Finance Directors Report

Financial overview

Headline operating profit111.1107.4
Amortisation of acquired intangible fixed assets(3.9)(4.5)
Operating profit prior to exceptional items107.2102.9
Acquisition costs(0.2)
Reorganisation costs(0.8)
Operating profit107.0102.1
Net finance charge(3.3)(3.7)
Profit before taxation103.798.4
Profit for the year79.373.1

Group revenue was £609.1m, a decrease of 1.7%, with revenues at constant exchange rates up 4.0% and foreign exchange rate movements having a negative impact of 5.7%.

Headline operating profit for the year increased by 3.4% from £107.4m to £111.1m and headline operating margin was 18.2% (2013: 17.3%). Headline operating profit at constant exchange rates increased by £9.9m, but adverse foreign exchange rate movements reduced the reported increase by £6.2m to £3.7m.

The amortisation of acquired intangible assets arises from acquisitions in the current and prior years. The charge has decreased to £3.9m (2013: £4.5m).

Operating profit was £107.0m (2013: £102.1m) after charging £3.9m (2013: £4.5m) in respect of the amortisation of acquired intangible assets and £0.2m (2013: £nil) of acquisition costs. During 2013 reorganisation costs of £0.8m were also charged to the income statement.

Headline operating cash flow1 for the Group was £100.0m (2013: £108.9m). This was 90.0% of headline operating profit (2013: 101.4%). Net capital expenditure was 1.0 times depreciation (2013: 1.0 times) as the Group continued to focus on increasing the utilisation of existing equipment. There was a working capital outflow in the year mainly due to a decrease in the level of payables, resulting from the timing of capital expenditure payments and the utilisation of environmental provisions, and an increase in the levels of inventories and receivables, in line with trading activity.

After deducting interest and tax, the Group recorded positive free cash flow2 of £75.1m (2013: £78.8m).

Exceptional costs

Total exceptional costs charged to the income statement amounted to £0.2m (2013: £0.8m). Acquisition costs of £0.2m (2013: £nil) have been incurred and no reorganisation costs were expensed in the year (2013: £0.8m).

Restructuring provisions outstanding at 31 December 2014 totalled £9.4m (2013: £8.6m). Of the remaining costs, £5.2m is expected to be spent in 2015 and £4.2m in 2016 and later. All expenditure after the end of 2015 relates to ongoing environmental remediation, primarily in the USA.

Profit before taxation

Headline profit before taxation was £107.8m (2013: £103.7m). Profit before taxation was £103.7m (2013: £98.4m). These amounts are reconciled as follows:

Headline operating profit111.1107.4
Net finance charge(3.3)(3.7)
Headline profit before taxation107.8103.7
Amortisation of acquired intangible fixed assets(3.9)(4.5)
Profit before taxation prior to exceptional items103.999.2
Acquisition costs(0.2)
Reorganisation costs(0.8)
Profit before taxation103.798.4

Finance charge

The net finance charge was £3.3m compared to £3.7m in 2013. The decrease primarily results from lower average net debt in 2014 than in 2013, offset by higher financing costs due to facility arrangement fees related to the extension of the Revolving Credit Facility completed in July 2014.

Net interest payable0.20.6
Financing costs1.61.5
Bank and other charges0.91.0
Pension finance charge0.60.6
Net finance charge3.33.7


The taxation charge was £24.4m for the year (2013: £25.3m).

The effective taxation rate of 23.5% (2013: 25.7%) resulted from the blending of differing tax rates in each of the countries in which the Group operates. The reduction in the taxation rate is primarily due to a one-off benefit in the year following the settlement of historical overseas tax matters.

The headline taxation rate for 2014 was 22.7% (2013: 24.7%), being stated before accounting for exceptional items and amortisation of goodwill and acquired intangibles, which are generally not allowable for tax purposes.

Earnings per shareEmerging Per Share Icon

Basic headline earnings per share (as defined in note 9) increased to 43.8p from 41.2p. Basic earnings per share for the year increased to 41.7p from 38.5p.


The Board has recommended a final ordinary dividend of 9.8p (2013: 9.1p) bringing the total ordinary dividend to 14.4p per share (2013: 13.5p). The Board has also recommended a supplemental distribution, by way of a special dividend, amounting to 20.0p per share (2013: 10.0p). If approved by shareholders, the final ordinary dividend of 9.8p per share for 2014 and the supplemental distribution of 20.0p per share for 2014 will be paid on 1 May 2015 to all shareholders on the register at the close of business on 27 March 2015.

Capital structure

The Group's balance sheet at 31 December 2014 is summarised below:

Net Assets
Property, plant and equipment434.6434.6
Goodwill and intangible assets172.1172.1
Current assets and liabilities151.1(159.6)(8.5)
Other non-current assets and liabilities1.6(14.1)(12.5)
Retirement benefit obligations(17.0)(17.0)
Deferred tax27.2(60.7)(33.5)
Total before net cash786.6(251.4)535.2
Net cash38.5(2.8)35.7
Net assets as at 31 December 2014825.1(254.2)570.9
Net assets as at 31 December 2013808.6(261.2)547.4

Net assets increased by £23.5m (4.3%) to £570.9m (2013: £547.4m). At constant exchange rates, net assets increased by £42.6m (7.8%). The major movements compared to 31 December 2013 were an increase in net cash of £20.7m and a decrease in payables of £12.8m, together with a decrease in property, plant and equipment of £10.0m.

The decrease in property, plant and equipment was due predominantly to additions of £55.3m offset by depreciation of £50.3m, asset impairments of £2.7m and foreign exchange movements of £10.7m.

Trade and other payables decreased by £12.8m due to the impact of foreign exchange and the timing of capital expenditure payments.

Retirement benefit obligations decreased by £1.5m during the year, largely as a result of the increase in the value of scheme assets exceeding the increase in liabilities, the latter being principally due to reduced bond yields.

Net cash

Group net cash at 31 December 2014 was £35.7m (2013: £15.0m). The Group continues to have access to committed facilities at competitive rates and therefore currently deems this to be the most effective means of funding.

Cash flow

The net increase in cash and cash equivalents was £21.3m (2013: £13.7m), made up of net cash from operating activities of £131.6m (2013: £139.4m), less investing activities of £54.8m (2013: £58.2m) and less cash used in financing activities of £55.5m (2013: £67.5m).

The decrease in net cash flow from operating activities from £139.4m to £131.6m was driven primarily by the decrease in headline EBITDA3 from £168.9m to £165.5m and the £9.6m decrease in payables.

Net cash outflows from investing activities decreased from £58.2m to £54.8m, primarily as a result of greater proceeds on disposal of property, plant and equipment in 2014 compared to the prior year. The level of net capital expenditure in 2014 was £53.8m (2013: £57.3m), consistent with plans to maintain and improve the capacity and capability of the Group, whilst keeping expenditure levels close to depreciation.

Net cash outflows used in financing activities decreased from £67.5m to £55.5m, due primarily to the reduction in loan repayments, from £36.6m in 2013 to £0.5m in 2014, offset by the increase in dividend payments, from £24.0m in 2013 to £45.2m in 2014.

There has been a continued focus on cash collection, although receivable days at 31 December 2014 increased by one to 60 days (2013: 59 days).

Net interest payments for the year were £2.7m (2013: £3.3m). Tax payments were £19.0m (2013: £22.5m).

Capital expenditure

Net capital expenditure (capital expenditure less proceeds from asset disposals) for the year was £53.8m (2013: £57.3m). The multiple of net capital expenditure to depreciation was 1.0 times (2013: 1.0 times), which reflects the Group's continued careful management of its capital expenditure programme. Major capital projects that were in progress during 2014 included expansion of our production facilities in Mexico, completion of the Kunshan facility in China, and expansion of our S3P capacity. The Group also continued to invest in the implementation of a new ERP system. As a consequence of the timing of these key projects, the value of assets under construction has increased by £9.9m, from £32.1m in 2013 to £42.0m in 2014.

Borrowing facilities

The Group is financed by a mix of cash flows from operations, short-term borrowings, longer term loans and finance leases. The Group's funding policy aims to ensure continuity of finance at reasonable cost, based on committed and uncommitted facilities and loans from several sources over a spread of maturities. The Group continues to have access to committed facilities at competitive rates and therefore currently deems this to be the most effective means of longer term funding.

On 2 July 2014, the £125m and €125m revolving credit facilities were replaced by a single committed revolving credit facility for £230m, maturing on 3 July 2019. The amendment and maturity profile extension gave rise to a reduction in both the drawn margin and undrawn commitment fees.

The total undrawn committed facility funding available to the Group at 31 December 2014 was £230.0m (2013: £229.0m). The Group also has access to a US$10m committed letter of credit facility maturing in August 2016.

At 31 December 2014, the Group had the following committed facilities:


Loan and
Letter of
£230m Revolving Credit3 July 2019230.0230.0
$10m Letter of Credit31 August 20166.41.74.7

Capital management

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns, while maximising the return to shareholders. The capital structure of the Group consists of debt, which includes borrowings, cash and cash equivalents, and equity attributable to equity holders of the parent, comprising capital, reserves and retained earnings.

The capital structure is reviewed regularly by the Board. The Group's policy is to maintain gearing, determined as the proportion of net debt to total capital, within defined parameters, allowing movement in the capital structure appropriate to the business cycle and corporate activity. Due to the net cash position at 31 December 2014 the gearing ratio is 0% (2013: 0%).

Defined benefit pension arrangements

The Group has defined benefit pension obligations in the UK, Germany, Switzerland, Liechtenstein and the USA and cash lump sum obligations in France, Italy and Turkey, the liabilities for which are reflected in the Group balance sheet.

The net deficits in these arrangements are as follows:

Other Western Europe1.61.2
North America0.60.2
Western Europe13.712.1
Emerging markets0.10.2
Total deficit17.018.5

The UK plan is closed to new entrants but the 82 active members continue to accrue benefits. The arrangements in France, Italy and Turkey are open to new members. All other arrangements are closed to new entrants.

UK Scheme liabilities have increased by £17.6m over the year (2013: £85.7m, 2014: £103.3m). This is primarily due to a change in the discount rate which has been reduced to 3.3% (2013: 4.5%), reflecting lower bond yields. The value of scheme assets has increased in the year by £21.4m, from £80.9m in 2013 to £102.3m in 2014, reflecting the significant proportion of bonds in the portfolio. The accounting deficit has consequently reduced to £1.0m at 31 December 2014 (2013: £4.8m).

The liability for all other schemes was £16.0m (2013: £13.7m). The increase is driven by lower bond yields and hence the discount rates used to evaluate the present value of the liabilities.

Post balance sheet events

There are no post balance sheet events that require disclosure in the financial statements.

Going concern

In determining the basis of preparation for the Annual Report, the directors have considered the Group's business activities, together with the factors likely to affect its future development, performance and position. This includes an overview of the Group's financial position, cash flows, liquidity position and borrowing facilities.

The Group meets its working capital requirements through a combination of cash resources, committed and uncommitted facilities and overdrafts. The overdrafts and uncommitted facilities are repayable on demand but the committed facilities are due for renewal as set out below. There is sufficient headroom in the committed facility covenants to assume that these facilities can be operated as contracted for the foreseeable future.

The committed facilities as at 31 December 2014 were as follows:

  • £230m Revolving Credit Facility maturing 3 July 2019
  • $10m Letter of Credit Facility maturing 31 August 2016

The December 2014 weighted average life of the committed facilities was 4.4 years.

The Group's forecasts and projections, taking account of reasonable potential changes in trading performance, show that the Group should be able to operate within the level of its current committed facilities.

The directors have reviewed forecasts and projections for the Group's markets and services, assessing the committed facility and financial covenant headroom, central liquidity and the Group's ability to access further funding. The directors also reviewed downside sensitivity analysis over the forecast period, thereby taking into account the uncertainties arising from the current economic environment. Following this review, the directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the directors continue to adopt the going concern basis in preparing the financial statements.

D.F. LandlessGroup Finance Director
26 February 2015

  1. Headline operating cash flow is reconciled in the Business performance section.
  2. Free cash flow is reconciled in the Business performance section.
  3. Headline EBITDA is reconciled in the Business performance section.