Final Results
Croda International PLC
22 February 2006
Wednesday, 22 February 2006
Croda International Plc
Preliminary Results Announcement
Year to 31 December 2005
Highlights
Croda reports record results for 2005
2005 2004
Sales for continuing operations £305.6m £280.9m + 8.8%
Pre-tax profit for continuing operations £49.2m £43.1m + 14.2%
Earnings per share - continuing operations 24.7p 21.2p + 16.5%
Earnings per share - basic 25.6p 23.3p + 9.9%
Dividend per share 13.35p 12.5p + 6.8%
• Record pre-tax profit of £49.2m, up over 14%
• Sales for continuing operations up by almost 9%
• Consumer Care operating margin in excess of 21%
• Final dividend increased by over 7% to 9p per share
• Ongoing demand good and product pipeline strong
Commenting on the results, Chairman, Martin Flower, said:
'This has been an excellent year for the Group and continues to vindicate the
strategy we are following. Overall pre-tax profits on continuing operations
were up over 14% at £49.2m on sales almost 9% ahead at £305.6m. The early signs
are that the firm demand witnessed in 2005 has continued into the New Year and
we remain confident of delivering further profitable growth in 2006.'
For further information, please contact:
Mike Humphrey, Chief Executive Tel: 01405 860551
Barbara Richmond, Group Finance Director Tel: 01405 860551
Charlie Watenphul or Andrew Dowler, Financial Dynamics Tel: 0207 831 3113
Or visit our web site at: www.croda.com where the presentation to analysts will
be available by midday today.
Chairman's Statement 2005
In my first statement as Chairman, I am pleased to be able to report on such an
excellent set of full-year results, our first to be prepared under International
Financial Reporting Standards. Overall pre-tax pre-exceptional profits for 2005
were £51.1 million (2004 £45.8 million) and on continuing operations were up
over 14 per cent at £49.2 million, compared with £43.1 million the previous
year, on sales almost 9 per cent ahead at £305.6 million (2004 £280.9 million).
Following the significant adverse impact of currency movements on our 2004
results, there was little effect in 2005 as the average rate for our main
trading currencies, the US Dollar and the Euro, moved less than 1 per cent in
our favour.
Whilst the mix of our profits resulted in a small increase in our tax rate to
35.8 per cent (2004 35.3 per cent), earnings per share for continuing operations
were still up 16.5 per cent at 24.7 pence compared to last year's 21.2 pence.
Basic earnings per share were 25.6 pence (2004 23.3 pence). Therefore, your
Board is recommending a 7.1 per cent increase in the final dividend to 9 pence,
giving a 6.8 per cent increase for the year to a total of 13.35 pence. The
dividend is covered 1.9 times at this level. Although we spent a net £21.8
million on buying back shares, net debt at the year-end increased by only £9
million, to £24.2 million, as the Group continued its recent record of strong
cash generation.
The Group's chosen strategy of focusing on its core competencies underpins this
year's performance, which built on the progress achieved in 2004. The process
continued in 2005 as we announced the disposal and closure of our small metal
treatments division and commenced the process of selling the shares in our
associate company Baxenden Chemicals Limited. Both businesses are treated as
discontinued operations in these results. All of our growth in 2005 was organic.
However, we continue to evaluate acquisition opportunities in our core
business areas.
The year saw a number of exciting developments coming forward from our recently
established Enterprise Technologies group, the benefits from which we will begin
to see in 2006. Elsewhere we continued to launch many new and improved products
in response to customer and market needs.
Growth was seen in all of the market and geographic segments that we report in
our financial statements. Consumer Care sales grew by over 10 per cent to leave
operating margins in excess of 21 per cent, with Industrial Specialities seeing
a lower but still impressive sales advance approaching 6 per cent. Our sales
growth in the Americas was particularly strong at over 14 per cent. On the face
of it our growth in Asia was a little disappointing at just under 5 per cent.
However, lower sales in Japan masked growth of over 20 per cent and 40 per cent
respectively in our fledgling markets of China and India. We are in the process
of establishing a wholly owned sales company in China to enhance our existing
position in this dynamic market.
On the cost side, we saw our energy costs rise sharply towards the end of the
year, particularly in the UK, where energy costs are unjustifiably higher than
those of our neighbours in Continental Europe.
We would like to thank all our employees for their efforts over the last year.
We were particularly pleased that so many of our employees were able to benefit
from the Company's recent impressive share price performance at the five-year
maturity date of their investments in our all-employee share schemes.
The Board
I should also like to take this opportunity to thank my predecessor as Chairman,
Antony Beevor, for his service to Croda. Antony joined the Board in 1996 and
became Chairman in 2002 before retiring in September last year. Antony was a
committed supporter of Croda and led the Board with great wisdom and foresight
through a very successful period for the Company.
We are also sorry that we shall be losing the services of Barbara Richmond, our
Finance Director, at the end of March. Barbara has done an outstanding job over
the last nine years, and has played a major role in the successful development
of Croda. We wish her well in her future career.
I am pleased to report that David Dunn, our Senior Independent Director, has
agreed to continue on the Board for a further three years until 2009. The Board
is fortunate to be able to count on David's continuing advice and support.
Outlook
This has been an excellent year for the Group and continues to vindicate the
strategy we are following. The early signs are that the firm demand witnessed
in 2005 has continued into the New Year and we remain confident of delivering
further profitable growth in 2006.
Operating Review
Around the World in 80 Years
In its 80th year of existence, Croda has become a truly global company. Though
founded in 1925, it wasn't until 1968 that Croda became Croda International - a
name which was, at the time, a triumph of prescience over reality. Total sales
in 1968 were £27m with exports from the UK at £3.2m. Croda operated in eight
overseas countries, but two were small raw material depots and one was a nascent
joint venture in Japan. The majority of overseas sales were in North America.
Today there are Croda operations in 26 countries throughout Europe, the
Americas, Asia and Africa. We have modern manufacturing plants in the UK,
France, USA, Brazil, Singapore and Japan. For the first time in our history
over half of the employees are based outside of the UK. Our highly skilled,
technical marketing network is a vital support to our global customer base and
is the envy of our competitors. As with all things in Croda, innovation is the
key. Our managers are local, speaking the language of the customer in the most
important markets of the world. Our communication and distribution network
anticipates the globalisation of our target markets, so that we are ready to
support and sell into our customers' global expansion. Indigenous customers are
cherished and are supported with the latest technology wherever they are in the
world. Croda exports over 75% of its UK production and overseas sales are now
87% of global turnover. We sell products from UK plants into Japan, from Japan
into France, from France into the USA, from the USA into Brazil, from Brazil
into Singapore and from Singapore into the UK. We have a global manufacturing
footprint and we make products where it's best for the business and best for the
customer.
This global approach has produced a record result for 2005. Sales from
continuing operations were up by 8.8% (7.6% in constant currency) and pre-tax
profits increased by over 14% to an all time high.
In the face of strong headwinds from escalating energy costs and rising raw
material prices, we continued to achieve strong margins. Currency was
marginally positive to profits. Our investment in new products increased, and
the new Enterprise Technologies initiative will launch products in two major new
areas in early 2006. These are innovative inorganic sunscreens and a new range
of polymers for the Personal and Health Care markets - sectors where Croda has
no historical position. We continued our successful cash generation resulting
in excellent trading flows and the net £21.8m buy back of shares into treasury.
Capital expenditure was unusually low. This is a great tribute to the ingenuity
and dedication of our engineering and plant personnel worldwide who managed once
again to give the Company all the required extra capacity at very low cost. In
support of our many new projects, we anticipate a return to more normal levels
of capital expenditure in 2006.
Sales in the UK from continuing businesses were flat with sales in the rest of
Europe up by nearly 10%, with good growth in the larger markets of Germany,
France and Italy.
Sales in the Americas were up nearly 15%, with excellent growth in the USA,
Brazil and most Latin American destinations.
Excluding Japan, Asian sales grew by 17% led by strong performances in China,
Korea and India. Sales were down in Japan as we exited some low margin, high
volume import business. Sales in the Middle East rebounded from a poor 2004.
Our weakest areas were Africa and Australasia and sales were flat in both
regions.
Our focus on Personal Care once again proved successful, with excellent growth
in our largest sector. Health Care sales grew, but more slowly than previous
years due to temporary plant difficulties in the second half of 2005. These
were quickly resolved and we expect a return to the high levels of growth seen
in recent years. We also achieved welcome growth in Plastics Additives whilst
maintaining our improved margins.
During the year, we closed the small manufacturing plant at Moss Bank, Widnes
and outsourced the manufacture of a minor product range. We also announced that
we would exit the Application Chemicals business which operates in the demanding
markets of steel and engineering. This will take place during the first half of
2006. We have also begun the process of selling our associate company, Baxenden
Chemicals.
Following the successful roll-out of our SAP system in the USA, the
implementation at Sederma was completed successfully. The global roll-out will
be complete when Croda Japan goes live in 2006. This steady and successful ERP
implementation is a credit to the talented in-house team.
The continuous expansion of our vital R & D teams resulted in more successful
new products and processes which will add much value going forward. At the same
time we expanded our global sales and marketing network with new management in
China and a new operation in Colombia.
Consumer Care
The core business performed strongly in 2005, with sales up by over 10% and
operating profit rising by 8.1%. On continuing operations it accounts for 68%
of Group turnover and over 85% of operating profit. The margin of over 21% once
again supports our view that it is a true speciality business, driven by
innovation and a desire to add value for customers worldwide. This performance
is a tribute to the effort of the global teams as it was achieved in the context
of a very unfavourable climate of cost increases in energy and a number of key
raw materials.
Personal Care is our largest market sector. There was strong, profitable growth
in all our product sectors including Sederma and in all our target geographic
markets. A record number of new product launches will support future growth
possibilities for this ever changing market.
In Health Care, sales were only slightly ahead, due to some plant difficulties
leading to supply issues in the third quarter. These problems, relating to
higher value products, were resolved and we are back on track for the planned
level of growth. There has been much activity at our major target
pharmaceutical accounts and we expect more trial results in 2006. A number of
new products being launched and new processes being implemented should underpin
future new business plans.
After the rapid growth in recent times, Home Care sales were also flat.
Successful new product launches were counterbalanced by slower sales in some of
the more traditional products. New projects underway should return this segment
to its recent growth path.
In Europe, we moved forward strongly with the notable exception of the UK, where
the customer base continues to slowly shrink. In all the other major countries
we saw a strong performance. The manufacturing units increased output, improved
productivity and kept a close control of costs. The European R & D teams
continued their successful record in creating profitable new products and
processes.
In the USA, sales were pleasingly ahead achieving a new record after a good year
in 2004. The successful introduction of SAP will make this unit more efficient
and customer responsive as we move forward. Sales in Latin America were
excellent, led by Brazil, Colombia and Venezuela. New capacity in our Brazilian
plant should enable further gains to be made in 2006. The North American
Technical Centre, established in 2004, had a strong year for new product
introductions, with an increasing number of projects in the pipeline.
In Asia, our Singapore operation had a record year and sales increased across
the region apart from in Japan. We exited some high volume, low margin import
business which reduced sales. However, an emphasis on higher value products
produced a record profit. We accelerated our growth in China. A new management
team and the new headquarters and technical support centre to be opened in May
2006 will support future growth.
Once again, a number of major consumer care companies increased in size by
acquisition. In spite of this, our largest global customer represents less than
3.5% of sales and the top ten customers represent less than 20% of global
turnover. Our presence in strong global brands increased and at the same time
we sold to more customers as we increased our penetration in developing markets.
Industrial Specialities
This sector performed well, led by a good result from Plastics Additives. Sales
grew by almost 6% and profits on continuing operations grew by 64% as the
product mix improved as we continued the move away from lower margin business.
In Plastics Additives, sales increased and margins were maintained in a very
competitive environment. Selling prices were successfully increased in the wake
of soaring energy costs and rising prices for rapeseed oil. The new additive
for PET bottles is being trialled at a number of major targets in Europe and
Asia, following the achievement of European Food Contact approval. US approval
is expected in 2006.
Seatons again had a reasonable year with the deliberate loss of low margin, high
volume commodities replaced by higher margin, lower volume speciality oils. In
Croda Food Services, sales moved forward well, but rising raw material prices
kept profits flat.
Summary
By every measure of profit, this was a record year for Croda. The strength of
the global network, the quality of our R & D, the robustness of our
manufacturing units and the dedication of Croda people produced this fine
result.
With the worldwide focus on innovation in everything we do and impetus from our
Enterprise Technologies initiative, we expect more progress in the future.
As Barbara Richmond leaves us after 9 exciting years, I would just like to thank
her on behalf of all at Croda for the fantastic job she has done as Finance
Director. We wish her well for the future. On a personal note I will miss her
for her hard work, her ingenuity, her sense of fun and her sheer energy.
Financial Review
Trading
Sales moved ahead again in 2005, by 8.8%, a further year of sales growth by the
ongoing businesses.
As a consequence of the introduction of IFRS, in 2005 we changed the
segmentation of our results in line with the markets we serve and the features
of those markets. The new segments are Consumer Care (comprising Personal Care,
Health Care and Home Care) and Industrial Specialities (comprising Plastics
Additives and all other markets). These new segments reflect the long term risk
and return profiles of the markets in which we operate.
Sales in the Consumer Care segment rose 10%, with volumes up by a similar
percentage. Personal Care was the principal driver of this growth. As we
continue to reduce sales of commodity products, volumes in Industrial
Specialities were marginally lower. In value terms, however, sales actually
increased by almost 6% due to the consequent improvement in the mix of products
we sell.
Currency had very little influence on trading in 2005, increasing sales by 1%
and having almost no effect on profits.
Operating margins remained strong in Consumer Care at over 20% and rose in
Industrial Specialities as we grew the Plastics Additives business and improved
the mix.
Interest
Net interest expense in 2005 was the same as in 2004, with the benefit of the
reduction in net debt in the first half offset by the increase in the second
half as our share buy-back progressed.
Taxation
The tax rate of 35.8% on continuing operations profits reflects the generation
of a significant amount of our earnings overseas in countries where the rate of
corporation tax is higher than in the UK.
Discontinued Operations
The discontinued operations comprise two businesses. Firstly our rolling oils
and rust preventives business, Croda Application Chemicals, which is in the
process of being closed with certain product lines being sold. Secondly, we are
in the process of selling the shares in our associate company, Baxenden
Chemicals Limited based in Accrington, Lancashire.
Dividends
As earnings continue to grow strongly and we have good cash generation we are
able again to increase dividends by more than the rate of inflation whilst at
the same time increasing our dividend cover.
Accordingly it is proposed the final dividend is increased by 7% to 9p making a
total of 13.35p (2004 12.5p). At this level dividend cover in total is raised
to 1.9 from 1.8 times in 2004.
Cash
The combination of good trading performance and lower capital expenditure
generated £15.5m of cash in 2005 before taking into account the share buy-back.
The effect of the share buy-back in 2005 was a purchase of 6.1 million shares at
an average price of 398p amounting to £24.5m, offset by £2.7m of cash inflow for
shares re-issued under employee share schemes which had been purchased in the
market by the Company and held in trust. The net cash outflow in the year from
share transactions was, therefore, £21.8m. The total purchased since the
buy-back began in 2004 amounts to £30.9m.
We expect capital expenditure to increase to more normal levels in 2006. We
also intend to continue the buy-back of shares into treasury in order to improve
our cost of capital, whilst at the same time ensuring we have the capacity for
appropriate acquisitions, which will deliver shareholder value.
Treasury
The Group's treasury policies are approved by the Board and subject to regular
reporting and review.
The main financial risks faced by the Group relate to currency, interest rates
and the availability of capital.
As far as currency risk is concerned, transaction risk is hedged up to three
months forward by the use of foreign currency bank balances and forward currency
contracts. Translation currency exposure is not hedged but the risk is reduced
by matching interest expense to foreign currency earnings where it is efficient
to do so.
In terms of interest rate risk, the policy is to maintain at least half of the
Group's gross borrowings at floating interest rates, with interest rate swaps
being used where appropriate.
In 2003 the UK regulations on the market purchase and holding of up to 10% of a
company's own shares (Treasury Shares) were amended to enable companies to
achieve more flexibility on their levels of debt and equity and thus their cost
of capital. This gives us an additional means of managing our balance sheet when
considered appropriate by your Board.
IFRS
As you will no doubt be aware, we are now required to produce our accounts in
accordance with IFRS.
We published a detailed transition statement on IFRS on 1 June 2005 and our half
year results were also prepared in accordance with IFRS.
The principal impact of the change to IFRS was on the balance sheet, due to the
inclusion of the IAS 19 deficit on the pension fund which is explained below.
The net impact on pre-tax profits in 2005 of the change to IFRS was only small,
with the principal difference being a charge of £1.1m in respect of the Group's
employee share schemes (2004 £0.6m).
Pensions
Following the transition to IFRS, this year's financial statements recognise
pension costs, assets and liabilities in accordance with IAS 19, which provides
a very different method of accounting than that previously applied by the Group
under UK GAAP. Whilst IAS 19 usually results in a more predictable pension cost
at the operating level and, at least for the following year at the financing
level, it potentially introduces more volatility in the balance sheet. After
providing for the related deferred tax asset, our net IAS 19 pension liability
at 31 December 2005 was £74.2m (2004 £72.2m).
Given the rise in the stock market in 2005 and our trustees policy of investing
the majority of our pension funds' assets in equities one might have expected to
see a reduction in our net pension liability. However, 2005 saw a further
significant fall in the corporate bond yield used to calculate our pension
liabilities for IAS 19 purposes, which resulted in those liabilities increasing
by more than the assets. Although the net liability has increased, our funding
level (the ratio of assets to liabilities) has improved from 74% to 77% as
measured under IAS 19.
By their very nature pension funds are for the long term and the choice of
investments and funding decisions should be viewed as such, and not be driven by
short-term volatility in the value of assets or liabilities. At various times
during the year, using the IAS 19 defined rate, our liabilities were up to £55m
lower than as measured at 31 December 2005, and indeed were £25m lower as
recently as 31 October 2005.
As with most UK companies we are currently working with the trustees of our UK
defined benefit schemes to agree our scheme specific funding plans and
investment policies. These plans will determine the ongoing funding of the
schemes and the timing of additional cash contributions for deficit reduction.
Once those plans have been finalised the Company will disclose their results.
We do not expect the outcome of these discussions to have a material effect on
cash flow in the short term as any deficit reduction will be spread over time.
Our cash contribution to our pension schemes worldwide in 2005 was £8.7m (2004
£9.6m).
The income statement charge for 2005 and the estimated charge for 2006 for all
our pension schemes are presented in the table below.
2006 2005
Estimate Actual
£m £m
Before operating profit (6.5) (5.9)
Financing 3.0 0.4
Net cost before tax (3.5) (5.5)
You will note that whilst the reduction in corporate bond yields in 2005 had an
adverse impact on our liabilities at the end of that year, the lower rate will
benefit our financing cost in 2006.
Croda International Plc
Preliminary announcement of trading results for the year ended 31 December 2005
Condensed Group income statement
2005 2004
Note £m £m
Continuing operations
Revenue 2 305.6 280.9
Cost of sales (214.5) (198.0)
______ ______
Gross profit 91.1 82.9
Operating expenses (40.0) (37.9)
______ ______
Operating profit 2 51.1 45.0
Net financial expenses 3 (1.9) (1.9)
______ ______
Profit before tax 49.2 43.1
Tax (17.6) (15.2)
______ ______
Profit after tax from continuing operations 31.6 27.9
Profit after tax from discontinued operations 5 1.2 2.8
______ ______
Profit for the year 32.8 30.7
_____ _____
Attributable to:
Minority interest 0.1 0.1
Equity shareholders 32.7 30.6
______ ______
32.8 30.7
_____ _____
pence per pence per
share share
Earnings per share of 10p
Basic
Total 25.6 23.3
Continuing operations 24.7 21.2
Diluted
Total 25.2 23.1
Continuing operations 24.3 21.1
Ordinary dividends
Interim 4 4.35 4.10
Final 4 9.00 8.40
Condensed Group statement of recognised income and expense
2005 2004
£m £m
Profit attributable to equity shareholders 32.7 30.6
Exchange differences 4.7 (0.7)
Actuarial movement on retirement benefit (3.8) (5.2)
obligations (net of deferred tax)
______ ______
Total recognised income and expense 33.6 24.7
______ ______
Condensed Group balance sheet at 31 December
Note 2005 2004
£m £m
Assets
Non-current assets
Goodwill 6.5 6.5
Property, plant and equipment 122.4 127.4
Investments 1.4 10.9
Deferred tax assets 36.0 34.1
______ ______
166.3 178.9
______ ______
Current assets
Inventories 53.4 52.0
Trade and other receivables 55.7 54.9
Cash and cash equivalents 39.3 32.4
Other financial assets 6 0.1 -
Assets classified as held for sale 5 5.4 -
______ ______
163.9 139.3
______ ______
Liabilities
Current liabilities
Trade and other payables (46.6) (41.0)
Borrowings and other financial liabilities 6 (24.2) (15.6)
Current tax liabilities (5.5) (4.8)
______ ______
(76.3) (61.4)
______ ______
Net current assets 87.6 77.9
______ ______
Non-current liabilities
Borrowings and other financial liabilities 6 (39.4)
Other payables (1.0) (0.9)
Retirement benefit liabilities (107.1) (104.1)
Provisions 8 (9.6) (14.7)
Deferred tax liabilities (16.2) (15.5)
______ ______
(173.3) (167.2)
______ ______
Net assets 80.6 89.6
______ ______
Equity shareholders' funds 9 79.7 88.8
Minority interests 0.9 0.8
______ ______
Total equity 80.6 89.6
______ ______
Condensed Group cash flow statement
Note 2005 2004
£m £m
Cash flows from operating activities
Continuing operations
Operating profit 51.1 45.0
Adjustments for:
Depreciation and loss on disposal of fixed assets 14.0 14.1
Changes in working capital 3.4 (0.2)
Pension fund contributions in excess of service
costs (2.8) (3.8)
Share based payments 0.7 0.4
______ ______
Cash generated from continuing operations 66.4 55.5
Discontinued operations 1.2 1.9
Interest paid (3.7) (3.4)
Tax paid (15.9) (12.5)
______ ______
Net cash generated from operating activities 48.0 41.5
______ ______
Cash flows from investing activities
Purchases of property, plant and equipment (9.1) (14.7)
Proceeds from sale of property, plant and
equipment 1.4 1.3
Proceeds from sale of businesses (net of costs) - 4.6
Cash paid against provisions (5.2) -
Interest received 1.3 1.1
Discontinued operations - (0.2)
______ ______
Net cash used in investing activities (11.6) (7.9)
______ ______
Cash flows from financing activities
Additional borrowings 15.0 -
Repayment of borrowings (0.6) (3.1)
Capital element of finance lease repayments (0.1) (0.1)
Net purchases of own shares (21.8) (4.7)
Dividends paid 4 (21.7) (16.0)
Discontinued operations - (0.1)
______ ______
Net cash used in financing activities (29.2) (24.0)
______ ______
Net increase in cash and cash equivalents 7.2 9.6
Cash and cash equivalents brought forward 17.5 8.5
Exchange differences 1.7 (0.6)
______ ______
Cash and cash equivalents carried forward 26.4 17.5
______ ______
Cash and cash equivalents carried forward
comprise
Cash at bank and in hand 39.3 32.4
Bank overdrafts (12.9) (14.9)
______ ______
26.4 17.5
______ ______
Reconciliation to net debt
Net increase in cash and cash equivalents 7.2 9.6
Increase in debt and lease financing (14.3) 3.3
______ ______
Change in net debt from cash flows (7.1) 12.9
New finance lease contracts (0.2) (0.1)
Exchange differences (1.7) 1.5
______ ______
(9.0) 14.3
Net debt brought forward (15.2) (29.5)
______ ______
Net debt carried forward (24.2) (15.2)
______ ______
Notes to the preliminary announcement
1. Basis of preparation
The financial information above is derived from the Group's full statutory
accounts on which the auditors have reported; their report was unqualified and
did not contain a statement under section 237(2) or (3) of the Companies Act
1985. Statutory accounts for 2004 have been filed with the Registrar of
Companies and those for 2005 will be delivered following the Annual General
Meeting.
These are the Group's first full year consolidated financial statements prepared
under International Financial Reporting Standards (IFRS) and an explanation of
how the transition to IFRS has affected the reported financial position,
financial performance and cash flows of the Group is provided in note 10.
2. Segmental information
Primary reporting format - business segments
At 31 December 2005 the Group is organised on a worldwide basis into two main
business segments, relating to the manufacture and sale of the Group's products
which are destined for either the Consumer Care market or the market for
Industrial Specialities. There is no trade between segments.
2005 2004
£m £m
Revenue - continuing operations
Consumer Care 207.8 188.4
Industrial Specialities 97.8 92.5
______ ______
305.6 280.9
______ ______
Operating profit - continuing operations
Consumer Care 43.9 40.6
Industrial Specialities 7.2 4.4
______ ______
51.1 45.0
______ ______
Secondary reporting format - geographical segments
The sales analysis in the table below is based on the location of the customer.
2005 2004
£m £m
Revenue by destination - continuing operations
operations
Europe 131.7 123.9
Americas 111.5 97.4
Asia 42.3 40.5
Rest of World 20.1 19.1
______ ______
305.6 280.9
______ ______
3. Net financial expenses
2005 2004
£m £m
Bank interest payable 3.8 3.6
Bank interest receivable (1.5) (1.5)
Expected return on pension scheme assets
less interest on scheme liabilities (0.4) (0.2)
______ ______
1.9 1.9
______ ______
4. Dividends paid
Pence 2005 2004
per £m £m
share
Ordinary
2003 Interim - paid January 2004 4.02 - 5.3
2003 Final - paid July 2004 7.83 - 10.2
2004 Interim - paid January 2005 4.10 5.4 -
2004 Final - paid July 2005 8.40 10.7 -
2005 Interim - paid October 2005 4.35 5.5 -
_____ _____
21.6 15.5
Preference (paid June and
December) 0.1 0.1
Dividends paid to minority
shareholders - 0.4
_____ _____
21.7 16.0
_____ _____
During 2005, the Company amended the dates on which dividends are paid, bringing
forward payment dates for both interim and final dividends by a number of
months. As a result, the interim dividends in respect of both the 2004 and 2005
financial years were paid during 2005.
The directors are proposing a final dividend of 9p per share (£11.2m) in respect
of the financial year ending 31 December 2005. It will be paid on 2 June 2006 to
shareholders registered on 5 May 2006. The total dividend for the year ending 31
December 2005 is 13.35p per share (£16.7m).
5. Discontinued operations
During 2005, in continuance of the Group's stated objective to dispose of
non-core activities, the Group's metal treatments division was offered for sale.
On 23 January 2006, the Group exchanged contracts with Shell UK Ltd for the sale
of the majority of the business. The sale does not include the non-current
assets of the business, primarily land and buildings, however the Group has
received a valuation of the site which is significantly in excess of its
carrying value. Accordingly, there has been no re-measurement to fair value less
costs to sell. Under the terms of the sale agreement, the transaction will
complete on 25 March 2006 following which the Group is committed to a period of
toll manufacture up to 24 June 2006. Once this period is complete, the directors
are confident that the valuation of the site will be realised through its
disposal.
Also during 2005, the Group commenced the process of selling its holding in the
Group's sole associate, Baxenden Chemicals Limited. By the year end the process
was well advanced and an active programme to locate a buyer had commenced. The
Board are committed to the disposal plan and consider it highly probable that
the disposal will have taken place by the end of 2006. Any profit on sale from
the above transactions will be recognised in the 2006 accounts.
As a consequence of the above, the carrying value of Application Chemicals
non-current assets (£2.1m) and current assets (£3.7m), along with the Group's
investment in Baxenden (£9.6m) have both been recategorised within current
assets as 'assets classified as held for sale'.
The impact of the operations discontinued in 2005 and the Fire Fighting
Chemicals and rock anchor manufacturing businesses discontinued during 2004, all
of which resided within the Industrial Specialities segment, is as follows:
2005 2004
£m £m
Pre tax operating results from discontinued operations 1.9 2.7
Tax (0.7) (0.8)
______ ______
Post tax operating results from discontinued operations 1.2 1.9
Net exceptional gain on disposal of discontinued operations - 0.9
______ ______
1.2 2.8
______ ______
6. Financial assets and liabilities
The Group manages its interest rate profile by use of an interest rate swap to
convert a proportion of its fixed rate debt to a floating rate. Under IFRS, the
fair value of such derivative instruments must be recognised in the financial
statements with a corresponding fair value adjustment to the underlying loan
instrument. Accordingly, a financial asset of £0.1m has been recognised within
current assets, being the fair value of the interest rate swap, and current
financial liabilities include £0.1m in recognition of the corresponding
adjustment to the fair value of the Group's fixed rate debt at 31 December 2005.
7. Treasury shares
During the year the Company purchased 6,137,305 shares on the open market to
be held as treasury shares for a consideration of £24.5m. The Company now holds
8,122,589 shares in total as treasury shares. These shares have been deducted
from shareholders' equity and will be held until such time as the Board decides
to cancel, reissue or use them to satisfy share options.
8. Accounting estimates and judgements
The Group's critical accounting policies under IFRS have been set by management
with the approval of the audit committee. The application of these policies
requires estimates and assumptions to be made concerning the future and
judgements to be made on the applicability of policies to particular situations.
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
Under IFRS an estimate or judgement may be considered critical if it involves
matters that are highly uncertain, or where different estimation methods could
reasonably have been used, or if changes in the estimate that would have a
material impact on the Group's results are likely to occur from period to
period. The only such critical judgement required when preparing the Group's
accounts is discussed below.
Environmental provisions
At 31 December 2005, the Group has an environmental provision of £8.5m in
respect of soil and potential ground water contamination on a number of sites.
These provisions were established in line with UK GAAP and have been reviewed to
ensure compliance with IFRS. Based on information currently available, this
level of provision is considered appropriate by the directors.
9. Condensed statement of changes in equity
2005 2004
£m £m
Opening shareholders' equity 88.8 84.1
Total recognised income 33.5 24.6
Ordinary dividends on equity shares (note 4) (21.6) (15.5)
Transactions in own shares (21.8) (4.7)
Share based payments 0.8 0.3
______ ______
Closing shareholders' equity 79.7 88.8
______ ______
10. Explanation of the transition from UK GAAP to IFRS
As stated in note 1, these financial statements are the first prepared by the
Group under IFRS. The Group's income statement for 2004 and balance sheets at 1
January 2004 and 31 December 2004 have been restated following adoption of the
Group's IFRS accounting policies. In June 2005 the Group published a 'Statement
on the Transition to International Accounting Standards and International
Financial Reporting Standards' ('the transition statement'). The transition
statement described the likely impact of the transition from UK GAAP to IFRS on
the Group's equity, net income and cash flows, as well as providing each of the
reconciliations required by IFRS 1. A summary of these reconciliations is
provided below.
Reconciliation of profit for the 2004 financial year
Note £m
Profit as reported under UK GAAP 26.5
Pensions (a) 0.6
Share based payments (b) (0.4)
Goodwill (c) 3.8
Other 0.2
Profit as restated under IFRS 30.7
______
Reconciliation of equity
Note 1/1/04 31/12/04
£m £m
Equity as reported under UK GAAP 163.6 170.9
Pensions (a) (90.6) (95.1)
Share based payments (b) (0.1) -
Goodwill (c) - 0.4
Tax (d) (3.0) (2.8)
Dividends (e) 15.5 16.3
Other (0.1) (0.1)
______ ______
Equity as restated under IFRS 85.3 89.6
______ ______
Explanation of reconciling items
(a) Under UK GAAP the Group accounted for pension obligations under SSAP 24 and
made disclosure only of the impact of FRS 17, the UK standard for
retirement benefits that is similar in many respects to the international
standard IAS 19. Both IAS 19 and FRS 17 are significantly different from
SSAP 24, most noticeably from a balance sheet perspective with
international accounting requiring the Group to recognise a net fair value
deficit on its balance sheet, being the excess of the present value of the
actuarially valued pension liabilities over the fair value of the assets
held to fund these liabilities. As IAS 19 adopts this balance sheet
perspective, the move to IFRS will also potentially lead to greater
volatility in the statement of recognised income and expense.
(b) Under UK GAAP there was no charge against profits in respect of share based
payment arrangements such as the option schemes operated by the Group. IFRS
2 requires the Group to recognise such a charge, equating to the fair value
of the options granted spread over the relevant vesting period.
(c) Under UK GAAP the Group was entitled to amortise purchased goodwill over
its useful life. This policy is not allowed under IFRS 3, which instead
requires goodwill to be carried at cost and reviewed annually for
impairment. Accordingly, the amortisation charge of £0.4m under UK GAAP is
removed and the carrying value of goodwill, as allowed under IFRS 1, is
frozen at its UK GAAP book value at 1 January 2004. In addition IFRS 3
prohibits the Group from recognising goodwill previously written off to
reserves in the income statement upon disposal of the relevant business,
thus the UK GAAP exceptional charge of £3.4m in 2004 is removed.
(d) IAS 12 requires that deferred tax be provided in respect of revaluation
gains on fixed assets, no such provision is required under UK GAAP. In
addition the rules with regard to provision of deferred tax on intercompany
profit in inventory and unremitted overseas earnings are subtly different
under IFRS and give rise to increased deferred tax provisioning. It should
also be noted that the inclusion of the pension deficit on the balance
sheet gives rise to a significant deferred tax asset and that, under IFRS,
deferred tax assets and liabilities cannot usually be netted off, hence
there is a degree of balance sheet grossing up in respect of deferred tax.
(e) The rules on accounting for post balance sheet events under IFRS are such
that dividends can only be recognised when the liability to pay becomes
irrevocable. Accordingly, as the Group's final dividends are not approved
until the AGM, usually held in April, then the liability cannot be
recognised in the period to which the dividend relates. Furthermore, as
interim dividends require no prior shareholder approval, they are only
recognised when paid.
In addition to the above, a number of presentational changes and additional
disclosures are required to comply with IFRS, these are discussed in detail in
the transition statement. The Group has also taken the opportunity to review the
basis of its segmental reporting in the light of IFRS requirements and the
previous segments of Oleochemicals and Other have been replaced by Consumer Care
and Industrial Specialities, segments which better reflect the Group's risk and
return profiles in the long term. The Group's cash flow is unchanged as a result
of the transition to IFRS, however the categorisation of flows on the cash flow
statement is somewhat different.
This information is provided by RNS
The company news service from the London Stock Exchange
Friday, 22nd November 2024
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