Final Results

Cookson Group PLC 14 March 2006 14 March 2006 ANNOUNCEMENT OF 2005 PRELIMINARY RESULTS Highlights â€¢ Trading profit from continuing operations up 14% - strong increase in trading profit for the Ceramics and Electronics divisions â€¢ Return on sales on continuing operations increased over one percentage point - Substantial progress towards achieving 2007 margin targets - Ceramics achieves full year margin of 9.9% and Electronics 10.5% â€¢ Headline profit before tax up 20% â€¢ Headline EPS up 24% â€¢ Dividends resumed - 2005 final of 5 pence per share â€¢ Disposal proceeds target of Â£100 million reached ahead of schedule â€¢ Accelerated 'top-up' payment schedule agreed with UK pension plan trustee ------------------------ ---------- -------- -------------------------------- 2005 2004 Increase/(decrease) vs. 2004 Continuing Operations* Reported rates Constant rates Revenue Â£1,481m Â£1,501m -1% -3% Trading profit** Â£123.5m Â£108.3m +14% +11% Return on sales** 8.3% 7.2% +1.1 pts +1.0 pts Total Operations Revenue Â£1,635m Â£1,653m -1% -2% Trading profit** Â£130.2m Â£114.9m +13% +11% Return on sales** 8.0% 7.0% +1.0 pts +1.0 pts Profit before tax - headline** Â£101.9m Â£85.0m +20% - basic Â£81.4m Â£50.1m +62% Earnings per share - headline** 37.2p 30.1p +24% - basic (5.8)p (11.2)p Dividend per share 5.0p - Free cash flow** Â£48.4m Â£58.1m Â£(9.7)m Net debt Â£292.3m Â£321.8m Â£29.5m lower ------------------------ ---------- -------- -------------------------------- *Continuing operations excludes the results of the Laminates and SCS businesses **Refer to the attached Income Statement and Statement of Cash Flows for definitions Commenting on the Group's results and outlook, Nick Salmon, Chief Executive, said: 'In 2005 we have made good progress in implementing the Strategic Plan announced in January 2005. This is borne out by the Group's improved profitability, reduced debt and the achievement of our Â£100 million disposals target ahead of schedule. Over the past two years we have delivered sustained free cash flow and strongly improved profitability. As a result of this and our improved confidence in the prospects for the Group, we are recommending a final dividend for 2005 of 5 pence, the first time a dividend will have been paid since October 2001. With our continued cost reduction and restructuring programmes in all divisions together with a particular focus on the turnaround of the Precious Metals division, we expect an improvement in the overall performance of our continuing operations in 2006. The disposal of Laminates should also improve the quality of our earnings.' OVERVIEW Note: the results for the Group for 2005 and the comparative year have been stated in accordance with International Financial Reporting Standards (IFRS). The impact on the Group's 2004 financial statements of its transition to IFRS was communicated to shareholders on 22 July 2005 by way of a press and RNS announcement and is available on the Company's website at www.cooksongroup.co.uk. Summary of Group results End market growth for our products and services in 2005 was positive overall. Global steel production, the most important end market for our Ceramics division, increased 6%, with falls in Europe and NAFTA more than offset by growth in Asia Pacific, most notably China. The Electronics division's end markets grew more modestly in 2005 following a year of strong growth in 2004, with strong growth in Asia-Pacific again offsetting slight declines in Europe and NAFTA. Retail jewellery, the end market for the Precious Metals division, was weak throughout 2005, particularly in the UK. This reflected several factors, including the sharp rise in the cost of gold and generally weaker retail spending trends. Against this background, trading profit from continuing operations increased by 14% to Â£123.5 million. This reflected revenue from continuing operations at Â£1,481 million, marginally down on 2004, but with an improved product mix with lower revenue from commodity type activities and growth in several of our newer, higher technology segments. The return on sales was 8.3%, over one percentage point higher than last year. Restructuring costs were Â£18.5 million. Stronger trading profits and a lower interest charge resulted in headline profit before tax increasing by 20% to Â£101.9 million. Headline earnings per share increased by 24% to 37.2 pence. The Board is recommending the resumption of dividend payments with a recommended final dividend for 2005 of 5.0 pence payable on 12 June 2006 to shareholders on the register at 26 May 2006. Net debt at year end of Â£292.3 million was Â£29.5 million lower than prior year, having been adversely affected by Â£26.4 million of foreign exchange movements in the year, but benefiting from the gross disposal proceeds of Â£29 million for Speciality Coating Systems (SCS) received at year end. Restructuring As part of our Strategic Plan to improve the operational performance of underperforming businesses, a number of actions were initiated in 2005. Restructuring charges in 2005 totalled Â£18.5 million, of which Â£5.1 million related to the discontinued Laminates business and Â£13.4 million to continuing operations. For the past few years a significant proportion of our restructuring charges (Â£45 million in the last four years) related to the turnaround of Laminates which was thereby returned to profitability before its sale. The main restructuring actions completed in 2005 covered: Ceramics division: â€¢ The relocation of production capacity from the US to Mexico â€¢ The merger of two South African factories onto a single site â€¢ The closure of a linings factory in Italy â€¢ The downsizing of a linings factory in Germany â€¢ Overhead reduction programmes in the US, the UK and Continental Europe Electronics division: â€¢ The closure of the Laminates operation in Germany and downsizing in Sweden â€¢ Overhead reduction in Europe â€¢ The relocation of production capacity from the US to Mexico â€¢ Workforce reduction in Singapore Precious Metals division: â€¢ An 8% reduction in the US workforce and consolidation into one factory â€¢ The completion of restructuring in France Strategic Plan Good progress has been made in implementing the Strategic Plan announced in January 2005. The margin improvements in the Ceramics and Electronics divisions have come from a combination of improved profitability in the revenue mix and internal cost reduction actions, which have more than offset raw material and energy cost increases. The disposals proceeds target of Â£100 million will be reached when we receive the proceeds from the Laminates disposal. The Laminates deal was signed on 15 December 2005 but is subject to approval by the European competition authorities, which we expect to receive shortly. Following the sale of our Ceramic Fibres business for US$23 million (Â£13 million) announced on 22 February 2006, the total value of disposal transactions signed since December 2004 stands at Â£114 million. The sale of Laminates has a particular significance for the Group. Over the past four years, following the severe downturn in the telecommunications market in 2001 and the transition of the electronics manufacturing industry to Asia-Pacific, Laminates has made cumulative operating losses of Â£46 million and has absorbed significant cash in restructuring costs and capital investments to expand new and existing facilities - some Â£73 million in total. Additionally, Laminates was the Group's only sector which sold purely into the electronics market, hence our cyclical market exposure is much reduced. In fact, electronics end markets now represent only around 20% of Group revenue. There are one or two further, albeit smaller, potential business disposals in the pipeline and some further land and property transactions that we expect to complete in 2006. The Strategic Plan involves further restructuring actions in our continuing operations, beyond those actions listed above, to reduce costs and adjust production capacities in mature markets. It is anticipated that there will be two further years of restructuring charges at levels similar to 2005. Given the good progress achieved in implementing the Strategic Plan and the much improved underlying performance of the Group in terms of earnings and cash flow, the board is satisfied that the criteria set out in the Strategic Plan for the resumption of dividend payments has been met. Accordingly the board is recommending a final dividend for 2005 of 5 pence per share. RESULTS OF OPERATIONS Note: the data provided in the tables below are at reported exchange rates. In addition, 'continuing operations' exclude the results of 'discontinued operations' in 2005, which comprises SCS (previously included within the Assembly Materials sector) and Laminates (previously a separate sector within the Electronics division). Group - Continuing operations Revenue (Â£m) Trading Profit (Â£m) Return on Sales (%) ---------------- ------------------- ------------------- 2005 2004 2005 2004 2005 2004 ----- ---- ----- ----- ----- ---- First half 720 741 53.9 48.2 7.5 6.5 Second half 761 760 69.6 60.1 9.1 7.9 ----- ---- ----- ----- ----- ---- Year 1,481 1,501 123.5 108.3 8.3 7.2 ----- ---- ----- ----- ----- ---- ----- ---- ----- ----- ----- ---- Revenue from continuing operations was marginally lower than in 2004, being 1% lower at reported exchange rates and 3% lower at constant exchange rates. Revenue trends were similar between the first and second halves of the year on a constant currency basis with a 3% decline for both periods. The substantial progress made towards achieving the margin targets set out in our Strategic Plan announced on 18 January 2005, meant that trading profit from continuing operations increased by 14% at reported exchange rates and 11% at constant exchange rates compared to prior year. Our two largest divisions - Ceramics and Electronics - which together make up 83% of Group revenue from continuing operations, both reported significantly higher levels of profitability than in the prior year. Trading profit from continuing operations in the Ceramics division increased by 24% to Â£73.9 million, and by 9% to Â£51.1 million in the Electronics division. The Precious Metals division, which constitutes 17% of Group revenue from continuing operations, reported trading profit 35% lower at Â£7.0 million. Return on sales from continuing operations of 8.3% has improved by over one percentage point compared to 2004. Both our largest divisions - Ceramics and Electronics - reported good growth in return on sales from continuing operations with margins very close to, or already achieving, double-digit levels. The fastest-growing and most profitable region for the Group continued to be Asia-Pacific which accounted for 20% of the Group's revenue from continuing operations in 2005 and 43% of trading profit. Whilst NAFTA (which comprises the US, Canada and Mexico) and Europe remain the Group's largest regions in terms of revenue, higher levels of growth outside these regions has seen their combined share of Group revenue from continuing operations fall from 79% in 2004 to 75% in 2005. Ceramics division Revenue (Â£m) Trading Profit (Â£m) Return on Sales (%) ---------------- ------------------- ------------------- 2005 2004 2005 2004 2005 2004 ----- ---- ----- ----- ----- ---- First half 368 358 34.1 27.4 9.3 7.7 Second half 378 381 39.8 32.0 10.5 8.4 ----- ---- ----- ----- ----- ---- Year 746 739 73.9 59.4 9.9 8.0 ----- ---- ----- ----- ----- ---- ----- ---- ----- ----- ----- ---- Market Conditions Approximately 60% of the Ceramics division's revenue is linked to the level of steel produced in the markets in which it operates. In 2005, global steel production rose by 6% to over 1.1 billion tonnes, only the second year in which steel production has exceeded 1 billion tonnes. Following the 9% growth in 2004, the rate of growth slowed during 2005, being 7% in the first half and 6% in the second half of the year. China reinforced its position as the world's leading steel producer with year-on-year growth of 25% and accounted for over 30% of the world's total production in 2005. China's steel industry continues to migrate towards higher grade steels, the production of which typically utilises more of the Ceramics division's products. Outside of China, global production was down by 1% with strong growth in India of 17% - albeit from a small base - being more than offset by lower production in the enlarged European Union (down by 4%) and the US (down by 6%). The end markets of the Foundry, Glass and Industrial Products sectors are generally linked to GDP growth. Whilst 2005 was a year of overall global economic growth, the most important markets for these sectors - construction and automotive - experienced mixed fortunes. Whilst the construction industry performed well, notably in China, vehicle production in the automotive industry was broadly flat in both the established markets of the US and Europe. Demand for solar energy - and thus for the Glass sector's crucibles used in the manufacture of photovoltaic cells - was strong. Divisional Performance The Ceramics division experienced a very strong year as a result of growth in global steel production combined with the beneficial impact of the various restructuring initiatives carried out during the last two years. Revenue for the year at Â£746 million was 1% higher than 2004 at reported exchange rates, but 1% lower at constant exchange rates. In December 2004, two plants based in Belgium and Germany which made bricks used in glass-making furnaces were divested. Excluding the revenue from these businesses, revenue for the division was up 5% at reported exchange rates and 3% at constant exchange rates. All of the division's market sectors - Iron and Steel, Glass, Foundry, and Industrial Products - reported underlying revenue growth. Trading profit grew strongly by 24% at reported exchange rates to Â£73.9 million - the highest level ever achieved by the division - and was up 21% at constant exchange rates. All market sectors reported trading profit growth with particularly strong performances from the Foundry and Glass sectors. Return on sales was close to double-digit at 9.9%, up nearly two percentage points from the 8.0% reported in 2004. Europe and NAFTA are the division's two largest regions with each making up 39% of the total division's revenue. However, the two fastest-growing regions are Asia-Pacific and Rest of the World which together make up 22% of the total division's revenue, an increase of two percentage points on 2004. Electronics division Revenue (Â£m) Trading Profit (Â£m) Return on Sales (%) ---------------- ------------------- ------------------- 2005 2004 2005 2004 2005 2004 ----- ---- ----- ----- ----- ---- First half 234 232 20.8 21.0 8.9 9.0 Second half 255 242 30.3 26.0 11.9 10.7 ----- ---- ----- ----- ----- ---- Year 489 474 51.1 47.0 10.5 9.9 ----- ---- ----- ----- ----- ---- ----- ---- ----- ----- ----- ---- Market Conditions Following the disposals of the Laminates business and SCS (completed at the end of 2005), only two-thirds of the division's continuing revenue now comes from electronics markets with the remainder deriving from automotive and other industrial markets. The improved market conditions in the global electronics industry that were evident in 2004 have continued throughout 2005. In 2005, the semiconductor industry grew 6% by value whilst printed circuit board (PCB) production grew 2% by value and 6% by volume. Electronic equipment production grew by 8% by value in 2005, driven by strong consumer-led demand for PCs, mobile telephones, games consoles, plasma and LCD televisions and MP3 players. Consumers continue to drive the electronics industry to an ever increasing degree and consumer purchases now account for 45% of worldwide electronic equipment sales. Global PC sales grew by 15% by volume in 2005, whilst the total annual production of mobile phones reached 810 million units, a 14% increase over 2004. Regionally, Asia-Pacific experienced the strongest growth as a result of both production capacity migrating to this region and also strong local end-market demand. PCB production, for example, whilst growing 2% worldwide saw declines in both the US and Europe (8% and 10% respectively) being more than offset by growth of 20% in China. The transition to lead-free products accelerated strongly in 2005 in anticipation of new EU regulations coming into force in mid-2006 and similar developments in other regions. The use of lead-free products is a significant change, not just for the Assembly Materials sector whose solder products have traditionally contained lead. Non-lead solders melt at higher temperatures and so all other PCB components, including fabrication chemistries, must also be able to withstand these temperatures. The increasing move to lead-free products is expected to continue over the next few years. For the non-electronics markets it was a mixed picture. Whilst 2005 was a year of overall global economic growth, the most important non-electronics market for the division, the automotive industry, was subdued with vehicle production broadly flat in both the established markets of the US and Europe. Divisional Performance Revenue for the year from continuing operations at Â£489 million was 3% higher than last year at reported exchange rates (1% at constant exchange rates). Excluding the impact of lower tin prices in the Assembly Materials sector, revenue would have been 5% higher at reported exchange rates (3% at constant exchange rates). Trading profit increased by 9% to Â£51.1 million giving a return on sale for the division of 10.5% (2004: 9.9%), in line with the target for the end of 2007 set in January 2005 (as adjusted for IFRS). Asia-Pacific the division's fast-growing region, was responsible for 37% of revenue from continuing operations, an increase of three percentage points over 2004. Europe accounted for 32%, NAFTA 28%, and the Rest of the World 3%. Assembly Materials Revenue for the year from continuing operations at Â£273 million was 6% higher than prior year at reported exchange rates (4% at constant exchange rates). However in 2005, the average price of tin - the sector's major raw material - was 9% lower than for 2004. The lower cost of tin was, in the main, passed on to customers during the year, such that underlying revenue was 6% higher than last year (on a constant currency basis). The revenue growth reflected the good growth in PCB production noted above but more difficult markets for solder products used in non-electronics applications. Trading profit of Â£24.5 million was 24% higher than last year at reported exchange rates (20% at constant exchange rates) reflecting the growth in underlying volumes, the higher profitability of lead-free products and the impact of cost-saving initiatives. Return on sales increased strongly from 7.6% to 9.0%. Asia-Pacific, the sector's largest region accounted for nearly half (48%) of total revenue, an increase of 4 percentage points over 2004. This reflected the continued migration of PCB assembly to this region and the increased size and influence of Asian contract manufacturers. Europe and NAFTA each accounted for 24% of revenue and the Rest of the World 4%. Chemistry Revenue for the year of Â£216 million was flat at reported exchange rates and down 2% at constant exchange rates. This reflected underlying growth in PCB-related products - driven by the worldwide growth in semiconductor and PCB volumes - being negated by an over-stocking issue for semiconductor products in the prior year, modest growth in industrial markets and the deliberate exit from several low margin, commoditised industrial products. Within the semiconductor market, the sector's copper damascene and lead-free immersion silver products reported strong revenue growth, whilst in industrial markets our range of plating on plastics and corrosion and wear-resistant coatings products also grew strongly. Trading profit declined 3% to Â£26.6 million at reported exchange rates and 4% at constant exchange rates largely driven by the impact of the overstocking in 2004 of high margin semiconductor copper damascene products. Return on sales remained strong at 12.3% (2004: 12.7%). Europe and NAFTA remain the sector's largest regions with 43% and 33% of total sector revenue respectively. European revenue was relatively unchanged despite weak industrial markets, flat vehicle production volumes and continued migration of the electronics industry to Asia-Pacific. Revenue in NAFTA was down 2% on last year primarily due to weak demand for PCB-related products, flat vehicle production volumes and temporary de-stocking in the first quarter of the year by the sole distributor of high margin copper damascene products for the high performance semi-conductor market. This de-stocking followed a build-up in inventory of this product by the distributor in the fourth quarter of 2004. The underlying demand for copper damascene, however, remains healthy with growth of around 30% per annum and the over-stocking in the first quarter was cleared by the end of the second quarter. In the Asia-Pacific region, which accounts for 23% of the sector's revenue, revenue increased marginally (1% at reported exchange rates), mainly due to the growth in products directed at the PCB market being offset by a decrease in sales of lower margin industrial products. Precious Metals division Revenue (Â£m) Trading Profit (Â£m) Return on Sales (%) ---------------- ------------------- ------------------- 2005 2004 2005 2004 2005 2004 ----- ---- ----- ----- ----- ---- First half 118 151 2.6 3.9 2.2 2.6 Second half 128 137 4.4 6.9 3.4 5.0 ----- ---- ----- ----- ----- ---- Year 246 288 7.0 10.8 2.8 3.8 ----- ---- ----- ----- ----- ---- ----- ---- ----- ----- ----- ---- Market Conditions 2005 saw the continuation of difficult market conditions in both of our key markets, the US and Europe. Demand for finished jewellery products is influenced to a large extent by both consumer confidence and consumer preferences. Consumer confidence was depressed in the US and in Europe and this trend was exacerbated by the shift in customers' discretionary spend away from jewellery products and more towards consumer electronic products such as mobile phones and MP3 players. The preference of buyers and wearers of jewellery for white metals and gemstones, which was evident in 2004, continued in 2005. The price of precious metals - particularly gold - also has an impact on demand. As prices increase the weight of gold in the finished product is typically reduced to meet retailer price points. In addition, retailers are reluctant to hold inventory when prices are high. Gold traded at around $420/ounce in the first half of the year but then rose steeply throughout the second half to finish the year at around $520/ounce. Divisional Performance The division's revenue of Â£246 million was 15% lower than last year at both reported and constant exchange rates reflecting the very difficult market conditions. Net sales value, which excludes the precious metal content, of Â£95 million was 18% lower than 2004 both at reported and constant exchange rates. Trading profit decreased by 35% to Â£7.0 million giving a return on net sales value of 7.4% (2004: 9.3%). Net sales value for the division's US operations, which constitute 57% of the total division's net sales value, fell by 20% to Â£54 million at reported exchange rates reflecting both the weak market conditions and Tiffany, one of the region's largest customers, increasing its level of in-house manufacturing. In the second quarter, headcount was reduced by 8% and most activities in the region were consolidated onto a single site. As a result of these cost-saving initiatives, the return on net sales value increased marginally to 13.2% (2004: 13.0%). Trading profit reduced by Â£1.6 million to Â£7.1 million. In Europe, net sales value fell by 16% to Â£41 million reflecting unprecedented falls in the demand for jewellery products in the three key markets of the UK, France and Spain. Hallmarking of gold jewellery items in the UK fell by 18% in 2005 compared to last year. This resulted in a small trading loss of Â£0.1 million for the year (2004: Â£2.1 million profit). The restructuring of the French operations, which included exiting from manufacturing and the relocation of the sales force, was completed in the year. Given the unsatisfactory trading performance in the UK, we will re-focus the UK operations starting in 2006. An increased emphasis on selling via the internet and the existing call-centre will help drive sales whilst, at the same time, reducing selling costs. Group - Discontinued operations (Laminates and SCS) Revenue (Â£m) Trading Profit (Â£m) Return on Sales (%) ---------------- ------------------- ------------------- 2005 2004 2005 2004 2005 2004 ----- ---- ----- ----- ----- ---- First half 75 76 0.4 3.7 0.5 4.9 Second half 79 76 6.3 2.9 8.0 3.8 ----- ---- ----- ----- ----- ---- Year 154 152 6.7 6.6 4.4 4.3 ----- ---- ----- ----- ----- ---- ----- ---- ----- ----- ----- ---- Laminates: on 15 December 2005, the disposal of the Laminates business was announced. Completion of the disposal is conditional upon clearance from the competition authorities in Europe which is expected shortly. Laminates, the only one of the Electronics division's three sectors whose products are sold exclusively into the electronics industry, had another difficult year. Trading losses in the first half of the year were made up in the second half leaving the sector with a small trading profit for the year. General market conditions were unchanged compared to last year with the market remaining highly competitive and marked by significant over-capacity. The trend of PCB fabricator customers, such as Matsushita and Viasystems, to migrate their operations from NAFTA and Europe to Asia-Pacific (and China in particular) accelerated during the year. Demand for products related to high reliability server applications and lead-free assembly (which requires higher assembly temperatures) helped drive the higher end of the market, whilst the market for more standard product was very weak. Revenue for the year at Â£134 million was 1% higher than prior year at reported exchange rates although unchanged at constant exchange rates. Volumes of higher margin products, such as GETEK(TM) and other high temperature/reliability laminates, was strong. However, this growth was more than offset by both reduced volumes and prices for lower end products and the exit in the US from the rigid laminates business. Trading profit was Â£1.9 million, down from the Â£2.5 million result in 2004. Return on sales was 1.4% (2004: 1.9%). SCS: on 31 December 2005, SCS was sold as it was not regarded as part of our core electronics business. This business had revenue of Â£20 million in 2005 and contributed some Â£4.8 million of trading profit for the year. GROUP INCOME STATEMENT Headline profit before tax Â£m* 2005 2004 ---- ---- First half 39.9 37.2 Second half 62.0 47.8 ---- ---- Year 101.9 85.0 ---- ---- ---- ---- * at reported exchange rates Headline profit before tax for total operations was Â£101.9 million for 2005, which was Â£16.9 million higher than 2004. The increase in headline profit before tax arose as follows: - Â£12.5 million increase in trading profit from continuing operations at constant exchange rates; - Â£0.1 million decrease in trading profit from discontinued operations at constant exchange rates; - Â£2.9 million positive trading profit exchange rate translation variance; - Â£2.5 million lower charge for net interest payable for ongoing activities due to both a decrease of some Â£27 million in the average level of borrowings (average rates on gross borrowings were 6.9% for the year, similar to last year), lower margins on the new bank facility arranged in March 2005 compared to the previous facility, and interest savings from the repayment of Â£80 million of convertible bonds in November 2004; - Â£0.9 million decrease in income from joint ventures (net of tax) from Â£2.3 million to Â£1.4 million, primarily in the Chemistry sector's Japanese joint venture; this shortfall was anticipated following an exceptionally high level of profitability in the first half of 2004. Items excluded from headline profit before tax A net charge of Â£20.5 million was incurred in the year (2004: Â£34.9 million) for items excluded from headline profit before tax, of which Â£5.0 million was non-cash related. This charge consisted of the following items: Rationalisation costs Rationalisation costs of Â£18.5 million (2004: Â£22.7 million) were incurred in the year, of which Â£5.1 million (2004: Â£8.9 million) related to the discontinued Laminates operation. Of the total charge, Â£3.0 million related to non-cash write down of assets and Â£15.5 million of cash-related costs. The principal items included in the total charge for 2005 were as follows: - Â£8.1 million arose in the Ceramics division for the rationalisation of facilities in the US, Italy, South Africa and Germany; and for sales and administrative headcount reductions in both the US and Europe - Â£2.2 million arose in the Chemistry sector for the rationalisation of production facilities, primarily in Europe - Â£1.4 million arose in the Precious Metals division for the completion of the restructuring of operations in France (including exiting manufacturing and relocating the sales force); and for the reduction in workforce and consolidation of most activities onto one main site in the US - Â£5.1 million arose in the Laminates sector (included in discontinued operations) for the closure of the facility in Germany and the streamlining of production in Sweden. A further rationalisation charge of around Â£20 million is expected in each of 2006 and 2007 in respect of both the completion of the above projects plus additional cost reduction projects expected to be initiated in these years. Amortisation of intangibles A non-cash charge of Â£0.8 million (2004: Â£0.8 million) was incurred in the year relating to the amortisation of a product license fee relating to a discontinued operation. (Loss)/profit relating to fixed assets A net charge of Â£nil (2004: Â£16.8 million) was incurred in the year principally relating to the disposal of surplus properties and the write-down of investments. Non-recurring finance costs In 2005, a non-cash charge of Â£1.2 million (2004: Â£nil) was incurred at the time the existing bank facility was put in place in March 2005 relating to the write-off of the un-amortised portion of the fees incurred in respect of the previous facility. In 2004, a profit of Â£5.4 million was recognised in respect of deferred income relating to interest rate swaps closed-out in prior years. Group profit before tax after the items noted above was Â£81.4 million for the year compared to Â£50.1 million in 2004. Taxation The tax charge on headline profit before tax (but before the share of post-tax profit of joint ventures) was Â£28.4 million. The effective tax rate on this headline profit before tax from continuing operations was 30.3%. The progressive migration of the Group's operations away from jurisdictions where it has accumulated unutilised tax losses is expected to result in an increase in the Group's effective tax rate going forward. The Group tax charge from other activities of Â£14.4 million resulted from a Â£16.6 million non-cash write-off of its US deferred tax asset in light of a prudent reassessment of expected future geographical profit contributions, a tax credit of Â£5.7 million in respect of rationalisation costs, and a Â£3.5 million tax charge in respect of the different treatment of goodwill in the US for book and tax purposes. Net post-tax loss on disposal of operations A charge of Â£46.2 million (2004: Â£34.9 million) was incurred in the year, consisting of a net post-tax loss before goodwill of Â£12.1 million and a write-off of goodwill of Â£34.1 million, primarily from the following: - sale of the Laminates business (loss of Â£52.5 million) - sale of SCS from the Assembly Materials sector (profit of Â£10.8 million) - sale of the Technical Ceramics business (McDanel) from the Ceramics division (loss of Â£1.6 million) - adjustments to the loss on sale in December 2004 of two brick-making facilities in Europe from the Ceramics division (loss of Â£0.8 million) - sale of the Fraternity Rings business from the Precious Metals division (loss of Â£0.4 million) Headline profit attributable to parent company equity holders Headline profit attributable to parent company equity holders for the year was Â£70.1 million (2004: Â£56.6 million), with the Â£13.5 million increase over 2004 arising from the significant increase in headline profit before tax, a small increase in the effective tax rate and a reduction of Â£0.7 million in profit attributable to minority interests. After taking account of all items excluded from headline profit before tax noted above (net of the related tax impact), the write-off of the deferred tax asset, and the net post-tax loss on disposal of operations, the Group recorded a loss of Â£7.6 million, a Â£9.4 million improvement on the Â£17.0 million loss incurred in 2004. Earnings per share (EPS) Headline EPS, based on the headline profit attributable to parent company equity holders, amounted to 37.2 pence per share in 2005, an increase of 24% on the 30.1 pence recorded in 2004. The Directors believed this basis of calculating EPS is an important measure of the underlying earnings per share of the Group. Basic EPS, based on the total net loss attributable to parent company equity holders, was a loss per share of 5.8 pence (2004: 11.2 pence). The average number of shares in issue during 2005 was 188.5 million (2004: 188.3 million) and takes into account the 1 for 10 share capital consolidation that was approved by shareholders and effected in May 2005. Dividend Over the last two years the Group has delivered sustained free cash flow and strongly improved underlying profitability. This, together with the Board's improved confidence in the prospects for the Group, has resulted in the Board recommending a final dividend of 5 pence per share in respect of 2005. If approved, the dividend will be paid on 12 June 2006 to shareholders on the register at 26 May 2006. No dividend was paid or proposed in respect of 2004. The last time a dividend was paid was in October 2001. GROUP CASH FLOWS Net cash from operating activities In 2005, the Group generated Â£68.1 million of net cash inflow from operating activities, Â£25.2 million lower than 2004. This net decrease principally arose from: - a Â£15.5 million increase in EBITDA (being trading profit before interest, tax and depreciation) to Â£177.3 million; - a cash outflow of Â£23.7 million for trade working capital, Â£6.8 million higher than 2004 - a Â£2.8 million increase in cash spend for rationalisation costs to Â£17.0 million; - a Â£3.5 million increase in pension 'top-up' payments; and - a net increase in cash outflow in respect of operating provisions and other items of Â£30.1 million, including Â£8.9 million of additional incentive payments to employees throughout the Group, with the remainder arising from movements on other non-trading debtors and creditors. The cash outflow in respect of trade working capital results in the ratio of average working capital to sales for continuing operations increasing from 21.7% in 2004 to 22.4%. This primarily reflects the increasing percentage of Group revenue arising in Asia-Pacific where levels of trade working capital (particularly trade debtors) are traditionally higher than in the US and Europe. Cash outflow for rationalisation was Â£17.0 million of which Â£3.6 million related to programmes that were initiated in 2005 in respect of continuing operations, Â£5.3 million in respect of the discontinued Laminates business, and the balance from prior year initiatives (including Â£3.3 million in respect of the restructuring of the Precious Metals division's French operation). Some Â£10 million is expected to be outlaid in 2006 for rationalisation programmes which commenced in 2005. Net cash from investing activities Capital expenditure Payments to acquire property, plant and equipment were Â£42.5 million in 2005, in line with 2004 and representing 90% of depreciation (2004: 90%). Proceeds from the sale of surplus properties, in the US, Europe and Asia, were Â£10.3 million (2004: Â£1.4 million). Dividends from joint ventures Dividends of Â£4.7 million were received in the year (2004: Â£2.3 million) from the Chemistry sector's Japanese joint venture. Acquisitions and disposals Net cash inflow for disposals in the year, net of acquisition-related costs, was Â£13.8 million which included the following: - Proceeds from the disposal of businesses, net of disposal costs, of Â£30.4 million, primarily comprises Â£4.4 million for the disposal in June 2005 of the Technical Ceramics business (McDanel) and Â£28.7 million for the disposal in December 2005 of SCS; Net of: - An increase in the Ceramic's division's joint venture interest with Wuhan Steel Corp in China from 25% to 50% for Â£1.7 million; - Deferred consideration for prior year acquisitions of Â£8.9 million, comprising Â£6.1 million for the acquisition in 2000 of Achem and Â£1.7 million for the acquisition in 2001 of Advent. The balance owing for deferred consideration for prior year acquisitions is Â£3.2 million, of which Â£1.1 million falls due in 2006; and - Trailing costs and purchase price adjustments for prior year disposals of Â£6.0 million. Free cash flow Â£m 2005 2004 ---- ----- First half (17.8) (18.0) Second half 66.2 76.1 ---- ----- Year 48.4 58.1 ---- ----- ---- ----- Free cash flow is defined as net cash flow from operating activities after net outlays for the acquisition and disposal of fixed assets, dividends from joint ventures and dividends paid to minority shareholders, but before additional funding contributions to Group pension plans. Free cash flow was Â£48.4 million, Â£9.7 million lower than 2004 due to the decrease in cash flow from operating activities for the reasons described above. As in prior years, free cash flow in the second half increased strongly compared with the first half of the year due to higher profitability and significantly higher cash inflows from trade working capital. Net cash flow before financing Net cash inflow before financing for the year was Â£54.4 million, Â£20.3 million higher than 2004. After an outflow for financing activities (before repayments of borrowings) of Â£0.7 million (2004: Â£3.3 million), net cash inflow for the year (before repayment of borrowings) was Â£53.7 million, Â£22.9 million higher than 2004. The strong cash inflow was partially offset by a negative translation effect of Â£26.4 million, mainly due to the decrease in the value of sterling from $1.92 to $1.72 during the year, resulting in a decrease in net debt of Â£29.5 million to Â£292.3 million. Group borrowings As at 31 December 2005, the Group had gross borrowings of Â£355.8 million which were drawn on available medium to long-term committed facilities of c.Â£520 million. The Group's net debt comprised the following: At 31 December 2005 (Â£m) At 31 December 2004 (Â£m) ----------------------- ----------------------- US Private Placement loan notes 317.5 296.7 Committed bank facility 23.3 40.0 Lease financing and asset securitisation 4.6 16.0 Other loans, overdrafts, other 10.4 13.1 ----------------------- ----------------------- Gross borrowings 355.8 365.8 Cash and short-term deposits (63.5) (44.0) ----------------------- ----------------------- Net debt 292.3 321.8 ----------------------- ----------------------- ----------------------- ----------------------- The US Private Placement loan notes ($545 million) are repayable at various dates between 2007 and 2012. A new committed bank facility for Â£200 million was arranged in March 2005 on improved pricing and terms. The facility, which had an original maturity date of March 2008 with options to extend by two further twelve month periods, was extended in January 2006 by a further twelve months such that the current maturity date is now March 2009. It is unsecured, with all security and guarantees under the previous facility fully released. Only Â£23.3 million was drawn on this facility at 31 December 2005. Pension fund and other post-retirement obligations The Group operates defined contribution and defined benefit pension plans, principally in the UK and US. In addition, the Group has various defined post-retirement benefit arrangements, being principally healthcare plans in the US. As at 31 December 2005, a liability of Â£224.8 million is recognised in respect of employee benefits; an increase of Â£34.9 million over the Â£189.9 million as at 31 December 2004. This increase results primarily in respect of the UK plan from changes in the actuarial assumption used to discount the present value of future liabilities and increased expectations as to the life expectancy of retirees. Both of these factors have more than offset the increase in the market value of the assets of the plan since the end of 2004. Of the total liability, Â£117.4 million relates to the deficit on the Group's defined benefit plan in the UK, Â£61.1 million to the Group's defined benefit pension plans in the US, Â£14.3 million to pension arrangements in the Rest of the World, and Â£32.0 million to unfunded post-retirement benefit arrangements, being mainly healthcare benefit arrangements in the US. Following the triennial actuarial valuation of the UK plan completed in 2004 and after consultation with the trustees of the Group's UK plan, normal cash contributions in respect of active members of the plan were supplemented with an additional 'top-up' payment of Â£10 million in 2005 (2004: Â£6.5 million). Further 'top-up' payments of Â£10.5 million and Â£12 million were anticipated to be made in 2006 and 2007. Following the disposal of SCS and the announcement of the disposals of the Laminates business in December 2005 and the Ceramic Fibres business in February 2006, and in view of the increase in the net pension deficit for the UK plan during 2005, it was agreed with the trustees of the Group's UK plan in February 2006 to make revised 'top-up' payments (in addition to the normal cash contributions) of Â£25.5 million in 2006 and Â£26.5 million in 2007. The level of these additional 'top-up' payments will be reviewed in consultation with the trustees of the Group's UK plan when the next triennial valuation is available in mid-2007. The US plans undergo actuarial valuations every year and the net deficit as at 31 December 2005 was Â£61.1 million (2004: Â£47.4 million). Funding of the US plans is made in accordance with US government regulations. The two principal defined benefit pension plans in the US are closed to new members and ongoing accruals are in the process of being frozen for the majority of active members. The charge against trading profit in 2005 for all pension plans (including defined contribution plans) was Â£22.7 million, a reduction of Â£0.4 million over 2004. Total pension cash contributions amounted to Â£25.9 million in 2005 (2004: Â£18.9 million). OUTLOOK As a 'just in time' supplier, our businesses do not have an order book giving a clear long-term market view. However, we are close to our customers in all our markets and our view on the Group's outlook reflects their views: Ceramics: the talk of 'de-stocking' in the global steel industry has now subsided and we see the positive momentum at the end of 2005 continuing into 2006. Steel output in 2006 is expected to be ahead in Asia-Pacific, growing at the global level and broadly in line with 2005 in Europe and NAFTA. Electronics: market growth in electronics is expected to be slightly ahead of GDP, but our automotive markets in Europe and the US may show some softness. Precious Metals: some firming of the US market is apparent, but Europe remains weak. Our well-established positions in the fastest-growing, and most profitable, Asia-Pacific region represent a substantial asset and will be an important factor in our performance in 2006. Against a background of these market expectations, and with continued cost reduction and restructuring programmes in all divisions together with a particular focus on the turnaround of the Precious Metals division, we expect an improvement in the overall performance of our continuing operations in 2006. The disposal of Laminates should also improve the quality of our earnings. Shareholder/analyst enquiries: Nick Salmon, Chief Executive Cookson Group plc Mike Butterworth, Group Finance Director Tel: + 44 (0)20 7061 6500 Isabel Vilela, Investor Relations Manager Media enquiries: John Olsen Hogarth Partnership Tel: +44 (0)20 7357 9477 Copies of Cookson's 2005 Annual Report are due to be posted to the shareholders of the Company on 19 April 2006 and will be available on the Company's website and at the Registered Office of the Company after that date. Cookson management will make a presentation to analysts on 14 March 2006 at 9: 30am (UK time). This will be broadcast live on Cookson's website. An archive version of the presentation will be available on the website from mid-afternoon on 14 March. Forward Looking Statements This announcement contains certain forward looking statements regarding the Group's financial condition, results of operations, cash flows, dividends, financing plans, business strategies, operating efficiencies or synergies, budgets, capital and other expenditures, competitive positions, growth opportunities for existing products, plans and objectives of management and other matters. Statements in this document that are not historical facts are hereby identified as 'forward looking statements'. Such forward looking statements, including, without limitation, those relating to the future business prospects, revenues, working capital, liquidity, capital needs, interest costs and income, in each case relating to Cookson, wherever they occur in this document, are necessarily based on assumptions reflecting the views of Cookson and involve a number of known and unknown risks, uncertainties and other factors that could cause actual results, performance or achievements to differ materially from those expressed or implied by the forward looking statements. Such forward looking statements should, therefore, be considered in light of various important factors. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward looking statements include without limitation: economic and business cycles; the terms and conditions of Cookson's financing arrangements; foreign currency rate fluctuations; competition in Cookson's principal markets; acquisitions or disposals of businesses or assets; and trends in Cookson's principal industries. The foregoing list of important factors is not exhaustive. When relying on forward looking statements, careful consideration should be given to the foregoing factors and other uncertainties and events, as well as factors described in documents the Company files with the UK regulator from time to time including its annual reports and accounts. Such forward looking statements speak only as of the date on which they are made. Except as required by the Rules of the UK Listing Authority and the London Stock Exchange and applicable law, Cookson undertakes no obligation to update publicly or revise any forward looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward looking events discussed in this announcement might not occur. Cookson Group plc, 265 Strand, London WC2R 1DB Registered in England and Wales No. 251977 www.cooksongroup.co.uk Group Income Statement for the year ended 31 December 2005 2005 2004 ------------------------------------- ------------------------------------ Continuing Discontinued Continuing Discontinued operations operations Total operations operations Total note Â£m Â£m Â£m Â£m Â£m Â£m --------------------------------------------------------------------------------- ------------------------------------ Revenue 2 1,480.8 153.8 1,634.6 1,500.5 152.0 1,652.5 Manufacturing - raw materials (667.7) (75.1) (742.8) (682.6) (73.2) (755.8) costs - other (390.1) (48.5) (438.6) (395.7) (51.4) (447.1) Administration, selling and distribution (299.5) (23.5) (323.0) (313.9) (20.8) (334.7) costs --------------------------------------------------------------------------------- ------------------------------------ Trading profit 1,2 123.5 6.7 130.2 108.3 6.6 114.9 Rationalisation of operating activities 2,3 (13.4) (5.1) (18.5) (13.8) (8.9) (22.7) Amortisation and impairment of 2,9 - (0.8) (0.8) - (0.8) (0.8) intangibles (Loss)/profit relating to fixed assets 2,4 (1.9) 1.9 - (16.8) - (16.8) --------------------------------------------------------------------------------- ------------------------------------ Profit from operations 108.2 2.7 110.9 77.7 (3.1) 74.6 Net finance - ongoing activities (29.7) - (29.7) (32.2) - (32.2) costs - other activities 5 (1.2) - (1.2) 5.4 - 5.4 Share of post-tax profit of joint 1.4 - 1.4 2.3 - 2.3 ventures --------------------------------------------------------------------------------- ------------------------------------ Profit before tax 78.7 2.7 81.4 53.2 (3.1) 50.1 Income tax - ongoing activities 6 (28.4) - (28.4) (22.9) (1.4) (24.3) costs - other activities 6 (14.2) (0.2) (14.4) (7.7) (0.2) (7.9) Net post-tax loss on disposal of 7 (4.5) (41.7) (46.2) (34.9) - (34.9) operations --------------------------------------------------------------------------------- ------------------------------------ Profit/(loss) for the year 31.6 (39.2) (7.6) (12.3) (4.7) (17.0) --------------------------------------------------------------------------------- ------------------------------------ Profit/(loss) for the year attributable to: Equity holders of the parent company 28.2 (39.2) (11.0) (16.4) (4.7) (21.1) Minority interests 3.4 - 3.4 4.1 - 4.1 --------------------------------------------------------------------------------- ------------------------------------ Profit/(loss) for the year 31.6 (39.2) (7.6) (12.3) (4.7) (17.0) --------------------------------------------------------------------------------- ------------------------------------ ------------------------------------------------------------------------------------------------------------------------ Earnings per share (pence) 8 Basic and diluted (5.8)p (11.2)p --------------------------------------------------------------------------------- ------ Headline profit before tax 1 Trading profit 130.2 114.9 Share of post-tax profit of joint 1.4 2.3 ventures Net finance costs of ongoing (29.7) (32.2) activities --------------------------------------------------------------------------------- ------ Headline profit before tax 101.9 85.0 Income tax costs on ongoing activities (28.4) (24.3) Profit attributable to minority (3.4) (4.1) interests --------------------------------------------------------------------------------- ------ Headline profit attributable to parent company equity 70.1 56.6 holders --------------------------------------------------------------------------------- ------ Headline earnings per share 8 37.2p 30.1p --------------------------------------------------------------------------------- ------ Group Statement of Cash Flows For the year ended 31 December 2005 note 2005 2004 ---- Â£m Â£m ------- ---------- Cash flows from operating activities ------- ---------- Profit from operations 110.9 74.6 Add: Rationalisation of operating activities 3 18.5 22.7 Loss relating to fixed assets 4 - 16.8 Amortisation of intangibles 9 0.8 0.8 Depreciation 47.1 46.9 ------- ---------- EBITDA 1 177.3 161.8 Net increase in trade working capital (23.7) (16.9) Outflows related to rationalisation of operating 3 (17.0) (14.2) activities Additional funding contributions to Group 15 (10.0) (6.5) pension plans Other items (8.8) 21.3 ------- ---------- Cash generated from operations 117.8 145.5 Interest paid (31.3) (35.9) Interest received 1.8 4.4 Income taxes paid (20.2) (20.7) ------- ---------- Net cash inflow from operating activities 68.1 93.3 Cash flows from investing activities ------- ---------- Acquisition of property, plant and equipment (42.5) (42.3) Proceeds from sale of property, plant and 4 10.3 1.4 equipment Acquisition of subsidiaries, net of cash 10 (10.6) (12.0) acquired Disposal of subsidiaries, net of cash disposed 30.4 1.4 of Dividends received from joint ventures 4.7 2.3 Other, including additional costs for prior (6.0) (10.0) years' disposals ------- ---------- Net cash outflow from investing activities (13.7) (59.2) ------- ---------- Net cash inflow before financing activities 54.4 34.1 Cash flows from financing activities ------- ---------- Repayment of borrowings 17 (45.2) (39.7) Proceeds from the issue of share capital 2.1 0.9 Payment of transaction costs (0.6) (1.1) Dividends paid to minority shareholders (2.2) (3.1) ------- ---------- Net cash outflow from financing activities (45.9) (43.0) ------- ---------- Net increase/(decrease) in cash and cash 17 8.5 (8.9) equivalents Cash and cash equivalents at 1 January 44.0 52.8 Effect of exchange rate fluctuations on cash 11.0 0.1 held ------- ---------- Cash and cash equivalents at end of period 63.5 44.0 ------- ---------- ------------------------------------------------ ---- ------ --- ------- --- ---------- Free cash flow 1 Net cash inflow from operating activities 68.1 93.3 Additional funding contributions to Group 10.0 6.5 pension plans Acquisition of property, plant and equipment (42.5) (42.3) Proceeds from sale of property, plant and 10.3 1.4 equipment Dividends received from joint ventures 4.7 2.3 Dividends paid to minority shareholders (2.2) (3.1) ------- ------ Free cash flow 48.4 58.1 ------- ------ ------------------------------------------------ ---- ------ --- ------- --- ---------- Group Balance Sheet As at 31 December 2005 note 2005 2004 ------ Â£m Â£m ------- ------- Assets ------- ------- Property, plant and equipment 264.9 322.9 Intangible assets 9 481.6 485.2 Investments in joint ventures 13.1 14.7 Other investments 11 11.2 16.7 Income tax recoverable 2.3 2.2 Deferred tax assets 15.0 31.2 Other receivables 8.7 10.6 ------- ------- Total non-current assets 796.8 883.5 ------- ------- Cash and cash equivalents 63.5 44.0 Inventories 179.6 174.1 Trade and other receivables 294.0 303.4 Income tax recoverable - 0.9 Other financial assets 12 12.2 - ------- ------- 549.3 522.4 Assets classified as held for sale 7 87.2 - ------- ------- Total current assets 636.5 522.4 ------- ------- Total assets 1,433.3 1,405.9 ------- ------- Equity ------- ------- Issued share capital 13 375.5 375.5 Share premium account 14 645.5 643.4 Other reserves 37.8 (10.9) Retained earnings (609.8) (576.6) ------- ------- Total parent company shareholders' equity 449.0 431.4 Minority interests 12.7 11.7 ------- ------- Total equity 461.7 443.1 ------- ------- Liabilities ------- ------- Interest-bearing loans and borrowings 341.9 326.1 Employee benefits 15 224.8 189.9 Other payables 35.5 58.3 Provisions 11.1 10.3 Deferred tax liabilities 21.6 8.6 ------- ------- Total non-current liabilities 634.9 593.2 ------- ------- Interest-bearing loans and borrowings 13.9 39.7 Trade and other payables 249.2 303.2 Income tax payable 16.4 11.6 Provisions 20.6 15.1 ------- ------- 300.1 369.6 Liabilities directly associated with assets 7 36.6 - classified as held for sale ------- ------- Total current liabilities 336.7 369.6 ------- ------- Total liabilities 971.6 962.8 ------- ------- Total equity and liabilities 1,433.3 1,405.9 ------- ------- -------------------------------------------------- ----- --- ------ --- ------- --- ------- Net debt Interest-bearing loans - non-current 341.9 326.1 and borrowings - current 13.9 39.7 Cash and cash equivalents (63.5) (44.0) ------- ------ Net debt 17 292.3 321.8 ------- ------ -------------------------------------------------- ----- --- ------ --- ------- --- ------- Group Statement of Recognised Income and Expense 2005 2004 For the year ended 31 December 2005 Â£m Â£m -------------------------------------------------- ----- --- ------ --- ------- --- ------- Opening Group reserves adjustment (note 1) 19.2 - Exchange differences on translation of the net assets of 73.7 (35.8) foreign operations Net investment hedges (29.9) 23.8 Actuarial loss on employee benefit schemes (41.1) (26.8) Changes in fair value of equity securities 2.2 - available-for-sale -------------------------------------------------- ----- --- ------ --- ------- --- ------- Net income/(expense) recognised directly in equity 24.1 (38.8) Loss for the year (7.6) (17.0) -------------------------------------------------- ----- --- ------ --- ------- --- ------- 16.5 (55.8) ------- ------- Profit attributable to minority interests (3.4) (4.1) Foreign exchange translation differences attributable to 0.1 1.1 minority interests ------- ------- (3.3) (3.0) -------------------------------------------------- ----- --- ------ --- ------- --- ------- Total recognised income and expense attributable to parent 13.2 (58.8) company equity shareholders -------------------------------------------------- ----- --- ------ --- ------- --- ------- Group Reconciliation of Movements in Equity For the year ended 31 December 2005 Total equity Minority Total attributable interests equity to parent company equity holders Â£m Â£m Â£m --------------------------- --- ------- --- ------ --- ------ -------- ------- ------- Total equity as at 1 487.1 11.8 498.9 January 2004 Movements for the year: -------- ------- ------- Total net recognised (losses)/gains (58.8) 3.0 (55.8) relating to the year New share capital issued 0.9 - 0.9 Share-based payments 2.2 - 2.2 Dividends paid to - (3.1) (3.1) minority interests -------- ------- ------- (55.7) (0.1) (55.8) --------------------------- --- ------- --- ------ --- ------ -------- ------- ------- Total equity as at 31 431.4 11.7 443.1 December 2004 --------------------------- --- ------- --- ------ --- ------ -------- ------- ------- Total equity as at 1 431.4 11.7 443.1 January 2005 Movements for the year: -------- ------- ------- Total net recognised 13.2 3.3 16.5 gains relating to the year New share capital issued 2.1 - 2.1 Share-based payments 2.3 - 2.3 Dividends paid to - (2.3) (2.3) minority interests -------- ------- ------- 17.6 1.0 18.6 --------------------------- --- ------- --- ------ --- ------ -------- ------- ------- Total equity as at 31 449.0 12.7 461.7 December 2005 --------------------------- --- ------- --- ------ --- ------ -------- ------- ------- Notes to the Accounts 1 Basis of preparation The audited consolidated financial statements of Cookson Group plc (the 'Company') in respect of the year ended 31 December 2005 have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted in the EU and were approved by the Board of Directors on 14 March 2006. The financial information set out in this preliminary results announcement does not constitute the Company's statutory accounts for the years ended 31 December 2005 or 2004 but is derived from those accounts. An unqualified audit report was issued on the statutory accounts for 2005, which will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The comparative figures for the financial year ended 31 December 2004 are not the Company's statutory accounts for that financial year. Those accounts, which were prepared under UK Generally Accepted Accounting Practice ('UK GAAP'), have been reported on by the Company's auditor and delivered to the Registrar of Companies. The report of the auditor was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. These sections address whether proper accounting records have been kept, whether the Company's accounts are in agreement with these records and whether the auditor has obtained all the information and explanations necessary for the purposes of its audit. A comprehensive analysis and explanation of the adjustments made by the Company to its comparative consolidated financial statements on transition of its accounting policies to IFRS from UK GAAP, as disclosed in the Company's statutory annual consolidated accounts for 2004, was announced to the London Stock Exchange on 22 July 2005. A copy of this announcement can be found on the Company's website and is obtainable from the Group Secretary at the Company's registered address. This preliminary results announcement has been prepared on the basis of the accounting policies adopted in the Company's audited statutory annual consolidated accounts for 2004, except as referred to below or as stated in the London Stock Exchange announcement referred to above. Opening Group reserves adjustment A net adjustment to opening Group reserves of Â£19.2m has been made in the period, the major components being explained below. As part of its transition to IFRS, the Company has adopted for the purpose of its consolidated Group accounts, with effect from 1 January 2005: International Accounting Standard No. 32 ('IAS 32'), 'Financial Instruments: Disclosure and Presentation'; and IAS 39, 'Financial Instruments: Recognition and Measurement'. Comparative figures have not been amended in connection with these changes of accounting policy, as permitted by International Financial Reporting Standard No. 1 ('IFRS 1'). As a consequence of the adoption of IAS 32 and IAS 39, the Group accounts must recognise, at fair value, certain financial instruments used in its operations. The use of financial instruments to any significant extent is restricted mainly to the Group's central treasury function, which uses forward foreign exchange contracts to convert the currency denomination of debt instruments and interest rate swaps to switch debt instruments between fixed and floating rates of interest. In addition, certain of the Group's manufacturing operations use commodity forward purchase and sale contracts and forward foreign exchange contracts to hedge the impact on their trading results of underlying movements in commodity prices and foreign currency rates. In accordance with the requirements of IAS 39, the fair value of certain financial investments at the end of the reporting period is reflected on the Group balance sheet as either a 'financial asset' or 'financial liability', with the corresponding charge or credit being recognised either in the income statement or through Group reserves. As the adoption of these standards represents a change in accounting policy, the impact of the adoption of IAS 39 as at 1 January 2005 has been accounted for as an adjustment to the opening Group balance sheet. There was no impact to opening Group reserves as a result of the adoption of these standards, with interest-bearing loans and borrowings being decreased by Â£1.1m, inventory reduced by Â£1.2m and trade and other receivables reduced by Â£0.2m. As a further consequence resulting from the adoption of IAS 32 and IAS 39, deferred income of Â£22.3m as at 1 January 2005, which was being carried on the Group balance sheet in respect of the close-out of interest rate swaps in prior periods, has been credited to opening Group reserves, net of an associated tax charge. Under UK GAAP this deferred income was being credited to the income statement over the term of the underlying loan arrangements to which the swaps had related. As a consequence of adopting IAS 39, the Group has included within 'other investments' as at 1 January 2005 two equity trade investments at market value and, accordingly, an opening credit to Group reserves was recognised at 1 January 2005 of Â£2.5m to reflect this change. Disclosure of significant items IAS 1 provides no definitive guidance as to the format of the income statement, but states key lines which should be disclosed. It also encourages additional line items and the re-ordering of items presented on the face of the income statement when appropriate for a proper understanding of the entity's financial performance. In keeping with the spirit of this aspect of IAS 1, the Company has adopted a policy of disclosing separately on the face of its income statement the effect of any components of financial performance considered by the Directors to be significant and/or for which separate disclosure would assist both in a better understanding of the financial performance achieved and in making projections of future results. Materiality and/or the nature and function of the components of income and expense are considered in deciding upon such presentation. Such items may include, inter alia, the financial effect of any profit or loss arising on business disposals, major rationalisation and/or restructuring activity, profits and losses on sale or impairment of fixed assets, amortisation and impairment of intangible and other non-current assets and other items, including the taxation impact of the aforementioned items, which have a significant impact on the Group's results of operations either due to their size or nature. Non-GAAP financial measures The Company uses a number of non-Generally Accepted Accounting Practice ('non-GAAP') financial measures in addition to those reported in accordance with IFRS. Because IFRS measures reflect all items which affect reported performance, the Directors believe that certain non-GAAP measures, which reflect what they view as the underlying performance of the Group, are important and should be considered alongside the IFRS measures. The following non-GAAP measures are referred to in this document. On the face of the Group income statement, 'trading profit' is separately disclosed, being defined as profit from operations before the costs of rationalisation of operations, the profit or loss relating to fixed assets and the amortisation and impairment of intangibles. The Directors believe that trading profit is an important measure of the underlying trading performance of the Group. On the face of the Group income statement, 'headline earnings per share' is reported, together with its calculation. The Directors believe that headline earnings per share gives an important measure of the underlying earning capacity of the Group. On the face of the Group statement of cash flows, 'EBITDA' is reported as a sub-total, representing Group earnings before interest, tax, depreciation and amortisation charges. EBITDA is a financial measure that is commonly used and the Directors believe it to be an important measure of the underlying trading performance of the Group. On the face of the Group statement of cash flows, 'free cash flow' is reported, together with its calculation. The Directors believe that free cash flow, which reflects the Group's operational cash flow before repayment of borrowings and defined benefit post-retirement deficits or expenditure on business acquisitions or disposals, gives an important measure of the underlying cash-generation capacity of the Group. On the face of the Group balance sheet, 'net debt' is reported, together with its calculation. The Directors believe that this is an important measure as it shows the Group's aggregate net indebtedness to banks and other external finance institutions. 2 Segment reporting As required by IAS 14, the segment analysis of the Group's results by division/ sector separately includes central corporate costs, representing the central costs of operating as a 'plc' which are not directly attributable to individual segments. Where the Group's central costs are directly attributable to segment operations, they have been allocated primarily according to the relative revenue contribution of each continuing operating segment to the total. Inter-segment revenue is not material in relation to total Group revenue, whether analysed by division/sector or by geographic location of operations. The contribution from acquisitions to revenue and profit from operations in 2005 and 2004 was not material. 2005 2004 --------------------------- --- ------ --- ------ --- ------- -------- --- ------- -------- By Division/Sector Revenue Profit Revenue Profit Â£m from Â£m from operations operations Â£m Â£m --------------------------- --- ------ --- ------ --- ------- -------- --- ------- -------- Ceramics 746.1 73.9 739.3 59.4 Electronics 488.9 51.1 473.5 47.0 ------- -------- ------- -------- Assembly Materials 273.4 24.5 257.7 19.7 Chemistry 215.5 26.6 215.8 27.3 ------- -------- ------- -------- Precious Metals 245.8 7.0 287.7 10.8 Group corporate costs - (8.5) - (8.9) --------------------------- --- ------ --- ------ --- ------- -------- ------- -------- Trading - Continuing operations 1,480.8 123.5 1,500.5 108.3 profit - Discontinued operations 153.8 6.7 152.0 6.6 Rationalisation of operating activities - (18.5) - (22.7) Amortisation and impairment of - (0.8) - (0.8) intangibles (Loss)/profit relating to fixed assets - - - (16.8) --------------------------- --- ------ --- ------ --- ------- -------- ------- -------- Total Group 1,634.6 110.9 1,652.5 74.6 --------------------------- --- ------ --- ------ --- ------- -------- ------- -------- Of the total cost of the rationalisation of operating activities of Â£18.5m (2004: Â£22.7m), Â£8.1m related to Ceramics (2004: Â£2.9m), Â£0.8m to Assembly Materials (2004: Â£0.2m), Â£2.2m to Chemistry (2004: Â£0.8m), Â£1.4m to Precious Metals (2004: Â£9.9m), Â£0.9m to Group corporate operations (2004: nil) and Â£5.1m to discontinued operations (2004: Â£8.9m). The total amortisation and impairment of intangibles costs of Â£0.8m (2004: Â£0.8m) related to discontinued operations. Of the total (loss)/profit relating to fixed assets of nil in 2005 (2004: Â£16.8m loss), Â£0.1m loss relates to Ceramics (2004: nil), Â£0.3m profit relates to Assembly Materials (2004: nil), Â£1.5m loss to Chemistry (2004: Â£1.1m profit), Â£0.6m loss to Group corporate operations (2004: Â£17.9m loss) and Â£1.9m profit to discontinued operations (2004: nil). 2005 2004 -------------------------------------------------------------------------------------- -------------------------------- By location of By By location of By customer customer Group operations location Group operations location -------------------- -------- --------------------- --------- Geographical Revenue Profit Revenue Revenue Profit Revenue Â£m from Â£m Â£m from Â£m operations operations Â£m Â£m -------------------------------------------------------------- ------------- ------- --------- ---------- -------- Europe 566.3 41.2 512.3 608.6 39.1 558.8 NAFTA 550.7 23.0 528.7 570.1 20.6 547.2 Asia-Pacific 289.4 53.2 331.8 254.4 42.6 303.5 Rest of the World 74.4 6.1 108.0 67.4 6.0 91.0 -------------------------------------------------------------- ------------- ------- --------- ---------- -------- Trading - Continuing 1,480.8 123.5 1,480.8 1,500.5 108.3 1,500.5 profit - Discontinued 153.8 6.7 153.8 152.0 6.6 152.0 Rationalisation of operating activities - (18.5) - - (22.7) - Amortisation and impairment of intangibles - (0.8) - - (0.8) - (Loss)/profit relating to fixed assets - - - - (16.8) - -------------------------------------------------------------- ------------- ------- --------- ---------- -------- Total Group 1,634.6 110.9 1,634.6 1,652.5 74.6 1,652.5 -------------------------------------------------------------- ------------- ------- --------- ---------- -------- Of the total cost of the rationalisation of operating activities of Â£18.5m (2004: Â£22.7m), Â£13.6m was incurred in Europe (2004: Â£16.7m), Â£2.6m in NAFTA (2004: Â£5.7m), Â£0.9m in Asia-Pacific (2004: Â£0.3m); Â£1.4m in the Rest of the World (2004: nil). The total amortisation and impairment of intangibles costs of Â£0.8m (2004: Â£0.8m) was within NAFTA. Of the total (loss)/profit relating to fixed assets of nil in 2005 (2004: Â£16.8m loss), Â£0.3m loss was in Europe (2004: nil), Â£1.1m loss in NAFTA (2004: Â£17.9m loss), Â£0.5m loss in Asia-Pacific (2004: Â£1.1m profit) and Â£1.9m profit in discontinued operations (2004: nil), of which Â£0.6m was in NAFTA and Â£1.3m in Europe. 3 Rationalisation of operating activities The rationalisation of operating activities charge of Â£18.5m in 2005 represents the cost of a number of initiatives throughout the Group aimed at reducing the Group's cost base and re-aligning its manufacturing capacity. Of the total charge, Â£5.1m relates to the Laminates business, primarily the closure of its German manufacturing operation. Cash costs of Â£17.0m were incurred in 2005 in respect of the rationalisation and redundancy initiatives commenced both in 2005 and in prior periods. Of the Â£22.7m charge incurred in 2004, Â£8.6m related to a programme to rationalise the Precious Metals division's French activities. Under a Social Plan, the programme encompassed the closure of 5 manufacturing and distribution sites, a headcount reduction of 150 and the realignment of the division's manufacturing capacity in Europe. 4 (Loss)/profit relating to fixed assets The disposal of surplus Group properties during 2005 generated cash proceeds of Â£10.3m (2004: Â£1.4m) and resulted in (loss)/profit of nil. The loss of Â£16.8m reported in 2004 comprised an impairment charge of Â£17.9m in respect of the Group's revenue-sharing arrangement related to a fibre optic cable network in the USA, net of a profit of Â£1.1m on the sale of surplus property. 5 Net finance costs Disclosed separately on the face of the income statement as net finance costs from other activities is a charge of Â£1.2m (2004: Â£5.4m credit). The 2005 charge related to the write-off of unamortised fees associated with the Company's Â£148m multicurrency revolving credit facility, which was replaced by a new Â£200m facility as announced on 1 March 2005. The 2004 credit represents deferred income relating to interest rate swaps that were closed-out in prior years. As stated in note 1, on adoption of IAS 39 with effect from 1 January 2005, the remaining such deferred income on the Group balance sheet was credited to opening Group reserves. 6 Income tax The total charge for income tax of Â£42.8m for 2005 (2004: Â£32.2m) comprises a tax charge on ongoing activities of Â£28.4m, representing an effective rate of 30.3% (2004: 30.0%) on profit from continuing operations excluding the Group's share of post-tax joint venture income, together with a Â£14.4m charge from other activities. The progressive migration of business operations away from jurisdictions where the Group has accumulated unutilised tax losses is expected to result in an increase in the Group's effective tax rate going forward. The total charge from other activities includes a charge of Â£16.6m relating to the write-off of deferred tax assets in the US, based on the Directors' current forecast of the near-term capacity of the Group's US businesses to generate taxable profits at a level which would allow for the recovery of prior period tax losses previously capitalised as deferred tax assets. Also included is a charge of Â£3.5m relating to deferred tax on goodwill, due to the fact that goodwill for Group accounts purposes is no longer amortised, although amortisation charges are still allowed as a deduction for tax purposes in certain jurisdictions in which the Group operates. The 2005 charge is net of a tax credit of Â£5.7m in respect of rationalisation costs incurred in the year. The comparative charge for 2004 includes Â£4.8m in respect of the net write-off of tax assets and provisions, Â£4.1m in respect of deferred tax on goodwill and a credit related to rationalisation costs of Â£1.0m. 7 Net post-tax loss on disposal of operations Of the net post-tax loss on disposal of operations of Â£46.2m in 2005, Â£41.7m related to discontinued operations, comprising a loss of Â£52.5m related to the sale of the Group's Laminates businesses and a profit of Â£10.8m related to the sale of Specialty Coating Systems, Inc. ('SCS'), both formerly part of the Electronics division. The Â£4.5m net loss from continuing operations, after a tax cost of Â£1.6m, includes the disposal of the Group's Technical Ceramics business, formerly a part of the Ceramics division, plus a number of additional trailing costs related to previous years' disposals. The Company announced on 15 December 2005 that it had entered into an agreement to sell its Laminates business to Isola Group S.A.R.L, for US$91m (Â£51m). Isola Group S.A.R.L. is ultimately owned by Texas Pacific Group. Completion of the transaction is conditional on satisfactory clearance from the European competition authorities and is expected during the first half of 2006. The purchase price will be satisfied on completion by a combination of cash proceeds and an assumption of net debt. SCS was sold on 31 December 2005 to Bunker Hill Capital for US$55.5m (Â£30m). The consideration was satisfied by way of an immediate cash payment of US$54.0m (Â£29.4m), with an additional US$1.5m (Â£0.8m) to be paid upon closing of the sale of the SCS China business in 2006. The consideration on both the Laminates and SCS deals will be subject to completion balance sheet adjustments in respect of working capital and capital expenditure, which are not expected to be material. The net loss on disposal of discontinued operations includes a write-off of associated deferred tax assets of Â£5.1m and a write-off of goodwill and other intangible assets of Â£35.1m. In accordance with IFRS 5, the assets and liabilities of the Laminates business have been disclosed in the Group balance sheet, respectively, as assets and liabilities 'held for sale' at fair value less costs to sell, but prior year comparatives are not restated. The net loss for 2004 of Â£34.9m included the sale of the Ceramics division's loss-making European silica-zinc brick business at a loss of Â£30.6m and Â£5.1m related to the winding-up of the Laminates sector's joint venture with Fukuda. The total loss included a tax credit of Â£2.6m. 8 Earnings per share Earnings per share are calculated using a weighted average of 188.5m ordinary shares in issue during the period (2004: 188.3m). The ordinary shares held by the Group's Employee Share Ownership Plan ('ESOP') have been excluded from the weighted average number of shares, as these shares are held within retained earnings. The ESOP held 1.2m ordinary shares as at 31 December 2005 (2004: 1.2m). Diluted earnings per share are calculated assuming conversion of all outstanding dilutive share options. Outstanding share options are only treated as dilutive when their conversion to ordinary shares would decrease earnings per share or increase loss per share. These adjustments give rise to an increase in average ordinary shares of 1.1m (2004: nil). The number of ordinary shares in issue as at 31 December 2005 was 190.4m (2004: 189.6m). The number of ordinary shares used in the calculation of earnings per share takes into account the share consolidation approved at the Company's Annual General Meeting held on 26 May 2005 whereby shareholders received one new ordinary share of 10p each for every 10 existing ordinary shares of 1p each held at the close of business on 26 May 2005. On the face of the Group income statement, both earnings per share and headline earnings per share are shown, together with the calculation of the latter measure. The Directors believe that the non-GAAP measure of headline earnings per share gives an important measure of the underlying earning capacity of the Group. 9 Intangible assets As at 31 December 2005, total intangible assets are comprised solely of goodwill of Â£481.6m (2004: Â£478.3m). Goodwill is carried unamortised, but is subject to annual review for impairment. The goodwill of Â£26.6m that was being carried in the Group balance sheet which related to the Group's Laminates business has, together with the other assets relating to that business, been reported within assets held for sale as at 31 December 2005 and written-down to its recoverable amount based on the agreement to sell the business, which was announced in December 2005. No other impairment charge was made in either the current or comparative periods. The other intangible assets balance of Â£6.9m reported in 2004 related to a perpetual licensing agreement of the Laminates business in the US which was being amortised over its estimated 10 year useful life and which, along with the other Laminates assets, was reported within assets held for sale at 31 December 2005. The amortisation charge in 2005 in respect of the licensing agreement was Â£0.8m (2004: Â£0.8m). 10 Acquisition of subsidiaries The cash consideration paid of Â£10.6m (2004: Â£12.0m) in respect of the acquisition of subsidiary companies mainly comprised Â£8.9m of deferred consideration for prior year acquisitions. 11 Other investments Other investments of Â£11.2m as at 31 December 2005 comprise mainly equity securities available for sale of Â£6.2m (2004: nil) and Â£3.0m (2004: Â£3.1m) in respect of a 20-year revenue-sharing arrangement with Electric Lightwave, Inc. related to a fibre optic cable network in the US. Other investments at 31 December 2004 included Â£6.4m in respect of monies held in Rabbi Trusts in the US which are held to fund certain of the Group's US pension liabilities. These assets are not recognised by IAS 19 as being pension assets. On 1 January 2005, the Group adopted IAS 32 and IAS 39, and as such Â£8.5m in respect of monies held in Rabbi Trusts have been disclosed within other financial assets as at 31 December 2005 and held at fair value. 12 Other financial assets As described in note 11 above, with the adoption of IAS 32 and IAS 39 in the current period, Â£8.5m in respect of monies held in Rabbi Trusts have been disclosed within other financial assets as at 31 December 2005. In addition, Â£3.7m of derivative financial instruments yet to mature as at the end of the reporting period are reflected on the Group balance sheet as financial assets in accordance with the requirements of IAS 39. 13 Issued capital At the Company's Annual General Meeting held on 26 May 2005, shareholders approved a share consolidation. The share consolidation took effect following the close of business on 26 May 2005, with shareholders receiving one new ordinary share of 10p each for every 10 existing ordinary shares of 1p each held at the close of business on 26 May 2005. Trading in the new ordinary shares of 10p commenced on 27 May 2005. At an Extraordinary General Meeting of the Company held on 12 January 2006, shareholders approved special resolutions to reduce the issued share capital of the Company by cancelling and extinguishing the deferred shares of 49p each. On 15 February 2006, the High Court of Justice confirmed the reduction of capital of the Company from Â£550.0m (divided into 1,934,963,124 ordinary shares of 10 pence each and 727,558,546 deferred shares of 49 pence each) to Â£193.5m (divided into 1,934,963,124 ordinary shares of 10 pence each). The Order of the Court was registered on 15 February 2006 and the reduction of capital, including therefore the cancellation of the deferred shares, was effective on that date. Upon their cancellation, the balance of Â£356.5m in respect of the deferred shares became a non-distributable reserve of the Company. This reserve becomes distributable only at such time when all external creditors of the Company as at 15 February 2006 have either been fully settled, or have agreed that this reserve may be deemed distributable. Also at the Extraordinary General Meeting of the Company held on 12 January 2006, Shareholders approved a special resolution to amend the Company's Articles of Association to facilitate termination of the Company's registration with the Securities Exchange Commission ('SEC') of the US. The amendment included a provision conferring upon the Board the power to require ordinary shares which are held directly or indirectly by US resident shareholders to be sold in order to reduce the number of such shareholders below 300, as presently required by the SEC for termination of registration. In order to avoid the costs of complying with SEC registration requirements in respect of the financial year ended 31 December 2005, the Board commenced exercising these compulsory transfer provisions soon after the amendment was approved by shareholders and, having reduced the number of US resident shareholders below 300, the Company announced on 21 February 2006 that it had filed a Form 15 with the SEC to terminate the SEC registration of its ordinary shares. SEC de-registration will occur 90 days after 21 February 2006 or such shorter period as the SEC may determine. On filing of the form, the Company's obligations to file certain forms and reports with the SEC, including Forms 20-F and 6-K, were suspended. Under currently applicable SEC regulations, after the de-registration takes effect, the number of the Company's US resident shareholders must remain below 300 at each financial year end to avoid re-commencement of SEC reporting and other applicable US obligations. The Company's Articles of Association give the Company's Directors the ability to limit the number of the Company's US resident shareholders for this purpose. 14 Share premium account At 31 December 2005 the share premium account amounted to Â£645.5m (2004: Â£643.4m), the movements during 2005 representing the effect of share option exercises. At an Extraordinary General Meeting of the Company held on 12 January 2006, shareholders approved a special resolution to cancel the share premium account of the Company. The cancellation became effective on 15 February 2006 upon registration of the order of the High Court of Justice with the Registrar of Companies, at which date the balance of Â£646.9m on the account became a non-distributable reserve of the Company. This reserve becomes distributable only at such time when all external creditors of the Company as at 15 February 2006 have either been fully settled, or have agreed that this reserve may be deemed distributable. 15 Employee benefits The balance of Â£224.8m in respect of 'Employee benefits' as at 31 December 2005 results from an interim actuarial valuation of the Group's defined benefit pension and other post-retirement obligations as at that date (2004: Â£189.9m). Of the total balance, Â£178.5m relates to the combined deficits of the Group's principal defined benefit pension schemes in the UK and the US (2004: Â£146.2m). Of the remainder of the total, Â£14.3m (2004: Â£12.5m) relates to defined benefit pension arrangements in the rest of the world and Â£32.0m (2004: Â£31.2m) relates to unfunded post-retirement benefit arrangements, being mainly healthcare benefit arrangements in the US. The valuation of the Group's pension arrangements at 31 December 2005 represents a 'roll-forward' from the date of the last full individual scheme valuations, which was 31 December 2003 in the case of the UK pension scheme and 31 December 2004 for the US pension schemes. For the UK and US pension schemes, changes in actuarial assumptions, namely a reduction in discount rates and an increased allowance for mortality rate improvements, together resulted in a Â£54.2m addition to the combined scheme liabilities. Together with a net increase in asset performance of Â£23.6m, these movements represent the main components of the increase in the combined valuation deficit from 2004 to 2005 of Â£32.3m. For valuation purposes, the discount rates used were 4.75% for the UK (2004: 5.25%) and 5.50% for the USA (2004: 5.75%). The mortality assumptions used in the Group's actuarial valuations since transition to IFRS have been amended to assume that pensioners have a longer life expectancy. The mortality assumptions used in the valuation of the defined benefit pension liabilities of the Group's UK and US plans are summarised in the table below and have been selected to reflect the characteristics and experience of the membership of those plans. This has been done by adjusting standard mortality tables which reflect recent research into mortality experience in the UK (PA 92 tables combined with the 2002 short cohort improvement factors) and the USA (UP-94 tables using projection scale AA). In addition, the UK assumptions have been further adjusted to reflect the latest available trend information, which indicates that mortality relating, in particular, to blue collar workers may not be improving as quickly as indicated by the standard tables. Accordingly, based on an analysis of the mix of blue and white collar workers in the Group's plan, the UK assumptions have been adjusted (using a scaling factor of 118.75%) to reflect a lower level of longevity amongst the blue collar membership. UK US ------------------------------------------------------------------------------------------ ----------------------- 2005 2004 2005 2004 years years years years ------------------------------------------------------------------------------------------ ----------------------- Longevity at age 65 for current pensioners: - Men 19.7 18.4 17.7 17.7 - Women 22.4 21.3 20.6 20.6 Longevity at age 65 for future pensioners: - Men 20.4 19.3 18.5 17.7 - Women 23.1 22.3 21.0 20.6 ------------------------------------------------------------------------------------------ ----------------------- The total charge against trading profit in the income statement for 2005 in respect of the Group's defined benefit pension and other post-retirement obligations was Â£14.8m (2004: Â£15.6m). In addition to the regular funding contributions into the Group's UK defined benefit pension plan, the Company has, in agreement with the plan Trustee, been making additional funding contributions aimed at accelerating the reduction in the plan deficit. Additional contributions of Â£6.5m were made in 2004 and Â£10.0m in 2005. 16 Exchange rates The Group reports its results in pounds sterling. A substantial portion of the Group's revenue and profits are denominated in US dollars and in currencies other than pounds sterling. It is the Group's policy to translate the income statements and cash flow statements of overseas operations into pounds sterling using average annual exchange rates and to translate the balance sheet using year end rates. The principal exchange rates used were as follows: Year end rate Average rate ------------------------------------------------------------------------------------------ -------------------- 2005 2004 2005 2004 ------------------------------------------------------------------------------------------ -------------------- US dollar ($ per Â£) 1.72 1.92 1.82 1.83 Euro (â‚¬ per Â£) 1.46 1.41 1.46 1.48 Singapore dollar (S$ per Â£) 2.85 3.15 3.03 3.09 Hong Kong dollar (HK$ per Â£) 13.31 14.94 14.17 14.25 Japanese yen (Y per Â£) 203 198 200 198 Chinese Renminbi (RMB per Â£) 13.85 15.90 14.81 15.08 ------------------------------------------------------------------------------------------ -------------------- 17 Reconciliation of movement in net debt Balance Opening Foreign Transferred Refinancing Cash Balance at debt exchange to held and issue flow at 1 January adjustment adjustment for sale costs 31 December 2005 2005 Â£m Â£m Â£m Â£m Â£m Â£m Â£m ------------------- ------- -------- -------- -------- -------- ------- -------- Short-term deposits 4.3 - 0.2 - - (4.5) - Cash at bank and in 43.1 - 10.9 - - 11.9 65.9 hand Bank overdrafts (3.4) - (0.1) - - 1.1 (2.4) ------------------- ------- -------- -------- -------- -------- ------- -------- Cash and cash 44.0 - 11.0 - - 8.5 63.5 equivalents ------- Other loans and finance leases: ------- - Current (39.7) - (2.9) 0.9 - 27.8 (13.9) - Non-current (328.2) 1.1 (34.5) 1.2 - 17.4 (343.0) Refinancing costs 2.1 - - - (1.0) - 1.1 and issue costs ------------------- --- ------- -------- -------- -------- -------- ------- -------- Other loans and (365.8) 1.1 (37.4) 2.1 (1.0) 45.2 (355.8) finance leases ------- ------------------- --- ------- -------- -------- -------- -------- ------- -------- Net debt (321.8) 1.1 (26.4) 2.1 (1.0) 53.7 (292.3) ------------------- --- ------- -------- -------- -------- -------- ------- -------- 18 Dividend The Directors have recommended a dividend of 5.0p per ordinary share (2004: nil) as a final dividend in respect of the year ended 31 December 2005. If approved by shareholders at the Company's Annual General Meeting the dividend will be paid on 12 June 2006 to ordinary shareholders on the register at 26 May 2006. Based upon the number of ordinary shares in issue at 31 December 2005, the total cost of the dividend would be Â£9.5m (2004: nil). This information is provided by RNS The company news service from the London Stock Exchange

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