated as available-for-sale are carried at fair value, with movements in fair value recognised directly in equity. Loans and receivables Non-current receivables and loans granted are carried at amortised cost less provisions for impairments. Movements in carrying value are recognised in profit or loss. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Commodity trading instruments Commodity instruments acquired for trading purposes are carried at fair value. Movements in fair value are recognised in profit or loss. Commodity and treasury hedging instruments Under IAS39, hedging relationships are categorised by type and must meet strict criteria to qualify for hedge accounting. (a) Cash flow hedges Hedges of firm commitments and highly probable forecast transactions, including forecast intra-group transactions that are expected to affect consolidated profit or loss, are designated as cash flow hedges. To the extent that movements in the fair values of these instruments effectively offset the underlying risk being hedged they are recognised in the hedging reserve in equity until the period during which the hedged forecast transaction affects profit or loss, at which point the cumulative gain or loss is recognised in profit or loss by offset against the hedged transaction. (b) Fair value hedges Hedges against the movement in fair value of recognised assets and liabilities are designated as fair value hedges. To the extent that movements in the fair values of these instruments effectively offset the underlying risk being hedged they are recognised in the income statement by offset against the hedged transaction. (c) Hedges of net investments Hedges of a net investment in a foreign operation are designated as hedges of net investments. To the extent that movements in the fair values of these instruments effectively offset the underlying risk being hedged they are recognised in the translation reserve until the period during which a foreign operation is disposed of or partially disposed of, at which point the cumulative gain or loss is recognised in profit or loss, offsetting the cumulative difference recognised on the translation of the net investment. Hedge accounting is discontinued when the hedging instrument no longer qualifies for hedge accounting. In the case of cash flow hedging relationships, the cumulative movement in the fair value of the hedging instrument previously recognised in equity is retained there until the forecast transaction affects profit or loss, unless the hedged transaction is no longer expected to occur, in which case the cumulative movement in fair value is transferred to profit or loss immediately. Movements in the fair value of hedging instruments where the instrument failed to meet the IAS39 hedge accounting criteria or where the movement represents the ineffective portion of a qualifying hedging relationship are recognised in profit or loss immediately as other income and expense or net finance cost, as appropriate. Embedded derivatives Where an embedded derivative is not closely related to the host contract and where the host contract itself is not already recognised at fair value, the fair value of the embedded derivative is separately recognised. Movements in the fair value of the embedded derivative, except where the embedded derivative is designated as a cash flow hedging instrument, are recognised in profit or loss. NOTES TO INTERIM STATEMENT (UNAUDITED) For the six months to 30 September 2005 (continued) 3. Segment information A business segment is a group of operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. On 2 June 2005 the Group announced a realignment of the basis on which divisional performance is reported to reflect its evolving strategy. These divisions are the basis on which the Group reports its primary segment information, as set out below. The segment results for the six months to September 2005 were as follows: Food & Food & Industrial Industrial Sugars, Ingredients, Ingredients, Americas Sugars, Americas Europe Sucralose & Asia Europe Group Â£m Â£m Â£m Â£m Â£m Â£m ------------------------------------------------------------------------------------------------- Sales Total sales 550 394 74 129 785 1,932 Inter-segment sales (3) - - - (61) (64) ------------ ------------ ---------- ----------- ----------- ----------- External sales 547 394 74 129 724 1,868 ============ ============ ---------- =========== =========== =========== Operating profit Before exceptional items and amortisation of patents (note 4) 55 28 33 13 24 153 Exceptional items - - - - 1 1 Amortisation of patents - - (2) - - (2) ------------ ------------ ---------- ----------- ----------- ----------- Operating profit 55 28 31 13 25 152 ============ ============ ========== =========== =========== Net finance costs (17) ----------- Profit before tax 135 =========== The segment results for the six months to September 2004 were as follows: Food & Food & Industrial Industrial Sugars, Ingredients, Ingredients, Americas Sugars, Americas Europe Sucralose & Asia Europe Group Â£m Â£m Â£m Â£m Â£m Â£m ------------------------------------------------------------------------------------------------- Sales Total sales 541 387 62 120 598 1,708 Inter-segment sales (2) - - - (41) (43) ------------ ------------ ----------- ----------- ----------- ---------- External sales 539 387 62 120 557 1,665 ============ ============ =========== =========== =========== ========== Operating profit Before exceptional items and amortisation of patents (note 4) 46 22 26 14 32 140 Exceptional items (57) - - 16 (1) (42) Amortisation of patents - - (2) - - (2) ------------ ------------ ----------- ----------- ----------- ---------- Operating profit (11) 22 24 30 31 96 ============ ============ =========== =========== =========== Net finance costs (13) ---------- Profit before tax 83 ========== The segment results for the year to 31 March 2005 were as follows: Food & Food & Industrial Industrial Sugars, Ingredients, Ingredients, Americas Sugars, Americas Europe Sucralose & Asia Europe Group Â£m Â£m Â£m Â£m Â£m Â£m --------------------------------------------------------------------------------------------------- Sales Total sales 1,039 761 115 237 1,257 3,409 Inter-segment sales (2) - - - (68) (70) ------------ ------------ ----------- ----------- ----------- ---------- External sales 1,037 761 115 237 1,189 3,339 ============ ============ =========== =========== =========== ========== Operating profit Before exceptional items and amortisation of patents (note 4) 96 44 46 20 72 278 Exceptional items (55) (4) - 16 (2) (45) Amortisation of patents - - (4) - - (4) ------------ ------------ ----------- ----------- ----------- ---------- Operating profit 41 40 42 36 70 229 ============ ============ =========== =========== =========== Net finance costs (24) ---------- Profit before tax 205 ========== The EU Commission has stated that it expects to announce final proposals for the EU Sugar Regime towards the end of November 2005. Our principal areas for concern are set out in pages 8 and 9 of the Chief Executive's Review in the Group's most recent Annual Report for the year to 31 March 2005, and in an announcement to the London Stock Exchange dated 23 June 2005. The uncertainty surrounding these proposals does not allow us to quantify the nature, scale and timing of the financial and accounting consequences at this stage. 4. Operating profit Operating profit for the period is stated after the following (charges)/credits: Six months to Six months to Year to 31 30 September 30 September March 2005 2004 2005 Â£m Â£m Â£m -------------------------------------------------------------------------------------------------- Exceptional items 1 (42) (45) Amortisation of patents (2) (2) (4) -------------- --------------- --------------- (1) (44) (49) ============== =============== =============== The patents were acquired as part of the Sucralose realignment in 2004. Exceptional items are as follows: Six months to 30 Six months to 30 Year to 31 September September March 2005 2004 2005 Â£m Â£m Â£m --------------------------------------------------------------------------------------------------------- Loss related to settlement of litigation claims (i) - (56) (55) Gains on disposal of operations and assets (ii) 1 14 10 ------------------- ----------------- -------------- 1 (42) (45) ------------------- ----------------- -------------- i) Litigation claims in the prior year represent costs relating to the settlement of the High Fructose Corn Syrup class action lawsuit in the United States. ii) Gains on disposal of operations and assets comprise a Â£1 million gain on the sale of fixed assets. The comparative period comprises a credit of Â£16 million, following settlement of the balance due on the loan note issued by the purchaser of Western Sugar, offset by other net losses on disposal of operations and assets of Â£2 million. In the year to 31 March 2005, additional net losses on disposal of operations and assets of Â£4 million were charged. 5. Net interest and finance expense Six months to Six months to Year to 31 30 September 30 September March 2005 2004 2005 Â£m Â£m Â£m -------------------------------------------------------------------------------------------------- Interest income 23 6 34 -------------- ------------- ------------ Interest expense (37) (17) (55) Net finance charge relating to retirement and post- employment benefit schemes (2) (2) (3) Fair value loss on interest-related derivative instruments (1) - - -------------- ------------- ------------ Finance expense (40) (19) (58) -------------- ------------- ------------ Net interest and finance expense (17) (13) (24) ============== ============= ============ 6. Earnings per share Basic Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Parent Company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the Company and held as treasury shares. Six months to Six months to Year to 31 30 September 30 September March 2005 2004 2005 -------------------------------------------------------------------------------------------------------- Profit attributable to equity holders of the Company (Â£million) 94 59 146 ============= ============== ============ Weighted average number of ordinary shares in issue (millions) 475.6 470.6 471.7 ============= ============== ============ Basic earnings per share (pence per share) 19.8p 12.5p 31.0p ============= ============== ============ Diluted Diluted earnings per share is calculated adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. Dilutive potential ordinary shares arise from share options. For these, a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options. Six months to Six months to Year to 31 30 September 30 September March 2005 2004 2005 -------------------------------------------------------------------------------------------------- Profit attributable to equity holders of the Company (Â£million) 94 59 146 ============== ============= ============ Weighted average number of ordinary shares in issue (millions) 475.6 470.6 471.7 Adjustments for dilutive effect of share options (millions) 6.7 2.1 4.8 -------------- ------------- ------------ Weighted average number of ordinary shares for diluted earnings per share (millions) 482.3 472.7 476.5 ============== ============= ============ Diluted earnings per share (pence per share) 19.5p 12.5p 30.6p ============== ============= ============ Adjusted earnings per share Adjusted earnings per share is stated excluding exceptional items and amortisation of patents (see note 4), as follows: Six months to Six months to Year to 31 30 September 30 September March 2005 2004 2005 Â£m Â£m Â£m -------------------------------------------------------------------------------------------------- Profit attributable to equity holders of the Company 94 59 146 Adjustments for: - exceptional items (note 4) (1) 42 45 - amortisation of patents (note 4) 2 2 4 - tax effect on the above adjustments (1) (17) (17) ------------- -------------- ------------ Adjusted profit 94 86 178 ============= ============== ============ Adjusted diluted earnings per share (pence per share) 19.5p 18.2p 37.4p ============= ============== ============ 7. Dividends The directors have declared an interim dividend of Â£28 million out of the profit for the six months to 30 September 2005 (30 September 2004: Â£27 million), representing 5.9p per share (30 September 2004: 5.7p), payable on 10 January 2006. The final dividend for the year to 31 March 2005 of Â£65 million, representing 13.7p per share, was paid during the six months to 30 September 2005. 8. Net debt The adoption of IFRS - and of IAS32 and IAS39 in particular - has altered the Group's net debt profile based on the definitions previously reported under UK GAAP. Following adoption of IFRS, cash and cash equivalents, bank overdrafts and borrowings now reflect the effects of various balance sheet reclassifications as well as the inclusion of the Group's share of joint ventures' net debt. Furthermore, derivative instruments used to manage the currency and interest rate risk of the Group's net debt profile which were presented as part of cash and cash equivalents, bank overdrafts and borrowings are now presented within the classifications derivative financial assets and derivative financial liabilities. The components of the Group's net debt profile are as follows: 30 September 30 September 1 April 31 March 2005 2004 2005 2005 Â£m (1) Â£m (2) Â£m (1) Â£m (2) --------------------------------------------------------------------------------------------------------- Non-current borrowings (820) (527) (803) (788) Borrowings and overdrafts (3) (107) (157) (134) (68) Current asset investments - 14 - 1 Cash and cash equivalents 290 130 375 384 Debt-related derivative instruments (4) 25 - 33 - -------------- ------------- --------- ------------- Net debt (612) (540) (529) (471) ============== ============= ========= ============= Movements in the Group's net debt profile are as follows: Six months to Six months to Year to 31 30 September 30 September March 2005 2004 2005 Â£m (1) Â£m (2) Â£m (2) ----------------------------------------------------------------------------------------------------------- Balance at the beginning of period (471) (420) (420) Impact of IAS32/39 adoption (note 10) (58) - - -------------- ------------- ------------------ Balance at beginning of period, restated (529) (420) (420) (Decrease)/Increase in cash and cash equivalents in the period (101) (32) 213 Repayments/(proceeds) of borrowings 30 (91) (258) Cash inflow from movement in current asset investments - - (13) Exchange differences (12) 3 7 -------------- ------------- ------------------ Increase in net debt in the period (83) (120) (51) -------------- ------------- ------------------ Balance at end of period (612) (540) (471) ============== ============= ================== (1) Reflects the adoption of IAS32 and IAS39. (2) Does not reflect the adoption of IAS32 and IAS39. (3) Borrowings and overdrafts at 30 September 2005 include Â£45 million (1 April 2005 - Â£45 million; 31 March 2005 and 30 September 2004 - not applicable) in respect of securitised receivables. (4) Derivative financial instruments presented within assets and liabilities in the balance sheet of Â£36 million net (1 April 2005 - Â£33 million net) comprise net debt-related instruments of Â£25 million net (1 April - Â£33 million net) and non debt-related instruments of Â£11 million net (1 April 2005 - Â£nil net). 9. Foreign exchange rates Six months to Six months to Year to 30 September 30 September 31 March Average exchange rates 2005 2004 2005 -------------------------------------------------------------------------------------------- US Dollar Â£1 = $ 1.82 1.81 1.85 Euro Â£1 = â‚¬ 1.47 1.49 1.47 Canadian Dollar Â£1 = C$ 2.23 2.42 2.36 30 September 30 September 31 March Period end exchange rates 2005 2004 2005 -------------------------------------------------------------------------------------------- US Dollar Â£1 = $ 1.77 1.80 1.88 Euro Â£1 = â‚¬ 1.47 1.46 1.45 Canadian Dollar Â£1 = C$ 2.06 2.29 2.28 10. Adoption of IAS32 and IAS39 The Group adopted IAS32 Financial Instruments: Presentation and Disclosure and IAS39 Financial Instruments: Recognition and Measurement from 1 April 2005. The restated unaudited consolidated balance sheet below shows the effects of adopting IAS32 and IAS39 on the Group's net equity as at 1 April 2005, previously reported under IFRS 1 in the Group's last Annual Report for the year to 31 March 2005. A summary of the significant adjustments is set out in the following paragraphs. (i) Under UK GAAP the Group reported other non-current assets and current asset investments of Â£29 million and Â£1 million respectively. These comprised: equity investments, now reclassified as available-for-sale financial assets; and loans and non-current receivables, now reclassified as loans and receivables. - Available-for-sale financial assets are made up of other non-current assets previously carried at Â£15 million and current asset investments of Â£1 million. A fair value adjustment resulted in an increase of Â£1 million, which also increases other reserves by the same amount. - Loans and receivables are made up of other non-current assets carried at Â£10 million. In addition to the reclassifications described above, a further Â£4 million previously reported as other non-current assets has been reclassified as derivative financial instruments. (ii) Certain of the Group's derivative financial instruments were not carried at fair value under UK GAAP. IFRS also requires separate presentation of derivative financial instruments on the balance sheet. Reclassifications from other financial assets and liabilities and accrued interest balances have been made, along with re-measurement adjustments, as reflected in the restated consolidated balance sheet. (iii) The Group's Food and Industrial Ingredients Europe business operates a securitisation programme under which it receives cash from selling trade receivables. Under UK GAAP, the amounts received under this facility of Â£45 million were linked in presentation to the original amounts receivable. Under IAS39, the amounts received are shown as borrowings. Trade and other receivables are reduced for reclassification of derivative financial instruments of Â£14 million. (iv) Cash and cash equivalents have been adjusted for the reclassification of currency swap contracts of Â£9m. (v) Cumulative preference shares of Â£2 million have been reclassified as non-current borrowings. (vi) Other reserves are adjusted by Â£1 million for unrealised fair value adjustments arising on available-for-sale financial assets (as explained in note (i)); a further reserve for deferred net gains on cash flow hedges of Â£11 million has been recorded in other reserves, net of attributable deferred taxation of Â£4 million. (vii) Non-current and current trade and other payables are adjusted for reclassification of derivative financial instruments of Â£5 million and Â£35 million respectively, including Â£11 million relating to commodity trading contracts, as explained in note (ii). (viii) Non-current borrowings are adjusted for reclassification of derivative financial instruments of Â£13 million, as explained in note (ii), and for cumulative preference shares of Â£2 million, as explained in note (v). (ix) Current borrowings are adjusted for reclassification of derivative financial instruments of Â£21 million (including Â£11 million relating to reclassified interest accruals), as explained in note (ii), and for securitised receivables of Â£45 million, as explained in note (iii). (x) Retained earnings are increased by Â£1 million net as a result of re-measurement differences arising on financial instruments at 1 April 2005. (xi) The impact of adopting IAS32 and IAS39 on the Group's net debt profile is summarised as follows: Increase in net debt Â£m -------------------------------------------------------------------------------------------------- Securitised receivables (note iii) 45 Reclassified preference shares (note v) 2 Reclassified interest accruals (note ix) 11 -------- 58 -------- Reconciliation of consolidated equity as at 1 April 2005 for the effects of adopting IAS32 and IAS39 The effect on the Group's balance sheet of adopting IFRS at 31 March 2005 was shown in the Appendix to the Group's most recent annual report for the year to 31 March 2005. The effect on the equity of the Group at 31 March 2005 of the subsequent changes to its accounting policies as a result of adopting IAS32 and IAS39 was as follows: At 31 March Effects of IAS At 1 April Notes 2005 32/39 adoption 2005 Â£m Â£m Â£m unaudited unaudited unaudited ------------------------------------------------------------------------------------------------- ASSETS Non-current assets Property, plant and equipment 1,262 - 1,262 Intangible assets 194 - 194 Investments in associates 3 - 3 Available-for-sale financial assets (i) - 17 17 Derivative financial instruments (ii) - 33 33 Loans and receivables (i) - 10 10 Other non-current assets (i) 29 (29) - ------------ --------------- ------------- 1,488 31 1,519 ------------ --------------- ------------- Current assets Inventories 372 - 372 Trade and other receivables (iii) 418 31 449 Derivative financial instruments (ii) - 35 35 Cash and cash equivalents (iv) 384 (9) 375 Current asset investments (i) 1 (1) - ------------ --------------- ------------- 1,175 56 1,231 ------------ --------------- ------------- TOTAL ASSETS 2,663 87 2,750 ============ =============== ============= SHAREHOLDERS' EQUITY Capital and reserves attributable to the Company's equity holders: Share capital and capital reserves (v) 483 (2) 481 Other reserves (vi) 124 8 132 Retained earnings (x) 345 1 346 ------------ --------------- ------------- 952 7 959 Minority interest 29 - 29 ------------ --------------- ------------- TOTAL SHAREHOLDERS' EQUITY 981 7 988 ------------ --------------- ------------- LIABILITIES Non-current liabilities Trade and other payables (vii) 8 (5) 3 Borrowings (viii) 788 15 803 Derivative financial instruments (ii) - 20 20 Deferred income tax liabilities (vi) 29 4 33 Retirement benefit obligations 244 - 244 Provisions for other liabilities and charges 118 - 118 ------------ --------------- ------------- 1,187 34 1,221 ------------ --------------- ------------- Current liabilities Trade and other payables (vii) 404 (35) 369 Current income tax liabilities 23 - 23 Borrowings and overdrafts (ix) 68 66 134 Derivative financial instruments (ii) - 15 15 ------------ --------------- ------------- 495 46 541 ------------ --------------- ------------- TOTAL LIABILITIES 1,682 80 1,762 ------------ --------------- ------------- TOTAL EQUITY AND LIABILITIES 2,663 87 2,750 ============ =============== ============= 11. Net margin analysis Six months to Six months to Year to 30 September 2005 30 September 2004 31 March 2005 % % % ------------------------------------------------------------------------------------------------------- Before exceptional items and amortisation of patents ----------------------------------------------------- Food & Industrial Ingredients, Americas 10.1 8.5 9.3 Food & Industrial Ingredients, Europe 7.1 5.7 5.8 Sucralose 44.6 41.9 40.0 Sugars, Americas & Asia 10.1 11.7 8.4 Sugars, Europe 3.3 5.7 6.1 Group 8.2 8.4 8.3 After exceptional items and amortisation of patents ----------------------------------------------------- Food & Industrial Ingredients, Americas 10.1 (2.0) 4.0 Food & Industrial Ingredients, Europe 7.1 5.7 5.3 Sucralose 41.9 38.7 36.5 Sugars, Americas & Asia 10.1 25.0 15.2 Sugars, Europe 3.5 5.6 5.9 Group 8.1 5.8 6.9 12. Ratio analysis Six months to Six months to Year to 30 September 30 September 31 March 2005 2004 2005 restated restated -------------------------------------------- ----------------------------------------------- Net debt to EBITDA = Net debt 612 540 471 ----------------------------------- --- --- --- Annualised pre-exceptional EBITDA (2 x 217) (2 x 204) 406 = 1.4 times = 1.3 times = 1.2 times Gearing = Net debt 612 540 471 --------------------- --- --- --- Total net assets 1,061 933 981 = 58% = 58% = 48% Interest cover = Operating profit before amortisation of patents and exceptional items 153 140 278 -------------------------------------------- --- --- --- Net interest and finance expense 17 13 24 = 9.0 times = 10.8 times = 11.6 times Return on Net Operating Assets = Annualised profit before interest, tax and exceptional items (2 x 151) (2 x 138) 274 -------------------------------------------- ---------- --------- --- Average net operating assets 1,637 1,475 1,458 18.4% = 18.7% =18.8% Net operating assets are calculated as: Total net assets 1,061 933 981 Add back net borrowings (see note 8) 612 540 471 Add back tax liabilities 37 56 43 --------------- --------------- ------------- Net operating assets 1,710 1,529 1,495 --------------- --------------- ------------- Average net operating assets (i) 1,637 1,475 1,458 =============== =============== ============= (i) Average Net Operating Assets for the period to 30 September 2004 and 31 March 2005 have been calculated prior to the adoption of IAS39. Average Net Operating Assets for the period to 30 September 2005 have been calculated using opening net assets at 1 April 2005 which, following the adoption of IAS39, are Â£69 million higher than at 31 March 2005.

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