22nd Feb 2006 10:50
Croda International PLC22 February 2006 The following amendment is made to RNS number 7466Y. In the Condensed Group Balance sheet, Assets classified as held for sale shouldread 15.4, not 5.4 as shown. Wednesday, 22 February 2006 Croda International Plc Preliminary Results Announcement Year to 31 December 2005 Highlights Croda reports record results for 2005 2005 2004 Sales for continuing operations £305.6m £280.9m + 8.8% Pre-tax profit for continuing operations £49.2m £43.1m + 14.2% Earnings per share - continuing operations 24.7p 21.2p + 16.5% Earnings per share - basic 25.6p 23.3p + 9.9% Dividend per share 13.35p 12.5p + 6.8% • Record pre-tax profit of £49.2m, up over 14% • Sales for continuing operations up by almost 9% • Consumer Care operating margin in excess of 21% • Final dividend increased by over 7% to 9p per share • Ongoing demand good and product pipeline strong Commenting on the results, Chairman, Martin Flower, said: "This has been an excellent year for the Group and continues to vindicate thestrategy we are following. Overall pre-tax profits on continuing operationswere up over 14% at £49.2m on sales almost 9% ahead at £305.6m. The early signsare that the firm demand witnessed in 2005 has continued into the New Year andwe remain confident of delivering further profitable growth in 2006." For further information, please contact: Mike Humphrey, Chief Executive Tel: 01405 860551Barbara Richmond, Group Finance Director Tel: 01405 860551Charlie Watenphul or Andrew Dowler, Financial Dynamics Tel: 0207 831 3113 Or visit our web site at: www.croda.com where the presentation to analysts willbe available by midday today. Chairman's Statement 2005 In my first statement as Chairman, I am pleased to be able to report on such anexcellent set of full-year results, our first to be prepared under InternationalFinancial Reporting Standards. Overall pre-tax pre-exceptional profits for 2005were £51.1 million (2004 £45.8 million) and on continuing operations were upover 14 per cent at £49.2 million, compared with £43.1 million the previousyear, on sales almost 9 per cent ahead at £305.6 million (2004 £280.9 million).Following the significant adverse impact of currency movements on our 2004results, there was little effect in 2005 as the average rate for our maintrading currencies, the US Dollar and the Euro, moved less than 1 per cent inour favour. Whilst the mix of our profits resulted in a small increase in our tax rate to35.8 per cent (2004 35.3 per cent), earnings per share for continuing operationswere still up 16.5 per cent at 24.7 pence compared to last year's 21.2 pence.Basic earnings per share were 25.6 pence (2004 23.3 pence). Therefore, yourBoard is recommending a 7.1 per cent increase in the final dividend to 9 pence,giving a 6.8 per cent increase for the year to a total of 13.35 pence. Thedividend is covered 1.9 times at this level. Although we spent a net £21.8million on buying back shares, net debt at the year-end increased by only £9million, to £24.2 million, as the Group continued its recent record of strongcash generation. The Group's chosen strategy of focusing on its core competencies underpins thisyear's performance, which built on the progress achieved in 2004. The processcontinued in 2005 as we announced the disposal and closure of our small metaltreatments division and commenced the process of selling the shares in ourassociate company Baxenden Chemicals Limited. Both businesses are treated asdiscontinued operations in these results. All of our growth in 2005 was organic. However, we continue to evaluate acquisition opportunities in our corebusiness areas. The year saw a number of exciting developments coming forward from our recentlyestablished Enterprise Technologies group, the benefits from which we will beginto see in 2006. Elsewhere we continued to launch many new and improved productsin response to customer and market needs. Growth was seen in all of the market and geographic segments that we report inour financial statements. Consumer Care sales grew by over 10 per cent to leaveoperating margins in excess of 21 per cent, with Industrial Specialities seeinga lower but still impressive sales advance approaching 6 per cent. Our salesgrowth in the Americas was particularly strong at over 14 per cent. On the faceof it our growth in Asia was a little disappointing at just under 5 per cent.However, lower sales in Japan masked growth of over 20 per cent and 40 per centrespectively in our fledgling markets of China and India. We are in the processof establishing a wholly owned sales company in China to enhance our existingposition in this dynamic market. On the cost side, we saw our energy costs rise sharply towards the end of theyear, particularly in the UK, where energy costs are unjustifiably higher thanthose of our neighbours in Continental Europe. We would like to thank all our employees for their efforts over the last year.We were particularly pleased that so many of our employees were able to benefitfrom the Company's recent impressive share price performance at the five-yearmaturity date of their investments in our all-employee share schemes. The Board I should also like to take this opportunity to thank my predecessor as Chairman,Antony Beevor, for his service to Croda. Antony joined the Board in 1996 andbecame Chairman in 2002 before retiring in September last year. Antony was acommitted supporter of Croda and led the Board with great wisdom and foresightthrough a very successful period for the Company. We are also sorry that we shall be losing the services of Barbara Richmond, ourFinance Director, at the end of March. Barbara has done an outstanding job overthe last nine years, and has played a major role in the successful developmentof Croda. We wish her well in her future career. I am pleased to report that David Dunn, our Senior Independent Director, hasagreed to continue on the Board for a further three years until 2009. The Boardis fortunate to be able to count on David's continuing advice and support. Outlook This has been an excellent year for the Group and continues to vindicate thestrategy we are following. The early signs are that the firm demand witnessedin 2005 has continued into the New Year and we remain confident of deliveringfurther profitable growth in 2006. Operating Review Around the World in 80 Years In its 80th year of existence, Croda has become a truly global company. Thoughfounded in 1925, it wasn't until 1968 that Croda became Croda International - aname which was, at the time, a triumph of prescience over reality. Total salesin 1968 were £27m with exports from the UK at £3.2m. Croda operated in eightoverseas countries, but two were small raw material depots and one was a nascentjoint venture in Japan. The majority of overseas sales were in North America. Today there are Croda operations in 26 countries throughout Europe, theAmericas, Asia and Africa. We have modern manufacturing plants in the UK,France, USA, Brazil, Singapore and Japan. For the first time in our historyover half of the employees are based outside of the UK. Our highly skilled,technical marketing network is a vital support to our global customer base andis the envy of our competitors. As with all things in Croda, innovation is thekey. Our managers are local, speaking the language of the customer in the mostimportant markets of the world. Our communication and distribution networkanticipates the globalisation of our target markets, so that we are ready tosupport and sell into our customers' global expansion. Indigenous customers arecherished and are supported with the latest technology wherever they are in theworld. Croda exports over 75% of its UK production and overseas sales are now87% of global turnover. We sell products from UK plants into Japan, from Japaninto France, from France into the USA, from the USA into Brazil, from Brazilinto Singapore and from Singapore into the UK. We have a global manufacturingfootprint and we make products where it's best for the business and best for thecustomer. This global approach has produced a record result for 2005. Sales fromcontinuing operations were up by 8.8% (7.6% in constant currency) and pre-taxprofits increased by over 14% to an all time high. In the face of strong headwinds from escalating energy costs and rising rawmaterial prices, we continued to achieve strong margins. Currency wasmarginally positive to profits. Our investment in new products increased, andthe new Enterprise Technologies initiative will launch products in two major newareas in early 2006. These are innovative inorganic sunscreens and a new rangeof polymers for the Personal and Health Care markets - sectors where Croda hasno historical position. We continued our successful cash generation resultingin excellent trading flows and the net £21.8m buy back of shares into treasury.Capital expenditure was unusually low. This is a great tribute to the ingenuityand dedication of our engineering and plant personnel worldwide who managed onceagain to give the Company all the required extra capacity at very low cost. Insupport of our many new projects, we anticipate a return to more normal levelsof capital expenditure in 2006. Sales in the UK from continuing businesses were flat with sales in the rest ofEurope up by nearly 10%, with good growth in the larger markets of Germany,France and Italy. Sales in the Americas were up nearly 15%, with excellent growth in the USA,Brazil and most Latin American destinations. Excluding Japan, Asian sales grew by 17% led by strong performances in China,Korea and India. Sales were down in Japan as we exited some low margin, highvolume import business. Sales in the Middle East rebounded from a poor 2004.Our weakest areas were Africa and Australasia and sales were flat in bothregions. Our focus on Personal Care once again proved successful, with excellent growthin our largest sector. Health Care sales grew, but more slowly than previousyears due to temporary plant difficulties in the second half of 2005. Thesewere quickly resolved and we expect a return to the high levels of growth seenin recent years. We also achieved welcome growth in Plastics Additives whilstmaintaining our improved margins. During the year, we closed the small manufacturing plant at Moss Bank, Widnesand outsourced the manufacture of a minor product range. We also announced thatwe would exit the Application Chemicals business which operates in the demandingmarkets of steel and engineering. This will take place during the first half of2006. We have also begun the process of selling our associate company, BaxendenChemicals. Following the successful roll-out of our SAP system in the USA, theimplementation at Sederma was completed successfully. The global roll-out willbe complete when Croda Japan goes live in 2006. This steady and successful ERPimplementation is a credit to the talented in-house team. The continuous expansion of our vital R & D teams resulted in more successfulnew products and processes which will add much value going forward. At the sametime we expanded our global sales and marketing network with new management inChina and a new operation in Colombia. Consumer Care The core business performed strongly in 2005, with sales up by over 10% andoperating profit rising by 8.1%. On continuing operations it accounts for 68%of Group turnover and over 85% of operating profit. The margin of over 21% onceagain supports our view that it is a true speciality business, driven byinnovation and a desire to add value for customers worldwide. This performanceis a tribute to the effort of the global teams as it was achieved in the contextof a very unfavourable climate of cost increases in energy and a number of keyraw materials. Personal Care is our largest market sector. There was strong, profitable growthin all our product sectors including Sederma and in all our target geographicmarkets. A record number of new product launches will support future growthpossibilities for this ever changing market. In Health Care, sales were only slightly ahead, due to some plant difficultiesleading to supply issues in the third quarter. These problems, relating tohigher value products, were resolved and we are back on track for the plannedlevel of growth. There has been much activity at our major targetpharmaceutical accounts and we expect more trial results in 2006. A number ofnew products being launched and new processes being implemented should underpinfuture new business plans. After the rapid growth in recent times, Home Care sales were also flat.Successful new product launches were counterbalanced by slower sales in some ofthe more traditional products. New projects underway should return this segmentto its recent growth path. In Europe, we moved forward strongly with the notable exception of the UK, wherethe customer base continues to slowly shrink. In all the other major countrieswe saw a strong performance. The manufacturing units increased output, improvedproductivity and kept a close control of costs. The European R & D teamscontinued their successful record in creating profitable new products andprocesses. In the USA, sales were pleasingly ahead achieving a new record after a good yearin 2004. The successful introduction of SAP will make this unit more efficientand customer responsive as we move forward. Sales in Latin America wereexcellent, led by Brazil, Colombia and Venezuela. New capacity in our Brazilianplant should enable further gains to be made in 2006. The North AmericanTechnical Centre, established in 2004, had a strong year for new productintroductions, with an increasing number of projects in the pipeline. In Asia, our Singapore operation had a record year and sales increased acrossthe region apart from in Japan. We exited some high volume, low margin importbusiness which reduced sales. However, an emphasis on higher value productsproduced a record profit. We accelerated our growth in China. A new managementteam and the new headquarters and technical support centre to be opened in May2006 will support future growth. Once again, a number of major consumer care companies increased in size byacquisition. In spite of this, our largest global customer represents less than3.5% of sales and the top ten customers represent less than 20% of globalturnover. Our presence in strong global brands increased and at the same timewe sold to more customers as we increased our penetration in developing markets. Industrial Specialities This sector performed well, led by a good result from Plastics Additives. Salesgrew by almost 6% and profits on continuing operations grew by 64% as theproduct mix improved as we continued the move away from lower margin business. In Plastics Additives, sales increased and margins were maintained in a verycompetitive environment. Selling prices were successfully increased in the wakeof soaring energy costs and rising prices for rapeseed oil. The new additivefor PET bottles is being trialled at a number of major targets in Europe andAsia, following the achievement of European Food Contact approval. US approvalis expected in 2006. Seatons again had a reasonable year with the deliberate loss of low margin, highvolume commodities replaced by higher margin, lower volume speciality oils. InCroda Food Services, sales moved forward well, but rising raw material priceskept profits flat. Summary By every measure of profit, this was a record year for Croda. The strength ofthe global network, the quality of our R & D, the robustness of ourmanufacturing units and the dedication of Croda people produced this fineresult. With the worldwide focus on innovation in everything we do and impetus from ourEnterprise Technologies initiative, we expect more progress in the future. As Barbara Richmond leaves us after 9 exciting years, I would just like to thankher on behalf of all at Croda for the fantastic job she has done as FinanceDirector. We wish her well for the future. On a personal note I will miss herfor her hard work, her ingenuity, her sense of fun and her sheer energy. Financial Review Trading Sales moved ahead again in 2005, by 8.8%, a further year of sales growth by theongoing businesses. As a consequence of the introduction of IFRS, in 2005 we changed thesegmentation of our results in line with the markets we serve and the featuresof those markets. The new segments are Consumer Care (comprising Personal Care,Health Care and Home Care) and Industrial Specialities (comprising PlasticsAdditives and all other markets). These new segments reflect the long term riskand return profiles of the markets in which we operate. Sales in the Consumer Care segment rose 10%, with volumes up by a similarpercentage. Personal Care was the principal driver of this growth. As wecontinue to reduce sales of commodity products, volumes in IndustrialSpecialities were marginally lower. In value terms, however, sales actuallyincreased by almost 6% due to the consequent improvement in the mix of productswe sell. Currency had very little influence on trading in 2005, increasing sales by 1%and having almost no effect on profits. Operating margins remained strong in Consumer Care at over 20% and rose inIndustrial Specialities as we grew the Plastics Additives business and improvedthe mix. Interest Net interest expense in 2005 was the same as in 2004, with the benefit of thereduction in net debt in the first half offset by the increase in the secondhalf as our share buy-back progressed. Taxation The tax rate of 35.8% on continuing operations profits reflects the generationof a significant amount of our earnings overseas in countries where the rate ofcorporation tax is higher than in the UK. Discontinued Operations The discontinued operations comprise two businesses. Firstly our rolling oilsand rust preventives business, Croda Application Chemicals, which is in theprocess of being closed with certain product lines being sold. Secondly, we arein the process of selling the shares in our associate company, BaxendenChemicals Limited based in Accrington, Lancashire. Dividends As earnings continue to grow strongly and we have good cash generation we areable again to increase dividends by more than the rate of inflation whilst atthe same time increasing our dividend cover. Accordingly it is proposed the final dividend is increased by 7% to 9p making atotal of 13.35p (2004 12.5p). At this level dividend cover in total is raisedto 1.9 from 1.8 times in 2004. Cash The combination of good trading performance and lower capital expendituregenerated £15.5m of cash in 2005 before taking into account the share buy-back. The effect of the share buy-back in 2005 was a purchase of 6.1 million shares atan average price of 398p amounting to £24.5m, offset by £2.7m of cash inflow forshares re-issued under employee share schemes which had been purchased in themarket by the Company and held in trust. The net cash outflow in the year fromshare transactions was, therefore, £21.8m. The total purchased since thebuy-back began in 2004 amounts to £30.9m. We expect capital expenditure to increase to more normal levels in 2006. Wealso intend to continue the buy-back of shares into treasury in order to improveour cost of capital, whilst at the same time ensuring we have the capacity forappropriate acquisitions, which will deliver shareholder value. Treasury The Group's treasury policies are approved by the Board and subject to regularreporting and review. The main financial risks faced by the Group relate to currency, interest ratesand the availability of capital. As far as currency risk is concerned, transaction risk is hedged up to threemonths forward by the use of foreign currency bank balances and forward currencycontracts. Translation currency exposure is not hedged but the risk is reducedby matching interest expense to foreign currency earnings where it is efficientto do so. In terms of interest rate risk, the policy is to maintain at least half of theGroup's gross borrowings at floating interest rates, with interest rate swapsbeing used where appropriate. In 2003 the UK regulations on the market purchase and holding of up to 10% of acompany's own shares (Treasury Shares) were amended to enable companies toachieve more flexibility on their levels of debt and equity and thus their costof capital. This gives us an additional means of managing our balance sheet whenconsidered appropriate by your Board. IFRS As you will no doubt be aware, we are now required to produce our accounts inaccordance with IFRS. We published a detailed transition statement on IFRS on 1 June 2005 and our halfyear results were also prepared in accordance with IFRS. The principal impact of the change to IFRS was on the balance sheet, due to theinclusion of the IAS 19 deficit on the pension fund which is explained below. The net impact on pre-tax profits in 2005 of the change to IFRS was only small,with the principal difference being a charge of £1.1m in respect of the Group'semployee share schemes (2004 £0.6m). Pensions Following the transition to IFRS, this year's financial statements recognisepension costs, assets and liabilities in accordance with IAS 19, which providesa very different method of accounting than that previously applied by the Groupunder UK GAAP. Whilst IAS 19 usually results in a more predictable pension costat the operating level and, at least for the following year at the financinglevel, it potentially introduces more volatility in the balance sheet. Afterproviding for the related deferred tax asset, our net IAS 19 pension liabilityat 31 December 2005 was £74.2m (2004 £72.2m). Given the rise in the stock market in 2005 and our trustees policy of investingthe majority of our pension funds' assets in equities one might have expected tosee a reduction in our net pension liability. However, 2005 saw a furthersignificant fall in the corporate bond yield used to calculate our pensionliabilities for IAS 19 purposes, which resulted in those liabilities increasingby more than the assets. Although the net liability has increased, our fundinglevel (the ratio of assets to liabilities) has improved from 74% to 77% asmeasured under IAS 19. By their very nature pension funds are for the long term and the choice ofinvestments and funding decisions should be viewed as such, and not be driven byshort-term volatility in the value of assets or liabilities. At various timesduring the year, using the IAS 19 defined rate, our liabilities were up to £55mlower than as measured at 31 December 2005, and indeed were £25m lower asrecently as 31 October 2005. As with most UK companies we are currently working with the trustees of our UKdefined benefit schemes to agree our scheme specific funding plans andinvestment policies. These plans will determine the ongoing funding of theschemes and the timing of additional cash contributions for deficit reduction.Once those plans have been finalised the Company will disclose their results.We do not expect the outcome of these discussions to have a material effect oncash flow in the short term as any deficit reduction will be spread over time.Our cash contribution to our pension schemes worldwide in 2005 was £8.7m (2004£9.6m). The income statement charge for 2005 and the estimated charge for 2006 for allour pension schemes are presented in the table below. 2006 2005 Estimate Actual £m £m Before operating profit (6.5) (5.9)Financing 3.0 0.4Net cost before tax (3.5) (5.5) You will note that whilst the reduction in corporate bond yields in 2005 had anadverse impact on our liabilities at the end of that year, the lower rate willbenefit our financing cost in 2006. Croda International Plc Preliminary announcement of trading results for the year ended 31 December 2005 Condensed Group income statement 2005 2004 Note £m £mContinuing operationsRevenue 2 305.6 280.9 Cost of sales (214.5) (198.0) ______ ______Gross profit 91.1 82.9 Operating expenses (40.0) (37.9) ______ ______Operating profit 2 51.1 45.0 Net financial expenses 3 (1.9) (1.9) ______ ______Profit before tax 49.2 43.1 Tax (17.6) (15.2) ______ ______Profit after tax from continuing operations 31.6 27.9 Profit after tax from discontinued operations 5 1.2 2.8 ______ ______Profit for the year 32.8 30.7 _____ _____Attributable to: Minority interest 0.1 0.1 Equity shareholders 32.7 30.6 ______ ______ 32.8 30.7 _____ _____ pence per pence per share shareEarnings per share of 10pBasicTotal 25.6 23.3Continuing operations 24.7 21.2 DilutedTotal 25.2 23.1Continuing operations 24.3 21.1 Ordinary dividendsInterim 4 4.35 4.10Final 4 9.00 8.40 Condensed Group statement of recognised income and expense 2005 2004 £m £m Profit attributable to equity shareholders 32.7 30.6 Exchange differences 4.7 (0.7) Actuarial movement on retirement benefit (3.8) (5.2)obligations (net of deferred tax) ______ ______Total recognised income and expense 33.6 24.7 ______ ______ Condensed Group balance sheet at 31 December Note 2005 2004 £m £mAssetsNon-current assetsGoodwill 6.5 6.5Property, plant and equipment 122.4 127.4Investments 1.4 10.9Deferred tax assets 36.0 34.1 ______ ______ 166.3 178.9 ______ ______ Current assetsInventories 53.4 52.0Trade and other receivables 55.7 54.9Cash and cash equivalents 39.3 32.4Other financial assets 6 0.1 -Assets classified as held for sale 5 15.4 - ______ ______ 163.9 139.3 ______ ______ LiabilitiesCurrent liabilitiesTrade and other payables (46.6) (41.0)Borrowings and other financial liabilities 6 (24.2) (15.6)Current tax liabilities (5.5) (4.8) ______ ______ (76.3) (61.4) ______ ______Net current assets 87.6 77.9 ______ ______Non-current liabilitiesBorrowings and other financial liabilities 6 (39.4)Other payables (1.0) (0.9)Retirement benefit liabilities (107.1) (104.1)Provisions 8 (9.6) (14.7)Deferred tax liabilities (16.2) (15.5) ______ ______ (173.3) (167.2) ______ ______ Net assets 80.6 89.6 ______ ______ Equity shareholders' funds 9 79.7 88.8Minority interests 0.9 0.8 ______ ______ Total equity 80.6 89.6 ______ ______ Condensed Group cash flow statement Note 2005 2004 £m £mCash flows from operating activitiesContinuing operationsOperating profit 51.1 45.0Adjustments for: Depreciation and loss on disposal of fixed assets 14.0 14.1 Changes in working capital 3.4 (0.2) Pension fund contributions in excess of service costs (2.8) (3.8) Share based payments 0.7 0.4 ______ ______Cash generated from continuing operations 66.4 55.5Discontinued operations 1.2 1.9Interest paid (3.7) (3.4)Tax paid (15.9) (12.5) ______ ______Net cash generated from operating activities 48.0 41.5 ______ ______Cash flows from investing activitiesPurchases of property, plant and equipment (9.1) (14.7)Proceeds from sale of property, plant and equipment 1.4 1.3Proceeds from sale of businesses (net of costs) - 4.6Cash paid against provisions (5.2) -Interest received 1.3 1.1Discontinued operations - (0.2) ______ ______Net cash used in investing activities (11.6) (7.9) ______ ______Cash flows from financing activitiesAdditional borrowings 15.0 -Repayment of borrowings (0.6) (3.1)Capital element of finance lease repayments (0.1) (0.1)Net purchases of own shares (21.8) (4.7)Dividends paid 4 (21.7) (16.0)Discontinued operations - (0.1) ______ ______Net cash used in financing activities (29.2) (24.0) ______ ______ Net increase in cash and cash equivalents 7.2 9.6Cash and cash equivalents brought forward 17.5 8.5Exchange differences 1.7 (0.6) ______ ______Cash and cash equivalents carried forward 26.4 17.5 ______ ______ Cash and cash equivalents carried forward compriseCash at bank and in hand 39.3 32.4Bank overdrafts (12.9) (14.9) ______ ______ 26.4 17.5 ______ ______Reconciliation to net debtNet increase in cash and cash equivalents 7.2 9.6Increase in debt and lease financing (14.3) 3.3 ______ ______Change in net debt from cash flows (7.1) 12.9New finance lease contracts (0.2) (0.1)Exchange differences (1.7) 1.5 ______ ______ (9.0) 14.3Net debt brought forward (15.2) (29.5) ______ ______Net debt carried forward (24.2) (15.2) ______ ______ Notes to the preliminary announcement 1. Basis of preparation The financial information above is derived from the Group's full statutoryaccounts on which the auditors have reported; their report was unqualified anddid not contain a statement under section 237(2) or (3) of the Companies Act1985. Statutory accounts for 2004 have been filed with the Registrar ofCompanies and those for 2005 will be delivered following the Annual GeneralMeeting. These are the Group's first full year consolidated financial statements preparedunder International Financial Reporting Standards (IFRS) and an explanation ofhow the transition to IFRS has affected the reported financial position,financial performance and cash flows of the Group is provided in note 10. 2. Segmental information Primary reporting format - business segments At 31 December 2005 the Group is organised on a worldwide basis into two mainbusiness segments, relating to the manufacture and sale of the Group's productswhich are destined for either the Consumer Care market or the market forIndustrial Specialities. There is no trade between segments. 2005 2004 £m £mRevenue - continuing operationsConsumer Care 207.8 188.4Industrial Specialities 97.8 92.5 ______ ______ 305.6 280.9 ______ ______ Operating profit - continuing operationsConsumer Care 43.9 40.6Industrial Specialities 7.2 4.4 ______ ______ 51.1 45.0 ______ ______ Secondary reporting format - geographical segments The sales analysis in the table below is based on the location of the customer. 2005 2004 £m £mRevenue by destination - continuing operationsoperationsEurope 131.7 123.9Americas 111.5 97.4Asia 42.3 40.5Rest of World 20.1 19.1 ______ ______ 305.6 280.9 ______ ______ 3. Net financial expenses 2005 2004 £m £m Bank interest payable 3.8 3.6Bank interest receivable (1.5) (1.5)Expected return on pension scheme assets less interest on scheme liabilities (0.4) (0.2) ______ ______ 1.9 1.9 ______ ______ 4. Dividends paid Pence 2005 2004 per £m £m shareOrdinary2003 Interim - paid January 2004 4.02 - 5.32003 Final - paid July 2004 7.83 - 10.22004 Interim - paid January 2005 4.10 5.4 -2004 Final - paid July 2005 8.40 10.7 -2005 Interim - paid October 2005 4.35 5.5 - _____ _____ 21.6 15.5 Preference (paid June and December) 0.1 0.1Dividends paid to minority shareholders - 0.4 _____ _____ 21.7 16.0 _____ _____ During 2005, the Company amended the dates on which dividends are paid, bringingforward payment dates for both interim and final dividends by a number ofmonths. As a result, the interim dividends in respect of both the 2004 and 2005financial years were paid during 2005. The directors are proposing a final dividend of 9p per share (£11.2m) in respectof the financial year ending 31 December 2005. It will be paid on 2 June 2006 toshareholders registered on 5 May 2006. The total dividend for the year ending 31December 2005 is 13.35p per share (£16.7m). 5. Discontinued operations During 2005, in continuance of the Group's stated objective to dispose ofnon-core activities, the Group's metal treatments division was offered for sale.On 23 January 2006, the Group exchanged contracts with Shell UK Ltd for the saleof the majority of the business. The sale does not include the non-currentassets of the business, primarily land and buildings, however the Group hasreceived a valuation of the site which is significantly in excess of itscarrying value. Accordingly, there has been no re-measurement to fair value lesscosts to sell. Under the terms of the sale agreement, the transaction willcomplete on 25 March 2006 following which the Group is committed to a period oftoll manufacture up to 24 June 2006. Once this period is complete, the directorsare confident that the valuation of the site will be realised through itsdisposal. Also during 2005, the Group commenced the process of selling its holding in theGroup's sole associate, Baxenden Chemicals Limited. By the year end the processwas well advanced and an active programme to locate a buyer had commenced. TheBoard are committed to the disposal plan and consider it highly probable thatthe disposal will have taken place by the end of 2006. Any profit on sale fromthe above transactions will be recognised in the 2006 accounts. As a consequence of the above, the carrying value of Application Chemicalsnon-current assets (£2.1m) and current assets (£3.7m), along with the Group'sinvestment in Baxenden (£9.6m) have both been recategorised within currentassets as 'assets classified as held for sale'. The impact of the operations discontinued in 2005 and the Fire FightingChemicals and rock anchor manufacturing businesses discontinued during 2004, allof which resided within the Industrial Specialities segment, is as follows: 2005 2004 £m £m Pre tax operating results from discontinued operations 1.9 2.7Tax (0.7) (0.8) ______ ______Post tax operating results from discontinued operations 1.2 1.9Net exceptional gain on disposal of discontinued operations - 0.9 ______ ______ 1.2 2.8 ______ ______ 6. Financial assets and liabilities The Group manages its interest rate profile by use of an interest rate swap toconvert a proportion of its fixed rate debt to a floating rate. Under IFRS, thefair value of such derivative instruments must be recognised in the financialstatements with a corresponding fair value adjustment to the underlying loaninstrument. Accordingly, a financial asset of £0.1m has been recognised withincurrent assets, being the fair value of the interest rate swap, and currentfinancial liabilities include £0.1m in recognition of the correspondingadjustment to the fair value of the Group's fixed rate debt at 31 December 2005. 7. Treasury shares During the year the Company purchased 6,137,305 shares on the open market tobe held as treasury shares for a consideration of £24.5m. The Company now holds8,122,589 shares in total as treasury shares. These shares have been deductedfrom shareholders' equity and will be held until such time as the Board decidesto cancel, reissue or use them to satisfy share options. 8. Accounting estimates and judgements The Group's critical accounting policies under IFRS have been set by managementwith the approval of the audit committee. The application of these policiesrequires estimates and assumptions to be made concerning the future andjudgements to be made on the applicability of policies to particular situations.Estimates and judgements are continually evaluated and are based on historicalexperience and other factors, including expectations of future events that arebelieved to be reasonable under the circumstances. Under IFRS an estimate or judgement may be considered critical if it involvesmatters that are highly uncertain, or where different estimation methods couldreasonably have been used, or if changes in the estimate that would have amaterial impact on the Group's results are likely to occur from period toperiod. The only such critical judgement required when preparing the Group'saccounts is discussed below. Environmental provisions At 31 December 2005, the Group has an environmental provision of £8.5m inrespect of soil and potential ground water contamination on a number of sites.These provisions were established in line with UK GAAP and have been reviewed toensure compliance with IFRS. Based on information currently available, thislevel of provision is considered appropriate by the directors. 9. Condensed statement of changes in equity 2005 2004 £m £m Opening shareholders' equity 88.8 84.1Total recognised income 33.5 24.6Ordinary dividends on equity shares (note 4) (21.6) (15.5)Transactions in own shares (21.8) (4.7)Share based payments 0.8 0.3 ______ ______Closing shareholders' equity 79.7 88.8 ______ ______ 10. Explanation of the transition from UK GAAP to IFRS As stated in note 1, these financial statements are the first prepared by theGroup under IFRS. The Group's income statement for 2004 and balance sheets at 1January 2004 and 31 December 2004 have been restated following adoption of theGroup's IFRS accounting policies. In June 2005 the Group published a 'Statementon the Transition to International Accounting Standards and InternationalFinancial Reporting Standards' ('the transition statement'). The transitionstatement described the likely impact of the transition from UK GAAP to IFRS onthe Group's equity, net income and cash flows, as well as providing each of thereconciliations required by IFRS 1. A summary of these reconciliations isprovided below. Reconciliation of profit for the 2004 financial year Note £m Profit as reported under UK GAAP 26.5Pensions (a) 0.6Share based payments (b) (0.4)Goodwill (c) 3.8Other 0.2Profit as restated under IFRS 30.7 ______ Reconciliation of equity Note 1/1/04 31/12/04 £m £m Equity as reported under UK GAAP 163.6 170.9Pensions (a) (90.6) (95.1)Share based payments (b) (0.1) -Goodwill (c) - 0.4Tax (d) (3.0) (2.8)Dividends (e) 15.5 16.3Other (0.1) (0.1) ______ ______Equity as restated under IFRS 85.3 89.6 ______ ______ Explanation of reconciling items (a) Under UK GAAP the Group accounted for pension obligations under SSAP 24 and made disclosure only of the impact of FRS 17, the UK standard for retirement benefits that is similar in many respects to the international standard IAS 19. Both IAS 19 and FRS 17 are significantly different from SSAP 24, most noticeably from a balance sheet perspective with international accounting requiring the Group to recognise a net fair value deficit on its balance sheet, being the excess of the present value of the actuarially valued pension liabilities over the fair value of the assets held to fund these liabilities. As IAS 19 adopts this balance sheet perspective, the move to IFRS will also potentially lead to greater volatility in the statement of recognised income and expense. (b) Under UK GAAP there was no charge against profits in respect of share based payment arrangements such as the option schemes operated by the Group. IFRS 2 requires the Group to recognise such a charge, equating to the fair value of the options granted spread over the relevant vesting period. (c) Under UK GAAP the Group was entitled to amortise purchased goodwill over its useful life. This policy is not allowed under IFRS 3, which instead requires goodwill to be carried at cost and reviewed annually for impairment. Accordingly, the amortisation charge of £0.4m under UK GAAP is removed and the carrying value of goodwill, as allowed under IFRS 1, is frozen at its UK GAAP book value at 1 January 2004. In addition IFRS 3 prohibits the Group from recognising goodwill previously written off to reserves in the income statement upon disposal of the relevant business, thus the UK GAAP exceptional charge of £3.4m in 2004 is removed. (d) IAS 12 requires that deferred tax be provided in respect of revaluation gains on fixed assets, no such provision is required under UK GAAP. In addition the rules with regard to provision of deferred tax on intercompany profit in inventory and unremitted overseas earnings are subtly different under IFRS and give rise to increased deferred tax provisioning. It should also be noted that the inclusion of the pension deficit on the balance sheet gives rise to a significant deferred tax asset and that, under IFRS, deferred tax assets and liabilities cannot usually be netted off, hence there is a degree of balance sheet grossing up in respect of deferred tax. (e) The rules on accounting for post balance sheet events under IFRS are such that dividends can only be recognised when the liability to pay becomes irrevocable. Accordingly, as the Group's final dividends are not approved until the AGM, usually held in April, then the liability cannot be recognised in the period to which the dividend relates. Furthermore, as interim dividends require no prior shareholder approval, they are only recognised when paid. In addition to the above, a number of presentational changes and additionaldisclosures are required to comply with IFRS, these are discussed in detail inthe transition statement. The Group has also taken the opportunity to review thebasis of its segmental reporting in the light of IFRS requirements and theprevious segments of Oleochemicals and Other have been replaced by Consumer Careand Industrial Specialities, segments which better reflect the Group's risk andreturn profiles in the long term. The Group's cash flow is unchanged as a resultof the transition to IFRS, however the categorisation of flows on the cash flowstatement is somewhat different. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Croda International