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annual report 2010
Cover imageThis photograph by Jane LaGoy shows the microstructure of a sample of an aluminium alloy casting that has undergone Hot Isostatic Pressing (HIP). The tree or skeleton-like dendrite structure is typical of aluminium. The HIP process removes voids and porosity in the casting but still preserves the original microstructure of the metal. The result is a component with many desirable features, including exceptional strength.
Bodycote continually improves the website offerings for both customers and investors. The most recent is the addition of an audio webcast of Bodycote’s 2010 Results presentation in the Investor Relations section of the website. We invite you to view and to listen by visiting www.bodycote.com/audiocast
www.bodycote.com/audiocast
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 1
FinanCialHiGHliGHts
1adetailedreconciliationisprovidedonpage15andexcludesexceptionalitemssuchasthedeductionofmajorfacilityclosurecostsof£nil(2009:£25.4m)andimpairmentofgoodwillof£nil(2009:£29.0m).
2Headlineoperatingcashflowisdefinedasoperatingcashflowstatedbeforecashflowrelatingtoexceptionalitems(£9.2m,2009:£19.2m).3operatingcashflowisdefinedascashgeneratedbyoperations(£103.9m,2009:£47.7m)lessnetcapitalexpenditure(£35.8m,2009:£32.2m).4adetailedreconciliationisprovidedinnote10onpage64.5seenote9onpage64.6returnoncapitalemployedisdefinedasheadlineoperatingprofit(£52.1m)dividedbyaveragecapitalemployed(£517.9m).Capitalemployedisdefinedasnetassetsplusnetdebt.
2010 2009
revenue-continuingoperations £499.8m £435.4m
Headlineoperatingprofit1-continuingoperations £52.1m £8.0m
operatingprofit/(loss)-continuingoperations £51.2m £(50.2)m
Headlineprofitbeforetaxation1-continuingoperations £46.1m £3.7m
profit/(loss)beforetaxation-continuingoperations £45.2m £(54.5)m
Headlineoperatingcashflow2 £77.3m £34.7m
operatingcashflow3 £68.1m £15.5m
netdebt £51.3m £85.5m
basicheadlineearningspershare4-continuingoperations 18.3p 0.4p
basicearnings/(loss)pershare 14.9p (27.0)p
dividendpershare5 8.7p 8.3p
returnoncapitalemployed6-continuingoperations 10.1% 1.5%
7.0 8.0 8.3 8.3 8.7
06 07 08 09 10
DiviDenDpersharepence
413.9 465.2 551.8 435.4 499.8
06 07 08 09 10
revenue-Continuingoperations£Million
2 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
BusinessreviewFinancialHighlights 1whatisbodycote’sbusiness? 2Coretechnologies 3theoutsourcingprinciple 4onsolidFoundations–acomponentjourney 5ourGlobalnetwork 6strategyandobjectives 8Keyperformanceindicators 9Chairman’sstatement 10Chiefexecutive’sreview 12downtoearth–acomponentjourney 14businessperformance 15powderpower–acomponentjourney 16businessoverview 17businessreview–aerospace,defence&energy 18businessreview–automotive&Generalindustrial 20Financedirector’sreport 22principalrisksanduncertainties 26Corporateresponsibilityandsustainability 28
CorporategovernanCedirectors’report 32CorporateGovernancestatement 34reportoftheauditCommittee 36reportofthenominationCommittee 38boardreportonremuneration 39directors’responsibilitiesstatement 44boardofdirectorsandadvisers 45
aCCountsindependentauditors’report-GroupFinancialstatements 46Consolidatedincomestatement 47ConsolidatedstatementofComprehensiveincome 47Consolidatedbalancesheet 48ConsolidatedCashFlowstatement 49ConsolidatedstatementofChangesinequity 50Groupaccountingpolicies 51notestotheConsolidatedFinancialstatements 56Fiveyearsummary 90Companybalancesheet 91independentauditors’report–CompanyFinancialstatements 92Companyaccountingpolicies 93notestotheCompanyFinancialstatements 94
aDDitionalinformationprincipalsubsidiaryundertakings 99shareholderinformation 101FinancialCalendar 102
whatisBoDyCote’sBusiness?
operatinganinternationalnetworkoffacilitiesandservingawiderangeofindustries,bodycoteistheworld’slargestandmostrespectedproviderofthermalprocessingservices–avitallinkinthemanufacturingsupplychain.
bodycoteoperatesintwomajorareas:theaerospace,defence&energy(ade)businessservestheaerospace,defence,powergenerationandoil&gasindustries,whilsttheautomotive&Generalindustrial(aGi)businessservessectorsincludingautomotive,construction,agriculture,medicalandtransportation.
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 3
thermalproCessingBodycoteprovidesthermalprocessingserviceswhichimprovematerialpropertiessuchasstrength,durabilityandcorrosionresistance,enablingmanufacturers’componentstoworkmoreefficientlywithsignificantlyextendedoperationallifetimes.Bodycote’streatmentservicesconsistofanumberofcoretechnologies:heattreatmentandmetaljoining,hotisostaticpressing(hip)andsurfacetechnology.
heattreatmentandmetalJoiningHeattreatmentsarecontrolledprocessesusedtoalterthemicrostructureofmaterials,suchasmetalsandalloys,toimpartpropertieswhichbenefittheworkinglifeofacomponent,forexample:increasedsurfacehardness,temperatureresistance,ductilityandstrength.Metaljoiningincludesspecialisedprocessessuchaselectronbeamwelding,vacuumandhoneycombbrazing–complexoperationsrequiringafusionofexpertiseandtechnology.
bodycoteoffersanextensiverangeofheattreatmentservicesandspecialistmetaljoiningtechniquesfromfacilitiesaroundtheworld.withunmatchedcapacityandcomputerisedsystems,bodycotefacilitiescanprocessawiderangeofcomponentsizestoexactingstandardswithreliable,repeatableresults.
hotisostaticpressing(hip)Hipcombinesveryhightemperature(upto2,000°C)withinertgasunderveryhighpressure(upto30,000psi–equivalenttothatfoundatanoceandepthof11,000msuchasatthebottomoftheMarianatrenchinthepacificocean).Hipcanbeusedtoeliminateporosityincastingsandconsolidateencapsulatedpowderstodensematerials.dissimilarmaterialscanbebondedtogethertomanufactureuniquecost-effectivecomponents.everyweekatypicalbodycoteHipplantwillprocessmanytonsoftitanium,aluminium,steelandsuper-alloycastings,removingporosityandimprovingtheperformanceofpartssuchasturbinebladesandoilfieldcomponents.
withthelargestoperationalcapacityintheworldandawidevarietyofsizesofequipment,bodycoteHipisabletoaccommodatelargevolumesofsmallproductaseconomicallyaslargeindividualcomponents.
surfacetechnologysurfacetechnologiesareusedextensivelytoprolongtheworkinglifeofcomponentsandprotectthemfromenvironmentalfactorssuchascorrosionandabrasion.therangeofsurfacetreatmentsavailablefrombodycotecoversawidevarietyofapplications,providingmanufacturerswithsolutionstomeetrequirementssuchasdurability,wearresistance,improvedhardnessandelectricalconductivity.
bodycoteisaproviderofspecialisedplasmaspray,highvelocityoxyfuel(HvoF)andthermallyformedceramictreatmentsandisabletosurfaceengineercomponents(includingcomplexgeometricshapesandinternalbores)thataredesignedtooperateinthemostdemandingofindustrialapplications.
CoreteCHnoloGies
4 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
bodycotehasalonghistoryofsuccessfuloutsourcing
partnerships,fromglobaltolocalmanufacturers...
thepartnerofChoiCebodycotehasbecomethepartnerofchoicefortheworld’smostrespectedandinnovativeengineeringcompaniesbyprovidinghighlyefficient,cost-effectiveservicestothehighestqualitystandardsthroughstrategicinvestmentinpeopleandthelatesttechnology,equipmentandqualitysystems.
byoutsourcingnon-corebutvitallyimportantthermalprocessingrequirementstobodycote,customersareabletoconcentratetheirbusinessresourceswheretheyareneededmost.bodycote’sservicesoffertangiblebenefitstocustomerssuchasreducedequipmentmaintenance,capitalexpenditure,energycosts,peoplecostsandamajorreductioninCo2emissions.
bodycotehasalonghistoryofsuccessfuloutsourcingpartnerships,fromglobaltolocalmanufacturers.inmanycases,subcontractingrelationshipsleadtocomponentandservice-specificlong-termagreements,orstrategicpartneringarrangements,whichembodyprotectionandfreedomfromriskforthecustomerandbodycote.theseareoftenexclusiveincharacterandprovidethebasisformutualbusinessdevelopment,withbothcompaniesfreedtoconcentratecapitalandotherresourcesoncorecompetencies.
makinginnovationspossiBlebodycote’sextensivefacilitiesandexpertisemeandevelopmentprojectscanexpandfarbeyondcustomers’in-housecapabilities,helpingtorealisegoalsmorequicklyandmorecost-effectively.
aroundtheglobe,bodycotehasdedicatedteamsworkingonavarietyofprojects.whenrequired,thismayincludethedevelopmentofspecificprocessesandequipmentforacustomerorverificationofmaterialsordesigns,priortotheirapplication.
in-housedevelopmentandimprovementofstandardprocesseshasledtobodycoteofferingarangeofproprietaryprocessessuchasKolsterising®,Corr-i-dur®andsheraCote®,whichfaroutperformtheirstandardcounterparts.
tHeoutsourCinGprinCiple
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 5
onsolidFoundations-aCoMponentjourney
shaftsrequiringanebwoperationafterheattreatmentarefirstselectivelychemicallycoatedtopreventcarbonpenetration;thiswillensureacleanelectronbeamweldatalaterstage
theshaftsrequirecarburisingtoincreasetheirwearresistanceandimparthighhardnessproperties.theyarethenquenchedandtemperedtoremoveinternalstresses
thepartsundergoautomaticshaftstraighteningtocorrectanydistortioncausedbyhighprocessingtemperatures
theshaftsaremachinedagaintoachievefinalengineeringdimensions
theshaftsneedassemblywiththeirgearordrumusingebw.thepartsareultrasonicallycleanedandmeasuredtoensurenocontaminationofthepartsduringtheebwvacuumprocesswhichfusestheparentmetalofthepartstogether
transmissionshaftstransmissionshaftsformpartofthedrivetrainofallvehicles.inthisexample,wewilllookathowthesehardworkingcomponentsaregivenalongerlifetimeaspartofpowerfulconstructionvehicles,suchasexcavators,throughheattreatmentandmetaljoiningprocesses.
transmissionshaftsareanexcellentexampleofthermalprocessing’scontributiontovalueengineering.theelectronbeamwelding(ebw)process,inparticular,allowsthefabricationofahighperformancecomponentfromtwopieces,therebyavoidingmachiningfromsolidwhichisbothwastefulandexpensive.
denotesthepartsofthecomponentjourneyundertakenbybodycote
BoDyCoteComponentJourneysthisisjustoneexampleofhowbodycotebringstogetherthehugewealthofknowledgeandexpertisefromacrosstheGrouptoprovidethevitalengineeringservicesourcustomersneed...
Formorecomponentjourneysvisitwww.bodycote.com
theforgedsteelpartisthenmachinedintoitsnearnetshaftshapeandsentforheattreatment
theshaftsbeginlifeashighgradesteelalloyforgings
endapplication–constructionvehiclesuchasanexcavator
6 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
paGetitleinHere[deleteiFnotrequired][paGetitleline2iFrequired]ourGlobalnetworK
overviewastheonlytrulyglobalproviderofsubcontractthermalprocessingservices,bodycoteisabletoofferasignificantadvantagetoitscustomers.throughaninternationalnetworkofplants,bodycotecaneffectivelyutiliseawealthofknowledge,experienceandspecialistexpertisetodeliverqualityservicewhenandwhereitisneeded.
thenetworkoperatesfrom173facilities,withcustomersabletobenefitfrombodycote’scomprehensiverangeofservicesfrommultiplelocations.Customersknowthatiftheirbusinessexpands,bodycotewillhavethecapabilitytomeettheirneeds.theyknowthatiftheyweretobroadentheirmanufacturingfootprint,bodycotewouldbeabletoassistthem.theyknowthattheycanobtainthesameprocesstothesamequalitystandardsfrommultiplelocations.
suchalargenetworkbringseconomiesofscale,withtechnologydevelopedatonelocationbeingavailablegloballyifthemarketrequiresit.
thebodycotenetworkhasawealthoftechnicalaccreditations,someindustryorcustomerspecific,othersmoregeneral.individualoperationsconcentrateontheaccreditationssuitedtotheirmarket.
althoughbodycoteisheadquarteredintheuK,89%oftheGroup’srevenueisderivedoutsidetheuK.withfacilitiesin26countries,bodycoteistrulyglobal.
northameriCabodycotehas39facilitiesinnorthamerica,concentratedwheremanufacturingandtechnicalindustriesarelocated.
thenetworkincludesfivespecialistoperations,fourofferingHip,andtheotherofferingsurfacetechnology.Hipcapacityhasrecentlybeenexpandedtoensurethatbodycoteisbestpositionedtosatisfyitscustomers’needsastheeconomicclimatecontinuestoimprove.
lowpressurecarburisingcapabilityhasbeensimilarlyexpanded.thisenergyefficienttechnologycan,forexample,enableautomotivemanufacturerstoproduce7-and8-speedautomatictransmissionsofmodestweightandcompactdimensions,whichassistinthequestforloweremissions.
aerospace&defence
energy
automotive
Civileng,agriculture,rail&Marine
otherGeneralindustrial
revenueBymarketseCtor–northameriCaaerospace&defence
energy
automotive
Civileng,agriculture,rail&Marine
otherGeneralindustrial
grouprevenueBymarketseCtor
aerospace&defence powerGeneration oil&Gas automotive Civileng,agriculture,rail&Marine
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 7
paGetitleinHere[deleteiFnotrequired][paGetitleline2iFrequired]
westerneuropebodycotehas104facilitiesinwesterneuropeincludingsevenHipplantsandsevendedicatedsurfacetechnologyfacilities.theimportantFrench,Germanandscandinavianmarketsareparticularlywellservedwith28,19and18facilitiesrespectively.recentcapacityextensionsincludeexpandedfacilitiesaimedattheneedsofthewindenergymarket.
Hipcapacityhasbeensignificantlyenhancedtomeetcustomers’growingneedsforthisservice.
emergingmarketsbodycotehas30facilitiesinemerginggeographiesincludingtwodedicatedsurfacetechnologyplants,oneeachinsingaporeanddubai.bodycoteisthenumberonethermalprocessingproviderinbothbrazilandeasterneuropeandisnumbertwoinChina.thesemarketshaveaspecialemphasisintheGroup’sgrowthstrategyforthefuture.
aerospace&defence
energy
automotive
Civileng,agriculture,rail&Marine
otherGeneralindustrial
revenueBymarketseCtor–emergingmarketsaerospace&defence
energy
automotive
Civileng,agriculture,rail&Marine
otherGeneralindustrial
revenueBymarketseCtor–westerneurope
tooling Consumerproduct electronics&telecoms Medical&environmental Mining
8 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
strateGyandobjeCtives
bodycote’sobjectiveistocreatesuperiorshareholderreturnsthroughtheprovisionofselectedthermalprocessingservicesthatarehighlyvaluedbyourcustomers.
servingtheaerospace,defenceandenergymarkets,withafocusednetworkofgloballycoordinatedfacilities,attunedtothesecustomers’specificneedsandrequirements.
servingtheautomotiveandchosengeneralindustrialmarketsthrougharegionallyorganisedbusiness,cateringforthesecustomers’specificlocalneedsandproximityrequirements.
achievingthehighestlevelsofcustomerserviceintermsofquality,delivery,reliabilityandtechnicalproblemsolving.
Capitalisingonourproprietarytechnologiestoprovideourcustomerswiththeabilitytocreateinnovative,differentiatedproducts.
Migratingtechnology,overtime,fromthedevelopedmarketstoourtargetemergingmarketswithanemphasisoneasterneurope,brazilandChina.
bodycoteaimstoachievethisinasafeworkingenvironmentandwithminimalenvironmentalimpact.
Our strategy is based on the following fundamentals:
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 9
KeyperForManCeindiCators
theGroupfocusesonasmallnumberofKeyperformanceindicators(Kpis),whichcoverbothfinancialandnon-financialmetrics.
thefinancialKpisarereturnonCapitalemployed1(roCe),returnonsales2(ros)andHeadlineearningspershare3andthenonfinancialKpisarethepercentageofiso14001accreditedfacilitiesandaccidentFrequency4.
financialin2010theGroup’sfinancialperformanceimprovedsignificantly.asaresult,roCefor2010was10.1%(2009:1.5%),roswas10.4%(2009:1.8%)andHeadlineearningspersharewas18.3p(2009:0.4p).
nonfinancialreducingtheenvironmentalimpactoftheGroup’sactivitiesistakenveryseriously.Compliancewiththerequirementsofiso14001helpsminimisetheriskofadverseenvironmentaleffectsatbodycotelocations.attheendof2010,81%ofourplantshadiso14001accreditation-140plantsoutofatotalof173(2009:137outof178).
bodycoteworkstirelesslytoreduceworkplaceaccidentsandiscommittedtoprovidingasafeenvironmentforanyonewhoworksatorvisitsourlocations.themajorrestructuringprogrammehasnotmadethisaneasytaskin2010.nevertheless,theaccidentFrequencyratewasreducedto1.8(2009:1.9).
14.1 15.1 12.9 1.8 10.4
06 07 08 09 10
returnonsales(ros)%
12.1 13.7 12.1 1.5 10.1
06 07 08 09 10
returnonCapitalemployeD(roCe)%
3.1 2.4 2.0 1.9 1.8
06 07 08 09 10
aCCiDentfrequenCynumber
47 68 71 77 81
06 07 08 09 10
iso14001aCCreDiteDfaCilities%
definitions:1Headlineoperatingprofitasapercentageofaveragecapitalemployedfromcontinuingoperations.Capitalemployedisdefinedasnetassetsplusnetdebt.2Headlineoperatingprofitasapercentageofrevenuefromcontinuingoperations.3Headlineearningspershareisdefinedinnote10totheGroupfinancialstatements.4accidentFrequency–thenumberoflosttimeaccidentsx200,000hours(approximately100manyears),dividedbythetotalhoursworked.
10 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
overviewafterayearwhichsawvariableratesofrecoveryacrossourmajormarkets,iampleasedtoreportthattheGrouphasmadeasubstantialrecoveryfromthelossreportedin2009.salesincreasedby14.8%to£499.8m.theimprovementwasunderpinnedbythesuccessoftherestructuringprogrammeannouncedin2008andthecontinuingfocusontightoperationalandbalancesheetmanagement.operatingprofitrecoveredto£51.2mandborrowingsdroppedfrom£85.5mto£51.3m.
wesawimprovementintheautomotiveandgeneralindustrial(aGi)marketsalthoughvolumesremainsomewaybelowthelevelsof2008.theaerospace,defenceandenergy(ade)marketstendtopeaklaterintheeconomiccycleandsalesgrowthreflectedthis.asaresultoftherestructuringprogrammetheGrouphasnowexitedlargeamountsofunprofitablecommoditybusiness,andisactivelygrowingitshigheraddedvalueservices.bodycoteshouldbecapableofdeliveringimprovedthrough-cyclereturnsgoingforward.
sustainaBilitythesafetyperformanceoftheGroupiscloselymonitoredatallmanagementandboardmeetings.bodycoteiscommittedtoimprovementsinemployeesafetyandHealthperformancetoensurethatallemployeesandvisitorsoperateinasafeworkingenvironment.theCompanycontinuestogainaccreditationsforitsenvironmentalcompliance.attheendof2010over80%ofitsfacilitieshadmettherequirementsforiso14001.wealsotrackenergyandwaterusageandreductionsarebeingrealisedalthoughmoreneedstobedonetoreachourinternaltargets.FurtherinformationregardingtheGroup’sobjectivesinrelationtosustainabilitycanbefoundonpage28.
DiviDenDin2009theboardrecommendedamaintaineddividenddespitethechallengesposedbythedownturn,baseduponitsconfidencethatactionstakenbythenewmanagementteamwouldrestoretheCompanytoasatisfactorylevelofprofitabilityandcashgeneration.theboardissatisfiedwiththesteadyimprovementinresultsthroughout2010andisconfidentinthefutureoutlookforthebusiness.theboardisrecommendingthatafinaldividendof5.75pbepaidtoshareholders,givinganincreasedtotalof8.7p(4.8%increase)forthefullyear.
CHairMan’sstateMent
alanthomsonChairman
thefinancialturmoilofthepasttwoyears
hasbeentestingfortheGroup,buttheboard
believesthatbodycotehasemergedstrengthened
bythechallengeswhichithasfaced.
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 11
BoarDafterthechangesmadetothecompositionoftheboardin2008and2009themembershipwasunchangedin2010andshouldremainsothroughout2011.duringtheyear,inaccordancewithitsusualpractice,theboardconductedaformalinternalevaluationofitsperformance,includingthatoftheChairman.in2011theboardhasdecidedthatthisprocesswillbecarriedoutbyanexternalfacilitatorwiththeresultsbeingreportedinthe2011annualreport.thisexternalevaluationwillassisttheChairmanintheprocessofgraduallyrefreshingboardmembershiptomeetthechangingrequirementsofagrowingbusiness.duringthelastyearallboardmembersreceivedtrainingoncurrenttopicsincludingreportingstandards,riskmanagementandsustainability.inlinewiththerevisedGovernancecodealldirectorshaveagreedtoseekre-electionattheannualGeneralMeetinginapril.
summarythefinancialturmoilofthepasttwoyearshasbeentestingfortheGroup,buttheboardbelievesthatbodycotehasemergedstrengthenedbythechallengeswhichithasfaced.withastrongbalancesheetandanexcellentmanagementteamwefacethefuturewithconfidence.
despitethemixedbusinessclimateoverthelasttwelvemonthstheGrouphasdeliveredasignificantimprovementinperformanceandiswellpositionedforthefuture.thisislargelyduetothehardworkandcommitmentofstephenHarrisandhiscolleaguesaroundtheworld.theboardcongratulatesthemontheirachievementsandcommitmentwhichhaveresultedinincreasedvalueforshareholders.bodycoteremainsafirstclassbusinesswithgoodprospectsforthefuture.
a.m.thomsonChairman24February2011
12 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
CHieFexeCutive’sreview
traDingoverview2010wasayearofrecoveryforbodycoteafterthedifficultiesofthedownturnin2009.salesgrewby14.8%to£499.8mwithlikeforlikesales(atconstantcurrenciesandrebasedtotakeaccountofthesitesclosedin2009)up17.8%.MuchofthesalesgrowthwasdrivenbytheendofoeMsupplychaindestockingandincreasedendmarketdemandwithstronggrowthfromthegeneralindustrial,oilandgasand,inparticular,theautomotiveandheavytrucksegments.thesedevelopmentsmorethanoffsetthedeclineindemandinpowergeneration.demandimprovementsinaerospaceanddefencealsocontributedtothesalesgrowthbutonlymarginally.itisnoteworthy,however,thatalloftheGroup’smarketsarestillmateriallybelow2008levels.inadditiontoincreasesinendmarketdemand,salesimprovedasaresultofnotablegainsinmarketshare.themostmarkedofthesesharegainswasintheautomotivesegmentwherethelatesttechnologiesofferedbybodycotearesupplantingmoretraditionalformsofheattreatment.
thedriveforefficiencyintheGroupyieldedexcellentresults.totalheadcountattheendof2010of5,487wasmarginallybelowthatofayearearlierand28%belowthepeakheadcountofjune2008.theyearendheadcountwas311lowerthanthenumberathalfyearasthetailendrestructuringprogrammesinFranceandbrazilcameintoeffect.thetightdisciplineonthebuildbackofexpensesagainstabackdropofrisingsalesdrovemarginsupto10.4%(1.8%in2009).increasedsellingpricescontributed100basispointstothemargins,offsetby70basispointsofincreasedinputcosts.
netcapitalexpenditureat£35.8mamountedto0.8timesdepreciation(0.6in2009).approximatelyhalfoftheexpenditurein2010(0.4timesdepreciation)wasspentondevelopingcapacityinemergingmarkets,increasingcapacityforspecifichighaddedvalueprocessesinnorthamericaandinvestingintheGroup’schosenproprietarytechnologies.theremainderofthecapitalexpenditurewasspentonmaintenance.theGroupisrelativelywellequippedwithlonglifeassetsandhasalowrequirementformaintenancecapitalintheshortandmediumterm.thelevelofcapitalexpenditure,combinedwithstrongcontrolofworkingcapital,ledtoheadlineoperatingcashflowof£77.3m,representingacashconversionratioof148%.asaresult,netdebtattheyearendwasreducedto£51.3m.
strategiCDevelopmentsaswellasthedriveforincreasedsalesandhigherlevelsofoperatingefficiency,2010wasayearofimplementationofthestrategicagendaoutlinedinFebruaryofthatyear.
attheendof2009theGroupwasreorganisedintotwobusinessareas.theaerospace,defenceandenergybusiness(ade)isorganisedonaglobalbasis,andcomprisestheHotisostaticpressing(Hip)andheattreatmentdivisions.theGroup’ssurfacetechnologybusinessispartoftheadeheattreatmentdivision.incontrast,theautomotiveandgeneralindustrialbusiness(aGi)isorganisedgeographically,coveringwesterneurope,northamericaandtheemergingmarkets.Customerreactiontothereorganisationhasbeenverypositive,withindustryspecialistsalesteamsabletoengagewiththeircustomersinafarmoreproductivewaythanwaspossibleinthepast.inaddition,thespecialisationoftheplantsineachbusinessareahashelpedsimplifytheoperationsandimproveefficiency.
stephenharrisChiefexecutive
thereorganisationoftheGroupintomarketfocuseddivisionshas
enhancedrevenuegrowthandcarefultargetingofcapitalinvestmenthas
improvedcashflowandreturnoncapital.
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 13
developmentoftheemergingmarketsandinvestmentinbodycote’schosenproprietarytechnologiesarekeyelementsofthestrategy.theemergingmarketsfocusforbodycoteisoneasterneurope,brazilandChina.whileemergingmarketsrevenuesrepresentjustover10%oftheGroup’sbusinesstoday,bodycoteisalreadythemarketleaderineasterneuropeandbrazilandnumbertwoinChina.in2010newgreenfieldsiteswereaddedinpoland,Czechrepublicandbrazil,whileadditionalmoderncapacitywasdeployedinexistingplantsinturkey,brazilandChina.
thedevelopmentoftheGroup’sproprietarytechnologiescontinuedapacein2010:
thespecialitystainlesssteelbusinessunit(s3p)capacitywasexpandedby20%,withafurther25%putonorderinreadinessfortheincreaseddemandnowexpectedforthisbusiness.
theHotisostaticpressingproductFabricationbusinessunit(HippF)grewat70%,albeitfromarelativelymodestbase.thebusinessoperatesfromcentresofexcellenceinGermany,swedenandtheusawithmuchoftheprocessdevelopmentandcomputermodellingcarriedoutintheuKandtheusa.
theCorrosionpreventionprocessesbusinessunit(Cpp)commissioneditsfirstcommercialproductionunitforthesheraCote®familyofprocesses.
progresswasalsomadeondevelopingtheGroup’spersonnelbothinternallyandthroughtheappointmentofnewtalentinmanyareas.inaddition,theGroup’sexecutivecommitteewasalsostrengthenedwithnewtalentrecruitedduringtheyear.thecommitteecomprisesfivedivisionalpresidents,theHumanresourcesdirectorandtheGroupFinancedirector,togetherwiththeChiefexecutiveofficer,whochairsthecommittee.
futuretrenDsthefuturetrendsforbodycote’smarketsareveryfavourable.themorenotabletrendsinclude:
intheaerospacesegmentmostindustryanalystsforeseeasignificantgrowthinflyinghoursandnewbuildofaeroplanesassociatedwithtrafficfortheemergingmarkets.themovetohigherengineoperatingtemperaturerequirementsincreasesthermalprocessingneeds.theseareallpositivefactorsforthedemandforthermalprocessing.
risingoilandgasprices,togetherwiththeincreasingsophisticationassociatedwithextractingdifficulttoreachreserves,areincreasingthematerialrequirementsofexplorationandproductionequipment,whichinturnisdrivinggreaterdemandforthermalprocessingservices.
powergeneration,wherebodycoteenjoysastrongpresenceinbothheattreatmentandHipservices,willresumeitslongtermgrowthpathinduecourse,astheexpansionintheemergingmarketscontinues.
theautomotivesegmentismovingtomoresophisticatedmaterialsengineeringasmanufacturerstrytoreduceweightandincreasestrength.thisinturndirectlyincreasestheamountofthermalprocessingrequired.inaddition,theintroductionofhybridvehiclesisleadingtoalargernumberofcomponentsinvehicles,whichinturnrequiremoreservicesofferedbybodycote.
outsourcingremainsamajoropportunityfortheGroup.agreementsaretypicallyframeworkinnature,withstandardtermsandconditionsandacommitmenttosolesourcetheworkfrombodycote.pricingisnormallydefinedasabaselevelwithpriceslinkedtovariousindicessuchasthecostofenergy.
Goingforwarditisexpectedthatthepaceofoutsourcingandsizeofoutsourcecontractswillincrease.thisisduenotonlytothegeneraltendencyofcompaniestoeliminatenoncoreactivitiesovertime,butalsototwoothersignificantfactors.
therisingcostofenergy.bodycoteistypicallymoreenergyefficientthanmanufacturersthatprocesstheworkin-houseandcanbalancetheloadinitsprocesslinesbyaggregatingworkfromseveralcustomers.levelloading,initself,isamuchmoreefficientwayofoperatingthermalprocessingplantsthanthefluctuatingloadconditionsfacedbymostmanufacturers’in-housefacilities.asaresult,risingenergypricestendtodriveincreasedlevelsofoutsourcing.
thegeneralmoveofmanufacturingindustriestoemergingmarkets.thisnotonlycreatesopportunitiesinemergingmarketsforbodycotetoservethesecustomers,butalsoprovidesasourceofopportunityindevelopedeconomies.thisisbecausemostcustomersthatmovetheirmanufacturingtoemergingmarketstendnottoclosetheirfacilitiescompletelyinthedevelopedeconomies.instead,thesefacilitiesstopbeingexpandedandhaveinvestmentconstrained.thecapitalintensivenatureofthermalprocessingmeansthatsuchfacilitiesoftenbecomeundercapitalisedoroutmodedandoutsourcingbecomesanattractiveoption.thechoiceofcompaniescapableoftakingonsuchoutsourcedworkinareliablewayissmall,andbodycotebecomesthepreferredpartnerformostofthecustomerbase.
summary&outlook2010sawanotableandpleasingimprovementintheperformanceoftheGroup.bettermacroeconomicconditionswereanimportantcontributortothisandtheunderlyingabilityofthebusinesstodeliverconsistentlysuperiorvaluehasbeenstrengthenedconsiderably.totalrevenuegrowthwaswellaheadofmarketimprovement.thereorganisationoftheGroupintomarketfocuseddivisionshasenhancedrevenuegrowthandcarefultargetingofcapitalinvestmenthasimprovedcashflowandreturnoncapital.
lookingat2011,itisanticipatedthatautomotiveandgeneralindustrialbusinesswillcontinuetogrowatareasonablepace.aerospace,defenceandenergydemandhasbeguntorecover,althoughwithinthisthepowergenerationsegmentremainssoft,withthetimingofimprovementstillunclear.insummary,theboardisconfidentthat2011willbeanotheryearofgrowthforbodycote,albeitatalessrapidratethanexperiencedin2010.theyearhasstartedinlinewiththeseexpectations.lookingfurtherout,theboardseesencouragingopportunitiesforimprovedthrough-cyclereturns.
s.C.harrisChiefexecutive24February2011
14 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
athermochemicallyformedceramicsurfacetreatmentisappliedresultinginasuper-hard,corrosionresistantlayerwhichprotectsthesteelandgivessuperiorwearresistance
therotormustbefinishpolishedusingdiamondtoolsduetotheextremehardnessoftheceramictreatment
endapplication–oildrillingservice
denotesthepartsofthecomponentjourneyundertakenbybodycote
BoDyCoteComponentJourneysthisisjustoneexampleofhowbodycotebringstogetherthehugewealthofknowledgeandexpertisefromacrosstheGrouptoprovidethevitalengineeringservicesourcustomersneed...
Formorecomponentjourneysvisitwww.bodycote.com
thesteelisthenmachinedintotherotorshaperequiredfordown-holedrillingphotocourtesyofweingartnerwww.weingartner.com
therotorsbeginlifeaspiecesofsteelbar
downtoeartH-aCoMponentjourney
muDrotorsCorrosionandwearcanleadtoexpensivedowntimeinoil&gasexploration,whereequipmentisincontinualuse.Mudrotorsoperateatthebottomofdrillingwells,andasaresult,theremovalandreplacementofwornrotorsisparticularlytimeconsumingandcostly.Followingprocessingbybodycote,thelifeofmudrotorsisimprovedsignificantly.
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 15
2010 2009 £m £m
revenue–continuingoperations 499.8 435.4
operatingprofit/(loss) 51.2 (50.2)addback:Majorfacilityclosurecosts .– 25.4impairmentcharge .– 31.5amortisationofacquiredintangible
fixedassets 0.9 1.3
headlineoperatingprofit–continuingoperations 52.1 8.0
Grouprevenuefromcontinuingoperationswas£499.8m,anincreaseof£64.4m(14.8%)on2009(£435.4m).theincreaseinrevenuesatconstantexchangeratesamountedto£64.7m(14.9%).theyearonyearreductioninrevenuesasaresultofsiteclosureswas£10.3matconstantexchangerates.
theGroupmadeanoperatingprofitof£51.2m(2009:loss£50.2m).HeadlineoperatingprofitfortheGroup’scontinuingoperationswas£52.1m,anincreaseof£44.1mcomparedto2009.Foreignexchangeratemovementsdecreasedprofitsby£0.5m.Headlineoperatingmarginsfromcontinuingoperationsincreasedfrom1.8%to10.4%.
2010 2009 £m £m
headlineoperatingprofit 52.1 8.0addbacknon-cashitems:depreciationandamortisation 47.4 49.6share-basedpayments 4.2 (0.1)loss/(profit)ondisposalofproperty,
plantandequipment 0.7 (0.1)
headlineeBitDa1 104.4 57.4
netcapitalexpenditure (35.8) (32.2)networkingcapitalmovement 8.7 9.5
headlineoperatingcashflow 77.3 34.7
Cashcostofrestructuring (9.2) (19.2)
operatingcashflow 68.1 15.5
interest (5.5) (4.4)taxation (5.4) (24.4)lumpsumcontributiontopensionscheme .– (1.5)
freecashflow 57.2 (14.8)
Headlineoperatingcashflowof£77.3mismadeupof£104.4mheadlineebitda,apositivecontributionfromreducedworkingcapitalof£8.7m,andnetcapitalexpenditureof£35.8m.afterinterestandtaxpayments,theheadlinefreecashflowwas£66.4m.theoutflowonexceptionalitemstotalled£9.2m,andallofthiswascashspendontherestructuringprogramme.
Capitalexpenditurehascontinuedtobemanagedcarefully.Capitalspend(netofassetsales)in2010was£35.8m,being0.8timesdepreciationcomparedto0.6timesin2009.therehasbeenacontinuedfocusoncashcollectionanddebtordayshavebeenreducedto59daysat31december2010,comparedto63daysat31december2009.theincreaseinsalesof£64.4mcomparedto2009hasresultedinanincreaseindebtorsof£7.7m,althoughthishasbeenmorethanoffsetbyhighercreditorbalances.
businessperForManCe
definitions:1earningsbeforeinterest,tax,depreciation,amortisation,share-basedpaymentsandexceptionalitems.
16 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
Followingmaterialselection,bodycote’sdesignengineerswillworkcloselywithcustomerstoexploretheuniqueandflexiblecomponentdesignopportunitiesaffordedbypMHipnns.whenthefinalnnscomponentdesignisreceivedfromthecustomer,bodycotewillcreateanengineeringdrawing
Componentdesignisthentranslatedintoacapsuledesignwhereskilledengineersmanufacturethecanisteranduseweldingtechniquestoproducethecomplexcapsuleassembly
thefabricatedcapsule,almostidenticalinshapetothefinishedcomponentbutlargerinsize,isfilledwithpowder
theencapsulatedpMvalveisthenHipedusinghightemperaturesandpressureswhichallowsthepowdertobecome100%denseandformannnscomponent
theHipedandheattreatednnsshapevalvebodyislaserscannedtocomparethedimensionsoftheactualcomponentwiththennsproductdrawing
afterHipthennscomponentissolutionheattreatedandwaterquenchedtoachieveoptimummaterialpropertieswhichareisotropicinnature
endapplication–offshoreoil,chemicalorenergyindustries
valveBoDyvalvecomponentsoperatingintheharshenvironmentsoftheoil&gasandchemicalindustriesmustwithstandextremematerialdemandsandresistattackfromavarietyofaggressiveenvironments.theuseofpowdermetalHipednearnetshape(pMHipnns)componentsoffersoptimisedmaterialsolutionsforenhancedproductstrengthanddurability.
denotesthepartsofthecomponentjourneyundertakenbybodycote
BoDyCoteComponentJourneysthisisjustoneexampleofhowbodycotebringstogetherthehugewealthofknowledgeandexpertisefromacrosstheGrouptoprovidethevitalengineeringservicesourcustomersneed...
Formorecomponentjourneysvisitwww.bodycote.com
thevalvebodybeginslifeashighqualitygasatomisedstainlesssteelandnickel-basedpowders
powderpower-aCoMponentjourney
FinallythecomponentcanbepickledormachinedtoremovethecapsulematerialresultinginapMHipnnsvalvebodywhichisinspectedusingultrasonictestingtechniques
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 17
businessoverview
aerospaCe,DefenCe&energy
seepage18foranin-depthreview
automotive&generalinDustrial
seepage20foranin-depthreview
%ofgrouprevenue
Divisionalrevenue
DivisionalheaDline
operatingprofit
1,9262009:1,934
£202.1m2009:£189.5m
£33.9m2009:£24.7m
2009:43%
40
3,4562009:3,505
£297.7m2009:£245.9m
£25.6m2009:loss£(12.3)m
2009:57%
60
no.ofemployees
aerospaCe,DefenCe&energy(aDe)incorporatinghipandsurfacetechnologywithintheadesectors,ourcustomersthinkandoperategloballyandincreasinglyexpectbodycotetoservicetheminthesameway.Consequently,theadebusinessisorganisedglobally.thisgivesbodycoteanotableadvantageastheonlythermalprocessingcompanywithaglobalfootprintandknowledgeofoperatinginalloftheworld’skeymanufacturingareas.anumberofbodycote’smostimportantcustomersfallwithinthecompassofadeandbodycoteintendstocontinuetoleverageitsuniquemarketpositiontoincreaserevenuesinthesemarketsectors.thebusinessincorporatestheGroup’sactivitiesinhotisostaticpressingandsurfacetechnologyaswellastherelevantheattreatmentservices.
automotive&generalinDustrial(agi)incorporatingspecialitystainlesssteelprocesses–s3pwhilsttheaGimarketplacehasmanymultinationalcustomers,italsohasverymanymedium-sizedandsmallerbusinesses,withthelargemultinationalstendingtooperateonamoreregionally-focusedbasis,asopposedtoglobally.Generally,therearemorecompetitorstobodycoteinaGiandmuchofthebusinessislocally-oriented,meaningthatproximitytothecustomerisveryimportantandexcellentserviceisvital.
bodycote’suniquelylargenetworkof110aGifacilitiesenablesthebusinesstoofferthewidestrangeoftechnicalcapabilityandsecurityofsupply,continuingtoincreasetheproportionoftechnicallydifferentiatedservicesthatitoffers.bodycotehasalongandsuccessfulhistoryofservingthiswide-rangingcustomerbaseandtheaGibusinessservesthefollowinggeographies:
northamerica
westerneurope
emergingMarkets
18 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
resultsrevenuesforaerospace,defence&energy(ade)were£202.1min2010comparedto£189.5min2009,anincreaseof6.6%,reflectingimprovedaerospaceoeMandoil&gasdemand,partlyoffsetbysoftaerospacemaintenanceandrepairrequirementsandweakindustrialGasturbine(iGt)markets.revenuesinconstantcurrencieswerealsohigherby6.6%.like-for-likerevenuegrowth,excludingrevenuesfromclosedsites,was8.5%.
Headlineoperatingprofitforadewas£33.9m(2009:£24.7m),withmarginsimprovingfrom13.0%to16.8%.
2010sawalowerlevelofcapitalexpenditureinade,aswefocusonfillingavailablecapacity.weexpectthatcapitalexpenditurewillcontinuetobelowerthandepreciationin2011.netcapitalexpenditurein2010was£9.9m(2009:£19.1m)whichrepresents0.6timesdepreciation(2009:1.1timesdepreciation).
Capitalemployedinadein2010was£240.0m(2009:£244.2m).thereductionreflectscontinuingmanagementfocusonimprovingreturnoncapital.returnoncapitalemployedin2010was14.6%(2009:10.1%).
gloBalmarketsaerospacedemandin2010differedmarkedlybetweenrequirementsfornewbuildprogrammesandforthemaintenanceandrepairmarket.newbuildrevenueswererobust,beingdrivenbyrawmaterialrequirements(forexamplemajorforgings),whichtendtoincreasemorethanayearaheadofcorrespondingfinishedcomponents.thisis,therefore,anencouragingleadingindicatorforfuturedemandsforouradebusiness.ontheotherhand,demandformaintenanceandrepairwassoft,althoughitshowedsignsofincreasinginquarterfour,aspassengermilescontinuedtorisefromthedepressedlevelsof2009.
powergenerationdemandfellby28%in2010comparedto2009,largelyasaresultofaseverereductioninindustrialgasturbinebuild.thissectorbegantofallinquarterfourof2009,ayearlaterthanearlycyclebusinessesfelttheimpactoftherecession,andreflectscontinuingdifficultyinobtainingfinancingformajorcapitalprojects.thenewbuildweaknesshasbeenexacerbatedbygenerallylowerelectricitydemandinthewesterneconomies,whichhasreducedmaintenancerequirements.
revenuesfromoil&gascustomersincreasedby37%.northamericangasproductionhasbeengoodandexploration,particularlyforshalegas,hasbeenstrong.oilmarketshavebeenrobustandincreasedinquarterfourof2010asoilpricesmovedtowardsthe$100perbarrellevel.
businessreview-aerospaCe,deFenCe&enerGy
£202.1m2009:£189.5m
revenue
£33.9m2009:£24.7m
headline operating profit
aerospace&defence
energy
Generalindustrial
revenueBymarketseCtor
westerneurope
northamerica
emergingMarkets
revenueBygeography
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 19
aChievementsin2010withitsmodestrestructuringprogrammecompletedearly,theadebusinesshasbeenabletofocusonstrengtheningitsmanagementteamsanddevelopingitscustomerofferings.inheattreatmentwehavegainedadditionaloeMapprovalsforairframecomponents,openingadditionalopportunitiesfornewbuildaircraftheattreatment.inHip,revenuesforproductfabrication(HippF)increasedby70%andworkincludedthelargestyetsinglepiecemanifoldforasub-seaoil&gasapplication.
organisationanDpeopleaspartofdevelopingourcustomer-facingdivisions,anumberofkeymanagementappointmentshavebeenmade.inade,thishasincludedrecruitmentofmanagerswithglobalremitsforsales,marketingandoperationsforbothheattreatmentandHip.Measurestoimproveproductivity,includingtheuseof‘lean’techniques,havetakenoverfromthe2009focusonrestructuring.overallheadcountremainedconstant,at1,926,anddespitemodestoverallrevenuegrowthinade,headlineoperatingprofitimprovedfrom£24.7mto£33.9m.
lookingaheaDthekeyobjectiveforadein2011istobuildonthefoundationlaidin2010torealisegrowthfromnewcustomersandprocesses,whiledrivingfurtherproductivityandoperatingefficiencyimprovements.theclearfocusoncustomerrequirementsandsatisfactionandproprietarytechnologyhasproducedrevenuegainsin2010andweexpectfurtherprogressin2011.
20 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
resultsautomotive&Generalindustrial(aGi)revenueswere£297.7min2010,comparedto£245.9min2009,anincreaseof21.1%,reflectingageneralimprovementindemand,particularlyfromautomotiveandheavytruckcustomers,inallgeographies.salesbegantoimproveinquarterfourof2009andacceleratedinthefirsthalfof2010withfurtherincrementalimprovementinthesecondhalf.like-for-likerevenuegrowth,excludingrevenuesfromclosedsites,was25.1%.
HeadlineoperatingprofitinaGiwas£25.6mcomparedtoaheadlineoperatinglossof£12.3min2009.Marginsimprovedmarkedlyfromminus5.0%to8.6%.
netcapitalexpenditurein2010was£24.3m(2009:£12.5m),whichrepresents0.8timesdepreciation(2009:0.4timesdepreciation).weexpectthatcapitalexpenditurewillcontinuetobelowerthandepreciationin2011.returnoncapitalemployedin2010was9.3%(2009:minus4.2%).onaverage,capitalemployedin2010was£302.0m(2009:£315.1m).thereductionreflectscontinuingrestraintincapitalexpenditureastheGroupmaintainsfocusonimprovingcapitalreturnsbyincreasinglyfocusingonhigheradded-valueactivities.
marketsanDgeographiestheaGibusinessservesanextensivecustomerbaseacrossawiderangeofmarketsectors.theimpactofthedownturnwassevereinmostofourmarketsandrecoveryratesin2010havevariedsignificantly.Firsttoshowimprovementwasautomotive,whichalongwithaerospaceanddefence,isoneofthetwolargestsectorsforbodycote.automotiverevenuesgrewby40%in2010.whiledemandincreasedstronglyinallterritories,marketsharegainsaccountedfor25%oftheimprovementasbodycote’sstrengthindepthprovedattractivetocustomersworriedaboutsupplychainfailureintherecessionandafterwardsandduetocontractwinsforspecialistprocesses.Generalindustrialmarketshaverecoveredatagradualandmoremeasuredpace,withrevenuesaheadby13%.
innorthamerica,automotiverevenuesgrewverystronglyinthefirsthalfandwithmarketsharegainsgrowthwasover100%comparedtothefirsthalfof2009.thesecondhalfsawmoremodestgrowthandfortheyearasawhole,saleswereaheadby69%.Generalindustrialhaswitnessedsteadygrowththroughouttheyearandwashigherthan2009by20%.
aswithnorthamerica,automotiveledtherecoveryinwesterneuropeandparticularlybenefitedFrance,italyandGermanyforwhichthisisthemostimportantsector.automotivedemandandmarketsharegainstogetherresultedinyearonyearrevenuegrowthof28%.Generalindustrialdemandhasimprovedgraduallyoverthewholeyearwithsalesaheadof2009by7%.
businessreview-autoMotive&Generalindustrial
£297.7m2009:£245.9m
revenue
£25.6m2009loss:£(12.3)m
headline operating profit
automotive
truck
otherGeneralindustrial
energy
revenueBymarketseCtor
westerneurope
northamerica
emergingMarkets
revenueBygeography
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 21
theimprovementinthenordiccountriescamelaterintheyear,beingdrivenparticularlybythereturnofheavytruckwork,notablyinsweden.overallsalesinthenordicregionwereup29%comparedto2009,withrevenuesinwesterneuropeoverallbeingup13%.
theGroup’sbusinessinemergingmarketsgenerallyfaredverywellin2010.revenuesgrew25%ineasterneurope,withpolandinthelead,andby58%inChina.thebrazilianbusinesshasbeenthesubjectofmajorrestructuringwhichhasincludedreducingtheworkforceby32%.thelargestfacilitywasclosed,anewgreenfieldlocationwasestablished,benefitingfromtheGroup’seuropeanknow-how,andcapacitywasexpanded.evenduringthedisruption,salesinbrazilincreasedby7%yearonyear.thebusinesshasamuchreducedcostbaseandimprovedcapabilityandhastherightplatformtobenefitfromshortandmediumtermgrowththatweexpectinlatinamerica.
aChievementsin2010themajorrestructuringeffortintheaGibusinessisallbutcomplete,andwasaimedatreducingthecostbaseandexitinglowvalueaddedactivities.thissignificantmanagementchallengehasbeenmetinallpartsofthebusinessandthebenefitsareclearlyevidentinthe2010financialperformance.therehasalsobeenahighlevelofattentiontomaintainingthebenefitsoftherestructuring.during2010wehaveincreasedcapacityinseveraldifferentiatedtechnologiesinboththeunitedstatesandeurope.GreenfieldsiteshavebeenopenedintheCzechrepublic,polandandbrazil.specialitystainlesssteelprocessingcapacityhasbeenaddedineuropeandthefirstproductionfacilityforsheraCote®hasbeencommissionedintheuK.newoutsourcingcontractshavebeenwoninallgeographies.
organisationanDpeopleinjuly2008,theaGibusinessemployed5,201people.bytheendof2009thishadbeenreducedto3,505.notwithstandingrevenuesinaGiincreasingby21%,headcounthasdeclinedfrom3,505to3,456in2010,clearlydemonstratingsuccessinkeepingcostsundercontrolanddrivingproductivityimprovements.
lookingaheaDthebusinessissettobuildonthenotableimprovementsinperformancedeliveredin2010.thiswillbefoundedoncontinuedcostcontrol,capitalexpendituretargetedattheGroup’svariousproprietarytechnologiesandthedevelopmentofemergingmarkets,alongwithcloseattentiontomeetingandexceedingallcustomers’expectations.
22 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
finanCialoverview
2010 2009 £m £m
revenue 499.8 435.4
Headlineoperatingprofit 52.1 8.0amortisationofacquiredintangiblefixedassets (0.9) (1.3)impairmentcharge .– (31.5)Majorfacilityclosurecosts .– (25.4)
operatingprofit/(loss) 51.2 (50.2)netfinancecharge (6.0) (4.3)
profit/(loss)beforetaxation 45.2 (54.5)taxation (11.7) 3.4
profit/(loss)fortheyear–continuingoperations 33.5 (51.1)lossfortheyear–discontinuedoperations (5.8) .–
profit/(loss)fortheyear 27.7 (51.1)
Grouprevenuesfor2010increasedby14.8%from£435.4mto£499.8m.inconstantcurrenciestheannualincreasewas14.9%(£64.7m).theimprovementinthesecondhalfwassomewhatbetterthaninthefirst,withrevenues,allofwhichweregeneratedorganically,increasingby22.2%from£207.5min2009to£253.5m.
Headlineoperatingprofitfortheyearincreasedfrom£8.0mto£52.1m,andheadlineoperatingmarginwas10.4%(2009:1.8%).operatingprofitwas£51.2m(2009:loss£50.2m)aftercharging£0.9m(2009:£1.3m)inrespectoftheamortisationofacquiredintangibles,£nil(2009:£31.5m)forimpairment,and£nil(2009:£25.4m)formajorfacilityclosurecosts.
HeadlineoperatingcashflowfortheGroupwas£77.3m(2009:£34.7m).thiswas148.4%(2009:433.8%)ofheadlineoperatingprofit,reflectingtightcontrolofworkingcapital,especiallypayables,whichmorethanoffsethigherinventoryandreceivables,whichincreasedasaresultoftherecoveryinactivitylevels.netcapitalexpenditurein2010at£35.8m(2009:£32.2m)continuedbelowthelevelofdepreciation,reflectingcontinuedcarefulmanagementandafocusonutilisingexistingequipment.
afterdeductinginterestandtax,theGroupreportedapositivefreecashflowof£57.2m(2009:negative£14.8m).
during2010,bodycotesecureditsfundingpositionwithtwooftheGroup’sthreebankfacilities,bothofwhichwereduetomatureduring2010,beingrefinanced.totalfundingnowavailabletobodycoteunderitscommittedfacilitiesis£230.9m(2009:£348.4m),expiringbetweenMarchandjuly2013.
eXCeptionalCoststhetotalexceptionalcostschargedtotheincomestatementamountedto£0.9m(2009:£58.2m).
thecurrentyearchargerelateswhollytotheamortisationofintangibleassetsarisingfromprioryears’acquisitions.therewerenoacquisitionsduringtheyear.thelevelofthechargereducedcomparedtotheprioryear(2009:£1.3m)ascertainassetswerefullyamortisedin2009.
withimprovedmarketconditionsandthebenefitofthewiderangingrestructuringprogrammechargedin2008and2009,theboardhasconcludedthatnoimpairmentchargeisrequiredin2010(2009:goodwillimpairmentof£29.0mandinvestmentimpairmentof£2.5m).
FinanCedireCtor’sreport
DaviDlanDlessFinancedirector
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 23
therewerenomajorfacilityclosurecostsduring2010(2009:£25.4m).restructuringactionsarenowcompleteinmostpartsoftheGroup;theonlyexceptionsbeingthefinalisationofworkinFrance,brazilanditaly,whichwillcontinueintoearly2011.netcashexpenditureasaresultoftheprogrammewas£9.2m(2009:£19.2m),including£3.2mproceedsfromthedisposalofredundantassets.therestructuringinitiativesdeliveredannualisedcumulativesavingsof£45.0min2010.astherestructuringprogrammeisnowessentiallycompletefurthersavingswillbemodest.
restructuringprovisionsoutstandingat31december2010total£20.2m,being£19.9mrelatedtothe2008/2009programmeand£0.3mrelatedtoenvironmentalremediationfromearlierinitiatives.oftheremaining£20.2mcashcosts,£12.5misexpectedtobespentin2011and£7.7min2012andlater.allexpenditureaftertheendof2011willrelatetoenvironmentalremediation.
operatingprofitfromContinuingoperationsafterchargingexceptionalitemsof£0.9m(2009:£58.2m),theoperatingprofitfromcontinuingoperationswas£51.2m(2009:lossof£50.2m).
profitBeforetaXfromContinuingoperationsHeadlineprofitbeforetaxforcontinuingoperationswas£46.1m(2009:£3.7m).theprofitbeforetaxforcontinuingoperationswas£45.2m(2009:lossof£54.5m),andtheseamountsarereconciledasfollows:
2010 2009 £m £m
Headlineoperatingprofit 52.1 8.0netfinancecharge (6.0) (4.3)
Headlineprofitbeforetax 46.1 3.7amortisationofacquiredintangiblefixedassets (0.9) (1.3)impairmentcharge .– (31.5)Majorfacilityclosurecosts .– (25.4)
profit/(loss)beforetax-continuingoperations 45.2 (54.5)
finanCeChargethenetfinancechargefromthecontinuingoperationsoftheGroupwas£6.0mcomparedto£4.3min2009(seedetailsbelow).thereisnomovementduetointerestrates;however,therehasbeenanincreaseduetohigherundrawncommittedfacilityfees(£1.0m),costsofrefinancingearlyin2010(£0.9m)andanincreaseinothercharges(£0.3m),offsetbyloweraveragenetdebt(£0.1m)andalowerpensionfinancecharge(£0.4m).
2010 2009 £m £m
netinterestpayable 1.9 2.0Financingcosts 2.3 0.4othercharges 0.9 0.6pensionfinancecharge 0.9 1.3
netfinancecharge 6.0 4.3
taXationthetaxchargewas£11.7mfortheyearcomparedtoacreditof£3.4mfor2009.theeffectivetaxrateoncontinuingoperationsof25.9%(2009:6.2%)resultedfromtheblendingofdifferingtaxratesineachofthecountriesinwhichtheGroupoperates.theloweffectivetaxratefor2009resultedfromtheblendingofprofitmakingjurisdictionswithlossmakingjurisdictionsinthatparticularyearasaresultoftheeconomicdownturn.
theheadlinetaxrateoncontinuingoperationsfor2010was25.4%(2009:108.1%),beingstatedbeforeamortisationofacquiredintangibles(whicharegenerallynotallowablefortaxpurposes).inaddition,£5.8m(2009:£nil)waschargedinrespectofthe2008disposalofthetestingdivision(seediscontinuedoperationsbelow).
subjecttoanyfuturetaxlegislationchanges,theheadlinetaxrateisexpectedtoremainbelowthecurrentuKstatutorytaxrateof28%inthemediumterm.
DisContinueDoperationsbodycotehasnotdiscontinuedanybusinessstreamsduring2010.in2008,theGroupsolditstestingdivisionandduring2010provisionsrelatingtotaxationexpectedtoarisefromthisdisposalwerereassessed.theimpactontheGroupaccountsoftheseadditionalprovisionsisachargeof£5.8m(2009:nil).inthe2008Groupaccounts,theeffectiverateoftaxontheprofitondisposalwasstatedas11.0%.therevisedeffectiverateoftaxforthedisposal,takingaccountoftheadditionaltaxprovision,is13.9%.
earningspersharebasicheadlineearningspersharefromcontinuingoperations(asdefinedinnote10)increasedto18.3pfrom0.4p.basicearnings/(loss)persharefortheyearareshowninthetablebelow:
2010 2009 pence pence
basicearnings/(loss)persharefrom:Continuingoperations 18.0 (27.0)discontinuedoperations (3.1) .–
Continuinganddiscontinuedoperations 14.9 (27.0)
DiviDenDtheboardhasrecommendedafinaldividendof5.75p(2009:5.35p)bringingthetotaldividendto8.7ppershare(2009:8.3p).ifapprovedbyshareholders,thefinaldividendof5.75ppersharefor2010willbepaidon6May2011toallshareholdersontheregisteratcloseofbusinesson8april2011.
theboardaimstofollowaprogressivedividendpolicyaslongasthedividendiscoveredatleasttwicebycurrentyearheadlineearnings.dividendcoverfor2010was2.1times.thedividendin2009wasnotcoveredbyheadlineearnings.
24 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
CapitalstruCturetheGroup’sbalancesheetat31december2010issummarisedbelow:
assets liabilities netassets £m £m £m
property,plantandequipment 458.0 .– 458.0Goodwillandintangibleassets 118.1 .– 118.1Currentassetsandliabilities 120.2 (144.0) (23.8)othernon-currentassetsandliabilities 3.1 (16.9) (13.8)retirementbenefitobligations .– (11.6) (11.6)deferredtax 48.3 (73.1) (24.8)
totalbeforenetdebt 747.7 (245.6) 502.1
netdebt 23.5 (74.8) (51.3)
netassetsasat31December2010 771.2 (320.4) 450.8
netassetsasat31december2009 771.1 (348.5) 422.6
netassetsincreasedby£28.2m(6.7%)to£450.8m(2009:£422.6m).themajormovementscomparedto31december2009wereasignificantreductioninnetdebt(£34.2m),adecreaseinproperty,plantandequipment(£3.8m),adecreaseinretirementbenefitobligations(£3.4m),togetherwithanincreaseinnetcurrentassets(£1.7m)andanincreaseinnetdeferredtaxliabilities(£8.3m).
thedecreaseinproperty,plantandequipmentwasduetonetcapitalexpenditureof£35.8mbeingexceededbydepreciationof£46.1m,withforeignexchangevariancesof£8.0mreducingthenetdecreaseto£3.8m.
Movementsinnetcurrentassetswereduetotheincreasedleveloftradingactivityin2010comparedto2009,whichresultedinanincreaseininventoriesby£2.8m.tradereceivablesandotherreceivablesincreasedby£7.7masaresultofincreasedsaleslevels,andtightcontrolofworkingcapitalledtradeandotherpayablestoincreaseby£23.8m.
Currenttaxliabilitiesdecreasedby£1.8masaresultofthereassessmentoftaxliabilitiesresultingfromtheongoingrestructuringprogramme,whilethechangesinthetimingofdividendpaymentsfromjanuarytonovemberresultedinareductionintheproposeddividendcreditorof£5.5m.restructuringprovisionsreducedby£6.9m,asGrouprestructuringactivitiesproceededasplanned.
netliabilitiesforderivativefinancialinstrumentsdecreasedby£3.7mduetoacombinationofinstrumentmaturityandchangesinexchangeandinterestrates.
retirementbenefitobligationsreducedby£3.4mduringtheyear,primarilyasaresultoftheannouncedchangeintherelevantindexfortheuKschemefromrpitoCpiinrespectoftherevaluationofdeferredmembers’benefits.
thenetdeferredtaxliabilityincreasedby£8.3mduringtheyearduetoreductionsintaxratesincertaincountries,whichresultedinadecreaseinthevalueoftheGroup’srecogniseddeferredtaxlosses.
netDeBtGroupnetdebtat31december2010was£51.3m(2009:£85.5m).duringtheyear,loansof£32.6mundercommittedfacilitieswererepaid.theGroupcontinuestobeabletoborrowatcompetitiveratesandthereforecurrentlydeemsthistobethemosteffectivemeansoffunding.
Cashflowthenetincreaseincashandcashequivalentswas£0.5m(2009:netdecreaseof£231.6m),madeupofnetcashfromoperatingactivitiesof£95.6m(2009:£11.0m),lessinvestingactivitiesof£36.6m(2009:£27.3m)andlesscashusedinfinancingactivitiesof£58.5m(2009:£215.3m).
theincreaseinnetcashfromoperatingactivitiesfrom£11.0mto£95.6misdrivenprimarilybytheincreaseinheadlineebitdafrom£57.4mto£104.4m.tightcontrolofworkingcapital,especiallypayables,morethanoffsetincreasesinthelevelofinventoryandreceivableswhichwerehigherasaresultoftheincreasedlevelofactivity.theneteffectwasadecreaseinthelevelofworkingcapitalof£8.7m,and£1.1mwhenthemovementsinrestructuringprovisionsareincluded.
netcashoutflowsfrominvestingactivitiesincreasedfrom£27.3mto£36.6m,asthelevelsofnetcapitalexpenditurein2010at£35.8m(2009:£32.2m),althoughhigherthanintheprioryear,remainedbelowhistoriclevels,reflectingcontinuedtightmanagementcontrol.proceedsondisposalofsubsidiaryundertakingsreducedfrom£6.9min2009to£nilin2010.
netcashoutflowsusedinfinancingactivitiesreducedfrom£215.3mto£58.5m.2009sawtherepaymentof£231.9mofloansfollowingthedisposalofthetestingdivisionin2008,while2010sawafurtherrepaymentofloansof£34.0m,togetherwithpaymentofthreedividends(totaling£20.9m),followingtheboard’sdecisiontopaytheinterimdividendof2010twomonthsearlierthaninpreviousyears.
therehasbeenacontinuedfocusoncashcollectionwithdebtordaysat31december2010fallingto59daysfrom63daysayearearlier.netinterestpaymentsfortheyearwere£5.5m(2009:£4.4m)andtaxpaymentswere£5.4m(2009:£24.4m).
CapitaleXpenDiturenetcapitalexpenditure(capitalexpenditurelessproceedsfromassetdisposals)fortheyearwas£35.8m(2009:£32.2m).themultipleofnetcapitalexpendituretodepreciationwas0.8times(2009:0.6times),whichreflectstheGroup’scontinuedcarefulmanagementofitscapitalexpenditureprogramme.asat31december2010theGrouphadcapitalexpenditurecreditorsof£6.9m(2009:£8.3m).inadditioncapitalexpenditurecommitmentsamountedto£2.5m(2009:£6.7m).aproportionofthecurrentyearcapitalexpenditurewasincurredtosupporttherestructuringprogrammeintheconsolidationofplantsandthere-installationoffurnacestransferredfromclosedplants.Majorcapitalprojectsthatwereinprogressduring2010includetheupgradeoflargecapacityheattreatmentequipmentfortheusaerospacesector,additionalcapacityinFranceforanautomotiveoutsourcingproject,increasedstainlesssteelprocessingcapacity,expansionofcapacityinMexicoandproductionequipmentforournewsheraCote®process.
BorrowingfaCilitiesat31december2010,theGrouphadthefollowingcommittedfacilities:
Facility expirydate Facility loanutilisation
letterofCreditutilisation
facility head- room
£m £m £m £m
£110mrevolvingCredit 31March2013 110.0 .– .– 110.0€125mrevolvingCredit 31july2013 107.9 64.4 .– 43.5$20mrevolvingCredit 31March2013 13.0 0.2 5.4 7.4
230.9 64.6 5.4 160.9
FinanCedireCtor’sreportContinued
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 25
CapitalmanagementtheGroupmanagesitscapitaltoensurethatentitiesintheGroupwillbeabletocontinueasgoingconcerns,whilemaximisingthereturntoshareholders.thecapitalstructureoftheGroupconsistsofdebt,whichincludesborrowings,cashandcashequivalentsandequityattributabletoequityholdersoftheparent,comprisingcapital,reservesandretainedearnings.
thecapitalstructureisreviewedregularlybytheboardofdirectors.theGroup’spolicyistomaintaingearing,determinedastheproportionofnetdebttototalcapital,withindefinedparameters,allowingmovementinthecapitalstructureappropriatetothebusinesscycleandcorporateactivity.thegearingratioat31december2010hasfallento11%(2009:20%)asaresultofbothreducednetdebtandincreasedprofitintheperiod.
theGroup’sdebtfundingpolicyistoborrowcentrally(whereitistaxefficienttodoso),usingamixtureofshort-termborrowings,longer-termloansandfinanceleases.theseborrowings,togetherwithcashgeneratedfromoperations,arelentorcontributedasequitytosubsidiariesasrequired.theaimoftheGroup’sfundingpolicyistoensurecontinuityoffinanceatreasonablecost,basedoncommittedfacilitiesfromseveralsources,arrangedwithaspreadofmaturities.therecentmarketforbankfundinghasbeenrestrictedtoshortertenuresthanhavebeenavailableinthepastand,therefore,itisintendedinduecoursetoextendthematurityprofileoftheGroup’sfunding(currently2.4years).
DefineDBenefitpensionarrangementstheGrouphasdefinedbenefitpensionobligationsintheuK,Germany,switzerland,liechtenstein,usaandbrazilandcashlumpsumobligationsinFrance,italyandturkey,theentireliabilitiesforwhicharereflectedintheGroupbalancesheet.intheuK,theGrouphasafinalsalaryschemethatwasclosedtonewmembersinnovember2000,butcontinuestoaccruebenefitsforthe123currentemployeemembers.thedeficit,ascalculatedbytheschemeactuaryat31december2010usingtheprinciplesofias19is£0.6m(2009:£3.7m).theuKschemedeficitdecreasedby£3.1mduringtheyear,primarilyasaresultoftheannouncedchangeintherelevantindexfortheuKschemefromrpitoCpiinrespectoftherevaluationofdeferredmembers’benefits.
theGroup’sheattreatmentbusinessinGermanyhasinheritedseveralsmalldefinedbenefitarrangementsasaresultofprioryears’acquisitions.theyareallunfundedandareclosedtonewmembersbuttheexistingmemberscontinuetoaccruebenefits.theias19liabilityat31december2010was£3.6m(2009:£3.5m).inliechtensteintheias19liabilityat31december2010was£0.4m(2009:£0.2m)andinswitzerlandwas£0.3m(2009:£0.1m).arrangementsinbothcountriesarefunded.
inFrance,theGroupoperatesaplanwhichpaysacashlumpsumonretirementandalsoforlongservice.theplanisopentonewemployeesbutbyitsnatureisnotmortalitydependent.itisunfundedandtheias19liabilityat31december2010was£5.2m(2009:£5.7m).italyandturkeyalsohaveunfundedcashlumpsumobligations,whichbystatuteareopentonewmembers.theias19liabilityis£0.7mforitaly(2009:£0.8m)and£0.2mforturkey(2009:£0.2m).
theGroupsponsorsthreedefinedbenefitpensionarrangementsintheusathatwereinheritedwiththeacquisitionoflindbergandthesehadatotalias19deficitat31december2010of£0.5m(2009:£0.6m).thereisnofutureaccrualofbenefits.inbrazil,bodycoteoperatesadefinedbenefitplanforaseniormemberofstaff.itisfundedandthemembercontinuestoaccruebenefits.at31december2010ithadadeficitof£0.1m(2009:£0.2mdeficit).
postBalanCesheeteventstherearenopostbalancesheeteventsfollowingthe2010yearend.
ChangeinaCCountingpoliCiesthechangesinaccountingpoliciesaredetailedintheaccountingpoliciesonpage51ofthisreport.theadoptionofnewaccountingpolicieshasnothadanymaterialimpactontheamountsreportedinthesefinancialstatements.
goingConCerntheGroup’sbusinessactivities,togetherwiththefactorslikelytoaffectitsfuturedevelopment,performanceandpositionaresetoutinthisGroupreview.thereviewincludesanoverviewoftheGroup’sfinancialposition,itscashflows,liquiditypositionandborrowingfacilities.inaddition,thereisadescriptionoftheGroup’sobjectives,policiesandprocessesformanagingitscapital;itsfinancialriskmanagementobjectives;detailsofitsfinancialinstrumentsandhedgingactivities;anditsexposurestocreditandliquidityrisk.
theGroupmeetsitsworkingcapitalrequirementsthroughacombinationofcommittedanduncommittedfacilitiesandoverdrafts.theoverdraftsanduncommittedfacilitiesarerepayableondemandbutthecommittedfacilitiesaredueforrenewalasshownbelow.thereissufficientheadroominthecommittedfacilitycovenantstoassumethatthesefacilitiescanbeoperatedascontractedfortheforeseeablefuture.
us$20mrevolvingCreditFacilitymaturing31March2013
£110mrevolvingCreditFacilitymaturing31March2013
€125mrevolvingCreditFacilitymaturing31july2013
theGroup’sforecastsandprojections,takingaccountofreasonablepotentialchangesintradingperformance,showthattheGroupshouldbeabletooperatewithinthelevelofitscurrentcommittedfacilities.
thedirectorshavereviewedforecastsandprojectionsfortheGroup’smarketsandservices,assessingthecommittedfacilityandfinancialcovenantheadroom,centralliquidity,andthecompany’sabilitytoaccessfurtherfunding.thedirectorsalsorevieweddownsidesensitivityanalysisovertheforecastperiod.Followingthisreview,thedirectorshaveformedajudgement,atthetimeofapprovingthefinancialstatements,thatthereisareasonableexpectationthattheGrouphasadequateresourcestocontinueinoperationalexistencefortheforeseeablefuture.Forthisreasonthedirectorscontinuetoadoptthegoingconcernbasisinpreparingthefinancialstatements.
D.f.landlessFinancedirector24February2011
26 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
effectivemanagementofrisksisessentialtothedeliveryoftheGroup’sobjectives.theGroup’sapproachhasbeenfordivisionalmanagementtoreporttheirsignificantriskstotheGroup,explainingthenatureandtheeffectivenessofthemitigationthatisinplacetomanageeachrisk.therecentappointmentofavice-president(riskandbusinessprocesses)willensurecontinuingimprovementsintheGroup’sriskmanagementframework.
theprincipalrisksshownbelowrepresentthemostsignificantareaswhichtheboardbelievescouldmostlikelyimpacttheGroup’sfinancialperformanceandposition,togetherwiththeactionsinitiatedtomitigatetheconsequences.
marketandCustomerrisksMarketsbodycote’spresencein26countriesandinawidevarietyofendmarketsactsasanaturalhedgetobalanceoutlocalisedeconomicvolatility.nevertheless,theGroupiscontinuouslyworkingtoimproveitsresponsivenesstochangesindemandandusesanalyticaltoolstoassesstheflexibilityofitscostbase.Closecontactwithcustomersprovidesmanagementwithmarketintelligencethatallowstimelyactiontominimisetheimpactofadownturn.thiswasdemonstratedinthelastdownturn,whichbeganattheendof2008,whentheGroupreactedquicklytochangesindemandandreduceditscostbaseby£45minthefaceofa21%fallinsales.
Loss of key customerstheGroupbenefitsfrommanylongtermandpartnershipagreementswithkeycustomers.damageto,orlossof,anyoftheserelationshipsmaybedetrimentaltoGroupresults,althoughtheboardbelievethisishighlyunlikelyasbodycotehasexcellentlong-termrelationshipswithitsmajorcustomersandtheGroup’snetworkofstrategicallylocatedfacilitiesensuresthatitisthesupplierofchoicetothesemajormanufacturers.Furthermorethereisnosignificantcustomerdependency,withtheGroup’stoptencustomersaccountingforlessthan13%ofsalesandthebalancemadeupbymanythousandsofcustomers.
CorporateandCommunityrisksHumanresourcesbodycoteisreliantonitsabilitytorecruit,developandretainstafftomeetfuturegrowthplans.Competitionforresourcesishighandthereisariskthatbodycotemaynotbeabletoattractortoretainskilledindividuals.asthemarketleaderbodycoteisseenasasourceoftalentbycompetitors.duringthelasttwoyearstheGrouphasaddressedtheriskbyupdatingitsHumanresources(Hr)strategy,whichcoverssuccessionplanningandstaffdevelopmentprogrammes,performancemanagementprocesses,recruitmentpoliciesandremunerationstrategy.
safety&Healthbodycoteiscommittedtoprovidingthehighestlevelofprotectioninitsworkenvironmentandtosafeguardingthesafetyofitsemployees.theGroup’sworkenvironmentpresentsanumberofriskswhichrequiremanagement.shortcomingsinhealthandsafetyprocedurescanhaveasignificanteffectonindividualemployees,causedisruptiontobusinessandleadtofinancialpenaltiesandlossofreputation.safetyandHealth(s&H)policiesaresetbytheGroup’ssafetycommitteeandallfacilitiesarerequiredtooperateinaccordancewiththesepolicies.responsibilityforimplementationofs&HpolicieslieswithdivisionalmanagementandeachdivisionhasaprofessionallycompetentHeadofs&Hinplace.allfacilitiesaresubjecttosafetyauditsatleastonceayear,followingstandardauditprogrammes,andfindingsarereportedtodivisionalandcorporatemanagement.
environmentbodycoteiscommittedtoprovidingthehighestlevelofprotectiontotheenvironment.Historicaluseofsolventsandotherhazardouschemicalscouldhaveledtogroundcontamination.theenvironmentallawsofthevariousjurisdictionsimposeactualandpotentialobligationsonbodycotetoremediatecontaminatedsites,boththosecurrentlyoperatedand,insomecases,thosewhichhavebeensold.bodycoteincurscostsannuallyinmeetingitsobligationsandmaintainsaprovisionof£16.8mtomeetliabilities.ifthisexistingprovisionisinadequatetomeetcostsarisingfromenvironmentalobligations,thenthiscouldimpacttheGroup’sresults.someoftheGroup’sheattreatmentplantscontinuetousesolventsandotherhazardouschemicalsinsmallquantitiesbuttheriskoffuturecontaminationismanagedbystringentprocedures,typicallyundertherequirementsoftheiso14001environmentalsystem.
operationalrisksservicequalityworkthatisreleasedintousewhichisnotincompliancewithspecificationcouldariseasaresultofsystemorhumanfailure.bodycotehasstringentqualitysystemsinplaceandwherenecessaryitsplantshaverelevantaccreditations,suchasiso9000,nadcapandts16949.allfacilitiesaresubjecttointernalaudits,externalauditsbyaccreditorsorcustomerinspectionsatleastonceayear.
energyanenergyriskmanagementcommitteeoverseesthepurchasingofalltheGroup’senergyrequirements.itsobjectiveistominimisethepotentialexposuretobodycoteofrapidchangesinenergypricesandtomatchcommitmentstobuyenergy,bothintermsofpriceandvolume,withdemandfortheGroup’sservices.anincreaseinenergycostisariskwhichtheGroupislargelyabletomitigatethroughpriceadjustmentsandsurcharges,althoughwithsometimelag.bodycoteisconfidentthatitwillcontinuetobeabletopassonenergycostincreasestoitscustomersinfuture.
regulatoryrisksregulatoryandlegislativeCompliancebodycoteoperatesin26countrieswhichallhaveuniquelegislativeandregulatoryrequirements,includingtaxregulations.insomecountriesregulationscanvaryfromstatetostate.non-compliancecouldleadtopenalties,disruptiontobusiness,diversionofmanagementtimeandlossofreputation.tomitigatethisriskbodycoteengagesspecialistswithexpertiseinthelocallegislativeandregulatorylandscapetoperformcomplianceactivityortoadviselocalmanagement.
financialriskstheGroup’streasuryfunctionprovidesacentralisedservicetotheGroupforfunding,foreignexchange,interestratemanagementandcounterpartyrisk.treasuryactivitieshavetheobjectiveofminimisingriskandtreasuryoperationsareconductedwithinaframeworkofpoliciesandguidelinesauthorisedandreviewedperiodicallybytheboard.FurtherdetailsontheGroup’sfinancialrisksandriskmanagementpoliciesareprovidedinnote20tothefinancialstatements.
prinCipalrisKsandunCertainties
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 27
risk Description impact mitigation
marketanDCustomerrisks
Markets asubstantialproportionofbodycote’ssalesarecloselylinkedtotheeconomiccycle.salesinthemarketsservedbytheaGibusinesses(67%ofthetotalGroup)tendtodevelopinlinewithoraheadoftheeconomiccycle,whereasaerospacesales(20%)tendtotrackbehindtheeconomiccycle.salestotheenergysectors(13%)arecloselylinkedtoenergyprices,whichinturncanbeaffectedbygeneraleconomicactivity.shortordervisibilitymeansthataccuratelyforecastingdemandremainsdifficult.
asalowproportionoftheGroup’scostsarevariable(approx20%),afallinsaleswillhaveasignificantimpactonprofitability.
engageincontinuousdialoguewithcustomersandmonitormacro-economicforecastswhichshouldalerttheGrouptolikelychangesindemand.
Maintainflexibilityofcostbasee.g.byensuringthataproportionoftheworkforceisemployedontemporarycontracts.
respondquicklytochangesincustomerdemandonalocaloraGroup-widelevel.
lossofkeycustomers
damagetotherelationshipwithkeycustomersthatwillresultinlossofsales.
alossofakeycustomerwillresultinareductioninprofitandmayaffecttheviabilityofoneormoreoftheGroup’sfacilities.
Continuetheemphasisonlong-termagreements.
Maintainexcellentrelationshipswithmajorcustomers.usekeyaccountmanagementtomonitorcustomersatisfactionwithGroup’sservicelevels.
CorporateanDCommunityrisks
Humanresources
bodycote’sgrowthplansrelyonitsabilitytoretain,developandattractstaff.
ashortageofstaffwiththeappropriateskillswillimpedetheGroup’sabilitytoexecuteitsbusinessplans.
ContinuedevelopmentofaHrstrategytoaddressthelong-termdevelopmentandretentionofstaff.
developsuccessionplans.
ensureperformancemanagementprocessesareproperlyimplementedandusedeffectively.
safetyandHealth
shortcomingsinsafetyandhealthframework.
Failuretodevelop,implementorcomplywiththehighestlevelsofsafetyandhealthprocessescanleadtoinjury,financialandreputationalloss.
MaintainaGroupsafetycommitteetodevelophealthandsafetypolicies.
MaintainGroup-widehealthandsafetypoliciesenforcedbydivisionalhealthandsafetyteams.
safetycomplianceauditsatleastonceayearatallplants.
environment Groundandwatercontaminationthroughtheuseofpotentiallyhazardoussubstancesandemissionsofcarbondioxide.
Financialimpactofcleaningupcontaminationfrompastandpresentactivitiesinvolvinghazardoussubstances.reputationalimpact,particularlyforfacilitieswhichoperateinurbanorresidentialareas.
remediationofcontaminatedsitesasrequiredbylocallegislation.
reduceuseofhazardoussubstances,suchaschlorinatedsolvents.
adoptiso14001certification.
Continuouslyimproveenergyefficiency.
operationalrisks
servicequality workbeingreleasedforendusethathasnotbeenprocessedtospecification.
processedpartwillnotperformasrequired,leadingtofinancialcostofremediation,breakdownincustomerrelationship,reputationalloss,andpotentialfordamages/litigation.
Maintainindustryrelevantaccreditations.
divisionalqualityteamstomaintainqualityprocessatplantlevel.
performqualityauditsatallplantsatleastonceayear.
energy increaseinenergyprices. energyisthesecondlargestvariablecosttobodycote.thevolatilityofenergypricesmeansthatcostchangesaredifficulttoforecastwhichcouldleadtoareductionintheGroup’sprofitability.
energyriskmanagementcommitteeoverseesenergypurchasingandenergypriceagreements.
passonenergycoststocustomersthroughcontractualarrangementsandregularpricereviews.
regulatoryrisks
regulatoryandlegislativecompliance
non-compliancewithregulatoryorlegislativerequirements.
non-compliancecouldleadtofinancialpenalties,disruptiontobusiness,diversionofmanagementtime,personalandcorporateliabilityandlossofreputation.
engagelocalspecialiststosupportbodycoteatlocal,divisionalandGrouplevel.
developbusinessprocesstoincorporatelocalregulatoryrequirements.
28 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
ourapproaChbodycote’sobjectiveistocreatesuperiorshareholderreturnsthroughtheprovisionofselectedthermalprocessingservicesthatarehighlyvaluedbyourcustomersandtoachievethisinasafeworkingenvironment,withminimalenvironmentalimpact.
bodycoteisdedicatedtoimprovingmanagementofcorporateresponsibilityissuesandisimplementingpoliciesandinitiativestoachievethisgoal.thefuturesuccessandgrowthoftheGroupisintrinsicallylinkedtoourabilitytoensuretheGroup’soperationsaresustainableandthatwecannurtureanddevelopourtalent.
ourpeoplethestrengthoftheGroupprimarilyrestsinitspeopleandoneofthekeychallengesformanagementistoensureavailabilityofappropriatelyqualifiedpeopletosupportitscontinuedgrowth.bodycoteisfortunatetohaveacompetentandcommittedinternationalteamthatiswellrespectedintechnicalandbusinesscircles.MostacquisitionshavebeenbasedonhistoricalrelationshipswithbodycotepersonnelwhichisatestamenttotheintegrityoftheGroup’speople.
theboardhasestablishedaremunerationpolicythatrewardsperformancewhileofferingcompetitivebasepackages.inlinewiththepolicyofcontinuousimprovement,theGrouphasaddedfurtherresourcesinthisareatoassessmanagementperformanceandtoimprovethesuccessionpipelineforfuturebusinessleadership.
bodycote’semploymentpoliciesarenon-discriminatory,complyingwithallcurrentlegislationtoengenderequalopportunityirrespectiveofrace,gender,religion,disability,sexualorientationornationality.Harassmentisnottolerated.
Corporateresponsibilityandsustainability
bodycoteisdedicatedtoimprovingmanagement
ofcorporateresponsibilityissuesandisimplementing
policiesandinitiativestoachievethisgoal.
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 29
responsiBleBusinessethiCsallbodycotepersonnelareexpectedtoapplyahighethicalstandard,consistentwithaninternationaluK-listedcompany.directorsandemployeesareexpectedtoensurethattheirpersonalinterestsdonotatanytimeconflictwiththoseofbodycote.shareholderemployeesareadvisedofandcomplywithsharetradingcodes.
bodycotehassystemsinplacedesignedtoensurecompliancewithallapplicablelawsandregulationsandconformitywithallrelevantcodesofbusinesspractice.Further,bodycotedoesnotmakepoliticaldonations.
withregardtocompetition,bodycoteaimstowinbusinessinadifferentiatedhigh-valuemanner.theGroupdoesnotemployunfairtradingmethodsanditcompetesvigorouslybutfairlywithintherequirementsoftheapplicablelaws.employeesareprohibitedfromeithergivingorreceivinganyinducements.
Communitieswhilstbodycotehasnocentralisedcommunityinitiativesinplace,ourglobalteamsfrequentlytakepartincharityeventsandgroupsthathelptofostergoodcommunityrelationships.
improvingsafetyCulturethenatureoftheGroup’soperationsisthatemployeesareregularlyexposedtopotentiallydangeroussituations.itisstandardbodycotepracticetoensurethatappropriatesafetyandhealthpoliciesandproceduresareinforcearoundtheGroupandthatemployeesaregivensuitabletrainingappropriatetotheirworkingenvironment.
in2004theGroupcommencedreportinginauniformmanneritsperformanceinternallyintermsofboththefrequencyandseverityoflost-timeaccidents.asaresult,eachfacilityisnowabletobenchmarkitssafetyandhealthperformanceandformulatestrategiesforimprovements.bodycoteiscommittedtothehighestpracticablestandardsofsafetyandhealthmanagementandtakesazerotoleranceapproachtosafetyviolations.
underpinningthevitalimportanceofworkplacesafety,bonuspaymentstodirectorsandseniorexecutivesare,inpart,dependentonachievementofsafetytargets,whicharekeyperformanceindicators.
kpi–accidentfrequency(number)bodycoteworkstirelesslytoreduceworkplaceaccidentsandiscommittedtoprovidingasafeenvironmentforanyonewhoworksatorvisitsourlocations.themajorrestructuringprogrammehasnotmadethisaneasytaskin2010.nevertheless,theaccidentFrequencyratewasreducedto1.8(2009:1.9).
3.1 2.4 2.0 1.9 1.8
06 07 08 09 10
accidentFrequencyisdefinedasthenumberoflosttimeaccidentsx200,000hours(approximately100manyears),dividedbythetotalhoursworked.
30 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
proteCtingtheenvironmentbodycoteoperatesmodern,efficientequipmentaroundtheclock.theGroupaggregatesdemandfromawiderangeofcustomerstomaximiseefficiencyandminimiseenergycosts.byreplacingunder-utilisedin-housethermalprocessingoperationswithbodycote’sstate-of-the-artequipment,theoverallamountofenergyusedbyindustrycanbedramaticallyreduced,asisexplainedfurtherinthefollowingpages.thesuccessofbodycote’sprocessesinaddressingtheseissuesiskeytoitsenvironmentalcredentials.theGroupdoesnotsimplyaimtominimiseitsownenergyconsumption,butalsotoeffectsubstantialreductionsinitscustomers’energyuse.
thereplacement,wherepossible,ofharmfulmaterialshasreducedtheneedfordisposalofwasteproducts.byactingresponsiblytheGrouphasbeenabletosubstantiallyreduceitschlorinatedsolventusageandisinvestinginclosedsolventwashingsystemstorecuperatesolventeffluentandreduceevaporationemissions.
kpi–iso14001accreditedfacilities(%)reducingtheenvironmentalimpactoftheGroup’sactivitiesistakenveryseriously.Compliancewiththerequirementsofiso14001helpstominimisetheriskofadverseenvironmentaleffectsatbodycote’slocations.attheendof2010,81%ofourplantshadachievediso14001accreditation–140plantsoutofatotalof173(2009:137outof178).
47 68 71 77 81
06 07 08 09 10
CarbonfootprintandwaterconsumptionthereductionofCo2e(carbondioxideequivalent)andwaterconsumptionisahighpriorityfortheGroup.
totalCo2eemissionsper£msalesdecreasedby5%in2010andwaterusageper£msalesdecreasedby8%.theGroup’stotalCo2emissiondataisbasedonscope1andscope2emissions,asdefinedbytheuKGovernment’sdepartmentforenvironment,Foodandruralaffairs,anddatarelatingtothishasbeencalculatedtoincludecountry-specificelectricityconversionfactors.
Carbonfootprint waterconsumption(tonneCo2e/£msales) (thousandm3/£msales)
698.5 665.5
09 10
1.85 1.70
09 10
bodycoteismakingacommitmenttoreducingenergyandwaterconsumptionandspecificmethodsforachievingthiswillbeexploredfurtherin2011.
CorporateresponsibilityandsustainabilityContinued
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 31
agreener,Cleanerenvironmentreducinganydetrimentalimpactontheenvironmenthasbecomeagrowingfocusofindustryworldwideandbodycotecanassistinthedrivetowardscarbonreductionandenvironmentallyfriendlyapproachesinanumberofways.
Forexample,certainheattreatmentandthermallysprayedsurfacetreatmentsareleadingthewayinthereplacementofolder,lessenvironmentallyfriendlyprocessessuchashardchromeplating.
Futurerestrictionsthatwillbeplacedonchromeplatingduetohealthandenvironmentalissueshaveledmanybusinessesincludingthemajoraerospacecompaniestoembarkoninitiativestoreplaceit.thesecompanieshavehighlightedthermalspraycoatingsasthepreferredreplacementforchromeplating.
bodycotehasbeeninvolvedinanumberofinitiativestoreplacechromeplateandresultshaveshownthat,inadditiontotheenvironmentalbenefits,thermallysprayedtungstencarbideoutperformshardchromeplateforbothwearandcorrosionprotection.
Modernthermalprocessingtechniqueshavealloweddesignengineersandmanufacturerstousemuchlightermaterials,suchasaluminiumforexample,andhavesignificantlyprolongedcomponentlifetimes.throughtheeffectiveuseofthermalprocessing,partscannowbelighterandoverallcomponentweightreduced,leadingtoimprovedefficiencyandreducedfuelconsumption.
32 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
thedirectorsarepleasedtosubmittheirreportandtheauditedfinancialstatementsfortheyearended31december2010.
theChairman’sstatement,theChiefexecutive’sreview,theFinancedirector’sreport,andalltheinformationcontainedonpages8to45togethercomprisethedirectors’reportfortheyearended31december2010.
prinCipalaCtivitiestheCompanyisaholdingcompanywithsubsidiariescarryingonbusinessintheprovisionofthermalprocessingservices.theactivitiesandlocationsoftheprincipalsubsidiaryundertakingsaresetoutonpages99and100.
groupreviewtheGroupreview,whichencompasses:
strategyandobjectives;
Keyperformanceindicators;
Chairman’sstatement;
Chiefexecutive’sreview;
businessperformance;
businessoverview;
businessreview;
Financedirector’sreport;and
Corporateresponsibilityandsustainability
isprovidedonpages8to31ofthisannualreport.thisisareviewofthedevelopmentofthebusinessesoftheGroup,thefinancialperformanceduringtheyearended31december2010,keyperformanceindicators,adescriptionoftheprincipalrisksanduncertaintiesfacingtheGroupandinformationabouttheuseoffinancialinstruments.theGroupreviewhasbeenpreparedsolelytoassisttheshareholdersinassessingtheGroup’sstrategiesandthepotentialofthosestrategies.itshouldnotbereliedonbyanyotherpartyforanyotherpurpose.Forward-lookingstatementshavebeenmadebythedirectorsingoodfaithusinginformationavailableuptothedateofthisreportandsuchstatementsshouldberegardedwithcautionbecauseoftheinherentuncertaintiesineconomictrendsandbusinessrisks.sincetheendofthefinancialyearnoimportanteventsaffectingthebusinessoftheGrouphaveoccurred.
DiviDenDstheboardisrecommendingafinaldividendof5.75pperordinarysharemakingatotalfortheyearof8.7ppershare(2009:8.3p).thefinaldividend,ifapproved,willbepaidon6May2011toshareholdersontheregisteratthecloseofbusinesson8april2011.
shareCapitaltheCompany’sissuedordinarysharecapitalasat31december2010was£32.8mandduringtheyearwasincreasedbytheissueof1,714,205ordinarysharesbetween12Marchand22december2010foratotalconsiderationof£618,471inconnectionwiththeCompany’sexecutiveshareincentiveschemes.attheannualGeneralMeetingon28april2010theshareholdersauthorisedtheCompanytopurchaseupto18,816,771ofitsownshares.thisauthorityexpiresattheconclusionoftheforthcomingannualGeneralMeetingtobeheldon27april2011,atwhichtimeafurtherauthoritywillbesoughtfromshareholders.
CapitalstruCturedetailsoftheauthorisedandissuedsharecapitalareshowninnote25.theCompanyhasoneclassofordinaryshares,whichcarrynorighttofixedincome.eachsharecarriestherighttoonevoteatgeneralmeetingsoftheCompany.therearenospecificrestrictionsonthesizeofaholdingnoronthetransferofshares,bothofwhicharegovernedbythegeneralprovisionsofthearticlesofassociationandprevailinglegislation.thedirectorsarenotawareofanyagreementsbetweenholdersoftheCompany’ssharesthatmayresultinrestrictionsonthetransferofsecuritiesoronvotingrights.detailsofemployeeshareschemesaresetoutinnote28andsharesheldbythebodycoteemployeebenefittrustabstainfromvotingandwaivedividend.nopersonhasanyspecialrightsofcontrolovertheCompany’ssharecapitalandallissuedsharesarefullypaid.theappointmentandreplacementofdirectorsisgovernedbytheCompany’sarticlesofassociation,theuKCorporateGovernanceCode,theCompaniesactandrelatedlegislation.thearticlesofassociationmaybeamendedbyaspecialresolutionofshareholders.thepowersofthedirectorsaredescribedintheCorporateGovernancestatementonpage34.underthearticlesofassociationtheCompanyhasauthoritytoissueordinaryshareswithanominalvalueof£3,250,168.therearealsoanumberofotheragreementsthattakeeffect,alter,crystalliseorterminateuponachangeofcontroloftheCompanyfollowingatakeoverbidsuchascommercialcontracts,bankloanagreements,propertyleaseagreements,employmentcontractsandemployeeshareplans.noneoftheseareconsideredtobesignificantintermsoftheirlikelyimpactonthebusinessoftheGroupasawhole,andthedirectorsarenotawareofanyagreementsbetweentheCompanyandthemselvesoremployeesthatprovideforcompensationforlossofofficeoremploymentthatoccursbecauseofatakeoverbid.
DireCtorsthecurrentdirectorsandtheirbiographicaldetailsarelistedonpage45andallservedthroughouttheyear.underthearticlesofassociationoftheCompanyeachdirectormustretirefromofficeandstandforre-electionbyshareholdersasaminimumateverythirdannualgeneralmeetinginordertocontinuetoserveasadirector.HoweverinviewofthenewlyintroduceduKCorporateGovernanceCodeandtofurtherincreaseaccountability,thisyearalldirectorswillretireattheannualGeneralMeetingandstandforre-electionbytheshareholdersiftheywishtocontinuetoserveasdirectorsoftheCompany.accordingly,thosedirectorsretiringandofferingthemselvesforre-electionatthe2011annualGeneralMeetingareMessrsa.M.thomson,s.C.Harris,d.F.landless,j.vogelsang,j.a.bilesanddrK.rajagopal.there-electionsofMessrsthomsonandvogelsangareinaccordancewiththeretirementprovisionsofthearticlesofassociation.theserviceagreementsforMessrsHarrisandlandlessareterminableby12months’notice.theremainingdirectorsdonothaveaserviceagreementwiththeCompanyandtheirappointmentsareterminablebysixmonths’notice(orinthecaseoftheChairman,Mrthomsonby12months’notice).
direCtors’report
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 33
DireCtors’interestsinContraCts&sharesdetailsoftheexecutivedirectors’servicecontractsanddetailsofthedirectors’interestsintheCompany’ssharesandshareincentiveplansareshownintheboardreportonremunerationonpages39to43.nodirectorhashadanydealingsinanysharesoroptionsintheCompanysince31december2010.qualifyingthirdpartyindemnityprovision(asdefinedbysection234oftheCompaniesact2006)hasremainedinforceforthedirectorsfortheyearended31december2010and,asatthedateofthisreport,remainsinforceforthebenefitofthecurrentdirectorsinrelationtocertainlossesandliabilitieswhichtheymayincur(orhaveincurred)tothirdpartiesinthecourseoftheirduties.apartfromtheseexceptions,noneofthedirectorshadamaterialinterestinanycontractofsignificanceinrelationtotheCompanyanditssubsidiariesatanytimeduringthefinancialyear.
potentialConfliCtsofinterestduring2008thedutiesowedbydirectorstoacompanywerecodifiedandextendedbytheCompaniesact2006sothatdirectorsnotonlyhadtodeclareactualconflictsofinterestsintransactionsastheyarosebutalsohadadutytoavoidsuchconflictswhetherrealorpotential.potentialconflictsofinterestcouldarisewhereasingledirectorowesafiduciarydutytomorethanoneorganisation(a‘situationalConflict’)whichtypicallywillbethecasewhereadirectorholdsdirectorshipsinmorethanonecompany.inordertoensurethateachdirectorwascomplyingwiththenewduties,eachdirectorprovidedtheCompanywithaformaldeclarationtodisclosewhatsituationalConflictsaffectedhim.theboardreviewedthedeclarationsandapprovedtheexistenceofeachdeclaredsituationalConflictuntiloctober2011andpermittedeachaffecteddirectortoattendandvoteatbodycotedirectors’meetings,onthebasisthateachsuchdirectorcontinuedtokeepbodycote’sinformationconfidential,andprovidedoverallthatsuchauthorisationremainedappropriateandintheinterestsofshareholders.wheresuchauthorisationbecomesinappropriateornotintheinterestsofbodycoteshareholders,theChairmanorthenominationCommittee,canrevokeanauthorisation.nosuchrevocationshavebeenmade.
employmenttheGrouprecognisesthevaluethatcanbeaddedtoitsfutureprofitabilityandstrengthbytheeffortsofemployees.thecommitmentofemployeestoexceliskeytotheGroup’scontinuedsuccess.throughtheirattendanceat,orparticipationinstrategy,production,safetyandhealthmeetingsatsitelevel,employeesarekeptuptodatewiththeperformanceandprogressoftheGroup,thecontributiontotheGroupmadebytheirsiteandareadvisedofsafetyandhealthissues.theGrouppublishesin11languages,viatheGroupintranet,anelectronicmagazineforallstaffdetailingtheGroup’sactivities,performanceandsomeofitspersonalitiesandhasalsofeaturedtheGroup’sopendoorpolicyunderwhichemployeeconcernscanbevoicedonaconfidentialbasis.approximately1,600bodycoteemployeesareconnectedtothebodycoteintranet,whichimprovesknowledgeofGroupactivities,andassistsgreatlywithtechnologyexchangeandco-ordination.itistheGroup’spolicytogivefullandfairconsiderationtoapplicationsforemploymentfromdisabledpersons,havingregardtotheirparticularaptitudesandabilities,andtoencouragethetrainingandcareerdevelopmentofallpersonnelemployedbytheGroup,includingdisabledpersons.shouldanemployeebecomedisabledtheGroup,wherepracticable,willseektocontinuetheemploymentandarrangeappropriatetraining.anequalopportunitiespolicyisinoperationintheGroup.
researChanDDevelopmentproductdevelopmentandqualityimprovementatallGroupcompaniesisacontinuousprocess.theGrouphasapolicyofdeployingthebesttechnologyavailableandactivelyseekingimprovements.italsoconductsresearchprogrammeswithitscustomers.
DonationsCharitabledonationsduringtheyearnetofincometaxamountedto£6,000(2009:£2,750).therewerenopoliticalcontributionsin2009or2010.
CreDitorspoliCyGroupoperatingcompaniesareresponsibleforagreeingthetermsandconditionsunderwhichbusinesstransactionsareconducted.itisGrouppolicythatpaymentstosuppliersaremadeinaccordancewiththetermsagreed,providedthatthesesuppliershavealsocompliedwithapplicabletermsandconditions.CreditordaysattheyearendfortheGroupwere46days(2009:46days).
shareholDersananalysisoftheCompany’sshareholdersandthesharesinissueat18February2011anddetailsoftheinterestsofmajorshareholdersinvotingsharesnotifiedtotheCompanypursuanttochapter5ofthedisclosureandtransparencyrulesaregivenonpage101.
auDitorsinaccordancewiththeprovisionsofsection489oftheCompaniesact2006,aresolutionforthereappointmentofdeloittellpasauditorsistobeproposedattheforthcomingannualGeneralMeeting.eachpersonwhoisadirectoratthedateofapprovalofthisannualreportconfirmsthat:-
sofaraseachdirectorisaware,thereisnorelevantauditinformationofwhichtheCompany’sauditorsareunaware;and
eachdirectorhastakenallthestepsthatheoughttohavetakenasadirectortomakehimselfawareofanyrelevantauditinformationandtoestablishthattheCompany’sauditorsareawareofthatinformation.
thisstatementisgivenandshouldbeinterpretedinaccordancewiththeprovisionsofsection418oftheCompaniesact2006.
annualgeneralmeetingthe2011annualGeneralMeetingwillbeheldon27april2011inaccordancewiththenoticebeingsenttoshareholderswiththisreport.
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tytheringtonbusinessparkMacclesfield
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34 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
CorporateGovernanCestateMent
ComplianCewith2008ComBineDCoDeinrespectofthefinancialyear2010bodycote’sobligationunderthedisclosureandtransparencyrulesistoprepareacorporategovernancestatementwithreferencetotheCombinedCodeonCorporateGovernancepublishedbytheuKFinancialreportingCouncil(FrC)injune2008(the‘2008Code’).
inrespectofeachsubsequentfinancialyearsuchstatementwillneedtoreferencetheuKCorporateGovernanceCodeissuedbytheFrCinjune2010(the‘newCode’).
inrespectoftheyearended31december2010bodycotehascompliedwiththeprovisionsofthe2008Code,savethattheboardhastakentheviewthatgenerallyitistheresponsibilityoftheChiefexecutiveandtheFinancedirectortomanagerelationshipswithinstitutionalinvestors.theChairmanalsomeetsinstitutionalinvestorstodiscussoverallstrategy,governanceandanyconcernsthatshareholdersmayhave.onlywherethesemoreusualchannelsofcommunicationhavefailedwouldtheboardexpecttheseniorindependentorothernon-executivedirectorstobecomeinvolved,notwithstandingthatboththe2008CodeandthenewCodespecifyattendanceoftheseniorindependentnon-executivedirectoratmeetingswithmajorshareholders.regularfeedbackbytheCompany’sadvisersoninvestormeetingsandresultspresentationsiscirculatedtoalldirectors.
apartfromthisdistinctarea,bodycotewasincompliancewiththeprovisionsofthe2008Codethroughout2010.
operationoftheCoDetakentogetherwiththeauditCommitteereport,thenominationCommitteereportandtheboardreportonremunerationpresentedonpages36to43,thisstatementexplainshowbodycotehasappliedtheprinciplesofgoodcorporategovernancesetoutinthe2008Code.
leaDershiptheboardisresponsibletoshareholdersforgoodcorporategovernance,settingtheCompany’sstrategicobjectives,valuesandstandardsandensuringthenecessaryresourcesareinplacetoachievetheobjectives.
theboardmetonelevenoccasionsduring2010,includingaspecificmeetingtoreviewandupdatetheCompany’slong-termstrategy.
theboardofdirectorscomprisessixmembers,ofwhomfourarenon-executivedirectorsandtwoareexecutivedirectorsledbytheCompany’spart-timenon-executiveChairman,Mra.M.thomson,whoalsochairsthenominationCommittee.theChiefexecutiveisMrs.C.Harrisandtheseniorindependentnon-executivedirectorisMrj.vogelsang,whoalsochairstheremunerationCommittee.theauditCommitteeischairedbyMrj.a.biles.briefbiographicaldetailsofalldirectorsaregivenonpage45.
theboardmakesvisitstouKandoverseasfacilities.Certaindefinedpowersandissuesarereservedfortheboardtodecide,interalia:
strategy;
approvaloffinancialstatementsandcirculars;
Capitalprojects,acquisitionsanddisposals;
annualbudgets;
directors’appointments,serviceagreements,remunerationandsuccessionplanning;
policiesforfinancialstatements,treasury,safety,healthandenvironment,donations;
Committees’termsofreference;
boardandcommitteechairmenandmembership;
investments;
equityandbankfinancing;
internalcontrolandriskmanagement;
Corporategovernance;
Keyexternalandinternalappointments;and
employeeshareincentivesandtheuKpensionscheme.
inadvanceofboardmeetingsdirectorsaresuppliedwithup-to-dateinformationaboutthetradingperformanceofeachoperatingdivisionandsub-division,theGroup’soverallfinancialpositionanditsachievementagainstprioryear,budgetsandforecasts.theyarealsosuppliedwiththelatestavailableinformationonsafety,healthandenvironmentalandriskmanagementissuesanddetailsofthesafetyandhealthperformanceoftheGroup,andeachdivision,intermsofseverityandfrequencyratesforaccidentsatwork.
whererequired,adirectormayseekindependentprofessionaladvicethecostofwhichisreimbursedbytheCompany.alldirectorshaveaccesstotheCompanysecretaryandtheymayalsoaddressspecificissuestotheseniorindependentnon-executivedirector.inaccordancewiththearticlesofassociation,allnewlyappointeddirectorsandanywhohavenotstoodforre-electionatthetwopreviousannualGeneralMeetings,ifeligible,mustsubmitthemselvesforre-election.non-executivedirectors,includingtheChairman,areappointedforfixedtermsnotexceedingthreeyearsfromthedateoffirstelectionbyshareholders,afterwhichtheappointmentmaybeextendedbymutualagreement.astatementofthedirectors’responsibilitiesissetoutonpage44.theboardalsooperatesthreecommittees.thesearethenominationCommittee,theremunerationCommitteeandtheauditCommittee.
sothatthenecessaryactionscanbetakenpromptly,afinancecommittee,comprisingtheChairman(orfailinghimanyothernon-executivedirector),theChiefexecutiveandtheFinancedirectoroperatesbetweenthedatesofscheduledboardmeetingsandisauthorisedtomakedecisions,withinlimitsdefinedbytheboard,inrespectofcertainfinance,treasury,taxorinvestmentmatters.
inDepenDenCeofnon-eXeCutiveDireCtorstheboardconsidersthatMessrsj.a.biles,j.vogelsanganddrK.rajagopalareallindependentforthepurposesoftheCode.
CommitmentattendanceofdirectorsatregularscheduledmeetingsoftheboardanditsCommitteesisshowninthetablebelow:
Fullboard audit Committee
remuneration Committee
nomination Committee
director –––––––eligibletoattend&attended–––––––
a.M.thomson 11 – 7 1s.C.Harris 11 – – 1j.vogelsang 11 4 7 1j.a.biles 11 4 7 1K.rajagopal 11 4 7 1d.F.landless 11 – – –
alldirectorsattendedthemaximumnumberofscheduledboard,audit,remunerationandnominationCommitteemeetingsthattheywerescheduledtoattend.inadditionbyinvitationMessrsthomson,Harrisandlandlessattendedthewholeorpartofthemeetingsoftheaudit,nominationandremunerationCommittees.
**
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 35
performanCeevaluationduringtheyear,theboardconductedanevaluationofitsownperformanceandthatofitscommitteesandindividualdirectors.theprocessinvolvedthecompletionbyeachdirectorofaconfidentialquestionnaireinaformconsistentwithpreviousyears,andincludingamongstotherareas:remitandobjectives,boardcomposition,trainingandresources,governance,stakeholderengagement,boardproceduresandoveralleffectiveness.
theCompanysecretaryanalysedthecompletedquestionnairesandsummarisedthefindingsinareportfortheChairman.theChairmansubsequentlyconductedone-to-onediscussionswitheachoftheboardmembersafterwhichhereportedbacktothewholeboardontheevaluationprocess.theresponsestothequestionnairesdemonstratedahighdegreeofconsistencyandtheevaluationprocessaffirmedtheboard’sconfidenceintheGroup’ssystemofcorporategovernance.arisingfromtheexercise,theboardhasconcludedthatanenhancedfocusshouldbeplacedondivisionalstrategies,overallperformanceevaluation,sustainabilityandriskmanagement.
Messrss.C.Harrisandd.F.landlesswereappraisedinternallyinjanuaryandFebruary2011.theremunerationandauditCommitteesreviewedtheirownperformanceindecember2010andthenominationCommitteerevieweditsperformanceinnovember2010.
ledbytheseniorindependentnon-executivedirector,thedirectorshavecarriedoutanevaluationoftheChairman’sperformanceinnovember2010.
proposalsforre-eleCtiontheboardhasdecided,inlinewiththenewCode,thatalldirectorswillretireannuallyand,otherthaninthecaseofanydirectorwhohasdecidedtostanddownfromtheboard,willofferthemselvesforre-electionattheannualGeneralMeeting.accordinglyMessrsa.M.thomson,s.C.Harris,d.F.landless,j.vogelsang,j.a.bilesanddrK.rajagopalwillstandforre-electionandtheboardrecommendstoshareholdersthattheyre-electallthedirectors.
theperformanceofeachdirectorwasevaluatedasindicatedaboveandtheboardconfirmsinrespectofeachthattheirperformancecontinuestobeeffectiveandthateachcontinuestodemonstratecommitmenttohisrespectiverole.
internalControl&riskmanagementtheboardisresponsiblefortheGroup’ssystemofinternalcontrolandforreviewingitseffectiveness.suchasystemisdesignedtomanageratherthaneliminatetheriskoffailuretoachievebusinessobjectives,andcanonlyprovidereasonableandnotabsoluteassuranceagainstmaterialmisstatementorloss.theboardhasappliedprincipleC.2oftheCodebyestablishingacontinuousprocessforidentifying,evaluatingandmanagingtheGroup’ssignificantrisks,includingrisksarisingoutofbodycote’scorporateandsocialengagement.theboardcontinuouslyandregularlyreviewstheprocess,whichhasbeeninplacefromthestartof2000tothedateofapprovalofthisreportandwhichisinaccordancewithinternalControl:GuidancefordirectorsontheCombinedCodepublishedinseptember1999andwithrevisedguidanceoninternalcontrolpublishedoctober2005.theboard’smonitoringcoversallcontrols,includingfinancial,operationalandcompliancecontrolsandriskmanagementsystems.itisbasedprincipallyonreviewingreportsfrommanagementandfrominternalaudittoconsiderwhetheranysignificantweaknessesarepromptlyremediedandindicateaneedformoreextensivemonitoring.theauditCommitteeassiststheboardindischargingthesereviewresponsibilities.
theGrouppreparesacomprehensiveannualbudgetwhichiscloselymonitoredandupdatedquarterly.theGroup’sauthoritymatrixclearlysetsoutauthoritylimitsforthosewithdelegatedresponsibilityandspecifieswhatcanonlybedecidedwithcentralapproval.
theinternalauditdepartmentmonitorstheGroup’sinternalfinancialcontrolsystemanditsreviewsareconductedonthebasisofplansapprovedbytheauditCommittee,towhichinternalauditreportsaresubmittedonaregularbasis.
eachdivisionprovidesassuranceonspecifiedfinancialandnon-financialcontrolsandthesearereportedtwice-yearlytotheauditCommittee.
during2010,incompliancewithprovisionC.2.1,managementperformedaspecificassessmentforthepurposeofthisannualreport.Management’sassessment,whichhasbeenreviewedbytheauditCommitteeandtheboard,includedareviewofallGroupandoperationalrisks(bymeansofworkshopsandinterviews)andtherisksidentified(bothbeforeandaftermitigatingactions)wereassessedusingconventionalimpactandlikelihoodscoring,andfurtherassessment,monitoringandreviewworkwasscheduledfor2011.theGroup’sriskmanagementframeworkisprogressivelybeingembeddedthroughouttheGroup.theprincipalrisksanduncertaintiesaffectingtheGroupareshownintheFinancedirector’sreportonpage26.nosignificantpreviouslyunidentifiedriskswereuncoveredaspartofthisprocess,andthenecessaryactionshavebeenorarebeingtakentoremedyanysignificantfailingsorweaknessesidentifiedaspartofthereviews.
investorrelationstheChiefexecutiveandFinancedirectorregularlytalkwithandmeetinstitutionalinvestors,bothindividuallyandcollectively,andthishasenabledinstitutionalinvestorstoincreasetheirunderstandingoftheGroup’sstrategy.thebusinessoftheannualGeneralMeetingcomprisesareviewoftheGroup’soperationsforthebenefitofshareholdersattending.inaddition,since1998,internetusershavebeenabletoviewup-to-datenewsontheGroupanditssharepriceviathebodycotewebsiteatwww.bodycote.com.usersofthewebsitecanaccessnewsofallrecentannouncementsandcopiesofresultspresentationsandcanenroltohearlivepresentations.onaregularbasis,bodycote’sfinancialadvisers,corporatebrokersandfinancialpublicrelationsconsultantsprovidethedirectorswithopinionsurveysfromanalystsandinvestinginstitutionsfollowingvisitsandmeetingswiththeChiefexecutiveandFinancedirector.asstatedonpage34theChairmanandseniorindependentnon-executivedirectorareavailabletodiscussanyissuesnotresolvedbytheChiefexecutiveandFinancedirector.onspecificissues,suchastheintroductionoflongtermincentiveandsharematchingschemesin2006andchangestheretoin2009and2010,andin2008withthereturnofcash,theCompanywillseektheviewsofleadinginvestors.
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tytheringtonbusinessparkMacclesfield
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reportoFtHeauditCoMMittee
theauditCommitteeisasub-committeeoftheboardwhosemainroleistoencourageandsafeguardthehigheststandardsofintegrity,financialreporting,riskmanagementandinternalcontrols.
theCommittee’sresponsibilitiesaresetoutinwrittentermsofreferencewhichincludeallmattersindicatedbythedisclosureandtransparencyrulesandtheCode,whichareavailableforinspectionontheCompany’swebsiteandinclude:
reviewingtheformandcontentofinterimandfullyearaccountsandresultsannouncementsoftheCompany,interimmanagementstatementsandanyotherformalannouncementsrelatingtotheCompany’sfinancialperformance,includingmonitoringtheirintegrityandreviewingsignificantreportingissuesandjudgementscontainedtherein,andrecommendingthemtotheboardforapproval;
reviewingtheGroup’ssystemsofriskmanagementandinternalfinancialcontrol;
monitoringandreviewingtheeffectivenessoftheCompany’sinternalauditfunctionandconsideringregularreportsfrominternalauditoninternalfinancialcontrolsandriskmanagement;
consideringtheappointment,re-appointmentorchangingofexternalauditors,overseeingtheprocessfortheirselectionandmakingrecommendationstotheboardontheirappointmentwhichwillbeputtotheshareholdersfortheirapprovalataGeneralMeetingandtoapprovetheirremunerationandtermsofengagement;
agreeingthenatureandscopeoftheexternalauditor’sworkandconsideringtheirreportsontheCompany’saccounts,reportstoshareholdersandtheirevaluationofthesystemsofinternalfinancialcontrolandriskmanagement;and
monitoringandreviewingtheexternalauditors’independence,objectivityandeffectiveness,takingintoaccountprofessionalandregulatoryrequirements.
CompositionoftheauDitCommitteetheauditCommitteecomprisesMessrsj.a.biles,j.vogelsanganddrK.rajagopalwhoareallindependentnon-executivedirectors.theirbiographicaldetailsaresetoutonpage45andtheirremunerationisshownonpage42.theChairmanoftheauditCommitteesince16august2007hasbeenMrj.a.biles,whowasappointedadirectoronthatdate,followingarecommendationfromthenominationCommittee.theauditCommitteeChairmanisconsideredtohaverecentandrelevantfinancialexperience.Mrbilesisacharteredaccountant,whoservedasaplcfinancedirector(FKiplcfrom1998to2004andChubbsecurityplcfrom1991to1997)andiscurrentlyalsotheChairmanoftheauditCommitteesofCharterinternationalplc(2005)andHermesFundManagerslimited(2005).theCompanysecretaryissecretarytotheauditCommittee.theChairman,Chiefexecutive,Financedirector,seniorinternalauditor,GroupFinancialController,vice-president(riskandbusinessprocesses),Grouptreasurer,Headoftax,otherseniorfinancepersonnelandexternalauditorsattendauditCommitteemeetingsasappropriatebyinvitation.
mainaCtivitiesoftheauDitCommitteetheauditCommitteemetfourtimesduring2010,andinFebruary2011toconsiderthisfinancialreportandallCommitteemembersattendedthemaximumnumberofmeetingstheywerescheduledtoattend.
theCommitteealsomeetsseparatelywiththevice-president(riskandbusinessprocesses)andwiththeexternalauditors,withoutmanagementbeingpresent,aftertheendofmostformalmeetings.
inaddition,theCommitteeChairmanhaspreparatorymeetingswiththeexternalauditorsand,wherenecessary,withGroupseniormanagement,priortocommitteemeetings.
attheirmeetings,theauditCommitteeconsidersanagendaofitemsincludingtheminutesofthelastmeetingandalistofactionpointsfrompreviousmeetings,toensurethattheseareprogressed.inaddition,anumberofspecificitemswerereviewed:
attheirFebruaryandjulymeetings,theauditCommitteereviewedrespectivelythepreliminaryandinterimannouncementsofresultsandthedraftreportsandaccountsforthefinancialyearandthehalfyear.ontheseoccasionstheCommitteereviewedreportsfromtheexternalauditors,identifyinganyaccountingorjudgementalitemsrequiringitsattention(includingapprovaloftheprocesses,assumptionsandoutcomestoassessfairvaluesandimpairments)andcommentingonriskmanagementandcontrolmatters.
aquarterlyreportoninternalauditfromthevice-president(riskandbusinessprocesses)waspresentedateachmeetingandthefindingsdiscussed.duringtheyeartheplanfortheensuingyear’sworkwasconsidered.
theexternalauditorsalsopresentedtheirauditplansatthedecemberandaprilmeetingscoveringscopeofworktobedoneandduringtheyeartherewasadetailedreviewoftheirmanagementlettercoveringtheauditors’findingsinrespectof2009.
theauditCommitteeisalsopresentedwithanupdateonanymateriallitigationinwhichtheGroupmaybeinvolved.
ateachmeetinganupdateispresentedofanynewaccountingdevelopmentsandrequirementsandanychangesincorporategovernancearrangementsthatmayaffecttheGroup.
onaregularbasis,theCommitteereviewedpapersonliquidity,bankingarrangementsandtheappropriatenessofthegoingconcernassumptionforpreparationofthefinancialstatements.theCommittee’sactivitiessupportedthedirectorsintheirassessmentofthegoingconcernpositionoftheGroup,whichissetoutonpage25.
during2010anewpositionofvice-president(riskandbusinessprocesses)wascreatedwithresponsibilityfordevelopingtheGroup’sriskmanagementframeworkandenhancingtheGroup’sriskassessmentandmitigationactivities.thisactiondemonstratestheboard’scontinuedcommitmenttomaintainsoundriskmanagementandinternalcontrolsystems.
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 37
during2010theauditCommitteealso:
assessedandconfirmedtheindependenceoftheexternalauditors;
havingreviewedtheeffectivenessoftheaudit,theperformanceandcapabilitiesoftheexternalauditorsandhavingtakenintoaccounttheirtenureofofficefrom2002andwhetherthepositionshouldbeformallytendered,recommendedtotheboardthattheauditorsbere-appointedandagreedtheirfees;
approvedtheGroup’saccountingpolicies;
approvedthemanagementrepresentationstotheexternalauditors;
reviewedarrangementsforreportingandinvestigatingfraudandemployeeconcerns;normalinternalauditactivityandoperationoftheGroup’s‘opendoor’policyuncoveredasmallnumberofpotentiallyfraudulentincidentswhichwereallfullyinvestigated.nonehadanymaterialfinancialimpactontheGroupand,wherenecessary,systemsandprocedureswereamendedtominimisetheriskofrecurrence;
reviewedtheeffectivenessofinternalcontrolsandriskmanagementprocessesandrecommendedcertainchanges;
reviewedthetermsofreferencefortheauditCommittee;and
assessedtheCommittee’sowneffectiveness.
inDepenDenCeofeXternalauDitorstheauditCommitteehasputinplacesafeguardstoensurethattheindependenceoftheauditisnotcompromised.inthisrespect,theauditCommitteereviewed:
theexternalauditors’planforthecurrentyear,notingtheroleoftheseniorstatutoryauditor,whosignstheauditreportandwho,inaccordancewiththeprofessionalrules,hasnotheldofficeformorethanfiveyears,andanychangesinthekeyauditstaff;
thearrangementsforday-to-daymanagementoftheauditrelationship;and
theoverallextentofnon-auditservicesprovidedbytheexternalauditorsasspecifiedbelow.
thepolicyinrespectofservicesprovidedbytheexternalauditorsisasfollows:
audit-relatedservices.theexternalauditorsareinvitedtoprovideserviceswheretheirpositionasauditorsrendersthembestplacedtoundertakethework.thisincludesreportingandcertificationconnectedwithborrowings,shareholdersandcirculars,regulatoryrequirementsandworkinrespectofacquisitionsanddisposals.
inthecaseofotherservicesnocontractsinexcessof£20,000invaluecanbeawardedtotheexternalauditorswithoutpriorapprovalfromtheChairmanoftheauditCommittee.
taxandgeneralconsultingwork.ingeneralandwhereconflictsarise,theworkisnotawardedtotheexternalauditorsandisputouttotender.
therearenocontractualrestrictionsonwhotheauditCommitteecanchooseasexternalauditors.
internalauDitinternalauditindependentlyreviewstheriskandcontrolprocessesoperatedbymanagement.itcarriesoutindependentauditsinaccordancewithaninternalauditplanwhichisagreedwiththeauditCommitteebeforethestartofthefinancialyear.thisplantakesaccountoftheriskmanagementframeworksurroundingmajorbusinessrisksineachoperationandprovidesahighdegreeoffinancialandgeographicalcoverage.whereappropriate,eitherbecauseoflanguage,geographicalremotenessorwheretechnicalexpertiseisrequired,theinternalauditdepartmentengagesthirdpartyspecialiststoconductinternalaudits.internalauditreportsincluderecommendationstoimproveinternalcontrolstogetherwithagreedmanagerialactionplanstoresolveissuesraised.internalauditfollowsuptheimplementationofrecommendationsandreportsprogresstoseniormanagementandtheauditCommittee.theCommitteenotedthatthe2010internalauditprogrammewassuccessfullycompletedwithsitesrepresentingapproximately70%ofGrouprevenuebeingthesubjectofinternalauditreports.atthesametimetherewasadecliningtrendintherequirementforcorrectiveactions.theeffectivenessoftheinternalauditfunctionisreviewedanddiscussedonanannualbasiswiththevicepresident(riskandbusinessprocesses)andseniorinternalauditor.
overviewasaresultofitsworkduringtheyear,theauditCommitteehasconcludedthatithasactedinaccordancewithitstermsofreferenceandhasensuredtheindependenceandobjectivityoftheexternalauditors.
onbehalfoftheauditCommittee:
J.a.BilesauditCommitteeChairman24February2011
38 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
reportoFtHenoMinationCoMMittee
roleofthenominationCommitteethenominationCommitteeisasub-committeeoftheboardwhosepurposeistoadvisetheboardontheappointmentand,ifnecessary,dismissalofexecutiveandnon-executivedirectors.thefulltermsofreferenceofthenominationCommitteeareprovidedontheCompany’swebsite.
CompositionofthenominationCommitteethenominationCommitteecomprisesalltheindependentnon-executivedirectorstogetherwiththeChairmanandChiefexecutive.thequorumnecessaryforthetransactionofbusinessistwo,eachofwhommustbeanindependentnon-executivedirector.
theChairmanactsastheChairmanoftheCommittee,althoughtheChairmanmaynotchairtheCommitteewhenitisdealingwiththematterofsuccessiontotheChairmanshipoftheCompany.onlymembersoftheCommitteehavetherighttoattendtheCommitteemeetings.However,otherindividualsandexternaladvisersmaybeinvitedtoattendforallorpartofanymeetingasandwhenappropriate.
theCompanysecretaryissecretarytotheCommittee.
theCommitteehastheauthoritytoseekanyinformationthatisrequiredfromanyofficeroremployeeoftheCompanyoritssubsidiaries.inconnectionwithitsduties,theCommitteeisauthorisedbytheboardtotakesuchindependentadvice(includinglegalorotherprofessionaladvice,attheCompany’sexpense)asitconsidersnecessary,includingrequestsforinformationfrom,orcommissioninginvestigationsbyexternaladvisers.
mainaCtivitiesofthenominationCommitteeMra.M.thomsonchairsthenominationCommitteewhichalsocomprisesMessrsj.a.biles,j.vogelsang,s.C.HarrisanddrK.rajagopal.
in2010theCommitteediscussedperformancemanagementandassessmentfortheChiefexecutiveandotherseniorexecutivesandconsideredandauthorisedthepotentialconflictsofinterestwhichmightarisewhereadirectorhasfiduciaryresponsibilitiesinrespectofotherorganisations.noinappropriateconflictsofinterestsexist.theCommitteealsoassignedtheChairmantoreviewandagreewiththeChiefexecutivetheGroup’sobjectivesfortheforthcomingyear.
innovember2010thenominationCommittee,withbothexecutivedirectorsinattendance,carriedoutaformalevaluationoftheboard’sperformance,andreviewedtheboard’ssizeandcomposition,thefrequencyofandprocessforboardandcommitteemeetings,andbestpracticeforthehandlingofanumberofboardissuesincludingthereviewofstrategy,successionplanning,sustainability,theimplicationsforbodycoteoftheuKbriberyactandriskmanagement.
onbehalfoftheCommittee:
a.m.thomsonChairmanofthenominationCommittee24February2011
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 39
boardreportonreMuneration
theremunerationCommitteeisresponsibleforremunerationpoliciesthataimtocreatevalueforshareholders.
remunerationstructuresandpackagesthereforeincludecompetitivebasicsalaries,ahighpotentialforvariablepaythatisclearlylinkedwithsuperiorperformanceandabsolutevaluedeliveredinthebusiness,withkeybusinessvaluedriversusedasabasisformeasuringperformanceandasignificantproportionofvariablepayinconditionalshares.
thisreportsetsoutthepolicyanddisclosuresondirectors’remunerationasrequiredbythelargeandMedium-sizedCompaniesandGroups(accountsandreports)regulations2008issuedundertheCompaniesact2006(the‘act’).inaccordancewiththeact,aresolutiontoapprovethisreportwillbeproposedattheforthcomingannualGeneralMeetingoftheCompany.thevotewillhaveadvisorystatusinrespectoftheremunerationpolicyandoverallremunerationpackagesandwillnotbespecifictoindividuallevelsofremuneration.theChairmanoftheremunerationCommitteewillbeavailableattheannualGeneralMeetingtoanswerquestionsaboutdirectors’remuneration.
thesectionsofthisreportdealingwithdirectors’emolumentspaid,pensionsandshareoptionsandincentiveshavebeenaudited.theremainingsectionsarenotsubjecttoaudit.
theremunerationCommitteetheCommitteedeterminestheremunerationofexecutivedirectorsandseniorexecutives,andthetermsoftheservicecontractsandallothertermsandconditionsofemploymentoftheexecutivedirectors.
theCommittee’sfulltermsofreferenceareavailableontheGroup’swebsite.themembersoftheremunerationCommitteeduring2010werej.vogelsang(Chairman),j.a.biles,a.M.thomsonanddrK.rajagopal.duringtheyear,theCommitteehastakenadvicefromernst&youngllptoprovideindependentadviceonremuneration.inaddition,theCompanyreceivedactuarialandotherpensionsadvicefromdeloittellpinrelationtothemanagementofriskarisingfromtheuKfinalsalarypensionscheme.
noneoftheCommitteemembershasanypersonalfinancialinterest(otherthanasashareholder),conflictofinterest,cross-directorshipsorday-to-dayinvolvementintherunningofthebusiness.
remunerationpoliCytheCommitteeaimstoprovidearemunerationpolicyconsistentwiththeGroup’soverallbusinessstrategyandtherebyattractandretainhighcalibreexecutives,alignexecutives’rewardswiththecreationofshareholdervalueandmotivateexecutivestoachieveandmaintainchallenginglevelsofcompanyandindividualperformance.Marketratesaredeterminedbyreferencetoothercompaniesofsimilarsize,activitiesandcomplexity.atthesametime,policyinthisareaissensitivetotheremunerationstructurewithintheGroup.
theCommitteekeepsboththefixedandvariableelementsofeachexecutivedirector’sandseniorexecutive’soverallpackageunderreview.inrecentyears,theCommitteehasprogressivelyincreasedtheproportionofvariableasopposedtofixedelementofpay,sothatcurrentlythetotalpotentialfromvariableperformancerelatedpayisnowsubstantiallyinexcessofbasicpay.
theCommitteealsoconsidersthetargetssetforthevariableelementsofexecutivedirectors’andseniorexecutives’remunerationwhichatalltimesaimtoencourageappropriatebehavioursanddeliverexceptionalandsustainablefinancialperformancemeasuredagainsttheGroup’sstrategicplans.
duringtheyeartheCommitteemetseventimestoconsideramongstothermatters:
theannualbonusandpaymentsforthefinancialyearended31december2009;
theannualbonusstructureandperformancetargetsforthefinancialyearended31december2010;
basicsalariespayabletoeachoftheexecutivedirectorstoensuretheyremainbothcompetitiveandalignedwithremunerationpolicy;
theconditionalawardsmadeunderthebodycoteincentiveplanand,followingshareholderapprovalatthe2010aGMofchangestothebodycoteshareMatchplan,thefirstroundofawardsunderthenewbodycoteCo-investmentplan;
thedisclosurepolicyinrelationtoperformancetargetsattachingtoawardsmadeunderbothitsshortandlongtermincentiveplansascomparedtoitspeersandgeneralmarketpractice;and
thecompany’sremunerationpolicyinlightoftherevisedrecommendationsintheuKCorporateGovernanceCode(formerlytheCombinedCode)andtherevisedabiguidelinesonexecutiveremunerationpublishedindecember2009.
fiXeDelementsofpaythefixedelementsofremunerationaresalaries,pensionsandotherbenefits.
BasicsalaryaspartoftheCommittee’sannualreviewprocessthebasicsalariesforeachexecutivedirectorandtheseniorexecutiveswerereviewedbytheCommitteeduringtheyear.thereviewtookintoaccounttheresponsibilitiesandperformanceoftheindividual,currentmarketpracticeandpayinsimilaruKengineeringbusinesses,companieswhooperateinthesamesectorasbodycoteandcompaniesofacomparablesizeandscaleofoperations.theCommitteewasalsomindfulofpaylevelsamongsttheemployeepopulation.
pensiontheCommitteereviewsthepensionarrangementsfortheexecutivedirectorstoensurethatthebenefitsprovidedareconsistentwiththoseprovidedbyothersimilarcompanies.
MrHarrisisamemberoftheGroup’sdefinedcontributionarrangementandreceivescontributionsfromtheGroupatarateof22%ofbasicsalary.inaddition,intheeventofdeath,adeathinservicebenefitofeighttimesbasicsalarywillbecomepayable.
thepensionforMrlandlessisprovidedpartlyundertheGroup’suKcontributorydefinedbenefitpensionscheme,whichhasanormalretirementageof65andwhichisclosedtonewmemberswithincreasesinpensionablesalarycappedat3%perannum,andpartlythroughadefinedcontributionarrangement.theGroup’scontributionstoMrlandless’definedcontributionarrangementare16%ofbasicsalaryabovethedefinedbenefitschemecap.
40 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
boardreportonreMunerationContinued
thedefinedbenefitschemealsoprovideslumpsumdeath-in-servicebenefitsandpensionbenefitsbasedonfinalpensionablesalary.
ananalysisoftheaccruedpensionentitlementsforMrlandlessunderthedefinedbenefitpensionschemeduring2010isgivenonpage42.
otherfixedelementstheCompanyprovidesotherbenefitsinlinewithmarketpractices.theseincludetheprovisionofacompanycar(oranallowanceinlieu),privatemedicalinsurancefortheexecutivedirectorsandtheirfamilies,andlong-termdisabilityinsurance.
variaBleelementsofpaytherearethreevariableelementsofpay.
annualBonusestheCommitteeprovidedexecutivedirectorsandotherseniorexecutiveswiththeopportunitytoreceiveanannualbonusin2010ofupto100%ofbasicsalary,subjecttomeetingtargetsbaseduponGroup,individualperformanceandtheachievementofpersonalobjectives.Forthoseseniorexecutiveswithdivisionalresponsibilities,partoftheperformance-relatedbonusisalsobasedontheirrelevantsphereofresponsibility.theCommitteeadoptaweightedbasketofmeasuresapproachtotargetsettingforannualbonusesthatincludesarangeofkeyfinancialandindividualperformancemetrics.theCommitteeconsiderthisapproachthemostappropriateinordertoensurebehavioursareappropriatelybalanced.
themeasuresusedforannualbonuspaymentsinrespectof2010,themaximumpotentialandthelevelofperformanceachievedaresetoutasfollows:
Measure Maximum achievement
GroupManagementoperatingprofit 50% 50%GroupCashManagement 30% 30%
Finally,upto20%oftheannualbonuswassubjecttoindividualperformanceobjectives.severalperformanceobjectivesaresetforexecutivedirectorsandallseniorexecutivesandthesearedesignedtoachievedeliveryofkeyfinancialandorstrategicobjectivesfortheGroup.
inadditiontothemeasuressetoutabove,theCommitteealsohasdiscretiontoreducetheawardsotherwiseearnedbyupto10%totakeintoaccountthesafetyperformanceoftheGroup.
asaresult,thebonuspayablewas98%ofbasicsalaryforboththeChiefexecutiveandtheFinancedirectorinrespectofperformancein2010.
For2011theCommitteehasdeterminedthatthebonusopportunityforexecutivedirectorsandseniorexecutiveswillagainbecontingentonmeetingtargetsrelatingtosafety,operatingprofit,cashmanagementandpersonalobjectives.nobonuswillbepaidforthecashmanagementelementunlessthelevelofoperatingprofitachievedisatleast95%oftarget.
shareawardsbodycoteincentiveplan(bip)theCompanyoperatesthebipunderwhichexecutivedirectorsandseniorexecutivesarerewardedforthedeliveryoftheCompany’sstrategicplan.Finalawardsarebasedupontwoperformancemeasures,overathreeyearperiod:
50%oftheawardissubjecttoareturnoncapitalemployed(roCe)performancecondition;and
50%oftheawardissubjecttoanearningspershare(eps)performancecondition.
Forbipconditionalawardsmadein2009,theCommitteedeterminedthattheentrythresholdtargetsrequireroCeequalto10%andepsequalto16pencefortheperformanceperiodending31december2011.Forbipconditionalawardsmadein2010,theentrythresholdtargetsrequireroCeandepsof11.1%and19.8pencerespectivelyfortheperformanceperiodending31december2012.
intheeventthattheentrythresholdtargetforbothepsandroCearenotachievednoneoftheconditionalawardswillvest.regardlessofroCeperformance,shouldepsattheendoftheperformanceperiodbebelow16penceforawardsmadein2009and2010thennoawardshallvest.
theCommitteeintendstousetheroCeandepsmeasuresincombinationforbipawardsmadein2011.
detailsoftheawardsmadeunderthebipareprovidedonpage43.
Followingcompletionoftheperformanceperiodon31december2010,theremunerationCommitteehasdeterminedthatnoneofthebipawardsmadein2008shallvest(2007:nil).
DeferredshareawardsbodycoteCo-investmentplan(Cip)asnotedabove,certainchangesmadetothebodycoteshareMatchplan(bsMp)wereapprovedbyshareholders,nowrenamedasthebodycoteCo-investmentplan.theCipcontinuestoprovidealinkbetweentheCompany’sshortandlong-termincentivearrangementsandthekeychangeswere:
executivesareabletoinvestinsharesuptoavalueequivalentto40%ofnetbasicsalaryregardlessofwhetheracashbonushasbeenpaid;and
theperformancecriterionforawardsisanabsolutetotalshareholderreturn(tsr)target.
theCipwillcontinuetoprovidethegrantofawardsofmatchingsharestoparticipantsonanannualbasisinamaximumratioof1:1tothegrossinvestmentmadeindeferredshares.deferredsharesmustbeheldforthreeyearsandthethresholdtargetforvestingofthematchingsharesawardedin2010and2011istsrgrowthofnotlessthan4%perannumcompoundinexcessofgrowthintheConsumerpricesindex(Cpi).10%perannumcompoundgrowthinexcessofgrowthintheCpiwillberequiredforfullvesting.
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 41
detailsoftheawardsundertheCiptogetherwithpreviousawardsunderthebsMpandthejoiningawardmadetoMrHarrisinoctober2008arenotedonpage43.
Followingcompletionoftheperformanceperiodon31december2010,theremunerationCommitteehasdeterminedthatnoneofthesharematchawardsmadein2008underthebsMpshallvest(2007:nil).
totalshareholDerreturn(tsr)thegraphonpage43illustratestheCompany’stsrperformancesince2005relativetotheFtseallshareindustrialindexofwhichtheCompanyisacomponentpart.thissectorisconsideredthemostappropriatecomparatorgroupoverthefive-yearperiodtodecember2010.inlinewithmarketpracticethecalculationfortsrassumesreinvestmentofdividendsandisbasedondataprovidedbydatastream.
serviCeContraCtsitistheCompany’spolicythatexecutivedirectorshaveservicecontractswithaone-yearnoticeperiod.alltheexecutivedirectorshaveserviceagreementswhichareterminablebyoneyear’snoticebytheemployeratanytime,andbypaymentofoneyear’sremunerationinlieuofnoticebytheemployer,andbyoneyear’sremunerationintheeventofachangeincontroloftheCompany(saveforMrHarriswherethechangeofcontrolprovisiondoesnotapply).legallyappropriatefactorswouldbetakenintoaccounttomitigateanycompensationpayment,coveringbasicsalary,annualincentivesandbenefits,whichmayariseontheterminationofemploymentofanyexecutivedirector,otherthanpaymentsmadeonachangeincontrolorforpaymentsinlieuofnotice.MrHarris’serviceagreementisdated6october2008andMrlandless’contractisdated26september2001.
eXeCutiveDireCtors’shareholDingretentionpoliCyin2005theCommitteeintroducedashareholdingretentionpolicyunderwhichexecutivedirectorsandotherseniorexecutivesareexpected,withinfiveyearsofthatdateorcommencementofemploymentiflater,tobuildupashareholdingintheCompany.inrespectofexecutivedirectorstheexpectationistoholdatleast100%ofbasicsalary.asat31december2010,theCommitteeissatisfiedthattheexecutivedirectorshavefulfilledthisrequirement.
non-eXeCutiveDireCtorstheremunerationofnon-executivedirectorsisdeterminedbytheChairmanandtheexecutivedirectors.remunerationfortheChairmanisdeterminedbythewholeboard(excludingtheChairman).remunerationfortheChairmanandnon-executivedirectorstakesintoaccountthetimecommitmentsanddutiesandresponsibilitiesinvolved.theChairmanandeachnon-executivedirectorholdlettersofappointmentfortermsofthreeyears(or41monthsinrespectoftheChairman).
eachisterminableundertheCompany’sarticlesofassociation,theact,bythedirector’sresignationorotherwiseonsixmonths’notice(twelvemonthsinthecaseoftheChairman)ifterminationoccursbeforeexpiryoftheterm.
todeterminethefeesitpaystonon-executivedirectors,theboardtakesintoaccounttheneedtoattractindividualsofappropriatecalibreandexpertise,thefeespaidtonon-executivedirectorsbyothercompaniesofasimilarsizeandscaleofoperationsandthetimecommitmentattachedtoeachappointment.theboardkeepsfeesunderreview.theChairmanandnon-executivedirectorsarenotentitledtoanypensionorotheremploymentbenefitsortoparticipateinanyincentivescheme.
approvedbytheboard:
J.vogelsangChairmanoftheremunerationCommittee24February2011
42 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
boardreportonreMunerationContinued
emolumentsDuringtheyear–auDiteD
Basicsalary andfees Benefits
annual Bonus
total 2010
total 2009
£000 £000 £000 £000 £000executiveDirectorss.C.Harris 400 26 392 *818 443d.F.landless 268 27 262 557 308
668 53 654 1,375 751
non-executiveDirectorsa.M.thomson 130 – – 130 130j.vogelsang 46 – – 46 46j.a.biles 47 – – 47 47K.rajagopal 40 – – 40 40
931 53 654 1,638 1,014
*s.C.Harriswaivedhisrighttotheperformance-relatedbonuspriortoitsdetermination.theamountof£818,000shownasemolumentsfors.C.Harrisincludesanamountof£392,000whichhasbeenappointedtoanemployeebenefittrust.
DireCtors’interests–auDiteDthebeneficialinterestofthedirectorsandtheirfamiliesintheordinarysharesoftheCompanyaredetailedbelow.
ordinaryshareholdings
31December2010 numberof ordinaryshares
31December2009 numberof ordinaryshares
executiveDirectorss.C.Harris 138,690 98,048d.F.landless 134,948 156,024
non-executiveDirectorsa.M.thomson 41,841 41,841j.vogelsang – –j.a.biles 23,157 23,157K.rajagopal 17,368 17,368
noneofthedirectorshasabeneficialinterestinthesharesofanyotherGroupCompany,ornon-beneficialinterestintheCompanyoranyotherGroupCompany.
DireCtors’pensions–auDiteD*
Director
accruedannual
pensionat01/01/10
transfervalueat
01/01/10
realincrease
inaccruedannual
pension inflation
increaseinaccrued
annualpension
transfervalue
ofrealincrease
inaccruedannual
pension(less
members’Contributions)
realincrease
intransfervaluelessmembers’
Contributionsmember’s
Contributions
accruedannual
pensionat31/12/10
**transfervalueat31/12/10
£000 £000 £000 £000 £000 £000 £000 £000 £000 £000
d.F.landless 37 561 2.5 1.7 4.2 19 82 17 41 686
*dereksleightretiredasadirectoron27april2009butcontinuedasanemployeeuntilhisretirementon6april2010.Hestartedtodrawhispensionwitheffectfrom1May2010.on1april2010hispensionwasincreasedbywayofaCompanyaugmentationof£175,000whichwascontributedtothedefinedbenefitschemeinlieuofpaythathewouldhaveearnedduringaperiodofnotice.
**thetrusteeofthebodycoteuKpensionschemehasnotreviewedthebasisonwhichtransfervaluesarecalculatedinordertoallowforthechangeofstatutoryindexationfromrpitoCpi.therefore,theabovefigurescontinuetoassumerpiincreasesindefermentandpayment.However,whenthetrusteereviewstransfervalueassumptions,thisislikelytoleadtoachangeinactuarialassumptionsthatwouldreducethetransfervalueentitlementattheyearendto£627,000.
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 43
DireCtors’interestsunDertheBoDyCoteinCentiveplan–auDiteD
interestsasat1January2010
awardedinyear
lapsedinyear
interestsasat31December2010
marketpriceatawarddate vestingdate
s.C.Harris 514,138–
–391,345
––
514,138391,345
£1.56£1.79
February2012February2013
d.F.landless
76,784132,275344,215
–
–––
262,004
(76,784)–––
–132,275344,215262,004
£2.94£1.89£1.56£1.79
May2010May2011
February2012February2013
DireCtors’interestsunDertheBoDyCoteCo-investmentplan(formerlyBoDyCotesharematChplan)–auDiteD
interestsasat1January2010
*awarded/(lapsed)inyear
asat31December2010
marketpriceatawarddate
earliestvestingdate
s.C.Harris
**145,47423,437
–
––
82,942
145,47423,43782,942
£1.40£1.87£1.93
March2012March2012
May2013
d.F.landless
3,3808,2524,480
–
(3,380)––
8,010
–8,2524,4808,010
£2.93£1.79£1.87£1.89
May2010March2011March2012
May2013
*sharesacquiredviainvestmentofthenetoftaxannualbonusundertheCo-investmentplanareeligibleforamatchingawardbyreferencetothegrossamountinvested.
**thisawardrelatestothejoiningawardmadeinnovember2008followings.C.Harris’appointmentasChiefexecutivedesignate.
totalshareholDerreturn(tsr)
Source: Datastream
0
50
100
150
200
250
31-Dec-05 31-Dec-06 31-Dec-07 31-Dec-08 31-Dec-09 31-Dec-10
This graph looks at the value, by 31/12/10, of £100 invested in Bodycote plc on 31/12/05 compared with thatof £100 invested in the FTSE All Share Industrials. The points plotted are the values at financial year-ends.
Value (£)
FTSE All Share Industrials Bodycote plc
44 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
direCtors’responsibilitiesstateMent
responsiBilityofDireCtorsforthepreparationoftheannualreportanDfinanCialstatementsthedirectorsareresponsibleforpreparingtheannualreport,theboardreportonremunerationandthefinancialstatementsinaccordancewithapplicablelawandregulations.
Companylawrequiresthedirectorstopreparefinancialstatementsforeachfinancialyear.underthatlawthedirectorsarerequiredtopreparethegroupfinancialstatementsinaccordancewithinternationalFinancialreportingstandards(iFrss)asadoptedbytheeuropeanunionandarticle4oftheiasregulationandhaveelectedtopreparetheparentcompanyfinancialstatementsinaccordancewithunitedKingdomGenerallyacceptedaccountingpractice(unitedKingdomaccountingstandardsandapplicablelaw).undercompanylawthedirectorsmustnotapprovetheaccountsunlesstheyaresatisfiedthattheygiveatrueandfairviewofthestateofaffairsoftheCompanyandoftheprofitorlossoftheCompanyforthatperiod.
inpreparingtheparentcompanyfinancialstatements,thedirectorsarerequiredto:
selectsuitableaccountingpoliciesandthenapplythemconsistently;
makejudgementsandaccountingestimatesthatarereasonableandprudent;
statewhetherapplicableuKaccountingstandardshavebeenfollowed,subjecttoanymaterialdeparturesdisclosedandexplainedinthefinancialstatements;and
preparethefinancialstatementsonthegoingconcernbasisunlessitisinappropriatetopresumethattheCompanywillcontinueinbusiness.
inpreparingtheGroupfinancialstatements,internationalaccountingstandard1requiresthatdirectors:
properlyselectandapplyaccountingpolicies;
presentinformation,includingaccountingpolicies,inamannerthatprovidesrelevant,reliable,comparableandunderstandableinformation;
provideadditionaldisclosureswhencompliancewiththespecificrequirementsiniFrssareinsufficienttoenableuserstounderstandtheimpactofparticulartransactions,othereventsandconditionsontheentity’sfinancialpositionandfinancialperformance;and
makeanassessmentoftheCompany’sabilitytocontinueasagoingconcern.
thedirectorsareresponsibleforkeepingadequateaccountingrecordsthataresufficienttoshowandexplaintheCompany’stransactionsanddisclosewithreasonableaccuracyatanytimethefinancialpositionoftheCompanyandenablethemtoensurethatthefinancialstatementscomplywiththeCompaniesact2006.theyarealsoresponsibleforsafeguardingtheassetsoftheCompanyandhencefortakingreasonablestepsforthepreventionanddetectionoffraudandotherirregularities.
thedirectorsareresponsibleforthemaintenanceandintegrityofthecorporateandfinancialinformationincludedontheCompany’swebsite.legislationintheunitedKingdomgoverningthepreparationanddisseminationoffinancialstatementsmaydifferfromlegislationinotherjurisdictions.
responsiBilitystatementoftheDireCtorsinrespeCtoftheannualreportanDthefinanCialstatementsweconfirmthattothebestofourknowledge:
thefinancialstatements,preparedinaccordancewiththerelevantfinancialreportingframework,giveatrueandfairviewoftheassets,liabilities,financialpositionandprofitorlossoftheCompanyandtheundertakingsincludedintheconsolidationtakenasawhole;and
theChairman’sstatement,theChiefexecutive’sreport,theFinancedirector’sreport,alltheinformationcontainedonpages8to43togethercomprisethedirectors’reportfortheyearended31december2010.itincludesafairreviewofthedevelopmentandperformanceofthebusinessandthepositionoftheCompanyandtheundertakingsincludedintheconsolidationtakenasawhole,togetherwithadescriptionoftheprincipalrisksanduncertaintiesthattheyface.
thisresponsibilitystatementwasapprovedbytheboardofdirectorson24February2011andissignedonitsbehalfby:
s.C.harrisChiefexecutive24February2011
D.f.landlessFinancedirector24February2011
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 45
boardoFdireCtorsandadvisers
BoarDofDireCtorsexecutiveDirectorss.C.harris-Chiefexecutiveappointedadirectoron1november2008andChiefexecutivefrom12january2009.non-executivedirectorofbrixtonplcfrom2006to2009.executivedirectoratspectrisplcfrom2003to2008andatpowellduffrynplcfrom1995to2003.priortothisheheldseveralseniorpositionsinapvinc.intheunitedstatesfrom1984to1995.MemberofthenominationCommittee.aCharteredengineer.
D.f.landless-financeDirectorappointedFinancedirectorandjoinedtheGroupin1999.From1989to1997servedasFinancedirectorinuKandusdivisionsofCourtauldsplc.FinancedirectorofCourtauldsCoatings(Holdings)limitedfrom1997to1999.aCharteredManagementaccountant.
non-executiveDirectorsa.m.thomson-Chairmanappointedadirectorin2007.ChairmanofHaysplC(2010)andHamsard3054ltd(polypipe),andseniorindependentnon-executivedirectorofjohnsonMattheyplcandnon-executivedirectorofalstomsa.presidentoftheinstituteofCharteredaccountantsofscotland.servedasFinancedirectorofsmithsGroupplcfrom1995to2006andofrugbyGroupplcfrom1992to1995.MemberoftheremunerationCommitteeandChairmanofthenominationCommittee.aCharteredaccountant.
J.vogelsang-seniorindependentnon-executiveDirector–netherlandsappointedadirectorin2003.non-executivedirectorofMetexsa(2007).presidentoftechnologyatbasellpolyolefins(2001to2002),presidentofMontellpolyolefinseurope(1999to2001),vice-presidentshellChemicaleuropeandafrica(1994to1999)andChiefexecutiveoftheshellCompaniesinsweden(1992to1994).ChairmanoftheremunerationCommitteeandmemberoftheauditandnominationCommittees.aChemicalengineer.
J.a.Bilesappointedadirectorin2007.non-executivedirectorofCharterinternationalplc(2005),HermesFundManagerslimited(2005),armorGroupinternationalplc(2004to2008),andofnorthernirelandelectricityplc(previouslyviridianGroupplc)(2005to2011).FinancedirectorofFKiplcfrom1998to2004andGroupFinancedirectorofChubbsecurityplC(1991to1997).ChairmanoftheauditCommitteeandmemberoftheremunerationandnominationCommittees.aCharteredaccountant.
k.rajagopalappointedadirectoron24september2008.non-executivedirectorofw.s.atkinsplc(2008),spirax-sarcoengineeringplc(2009)ande2vtechnologiesplC(2010)andmemberofuKCouncilforscienceandtechnology.executivedirectorofboCGroupplc(2000to2006)andChiefexecutiveofboCedwards(1998to2006)andnon-executivedirectorofFosecoplc(2005to2008).Memberoftheaudit,remunerationandnominationCommittees.aMechanicalengineer.
seCretaryanDregistereDoffiCeJ.r.grime–solicitorspringwoodCourtspringwoodClosetytheringtonbusinessparkMacclesfieldCheshiresK102xF
tel:+44(0)1625505300Fax:+44(0)1625505313registerednumber519057englandandwales
aDvisersauditorsdeloittellp
principalBankersHsbCbankplc,barclaysbankplC,theroyalbankofscotlandplc,svenskaHandelsbankenab,lloydstsbbankplc,uniCreditbankaG,inGbanknv,scotiabankeuropeplcandwellsFargobank,na
solicitorsevershedsllpandHerbertsmithllp
financialadviserslazard&Co.limited
BrokersCreditsuissesecurities(europe)limitedandevolutionsecuritieslimited
registrarsCapitaregistrarslimited,Huddersfield
46 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
independentauditors’reporttotHeMeMbersoFbodyCoteplC
wehaveauditedthegroupfinancialstatementsofbodycoteplcfortheyearended31december2010,whichcomprisetheConsolidatedincomestatement,theConsolidatedbalancesheet,theConsolidatedCashFlowstatement,theConsolidatedstatementofComprehensiveincome,theConsolidatedstatementofChangesinequity,thestatementofGroupaccountingpoliciesandtherelatednotes1to30.thefinancialreportingframeworkthathasbeenappliedintheirpreparationisapplicablelawandinternationalFinancialreportingstandards(iFrss)asadoptedbytheeuropeanunion.wehavealsoauditedtheinformationintheboardreportonremunerationthatisdescribedashavingbeenaudited.
thisreportismadesolelytothecompany’smembers,asabody,inaccordancewithChapter3ofpart16oftheCompaniesact2006.ourauditworkhasbeenundertakensothatwemightstatetothecompany’smembersthosematterswearerequiredtostatetotheminanauditors’reportandfornootherpurpose.tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneotherthanthecompanyandthecompany’smembersasabody,forourauditwork,forthisreport,orfortheopinionswehaveformed.
respeCtiveresponsiBilitiesofDireCtorsanDauDitorsasexplainedmorefullyinthedirectors’responsibilitiesstatement,thedirectorsareresponsibleforthepreparationofthegroupfinancialstatementsandforbeingsatisfiedthattheygiveatrueandfairview.ourresponsibilityistoauditandexpressanopiniononthegroupfinancialstatementsinaccordancewithapplicablelawandinternationalstandardsonauditing(uKandireland).thosestandardsrequireustocomplywiththeauditingpracticesboard’s(apb’s)ethicalstandardsforauditors.
sCopeoftheauDitofthefinanCialstatementsanauditinvolvesobtainingevidenceabouttheamountsanddisclosuresinthefinancialstatementssufficienttogivereasonableassurancethatthefinancialstatementsarefreefrommaterialmisstatement,whethercausedbyfraudorerror.thisincludesanassessmentof:whethertheaccountingpoliciesareappropriatetothegroup’scircumstancesandhavebeenconsistentlyappliedandadequatelydisclosed;thereasonablenessofsignificantaccountingestimatesmadebythedirectors;andtheoverallpresentationofthefinancialstatements.
opiniononfinanCialstatementsinouropinionthegroupfinancialstatements:
giveatrueandfairviewofthestateofthegroup’saffairsasat31december2010andofitsprofitfortheyearthenended;
havebeenproperlypreparedinaccordancewithiFrssasadoptedbytheeuropeanunion;and
havebeenpreparedinaccordancewiththerequirementsoftheCompaniesact2006andarticle4oftheiasregulation.
opiniononothermatterpresCriBeDBytheCompaniesaCt2006inouropinion:
thepartoftheboardreportonremunerationtobeauditedhasbeenproperlypreparedinaccordancewiththeCompaniesact2006;and
theinformationgiveninthedirectors’reportforthefinancialyearforwhichthefinancialstatementsarepreparedisconsistentwiththegroupfinancialstatements.
mattersonwhiChwearerequireDtoreportByeXCeptionwehavenothingtoreportinrespectofthefollowing:
undertheCompaniesact2006wearerequiredtoreporttoyouif,inouropinion:
certaindisclosuresofdirectors’remunerationspecifiedbylawarenotmade;or
wehavenotreceivedalltheinformationandexplanationswerequireforouraudit.
underthelistingruleswearerequiredtoreview:
thedirectors’statementcontainedwithintheGroupreviewinrelationtogoingconcern;
thepartoftheCorporateGovernancestatementrelatingtothecompany’scompliancewiththenineprovisionsofthejune2008CombinedCodespecifiedforourreview;and
certainelementsofthereporttoshareholdersbytheboardondirectorsremuneration.
othermatterwehavereportedseparatelyontheparentcompanyfinancialstatementsofbodycoteplcfortheyearended31december2010.
nicolamitchell(seniorstatutoryauditor)forandonbehalfofdeloittellpCharteredaccountantsandstatutoryauditorsManchester,uK24February2011
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 47
ConsolidatedinCoMestateMentFortHeyearended31deCeMber2010
2010 2009 note £m £m
revenue-continuingoperations 499.8 435.4 1
operatingprofit/(loss)-continuingoperations 51.2 (50.2) 3
operatingprofitpriortoexceptionalitems 52.1 8.0amortisationofacquiredintangiblefixedassets (0.9) (1.3)impairmentcharge .– (31.5)Majorfacilityclosurecosts .– (25.4)
operatingprofit/(loss)-continuingoperations 51.2 (50.2)
investmentrevenue 0.3 1.5 5Financecosts (6.3) (5.8) 6
profit/(loss)beforetaxation-continuingoperations 45.2 (54.5)
taxation (11.7) 3.4 7
profit/(loss)fortheyear-continuingoperations 33.5 (51.1)
Discontinuedoperationslossfortheyear-discontinuedoperations (5.8) .– 8
profit/(loss)fortheyear 27.7 (51.1)
attributableto:equityholdersoftheparent 27.6 (50.1)non-controllinginterests 0.1 (1.0)
27.7 (51.1)
earnings/(loss)pershare 10 pence pence
Fromcontinuingoperations:basic 18.0 (27.0)diluted 18.0 (27.0)
Fromcontinuinganddiscontinuedoperations:basic 14.9 (27.0)diluted 14.9 (27.0)
ConsolidatedstateMentoFCoMpreHensiveinCoMeFortHeyearended31deCeMber2010
2010 2009 £m £m
profit/(loss)fortheyear 27.7 (51.1)
reductionofrevaluationsurplus (0.1) .–exchangegains/(losses)ontranslationofforeignoperations 9.7 (4.8)actuarialgains/(losses)ondefinedbenefitpensionschemes 3.7 (3.3)taxonitemstakendirectlytoequity (0.9) 0.9
othercomprehensiveincome/(expense)fortheyear 12.4 (7.2)
totalcomprehensiveincome/(expense)fortheyear 40.1 (58.3)
attributableto:equityholdersoftheparent 40.0 (57.3)non-controllinginterests 0.1 (1.0)
40.1 (58.3)
48 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
ConsolidatedbalanCesHeetat31deCeMber2010
2010 2009 note £m £m
non-currentassetsGoodwill 107.7 107.9 11otherintangibleassets 10.4 10.9 12property,plantandequipment 458.0 461.8 13otherinvestments 0.5 0.5 14Financeleasereceivables .– 0.5 16deferredtaxassets 48.3 56.9 21derivativefinancialinstruments .– 0.1 20tradeandotherreceivables 2.6 3.0 17
627.5 641.6
Currentassetsinventories 14.4 11.6 15Financeleasereceivables 0.4 0.4 16derivativefinancialinstruments .– 0.6 20tradeandotherreceivables 99.2 91.1 17Cashandbankbalances 23.5 19.6 17assetsheldforsale 6.2 6.2 18
143.7 129.5
totalassets 771.2 771.1
Currentliabilitiestradeandotherpayables 120.4 93.2 23dividendspayable .– 5.5 9Currenttaxliabilities 9.6 11.4obligationsunderfinanceleases 0.4 0.7 22borrowings 8.9 6.0 19derivativefinancialinstruments .– 4.0 20provisions 14.0 21.3 24
153.3 142.1
netcurrentliabilities (9.6) (12.6)
non-currentliabilitiesborrowings 64.8 96.8 19retirementbenefitobligations 11.6 15.0 30deferredtaxliabilities 73.1 73.4 21obligationsunderfinanceleases 0.7 1.6 22derivativefinancialinstruments .– 0.4 20provisions 12.8 11.7 24otherpayables 4.1 7.5 23
167.1 206.4
totalliabilities 320.4 348.5
netassets 450.8 422.6
equitysharecapital 32.8 32.5 25sharepremiumaccount 176.3 176.0ownshares (8.0) (7.3)otherreserves 138.1 134.1Hedgingandtranslationreserves 36.0 26.3retainedearnings 73.9 58.7
equityattributabletoequityholdersoftheparent 449.1 420.3non-controllinginterests 1.7 2.3
totalequity 450.8 422.6
thefinancialstatementsofbodycoteplc,registerednumber519057,wereapprovedbytheboardofdirectorsandauthorisedforissueon24February2011.theyweresignedonitsbehalfby:s.C.Harris}
directorsd.F.landless
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 49
ConsolidatedCasHFlowstateMentFortHeyearended31deCeMber2010
2010 2009 note £m £m
netcashfromoperatingactivities 95.6 11.0 26
investingactivitiespurchasesofproperty,plantandequipment (35.2) (35.3)proceedsondisposalofproperty,plantandequipmentandintangibleassets 1.4 4.3purchasesofintangiblefixedassets (2.0) (1.2)purchaseofnon-controllinginterest (0.8) (0.5)disposalofsubsidiaries/associates .– 6.9lumpsumcontributiontopensionscheme .– (1.5)
netcashusedininvestingactivities (36.6) (27.3)
financingactivitiesinterestreceived 0.3 2.1interestpaid (5.8) (6.5)dividendspaid (20.9) (20.0)dividendspaidtoanon-controllingshareholder (0.1) (0.1)repaymentsofbankloans (34.0) (231.9)paymentsofobligationsunderfinanceleases (1.3) (1.5)newbankloansraised 3.2 41.1newobligationsunderfinanceleases 0.2 0.2proceedsonissueofordinarysharecapital 0.6 0.4ownsharespurchased/settlementofshareoptions (0.7) 0.9
netcashusedinfinancingactivities (58.5) (215.3)
netincrease/(decrease)incashandcashequivalents 0.5 (231.6)
Cashandcashequivalentsatbeginningofyear 16.3 249.5effectofforeignexchangeratechanges 0.8 (1.6)
Cashandcashequivalentsatendofyear 17.6 16.3
50 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
ConsolidatedstateMentoFCHanGesinequityFortHeyearended31deCeMber2010
share capital
share premium account
own shares
other reserves
hedging andtranslation reserves
retained earnings
equityattributable toequity holdersof theparent
non-controlling interests
total equity
£m £m £m £m £m £m £m £m £m
1january2009 32.4 175.7 (10.9) 137.3 31.1 126.4 492.0 4.9 496.9
netlossfortheyear .– .– .– .– .– (50.1) (50.1) (1.0) (51.1)exchangedifferencesontranslationofoverseasoperations .– .– .– .– (63.1) .– (63.1) (0.2) (63.3)Movementonhedgesofnetinvestments .– .– .– .– 58.3 .– 58.3 .– 58.3actuariallossesondefinedbenefitpensionschemesnetofdeferredtax .– .– .– .– .– (2.4) (2.4) .– (2.4)totalcomprehensiveexpensefortheyear .– .– .– .– (4.8) (52.5) (57.3) (1.2) (58.5)
issueofsharecapital 0.1 0.3 .– .– .– .– 0.4 .– 0.4returnofcapitaltoshareholdersandredemptionofbshares .– .– .– 0.7 .– (0.7) .– .– .–acquiredintheyear/settlementofshareoptions .– .– 0.9 .– .– .– 0.9 .– 0.9share-basedpayments .– .– 2.7 (3.9) .– 0.9 (0.3) .– (0.3)dividendspaid .– .– .– .– .– (15.4) (15.4) (0.1) (15.5)purchaseofnon-controllinginterest .– .– .– .– .– .– .– (1.3) (1.3)
31December2009 32.5 176.0 (7.3) 134.1 26.3 58.7 420.3 2.3 422.6
netprofitfortheyear .– .– .– .– .– 27.6 27.6 0.1 27.7exchangedifferencesontranslationofoverseasoperations .– .– .– .– 10.7 .– 10.7 .– 10.7Movementonhedgesofnetinvestments .– .– .– .– (1.0) .– (1.0) .– (1.0)reductionofrevaluationsurplus .– .– .– (0.1) .– .– (0.1) .– (0.1)actuarialgainsondefinedbenefitpensionschemesnetofdeferredtax .– .– .– .– .– 2.8 2.8 .– 2.8totalcomprehensiveincomefortheyear .– .– .– (0.1) 9.7 30.4 40.0 0.1 40.1
issueofsharecapital 0.3 0.3 .– .– .– .– 0.6 .– 0.6acquiredintheyear/settlementofshareoptions .– .– (0.7) .– .– .– (0.7) .– (0.7)share-basedpayments .– .– .– 4.1 .– 0.2 4.3 .– 4.3dividendspaid .– .– .– .– .– (15.4) (15.4) (0.1) (15.5)purchaseofnon-controllinginterest .– .– .– .– .– .– .– (0.6) (0.6)
31December2010 32.8 176.3 (8.0) 138.1 36.0 73.9 449.1 1.7 450.8
theremaining1.7millionbshareswereredeemedin2009.
includedinotherreservesisthecapitalredemptionreservearisingonredemptionoftheGroup’sbsharesof£129.4m(2009:£129.4m).
theownsharesreserverepresentsthecostofsharesinbodycoteplcpurchasedinthemarket.at31december20103,837,581(2009:2,100,427)ordinarysharesof173/11peachwereheldbythebodycoteinternationalemployeebenefittrusttosatisfyshare-basedpaymentsundertheGroup’sincentiveschemes(seenote28).
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 51
GroupaCCountinGpoliCies
BasisofaCCountingthefinancialstatementsoftheGrouphavebeenpreparedinaccordancewithinternationalFinancialreportingstandards(iFrs).thefinancialstatementshavealsobeenpreparedinaccordancewithiFrsadoptedbytheeuropeanunionandthereforethegroupfinancialstatementscomplywitharticle4ofeuiasregulationasadoptedforuseintheeu.
theGrouphasadoptedstandardsandinterpretationsissuedbytheinternationalaccountingstandardsboard(iasb)andtheinternationalFinancialreportinginterpretationsCommitteeoftheiasb(iFriC).individualstandardsandinterpretationshavetobeadoptedbytheeuropeanCommission(eC)andtheprocessleadstoadelaybetweentheissueandadoptionofnewstandardsandinsomecasesamendmentbytheeC.
internationalFinancialreportingstandardsaresubjecttoongoingamendmentbytheiasbandsubsequentendorsementbytheeCandarethereforesubjecttochange.
thefinancialstatementshavebeenpreparedonthehistoricalcostbasis,withtheexceptionofaccountingforshare-basedpaymentsandcertainfinancialinstruments.theprincipalaccountingpoliciesadoptedaresetoutbelow.
aDoptionofnewanDreviseDstanDarDsthefollowingnewandrevisedstandardsandinterpretationshavebeenadoptedinthecurrentyear.theiradoptionhasnothadanysignificantimpactontheamountsreportedinthesefinancialstatementsbutmayimpacttheaccountingforfuturetransactionsandarrangements.
ifrs3(revisedJan2008)‘BusinessCombinations’,ias27(amended2008)‘Consolidatedandseparatefinancialstatements’andias28(amended2008)‘investmentsinassociates’thesestandardshaveintroducedanumberofchangesintheaccountingforbusinesscombinationswhenacquiringasubsidiaryoranassociate.iFrs3(2008)hasalsointroducedadditionaldisclosurerequirementsforacquisitions.
ifriC17‘Distributionsofnon-cashassetstoowners’theinterpretationprovidesguidanceonwhenanentityshouldrecogniseanon-cashdividendpayable,howtomeasurethedividendpayableandhowtoaccountforanydifferencebetweenthecarryingamountoftheassetsdistributedandthecarryingamountofthedividendpayablewhenthepayableissettled.
thefollowingamendmentsweremadeaspartofimprovementstoiFrss(2009):
amendmentstoifrs2‘share-basedpayment’iFrs2hasbeenamendedfollowingtheissueofiFrs3(2008),toconfirmthatthecontributionofabusinessontheformationofajointventureandcommoncontroltransactionsarenotwithinthescopeofiFrs2.inaddition,theamendmentstoiFrs2clarifytheaccountingforshare-basedpaymenttransactionsbetweengroupentities.
amendmentstoias17‘leases’ias17hasbeenamendedsuchthatitmaybepossibletoclassifyaleaseoflandasafinanceleaseifitmeetsthecriteriaforthatclassificationunderias17.
amendmentstoias39‘financialinstruments:recognitionandmeasurement’ias39hasbeenamendedtostatethatoptionscontractsbetweenanacquirerandasellingshareholdertobuyorsellanacquireethatwillresultinabusinesscombinationatafutureacquisitiondatearenotexcludedfromthescopeofthestandard.
goingConCernthedirectorshaveatthetimeofapprovingthefinancialstatementsareasonableexpectationthattheCompanyandtheGrouphaveadequateresourcestocontinueinoperationalexistencefortheforeseeablefuture.thustheycontinuetoadoptthegoingconcernbasisofaccountinginpreparingthefinancialstatements.FurtherdetailiscontainedintheFinancedirector’sreportonpage25.
BasisofConsoliDationtheconsolidatedfinancialstatementsincorporatethefinancialstatementsoftheCompanyandentitiescontrolledbytheCompany(itssubsidiaries)madeupto31decembereachyear.ControlisachievedwheretheCompanyhasthepowertogovernthefinancialandoperatingpoliciesofaninvesteeentitysoastoobtainbenefitsfromitsactivitiesexcepttotheextentthattheminorityhasabindingobligationandisabletomakeanadditionalinvestmenttocoverthelosses.
onacquisition,theassetsandliabilitiesandcontingentliabilitiesofasubsidiaryaremeasuredattheirfairvaluesatthedateofacquisition.anyexcessofthecostofacquisitionoverthefairvaluesoftheidentifiablenetassetsacquiredisrecognisedasgoodwill.anydeficiencyofthecostofacquisitionbelowthefairvaluesoftheidentifiablenetassetsacquired(i.e.discountonacquisition)iscreditedtotheincomestatementintheperiodofacquisition.theinterestofminorityshareholdersisstatedattheminority’sproportionofthefairvaluesoftheassetsandliabilitiesrecognised.subsequently,anylossesapplicabletotheminorityinterestinexcessoftheminorityinterestareallocatedagainsttheinterestsoftheparent.
theresultsofsubsidiariesacquiredordisposedofduringtheyearareincludedintheconsolidatedincomestatementfromtheeffectivedateofacquisitionoruptotheeffectivedateofdisposal,asappropriate.wherenecessary,adjustmentsaremadetothefinancialstatementsofsubsidiariestobringtheaccountingpoliciesusedintolinewiththoseusedbytheGroup.
allintra-grouptransactions,balances,incomeandexpensesareeliminatedonconsolidation.
investmentsinassoCiatesanassociateisanentityoverwhichtheGroupisinapositiontoexercisesignificantinfluence,butnotcontrolorjointcontrol,throughparticipationinthefinancialandoperatingpolicydecisionsoftheinvestee.
theresultsandassetsandliabilitiesofassociatesareincorporatedinthesefinancialstatementsusingtheequitymethodofaccounting.investmentsinassociatesarecarriedinthebalancesheetatcostasadjustedbypost-acquisitionchangesintheGroup’sshareofthenetassetsoftheassociate,lessanyimpairmentinthevalueofindividualinvestments.lossesoftheassociatesinexcessoftheGroup’sinterestinthoseassociatesarenotrecognised.
anyexcessofthecostofacquisitionovertheGroup’sshareofthefairvaluesoftheidentifiableassets,liabilitiesandcontingentliabilitiesoftheassociateatthedateofacquisitionisrecognisedasgoodwill.thegoodwillisincludedwithinthecarryingamountoftheinvestment.anydeficiencyofthecostofacquisitionbelowtheGroup’sshareofthefairvaluesoftheidentifiableassets,liabilitiesandcontingentliabilitiesoftheassociateatthedateofacquisition(i.e.discountonacquisition)iscreditedinprofitandlossintheperiodofacquisition.
whereagroupcompanytransactswithanassociateoftheGroup,profitsandlossesareeliminatedtotheextentoftheGroup’sinterestintherelevantassociate.lossesmayprovideevidenceofanimpairmentoftheassettransferred,inwhichcaseappropriateprovisionismadeforimpairment.
52 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
GroupaCCountinGpoliCiesContinued
non-CurrentassetshelDforsalenon-currentassets(anddisposalgroups)classifiedasheldforsalearemeasuredatthelowerofcarryingamountandfairvaluelesscoststosell.
non-currentassetsanddisposalgroupsareclassifiedasheldforsaleiftheircarryingamountwillberecoveredthroughasaletransactionratherthanthroughcontinuinguse.thisconditionisregardedasmetonlywhenthesaleishighlyprobableandtheasset(ordisposalgroup)isavailableforimmediatesaleinitspresentcondition.Managementmustbecommittedtothesalewhichshouldbeexpectedtoqualifyforrecognitionasacompletedsalewithinoneyearfromthedateofclassification.
gooDwillGoodwillarisinginabusinesscombinationisrecognisedasanassetatthedatethatcontrolisacquired(theacquisitiondate).GoodwillismeasuredastheexcessofthecostofacquisitionovertheGroup’sinterestinthenetfairvalueoftheidentifiableassets,liabilitiesandcontingentliabilitiesofasubsidiaryorassociateatthedateofacquisition.ifafterrestatement,theGroup’sinterestinthenetfairvalueoftheacquiree’sidentifiableassets,liabilitiesandcontingentliabilitiesexceedsthecostofthebusinesscombination,theexcessisrecognisedimmediatelyinprofitorloss.
Goodwillisnotamortisedbutisreviewedforimpairmentatleastannually.Forthepurposeofimpairmenttesting,goodwillisallocatedtoeachoftheGroup’scash-generatingunitsexpectedtobenefitfromthesynergiesofthecombination.Cash-generatingunitstowhichgoodwillhasbeenallocatedaretestedforimpairmentbi-annually,ormorefrequentlywhenthereisanindicationthattheunitmaybeimpaired.iftherecoverableamountofthecash-generatingunitislessthanthecarryingamountoftheunit,theimpairmentlossisallocatedfirsttoreducethecarryingamountofanygoodwillallocatedtotheunitandthentoacquiredintangibles,followedbytheothertangibleassetsoftheunit.animpairmentlossrecognisedforgoodwillisnotreversedinasubsequentperiod.
ondisposalofasubsidiaryorassociate,theattributableamountofgoodwillisincludedinthedeterminationoftheprofitorlossondisposal.
GoodwillarisingonacquisitionsbeforethedateoftransitiontoiFrshasbeenretainedatthepreviousuKGaapamounts,subjecttobeingtestedforimpairmentatthatdate.GoodwillwrittenofftoreservesunderuKGaappriorto1998hasnotbeenreinstatedandisnotincludedindetermininganysubsequentprofitorlossondisposal.
revenuereCognitionrevenueismeasuredatthefairvalueoftheconsiderationreceivedorreceivableandrepresentsamountsreceivableforgoodsandservicesprovidedinthenormalcourseofbusiness,netofdiscounts,vatandothersales-relatedtaxes.revenueisrecognisedonthecompletionofservicesrendered.
interestincomeisaccruedonatimebasis,byreferencetotheprincipaloutstandingandattheeffectiveinterestrateapplicable,whichistheratethatexactlydiscountsestimatedfuturecashreceiptsthroughtheexpectedlifeofthefinancialassettothatasset’snetcarryingamount.
dividendincomefrominvestmentsisrecognisedwhentheshareholder’srightstoreceivepaymenthavebeenestablished.
thegroupaslesseeleasesareclassifiedasfinanceleaseswheneverthetermsoftheleasetransfersubstantiallyalltherisksandrewardsofownershiptothelessee.allotherleasesareclassifiedasoperatingleases.
assetsheldunderfinanceleasesarerecognisedasassetsoftheGroupattheirfairvalueor,iflower,atthepresentvalueoftheminimumleasepayments,eachdeterminedattheinceptionofthelease.thecorrespondingliabilitytothelessorisincludedinthebalancesheetasafinanceleaseobligation.leasepaymentsareapportionedbetweenfinancechargesandreductionoftheleaseobligationsoastoachieveaconstantrateofinterestontheremainingbalanceoftheliability.Financechargesarechargeddirectlyagainstincome.
rentalspayableunderoperatingleasesarechargedtoincomeonastraight-linebasisoverthetermoftherelevantlease.
benefitsreceivedandreceivableasanincentivetoenterintoanoperatingleasearealsospreadonastraight-linebasisovertheleaseterm.
thegroupaslessoramountsduefromlesseesunderfinanceleasesarerecordedasreceivablesattheamountoftheGroup’snetinvestmentintheleases.FinanceleaseincomeisallocatedtoaccountingperiodssoastoreflectaconstantperiodicrateofreturnontheGroup’snetinvestmentoutstandinginrespectoftheleases.
foreignCurrenCiestransactionsincurrenciesotherthanpoundssterlingarerecordedattheratesofexchangeprevailingonthedatesofthetransactions.ateachbalancesheetdate,monetaryassetsandliabilitiesthataredenominatedinforeigncurrenciesareretranslatedattheratesprevailingonthebalancesheetdate.non-monetaryitemsthataremeasuredintermsofhistoricalcostinaforeigncurrencyarenotretranslated.Gainsandlossesarisingonretranslationareincludedinnetprofitorlossfortheperiod.
exchangedifferencesarerecognisedinprofitorlossintheperiodinwhichtheyariseexceptfor:
exchangedifferencesontransactionsenteredintotohedgecertainforeigncurrencyrisks(seebelowunderfinancialinstruments/hedgeaccounting);and
exchangedifferencesonmonetaryitemsreceivablefromorpayabletoaforeignoperationforwhichsettlementisneitherplannednorlikelytooccur(thereforeformingpartofthenetinvestmentintheforeignoperation)whicharerecognisedinitiallyintheconsolidatedstatementofcomprehensiveincomeandreclassifiedfromequitytoprofitorlossondisposalorpartialdisposalofthenetinvestment.
onconsolidation,theassetsandliabilitiesoftheGroup’soverseasoperationsaretranslatedatexchangeratesprevailingonthebalancesheetdate.incomeandexpenseitemsaretranslatedattheaverageexchangeratesfortheperiodunlessexchangeratesfluctuatesignificantly.exchangedifferencesarising,ifany,areclassifiedasequityandtransferredtotheGroup’stranslationreserve.suchtranslationdifferencesarerecognisedasincomeorasexpensesintheperiodinwhichtheoperationisdisposedof.
Goodwillandfairvalueadjustmentsarisingontheacquisitionofaforeignentityaretreatedasassetsandliabilitiesoftheforeignentityandtranslatedattheclosingrate.theGrouphaselectedtotreatgoodwillandfairvalueadjustmentsarisingonacquisitionsbeforethedateoftransitiontoiFrsassterling-denominatedassetsandliabilities.
BorrowingCostsborrowingcostsarerecognisedinprofitorlossintheperiodinwhichtheyareincurred.borrowingcostsdirectlyattributabletotheacquisition,constructionorproductionofqualifyingassets,whichareassetsthattakeasubstantialperiodoftimetogetreadyfortheirintendeduse,areaddedtothecostofthoseassets,untilsuchtimeastheassetsaresubstantiallyreadyfortheirintendeduse.
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 53
governmentgrantsGovernmentgrantsrelatingtoproperty,plantandequipmentaretreatedasdeferredincomeandreleasedtoprofitandlossovertheexpectedusefullivesoftheassetsconcerned.
operatingprofitoperatingprofitisstatedafterchargingrestructuringcosts,goodwillimpairment,amortisationofacquiredintangibleassetsandafterthepost-taxshareofresultsofassociatesbutbeforeinvestmentincomeandfinancecosts.
DisContinueDoperationsinaccordancewithiFrs5‘non-currentassetsHeldforsaleanddiscontinuedoperations’,theGrouphasseparatelydisclosedtheresultsofthetestingdivisionasdiscontinuedfollowingthedisposalofthebusinessinoctober2008,andsubsequentprovisionadjustmentduring2010.
retirementBenefitCostspaymentstodefinedcontributionretirementbenefitschemesarechargedasanexpenseastheyfalldue.paymentsmadetostate-managedretirementbenefitschemesaredealtwithaspaymentstodefinedcontributionschemeswheretheGroup’sobligationsundertheschemesareequivalenttothosearisinginadefinedcontributionretirementbenefitscheme.
Fordefinedbenefitschemes,thecostofprovidingbenefitsisdeterminedusingtheprojectedunitCreditMethod,withactuarialvaluationsbeingcarriedoutateachbalancesheetdate.actuarialgainsandlossesarerecognisedinfullintheperiodinwhichtheyoccur.theyarerecognisedoutsideprofitorlossandpresentedintheconsolidatedstatementofcomprehensiveincome.
pastservicecostisrecognisedimmediatelytotheextentthatthebenefitsarealreadyvested,andotherwiseisamortisedonastraight-linebasisovertheaverageperioduntilthebenefitsbecomevested.
theretirementbenefitobligationrecognisedinthebalancesheetrepresentsthepresentvalueofthedefinedbenefitobligationasadjustedforunrecognisedpastservicecost,andasreducedbythefairvalueoftheschemeassets.anyassetresultingfromthiscalculationislimitedtopastservicecost,plusthepresentvalueofavailablerefundsandreductionsinfuturecontributionstothescheme.
taXationthetaxexpenserepresentsthesumofthetaxcurrentlypayableanddeferredtax.
thetaxcurrentlypayableisbasedontaxableprofitfortheyear.taxableprofitdiffersfromnetprofitasreportedintheincomestatementbecauseitexcludesitemsofincomeorexpensethataretaxableordeductibleinotheryearsanditfurtherexcludesitemsthatarenevertaxableordeductible.theGroup’sliabilityforcurrenttaxiscalculatedusingtaxratesthathavebeenenactedorsubstantivelyenactedbythebalancesheetdate.
deferredtaxisthetaxexpectedtobepayableorrecoverableondifferencesbetweenthecarryingamountsofassetsandliabilitiesinthefinancialstatementsandthecorrespondingtaxbasesusedinthecomputationoftaxableprofit,andisaccountedforusingthebalancesheetliabilitymethod.deferredtaxliabilitiesaregenerallyrecognisedforalltaxabletemporarydifferencesanddeferredtaxassetsarerecognisedtotheextentthatitisprobablethattaxableprofitswillbeavailableagainstwhichdeductibletemporarydifferencescanbeutilised.suchassetsandliabilitiesarenotrecognisedifthetemporarydifferencearisesfromgoodwillorfromtheinitialrecognition(otherthaninabusinesscombination)ofotherassetsandliabilitiesinatransactionthataffectsneitherthetaxprofitnortheaccountingprofit.
deferredtaxliabilitiesarerecognisedfortaxabletemporarydifferencesarisingoninvestmentsinsubsidiariesandassociates,andinterestsinjointventures,exceptwheretheGroupisabletocontrolthereversalofthetemporarydifferenceanditisprobablethatthetemporarydifferencewillnotreverseintheforeseeablefuture.
deferredtaxiscalculatedatthetaxratesthatareexpectedtoapplyintheperiodwhentheliabilityissettledortheassetisrealised.deferredtaxischargedorcreditedintheincomestatement,exceptwhenitrelatestoitemschargedorcrediteddirectlytoequity,inwhichcasethedeferredtaxisalsodealtwithinequity.
thecarryingamountofdeferredtaxassetsisreviewedateachbalancesheetdateandreducedtotheextentthatitisnolongerprobablethatsufficienttaxableprofitswillbeavailabletoallowallorpartoftheassettoberecovered.
deferredtaxassetsandliabilitiesareoffsetwhenthereisalegallyenforceablerighttoset-offcurrenttaxassetsagainstcurrenttaxliabilitiesandwhentheyrelatetoincometaxesleviedbythesametaxationauthorityandtheGroupintendstosettleitscurrenttaxassetsandliabilitiesonanetbasis.
property,plantanDequipmentproperty,plantandequipmentarestatedatcostlessaccumulateddepreciationandanyrecognisedimpairmentloss.
depreciationischargedsoastowriteoffthecostofassets,otherthanlandandpropertiesunderconstruction,lesstheirresidualvalues,overtheirestimatedusefullives,usingthestraight-linemethod,onthefollowingbases:
Freeholdbuildings 2%leaseholdproperty overtheperiodoftheleaseFixturesandfittings 10%-20%plantandmachinery 5%-20%Motorvehicles 20%-33%
assetsheldunderfinanceleasesaredepreciatedovertheirexpectedusefullivesonthesamebasisasownedassetsor,whereshorter,overthetermoftherelevantlease.thegainorlossarisingonthedisposalorretirementofanassetisdeterminedasthedifferencebetweenthesalesproceedsandthecarryingamountoftheassetandisrecognisedinincome.
assetsinthecourseofconstructionarecarriedatcost,plusappropriateborrowingcosts,lessanyrecognisedimpairmentloss.depreciationcommenceswhentheassetsarereadyfortheirintendeduse.
impairmentoftangiBleanDintangiBleassetseXCluDinggooDwillateachbalancesheetdate,theGroupreviewsthecarryingamountsofitstangibleandintangibleassetstodeterminewhetherthereisanyindicationthatthoseassetshavesufferedanimpairmentloss.ifanysuchindicationexists,therecoverableamountoftheassetisestimatedinordertodeterminetheextentoftheimpairmentloss(ifany).wheretheassetdoesnotgeneratecashflowsthatareindependentfromotherassets,theGroupestimatestherecoverableamountofthecash-generatingunittowhichtheassetbelongs.
recoverableamountisthehigheroffairvaluelesscoststosellandvalueinuse.inassessingvalueinuse,theestimatedfuturecashflowsarediscountedtotheirpresentvalueusingadiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheassetforwhichtheestimatesoffuturecashflowshavenotbeenadjusted.
iftherecoverableamountofanasset(orcash-generatingunit)isestimatedtobelessthanitscarryingamount,thecarryingamountoftheasset(cash-generatingunit)isreducedtoitsrecoverableamount.animpairmentlossisrecognisedasanexpenseimmediately.
54 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
GroupaCCountinGpoliCiesContinued
whereanimpairmentlosssubsequentlyreverses,thecarryingamountoftheasset(cash-generatingunit)isincreasedtotherevisedestimateofitsrecoverableamount,butsothattheincreasedcarryingamountdoesnotexceedthecarryingamountthatwouldhavebeendeterminedhadnoimpairmentlossbeenrecognisedfortheasset(cash-generatingunit)inprioryears.areversalofanimpairmentlossisrecognisedasincomeimmediately.
inventoriesinventoriesarestatedatthelowerofcostandnetrealisablevalue.Costcomprisesdirectmaterialsand,whereapplicable,directlabourcostsandthoseoverheadsthathavebeenincurredinbringingtheinventoriestotheirpresentlocationandcondition.netrealisablevaluerepresentstheestimatedsellingpricelessallestimatedcostsofcompletionandcoststobeincurredinmarketing,sellinganddistribution.
finanCialinstrumentsFinancialassetsandfinancialliabilitiesarerecognisedontheGroup’sbalancesheetwhentheGroupbecomesapartytothecontractualprovisionsoftheinstrument.
loansandreceivablestradereceivables,loans,andotherreceivablesthathavefixedordeterminablepaymentsthatarenotquotedinanactivemarketareclassifiedas‘loansandreceivables’.loansandreceivablesaremeasuredatamortisedcostusingtheeffectiveinterestmethod,lessanyimpairment.interestincomeisrecognisedbyapplyingtheeffectiveinterestrate,exceptfortradereceivables,whichdonotcarryanyinterestandarestatedattheirnominalvalueasreducedbyappropriateallowancesforestimatedirrecoverableamounts.
CashandCashequivalentsCashandcashequivalentscomprisecashinhandanddemanddepositsandothershort-termhighlyliquidinvestmentsthatarereadilyconvertibletoaknownamountofcashandaresubjecttoaninsignificantriskofchangesinvalue.
financialliabilitiesandequityFinancialliabilitiesandequityinstrumentsareclassifiedaccordingtothesubstanceofthecontractualarrangementsenteredinto.anequityinstrumentisanycontractthatevidencesaresidualinterestintheassetsoftheGroupafterdeductingallofitsliabilities.
BankBorrowingsinterest-bearingbankloansandoverdraftsarerecordedattheproceedsreceived,netoftransactioncosts.Financecharges,includingpremiumspayableonsettlementorredemptionanddirectissuecosts,areaccountedforonanaccrualsbasistotheincomestatementusingtheeffectiveinterestmethodandareaddedtothecarryingamountoftheinstrumenttotheextentthattheyarenotsettledintheperiodinwhichtheyarise.
tradepayablestradepayablesarenotinterest-bearingandarestatedattheirnominalvalue.
equityinstrumentsequityinstrumentsissuedbytheCompanyarerecordedattheproceedsreceived,netofdirectissuecosts.
impairmentoffinancialassetsFinancialassetsareassessedforindicatorsofimpairmentateachbalancesheetdate.Financialassetsareimpairedwherethereisobjectiveevidencethat,asaresultofoneormoreeventsthatoccurredaftertheinitialrecognitionofthefinancialasset,theestimatedfuturecashflowsoftheinvestmenthavebeenimpacted.
objectiveevidenceofimpairmentcouldinclude:
significantfinancialdifficultyofthecustomerorcounterparty;or
defaultordelinquencyinpayments.
Forcertaincategoriesoffinancialasset,suchastradereceivables,assetsthatareassessednottobeimpairedindividuallyaresubsequentlyassessedforimpairmentonacollectivebasis.objectiveevidenceofimpairmentforaportfolioofreceivablescouldincludetheGroup’spastexperienceofcollectingpayments,anincreaseinthenumberofdelayedpaymentsintheportfoliopasttheaveragecreditperiod,aswellasobservablechangesinnationalorlocaleconomicconditionsthatcorrelatewithdefaultonreceivables.
thecarryingamountofthefinancialassetisreducedbytheimpairmentlossdirectlyforallfinancialassetswiththeexceptionoftradereceivables,wherethecarryingamountisreducedthroughtheuseofanallowanceaccount.whenatradereceivableisconsidereduncollectable,itiswrittenoffagainsttheallowanceaccount.subsequentrecoveriesofamountspreviouslywrittenoffarecreditedagainsttheallowanceaccount.Changesinthecarryingamountoftheallowanceaccountarerecognisedinprofitorloss.
DerivativefinanCialinstrumentstheGroupusesderivativefinancialinstruments,inparticularinterestrateswaps,foreigncurrencyswapsandforwardexchangecontracts,tomanagethefinancialrisksarisingfromthebusinessactivitiesandthefinancingofthoseactivities.theGroupdoesnotusederivativefinancialinstrumentsforspeculativepurposes.
theuseoffinancialderivativesisgovernedbytheGroup’spoliciesapprovedbytheboardofdirectors,whichprovidewrittenprinciplesontheuseoffinancialderivatives.
derivativefinancialinstrumentsarerecognisedasassetsandliabilitiesmeasuredattheirfairvalueonthebalancesheetdate.Changesinthefairvalueofanyderivativeinstrumentsthatdonotfulfilthecriteriaforhedgeaccountingcontainedinias39arerecognisedimmediatelyintheincomestatement.aderivativeispresentedasanon-currentassetoranon-currentliabilityiftheremainingmaturityoftheinstrumentismorethan12monthsanditisnotexpectedtoberealisedorsettledwithin12months.
heDgeaCCountingtheGroupusesforeigncurrencydebtandcrosscurrencyswapstohedgeitsexposuretochangesintheunderlyingnetassetsofoverseasoperationsarisingfromforeignexchangeratemovements.
theGroupmaintainsdocumentationoftherelationshipbetweenthehedgeditemandthehedginginstrumentattheinceptionofahedgingtransactiontogetherwiththeriskmanagementobjectiveandthestrategyunderlyingthedesignatedhedge.theGroupalsodocumentsitsassessment,bothattheinceptionofthehedgingrelationshipandsubsequentlyonanongoingbasis,oftheeffectivenessofthehedgeinoffsettingmovementsinthefairvaluesorcashflowsofthehedgeditems.
whenhedgeaccountingisused,therelevanthedgingrelationshipsareclassifiedasfairvaluehedges,cashflowhedgesornetinvestmenthedges.
note20setsoutthedetailsofthefairvaluesofthederivativeinstrumentsusedforhedgingpurposes.
fairvaluehedgeChangesinthefairvalueofderivativesthataredesignatedandqualifyasfairvaluehedgesarerecordedintheincomestatement,togetherwithanychangesinthefairvalueofthehedgedassetorliabilitythatareattributabletothehedgedrisk.
CashflowhedgeCashflowhedgingmatchesthecashflowsofhedgeditemsagainstthecorrespondingcashflowofthederivative.theeffectivepartofanygainorlossonthederivativeisrecogniseddirectlyinequityandthehedgeditemisaccountedforinaccordancewiththepolicyforthatfinancialinstrument.anyineffectivepartofanygainorlossisrecognisedimmediatelyintheincomestatement.
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 55
Hedgeaccountingisdiscontinuedwhenthehedginginstrumentexpiresorissold,terminated,orexercised,ornolongerqualifiesforhedgeaccounting.atthattime,anycumulativegainorlossonthehedginginstrumentrecognisedinequityisretainedinequityuntiltheforecasttransactionoccurs.ifahedgedtransactionisnolongerexpectedtooccur,thenetcumulativegainorlossrecognisedinequityistransferredtonetprofitorlossfortheperiod.
netinvestmenthedgeHedgesofnetinvestmentsinforeignoperationsareaccountedforsimilarlytocashflowhedges.totheextentthehedgeiseffective,changesinthefairvalueofthehedginginstrumentarisingfromthehedgedriskarerecognisedintheconsolidatedstatementofcomprehensiveincomeandaccumulatedinthehedgingandtranslationreserve.thegainorlossrelatingtotheineffectiveportionisrecognisedimmediatelyintheincomestatement.
Gainsandlossesaccumulatedinequityareincludedintheincomestatementintheeventthattheforeignoperationisdisposedof.
provisionsprovisionsarerecognisedwhentheGrouphasapresentobligation(legalorconstructive)asaresultofapastevent,whenitisprobablethattheGroupwillberequiredtosettlethatobligationandwhenareliableestimatecanbemadeoftheamountoftheobligation.
theamountrecognisedasaprovisionisthebestestimateoftheconsiderationrequiredtosettlethepresentobligationatthebalancesheetdate,takingintoaccounttherisksanduncertaintiessurroundingtheobligation.whereaprovisionismeasuredusingthecashflowsestimatedtosettlethepresentobligation,itscarryingamountisthepresentvalueofthosecashflows.
provisionsforrestructuringcostsarerecognisedwhentheGrouphasadetailedformalplanfortherestructuringandhasraisedavalidexpectationinthoseaffectedthatitwillcarryouttherestructuringbystartingtoimplementtheplanorannouncingitsmainfeaturestothoseaffectedbyit.
themeasurementofarestructuringprovisionincludesonlythedirectexpendituresarisingfromtherestructuringwhicharethoseamountsthatarebothnecessarilyentailedbytherestructuringandnotassociatedwiththeongoingactivitiesoftheentity.
share-BaseDpaymentstheGrouphasappliedtherequirementsofiFrs2‘share-basedpayment’.
theGroupissuesequity-settledshare-basedpaymentstocertainemployees.equity-settledshare-basedpaymentsaremeasuredatfairvalueatthedateofgrant.thefairvaluedeterminedatthegrantdateoftheequity-settledshare-basedpaymentsisexpensedonastraight-linebasisoverthevestingperiod.ateachbalancesheetdate,theGrouprevisesitsestimateofthenumberofequityinstrumentsexpectedtovestasaresultoftheeffectofnon-marketbasedvestingconditions.theimpactoftherevisionoftheoriginalestimates,ifany,isrecognisedinprofitorlosssuchthatthecumulativeexpensereflectstherevisedestimateswithacorrespondingadjustmenttotheequity-settledemployeebenefitsreserve.Fairvalueismeasuredbyuseofablack-scholesmodel.
CritiCalJuDgementsinapplyingthegroup’saCCountingpoliCiesintheprocessofapplyingtheGroup’saccountingpolicies,whicharedescribedabove,managementhasmadethefollowingjudgementsthathavethemostsignificanteffectontheamountsrecognisedinthefinancialstatements(apartfromthoseinvolvingestimations,whicharedealtwithbelow).
provisionsforenvironmentalliabilitiestheGroupprovidesforthecostsofenvironmentalremediationthathavebeenidentified,eitheraspartofacquisitionduediligence,
orinothercircumstanceswhereremediationbytheGroupisrequired.theprovisionisreviewedannually.
keysourCesofestimationunCertaintythekeyassumptionsconcerningthefuture,andotherkeysourcesofestimationuncertaintyatthebalancesheetdate,thathaveasignificantriskofcausingamaterialadjustmenttothecarryingamountsofassetsandliabilitieswithinthenextfinancialyear,arediscussedbelow.
impairmentofgoodwillandfixedassetsdeterminingwhethergoodwillandfixedassetsareimpairedrequiresanestimationofthevalueinuseofthecash-generatingunitstowhichtheassetshavebeenallocated.thevalueinusecalculationrequirestheentitytoestimatethefuturecashflowsexpectedtoarisefromthecash-generatingunitandasuitablediscountrateinordertocalculatepresentvalue.
retirementBenefitschemesaccountingforretirementbenefitschemesunderias19requiresanassessmentofthefuturebenefitspayableinaccordancewithactuarialassumptions,whicharesetoutinnote30.
taxationtheGroupissubjecttotaxesinnumerousjurisdictions.significantjudgementisrequiredindeterminingtheworldwideprovisionfortax.therearemanytransactionsandcalculationsforwhichtheultimatetaxdeterminationisuncertainduringtheordinarycourseofbusiness.theGrouprecognisesliabilitiesforanticipatedtaxauditissuesbasedonestimatesofwhetheradditionaltaxeswillbedue.wherethefinaltaxoutcomeofthesemattersisdifferentfromtheamountsthatwereinitiallyrecorded,suchdifferenceswillimpactthecurrenttaxprovision,deferredtaxprovisionsandincomestatementintheperiodinwhichsuchdeterminationismade.
generalinformationbodycoteplcisacompanyincorporatedintheunitedKingdomundertheCompaniesacts1948to1980.theaddressoftheregisteredofficeisgivenonpage45.thenatureoftheGroup’soperationsanditsprincipalactivitiesaresetoutonpage32inthedirectors’report.
thesefinancialstatementsarepresentedinpoundssterlingbecausethatisthecurrencyoftheprimaryeconomicenvironmentinwhichtheGroupoperates.ForeignoperationsareincludedinaccordancewiththepoliciessetoutintheForeignCurrenciesaccountingpolicyabove.
atthedateofauthorisationofthesefinancialstatements,thefollowingstandardsandinterpretationswhichhavenotbeenappliedinthesefinancialstatementswereinissuebutnotyeteffective(andinsomecaseshadnotyetbeenadoptedbytheeu):
iFrs9:Financialinstruments
ias24(amended):relatedpartydisclosures
ias32(amended):Classificationofrightsissues
iFriC19:extinguishingFinancialliabilitieswithequityinstruments
iFriC14(amended):prepaymentsofaMinimumFundingrequirement
iFrs7(amended):disclosure–transfersofFinancialassets
ias12(amended):deferredtax:recoveryofunderlyingassets
improvementstoiFrss(May2010)
theadoptionofiFrs9,whichtheGroupplanstoadoptfortheyearbeginningon1january2013,willimpactboththemeasurementanddisclosuresofFinancialinstruments.thedirectorsdonotexpectthattheadoptionoftheotherstandardslistedabovewillhaveamaterialimpactonthefinancialstatementsoftheGroupinfutureperiods.
56 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
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1. revenue 2010 2009 £m £m
ContinuingoperationsHeattreatmentandmetaljoining,hotisostaticpressingandsurfacetechnologyservices 499.8 435.4
otheroperatingincome(seenote3) 2.3 3.7investmentrevenue(seenote5) 0.3 1.5
totalrevenue(asdefinedinias18,revenue) 502.4 440.6
2. Businessandgeographicalsegments
iFrs8requiresoperatingsegmentstobeidentifiedonthebasisofinternalreportsaboutcomponentsoftheGroupthatareregularlyreviewedbytheChiefexecutivetoallocateresourcestothesegmentsandtoassesstheirperformance.
theGroup’sreportablesegmentshavebeendeterminedinaccordancewiththeactivityoftheGroup,focusingonkeymarketsectors.principally,thissplitstheGroupintotwobusinessareasbeing:
aerospace,defence&energy(ade);and
automotive&Generalindustrial(aGi).
thisinitialsplitisdeterminedfollowingconsiderationoffactorsincludingthedifferentcustomersets,differingservicerequirementsanddifferentcharacteristicsofbusinessactivity.afurthersplitisthenmadeforthegeographicaldivisionsoftheGroupbeing:
westerneurope;
northamerica;and
emergingMarkets.
group aDe agi
head officeandeliminations Consolidated
2010 2010 2010 2010 £m £m £m £m
revenuetotalrevenue 202.1 297.7 .– 499.8
resultHeadlineoperatingprofitpriortoshare-basedpaymentsandunallocatedcorporateexpenses 35.1 27.2 .– 62.3share-basedpayments (1.2) (1.6) (1.4) (4.2)unallocatedcorporateexpenses .– .– (6.0) (6.0)
Headlineoperatingprofit/(loss) 33.9 25.6 (7.4) 52.1
amortisationofacquiredintangiblefixedassets (0.4) (0.5) .– (0.9)
segmentresult 33.5 25.1 (7.4) 51.2
investmentrevenue 0.3Financecosts (6.3)
profitbeforetaxation 45.2taxation (11.7)
profitfortheyear 33.5
inter-segmentsalesarenotmaterialineitheryear.theGroupdoesnotrelyonanyindividualmajorcustomers.
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 57
2. Businessandgeographicalsegmentscontinued
aerospace,Defence&energy western europe
north america
emerging markets
total aDe
2010 2010 2010 2010 £m £m £m £m
revenuetotalrevenue 92.2 108.9 1.0 202.1
resultHeadlineoperatingprofitpriortoshare-basedpayments 15.7 19.5 (0.1) 35.1share-basedpayments (0.5) (0.7) .– (1.2)
Headlineoperatingprofit/(loss) 15.2 18.8 (0.1) 33.9
amortisationofacquiredintangiblefixedassets (0.2) (0.2) .– (0.4)
segmentresult 15.0 18.6 (0.1) 33.5
automotive&generalindustrial western europe
north america
emerging markets
total agi
2010 2010 2010 2010 £m £m £m £m
revenuetotalrevenue 204.6 43.0 50.1 297.7
resultHeadlineoperatingprofitpriortoshare-basedpayments 21.3 5.4 0.5 27.2share-basedpayments (1.2) (0.3) (0.1) (1.6)
Headlineoperatingprofit 20.1 5.1 0.4 25.6
amortisationofacquiredintangiblefixedassets (0.1) .– (0.4) (0.5)
segmentresult 20.0 5.1 .– 25.1
group ade aGi
Head officeand eliminations Consolidated
2009 2009 2009 2009 £m £m £m £m
revenuetotalrevenue 189.5 245.9 .– 435.4
resultHeadlineoperatingprofitpriortoshare-basedpaymentsandunallocatedcorporateexpenses 24.7 (12.3) .– 12.4share-basedpayments .– .– 0.1 0.1unallocatedcorporateexpenses .– .– (4.5) (4.5)
Headlineoperatingprofit/(loss) 24.7 (12.3) (4.4) 8.0
amortisationofacquiredintangiblefixedassets (0.6) (0.7) .– (1.3)impairmentcharge (5.0) (25.7) (0.8) (31.5)Majorfacilityclosurecosts 0.9 (25.9) (0.4) (25.4)
segmentresult 20.0 (64.6) (5.6) (50.2)
investmentrevenue 1.5Financecosts (5.8)
lossbeforetaxation (54.5)taxation 3.4
lossfortheyear (51.1)
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2. Businessandgeographicalsegmentscontinued
aerospace,Defence&energy western europe
north america
emerging markets
total ade
2009 2009 2009 2009 £m £m £m £m
revenuetotalrevenue 91.3 97.4 0.8 189.5
resultHeadlineoperatingprofit/(loss) 11.7 13.3 (0.3) 24.7
amortisationofacquiredintangiblefixedassets (0.3) (0.3) .– (0.6)impairmentcharge .– (5.0) .– (5.0)Majorfacilityclosurecosts (1.0) 1.9 .– 0.9
segmentresult 10.4 9.9 (0.3) 20.0
automotive&generalindustrial western europe
north america
emerging markets
total aGi
2009 2009 2009 2009 £m £m £m £m
revenuetotalrevenue 176.2 30.7 39.0 245.9
resultHeadlineoperatingprofit/(loss) (10.1) 0.6 (2.8) (12.3)
amortisationofacquiredintangiblefixedassets (0.1) .– (0.6) (0.7)impairmentcharge (3.0) (20.0) (2.7) (25.7)Majorfacilityclosurecosts (16.9) 0.1 (9.1) (25.9)
segmentresult (30.1) (19.3) (15.2) (64.6)
otherinformation
group aDe agi
head officeandeliminations Consolidated
2010 2010 2010 2010 £m £m £m £m
Capitaladditions 10.1 25.3 1.8 37.2depreciationandamortisation 17.8 29.5 1.0 48.3
Balancesheetassets:segmentassets 307.0 435.7 28.0 770.7otherinvestments .– 0.5 .– 0.5
Consolidatedtotalassets 307.0 436.2 28.0 771.2
liabilities:segmentliabilities 64.7 123.9 131.8 320.4
segmentnetassets/(liabilities) 242.3 312.3 (103.8) 450.8
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 59
2. Businessandgeographicalsegmentscontinued
aerospace,Defence&energy western europe
north america
emerging markets
total aDe
2010 2010 2010 2010 £m £m £m £m
Capitaladditions 6.0 4.1 .– 10.1depreciationandamortisation 9.5 8.1 0.2 17.8
Balancesheetassets:segmentassets 168.8 136.1 2.1 307.0otherinvestments .– .– .– .–
Consolidatedtotalassets 168.8 136.1 2.1 307.0
liabilities:segmentliabilities 29.1 35.3 0.3 64.7
segmentnetassets 139.7 100.8 1.8 242.3
automotive&generalindustrial western europe
north america
emerging markets
total agi
2010 2010 2010 2010 £m £m £m £m
Capitaladditions 13.1 2.3 9.9 25.3depreciationandamortisation 22.0 3.1 4.4 29.5
Balancesheetassets:segmentassets 304.1 54.4 77.2 435.7otherinvestments 0.5 .– .– 0.5
Consolidatedtotalassets 304.6 54.4 77.2 436.2
liabilities:segmentliabilities 94.6 15.3 14.0 123.9
segmentnetassets 210.0 39.1 63.2 312.3
group ade aGi
Head officeand eliminations Consolidated
2009 2009 2009 2009 £m £m £m £m
Capitaladditions 21.3 14.2 1.0 36.5depreciationandamortisation 17.9 32.3 0.7 50.9impairmentlossesrecognisedinincome 5.9 38.7 0.8 45.4
Balancesheetassets:segmentassets 331.2 464.0 (24.6) 770.6otherinvestments .– 0.5 .– 0.5
Consolidatedtotalassets 331.2 464.5 (24.6) 771.1
liabilities:segmentliabilities 75.2 134.1 139.2 348.5
segmentnetassets/(liabilities) 256.0 330.4 (163.8) 422.6
60 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
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2. Businessandgeographicalsegmentscontinued
aerospace,Defence&energy western europe
north america
emerging markets
total ade
2009 2009 2009 2009 £m £m £m £m
Capitaladditions 14.5 6.8 .– 21.3depreciationandamortisation 9.5 8.3 0.1 17.9impairmentlossesrecognisedinincome (0.2) 6.1 .– 5.9
Balancesheetassets:segmentassets 162.6 166.9 1.7 331.2otherinvestments .– .– .– .–
Consolidatedtotalassets 162.6 166.9 1.7 331.2
liabilities:segmentliabilities 35.9 39.1 0.2 75.2
segmentnetassets 126.7 127.8 1.5 256.0
automotive&generalindustrial western europe
north america
emerging markets
total aGi
2009 2009 2009 2009 £m £m £m £m
Capitaladditions 7.9 1.7 4.6 14.2depreciationandamortisation 24.6 2.9 4.8 32.3impairmentlossesrecognisedinincome 11.5 20.2 7.0 38.7
Balancesheetassets:segmentassets 334.0 58.6 71.4 464.0otherinvestments 0.5 .– .– 0.5
Consolidatedtotalassets 334.5 58.6 71.4 464.5
liabilities:segmentliabilities 102.4 14.7 17.0 134.1
segmentnetassets 232.1 43.9 54.4 330.4
revenuebycountry 2010 2009 £m £m
usa 142.8 123.0France 76.3 74.9Germany 61.1 50.2uK 54.7 52.7others 164.9 134.6
totalrevenue-continuingoperations 499.8 435.4
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3. operatingprofit/(loss)
Continuingoperations
Continuing operations
2010 2009 £m £m
revenue 499.8 435.4Costofsales (332.9) (321.5)
Grossprofit 166.9 113.9
otheroperatingincome 2.3 3.7distributioncosts (17.4) (18.4)administrationexpenses* (99.7) (90.9)otheroperatingexpenses .– (0.3)amortisationofacquiredintangiblefixedassets* (0.9) (1.3)impairmentcharge* .– (31.5)Majorfacilityclosurecosts* .– (25.4)
operatingprofit/(loss) 51.2 (50.2)
*administrationexpensestotal£100.6m(2009:£149.1m).
exceptionalitemscomprise: 2010 2009 £m £m
amortisationofacquiredintangiblefixedassets 0.9 1.3impairmentofgoodwill .– 29.0Majorfacilityclosurecosts .– 25.4impairmentofinvestmentin/loanduefromassociate .– 2.5
0.9 58.2
FurtherdetailsoftheseitemsareincludedintheFinancedirector'sreportonpages22to25.
profit/(loss)fortheyearhasbeenarrivedataftercharging/(crediting): 2010 2009 £m £m
Continuingoperations:netforeignexchangelosses .– 0.3depreciationofproperty,plantandequipment 46.1 48.5amortisationofintangiblefixedassets 2.2 2.4impairmentofgoodwill .– 29.0loss/(profit)ondisposalofproperty,plantandequipment 0.7 (0.1)staffcosts(seenote4) 207.6 199.2auditors’remunerationforauditservices(seepage62) 0.7 0.8
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3. operatingprofit/(loss)continued
amoredetailedanalysisofauditors'remunerationonaworldwidebasisisprovidedbelow: 2010 2009 £m £m
FeespayabletotheCompany'sauditorfortheauditoftheCompany'sannualaccounts 0.1 0.1
FeespayabletotheCompany'sauditoranditsassociatesforotherservices:theauditoftheCompany'ssubsidiariespursuanttolegislation 0.6 0.7
totalauditfees 0.7 0.8taxservices .– 0.1
0.7 0.9
inadditiontotheamountsshownabove,theauditorsreceivedfeesof£5,000(2009:£5,000)fortheauditoftheGroup'spensionschemes.
FeespaidtotheCompany’sauditor,deloittellp,anditsassociatesforservicesotherthanstatutoryauditoftheCompanyarenotdisclosedinthesubsidiaries’accountssincetheconsolidatedaccountsofthesubsidiaries’parent,bodycoteplc,arerequiredtodisclosenon-auditfeesonaconsolidatedbasis.
adescriptionoftheworkoftheauditCommitteeissetoutintheauditCommitteereportandincludesanexplanationofhowauditorobjectivityandindependenceissafeguardedwhennon-auditservicesareprovidedbytheauditors.
4. staffcosts
theaveragemonthlynumberofemployees(includingexecutivedirectors)was: 2010 2009 number number
ade:westerneurope 1,001 1,044northamerica 900 1,047emergingMarkets 10 10
aGi:westerneurope 2,053 2,214northamerica 460 370emergingMarkets 1,070 1,272
Headoffice 109 63
5,603 6,020
2010 2009 £m £m
theiraggregateremunerationcomprised:wagesandsalaries 172.8 162.4socialsecuritycosts 29.6 32.2otherpensioncosts 5.2 4.6
207.6 199.2
disclosureofindividualdirectors'remuneration,shareinterests,shareoptions,longtermincentiveschemes,pensioncontributionsandpensionentitlementsrequiredbytheCompaniesact2006andthosespecifiedforauditbythelistingrulesoftheFinancialservicesauthorityareshowninthetablesintheboardreportonremunerationonpages39to43andformpartofthesefinancialstatements.
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5. investmentrevenue 2010 2009 £m £m
interestonbankdeposits 0.2 1.3otherinterestreceivable 0.1 0.2
0.3 1.5allinvestmentrevenuerelatestoloansandreceivables.
6. financecosts 2010 2009 £m £m
interestonbankoverdraftsandloans* 1.8 3.0interestonobligationsunderfinanceleases 0.2 0.3interestonderivativefinancialinstruments .– 0.1interestonpensionschemeliabilities 5.2 5.1returnonpensionassets (4.3) (3.8)otherfinancecharges* 3.4 1.1
totalfinancecosts 6.3 5.8
*amountsarisingonfinancialliabilitiesmeasuredatamortisedcost.
7. taxation
Continuingoperations Discontinuedoperations total 2010 2009 2010 2009 2010 2009 £m £m £m £m £m £m
Currenttaxation-chargefortheyear 8.8 2.0 .– .– 8.8 2.0Currenttaxation-adjustmentsinrespectofpreviousyears (3.8) 1.8 5.8 .– 2.0 1.8deferredtax(seenote21) 6.7 (7.2) .– .– 6.7 (7.2)
11.7 (3.4) 5.8 .– 17.5 (3.4)
uKcorporationtaxiscalculatedat28.0%(2009:28.0%)oftheestimatedassessableprofitfortheyear.taxationforotherjurisdictionsiscalculatedattheratesprevailingintherespectivejurisdictions.
ofthetotalchargetocurrenttax£5.8m(2009:£nil)isadditionalprovisionsrelatingtotaxationexpectedtoarisefromthe2008disposalofthetestingbusiness.
thechargefortheyearcanbereconciledtotheprofitpertheincomestatementasfollows:
2010 2009 £m £m
profit/(loss)beforetax:Continuingoperations 45.2 (54.5)
taxattheuKcorporationtaxrateof28.0%(2009:28.0%) 12.7 (15.3)taxeffectofexpensesthatarenotdeductibleindeterminingtaxableprofit (3.8) 11.8deferredtaxassetsnotrecognised 3.7 6.3taxprovisioninrespectofthedisposalofthetestingdivision 5.8 .–taxeffectofotheradjustmentsinrespectofpreviousyears (1.8) 1.6effectofdifferenttaxratesofsubsidiariesoperatinginotherjurisdictions 0.9 (7.8)
taxexpense/(credit)fortheyear 17.5 (3.4)
thetaxcharge/(credit)onitemstakendirectlytoequityis£0.9m(2009:£(0.9)m).
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8. Discontinuedoperations
thetestingbusinesswassoldon17october2008.during2010variousprovisions,primarilyrelatingtotaxationarisingfromthesalewerereassessed.
theresultsofthediscontinuedoperationsincludedintheconsolidatedincomestatementwereasfollows:
2010 2009 £m £m
attributabletaxexpense (5.8) .–
netlossattributabletodiscontinuedoperations (5.8) .–
9. Dividends 2010 2009 £m £m
amountsrecognisedasdistributionstoequityholdersintheyear:Finaldividendfortheyearended31december2009of5.35p(2008:5.35p)pershare 9.9 9.9bsharespecialdividendorredemptionfortheyearended31december2008of40.00ppershare .– 0.7interimdividendfortheyearended31december2010of2.95p(2009:2.95p)pershare 5.5 5.5
15.4 16.1
proposedfinaldividendfortheyearended31december2010of5.75p(2009:5.35p)pershare 10.9 10.1
theproposedfinaldividendissubjecttoapprovalbyshareholdersattheannualGeneralMeetingandhasnotbeenincludedasaliabilityinthesefinancialstatements.
10. earnings/(loss)pershare
thecalculationofthebasicanddilutedearnings/(loss)pershareisbasedonthefollowingdata:
2010 2009 £m £m
earnings/(loss)earnings/(loss)forthepurposeofbasicearnings/(loss)persharebeingnetprofit/(loss)attributabletoequityholdersoftheparent 27.6 (50.1)
2010 2009 number number
numberofsharesweightedaveragenumberofordinarysharesforthepurposeofbasicearningspershare 185,543,260 185,557,762
effectofdilutivepotentialordinaryshares:shareoptions 180,586 16,466
weightedaveragenumberofordinarysharesforthepurposeofdilutedearningspershare 185,723,846 185,574,228
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10. earnings/(loss)persharecontinued
fromcontinuingoperations 2010 2009 £m £m
earnings/(loss)netprofit/(loss)attributabletoequityholdersoftheparent 27.6 (50.1)adjustmentstoexcludelossfortheyearfromdiscontinuedoperations 5.8 .–
profit/(loss)fromcontinuingoperationsforthepurposeofbasicearnings/(loss)pershareexcludingdiscontinuedoperations 33.4 (50.1)
thedenominatorsusedarethesameasthosedetailedaboveforbothbasicanddilutedearnings/(loss)persharefromcontinuinganddiscontinuedoperations.
2010 2009 pence pence
earnings/(loss)persharefromcontinuinganddiscontinuedoperations:basic 14.9 (27.0)
diluted 14.9 (27.0)
2010 2009 pence pence
losspersharefromdiscontinuedoperations:basic (3.1) .–
diluted (3.1) .–
2010 2009 pence pence
earnings/(loss)persharefromcontinuingoperations:basic 18.0 (27.0)
diluted 18.0 (27.0)
2010 2009 £m £m
headlineearningsnetprofit/(loss)attributabletoequityholdersoftheparent 27.6 (50.1)
addback:impairmentcharge .– 31.5amortisationofacquiredintangiblefixedassets(netoftax) 0.8 1.2Majorfacilityclosurecosts(netoftax) (0.2) 18.1lossfortheyear-discontinuedoperations 5.8 .–
headlineearnings 34.0 0.7
2010 2009 pence pence
earningspersharefromheadlineearnings:basic 18.3 0.4
diluted 18.3 0.4
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11. goodwill
2010 2009 £m £m
Costat1january 177.3 180.3exchangedifferences 1.3 (2.1)adjustmentonacquisitionofnon-controllinginterest .– (0.9)adjustmentfordeferredconsideration (0.5) .–
at31december 178.1 177.3
accumulatedimpairmentat1january 69.4 38.7exchangedifferences 1.0 1.7impairmentlossesfortheyear .– 29.0
at31december 70.4 69.4
Carryingamount 107.7 107.9
Goodwillacquiredinabusinesscombinationisallocated,atacquisition,tothebusinessunitsthatareexpectedtobenefitfromthatbusinesscombination.afterrecognitionofimpairmentlosses,thecarryingamountofgoodwillhasbeenallocatedasfollows:
2010 2009 £m £m
ade:westerneurope 26.8 27.4northamerica 37.1 36.9
aGi:westerneurope 17.9 18.0northamerica 15.2 15.2emergingMarkets 10.7 10.4
107.7 107.9
theGrouptestsgoodwillatleastannuallyforimpairment,ormorefrequentlyifthereareindicationsthatgoodwillmightbeimpaired.
therecoverableamountsofthecashgeneratingunitsaredeterminedfromvalueinusecalculations.thekeyassumptionsforthosecalculationsarethediscountrates,growthratesandexpectedchangestosellingpricesanddirectcostsduringtheperiod.Managementestimatesdiscountratesusingpre-taxratesthatreflectcurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictothecashgeneratingunits.therateusedtodiscounttheforecastcashflowsforallcashgeneratingunitsis9.5%(2009:9.5%).a10%changeinthediscountrateidentifiednotriggersofimpairment.therecoverableamountisthesumofthediscountedcashflowsoverafifteenyearperiod,beingmanagement’sexpectationoftheusefullifeoftheexistingassetbase.
theGrouppreparescashflowforecastsbasedonmanagementestimatesforthenextfiveyears.theexpectedsalesreflectmanagement’sexpectationofhowsaleswilldevelopatthispointintheeconomiccycle.theexpectedprofitmarginreflectsmanagement’sexperienceofeachcashgeneratingunit’sprofitabilityattheforecastlevelofsalesandincorporatestheimpactoftherestructuringprogramme,whereappropriate.Cashflowsafterfiveyearsarebasedonanestimatedgrowthrateof3.2%(2009:3.1%),beingthehistoricalweightedaveragegrowthinGdpinthemarketsthattheGroupoperatesin.thisratedoesnotexceedtheaveragelong-termgrowthratefortherelevantmarkets.
theGrouphasconductedasensitivityanalysisontheimpairmenttestofeachcashgeneratingunit’scarryingvalue.acutinthesalesgrowthratebysevenpercentagepointswouldresultinthecarryingvalueofgoodwillfortheGroupbeingreducedtoitsrecoverableamount.
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12. otherintangibleassets
software
otherintangibleassets acquiredthrough businesscombinations total
£m £m £mCost
at1january2009 11.4 11.0 22.4exchangedifferences (0.7) (0.5) (1.2)additions 1.2 .– 1.2disposals (0.2) .– (0.2)
at1january2010 11.7 10.5 22.2exchangedifferences .– 0.2 0.2additions 2.0 .– 2.0disposals (0.5) .– (0.5)
at31December2010 13.2 10.7 23.9
amortisationat1january2009 7.1 2.5 9.6exchangedifferences (0.5) .– (0.5)Chargefortheyear 1.1 1.3 2.4disposals (0.2) .– (0.2)
at1january2010 7.5 3.8 11.3exchangedifferences .– 0.1 0.1Chargefortheyear 1.3 0.9 2.2disposals (0.1) .– (0.1)
at31December2010 8.7 4.8 13.5
Carryingamountat31December2010 4.5 5.9 10.4
at31december2009 4.2 6.7 10.9
theamortisationperiodsforintangibleassetsare: years
software 3to5Customerrelationships 10to15Membershiplists 15non-competearrangements 2to5tradenames 3
intangibleassetsareamortisedonastraight-linebasisandtheamortisationisrecognisedwithinadministrationexpenses.
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13. property,plantandequipment
landandbuildings
freehold long leasehold
short leasehold
plantandmachinery
fixtures and fittings
assets underconstruction total
£m £m £m £m £m £m £mCostorvaluation
at1january2009 200.8 11.1 5.0 771.4 38.4 40.6 1,067.3additions 0.7 .– 0.2 13.2 0.9 20.3 35.3exchangedifferences (15.0) (0.4) 0.2 (50.0) (2.3) (3.6) (71.1)reclassifiedasheldforsale (9.8) .– .– (4.0) (0.6) (1.2) (15.6)recategorisation 25.7 (9.1) 16.8 (8.4) 2.4 (27.4) .–disposals (3.7) .– (0.5) (25.2) (2.4) (0.4) (32.2)
at1january2010 198.7 1.6 21.7 697.0 36.4 28.3 983.7additions 5.0 .– 0.3 25.5 1.1 3.3 35.2exchangedifferences 1.4 0.1 0.3 10.0 0.1 1.7 13.6reductionofrevaluationsurplus (0.1) .– .– .– .– .– (0.1)transferfrom/(to)assetsheldforsale 0.6 .– .– (0.2) (0.1) .– 0.3recategorisation 3.5 0.1 (2.0) 7.1 0.1 (8.8) .–disposals (2.1) .– (0.4) (16.4) (2.6) (0.5) (22.0)
at31December2010 207.0 1.8 19.9 723.0 35.0 24.0 1,010.7
accumulateddepreciationandimpairmentat1january2009 58.4 3.8 2.2 438.9 30.0 0.7 534.0Chargefortheyear 5.5 0.1 0.9 39.8 2.2 .– 48.5impairmentloss 8.1 .– 0.2 5.2 0.2 0.2 13.9exchangedifferences (4.5) (0.2) 0.3 (27.3) (1.7) .– (33.4)onassetsreclassifiedasheldforsale (6.8) .– .– (3.9) (0.6) (0.6) (11.9)recategorisation 8.7 (3.4) 6.8 (13.2) 1.1 .– .–eliminatedondisposals (3.4) .– (0.2) (23.1) (2.2) (0.3) (29.2)
at1january2010 66.0 0.3 10.2 416.4 29.0 .– 521.9Chargefortheyear 5.2 0.3 0.8 38.0 1.8 .– 46.1impairmentlossesincurred/(reversed) (0.2) .– .– (0.8) .– .– (1.0)exchangedifferences .– .– 0.3 5.0 0.3 .– 5.6transferfrom/(to)assetsheldforsale 0.6 .– .– .– (0.1) .– 0.5recategorisation 0.4 .– (0.4) (0.1) 0.1 .– .–eliminatedondisposals (2.1) .– (0.4) (15.5) (2.4) .– (20.4)
at31December2010 69.9 0.6 10.5 443.0 28.7 .– 552.7
Carryingamountat31December2010 137.1 1.2 9.4 280.0 6.3 24.0 458.0
at31december2009 132.7 1.3 11.5 280.6 7.4 28.3 461.8
thecarryingamountofleasedassetsis£2.1m(2009:£7.4m).
theGrouphaspledgedlandandbuildingshavingacarryingamountofapproximately£0.4m(2009:£3.2m)tosecurebankingfacilitiesgrantedtotheGroup.
at31december2010theGrouphadenteredintocontractualcommitmentsfortheacquisitionofproperty,plantandequipmentamountingto£2.5m(2009:£6.7m).
inadditiontotheabove,property,plantandequipmentamountingto£6.2m(2009:£5.8m)hasbeenclassifiedasheldforsale.
impairmentlossesof£nil(2009:£12.1m)relatingtotherestructuringprogrammearerecognisedwithinexceptionalitems.
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14. subsidiaries,associatesandotherinvestments
alistofthesignificantinvestmentsinsubsidiaries,includingthename,countryofincorporationandproportionofownershipinterestisgivenonpage99and100.
2010 2009 £m £m
aggregatedamountsrelatingtoassociatestotalassets .– 94.5
totalliabilities .– 170.6
revenues .– 60.0
loss .– (24.2)
amountsrecognisedintheincomestatementandinthebalancesheetareasfollows:
2010 2009 £m £m
operatingprofit .– .–less:interest .– .–less:tax .– .–
shareofresultsofassociatespriortoimpairment .– .–
interestinassociates .– .–
sundryinvestments 0.5 0.5
theGroup’sshareoftheresultsofassociatesof£nil(2009:£5.9m)hasnotbeenrecognisedastheboardconsidersthattheinvestmentsarefullyimpaired.
theGroup’sassociatedcompanyssCpCoatingss.à.r.l.wasrecapitalisedthroughashareissueinanewcompanyduringtheyear.theGroupchosenottoparticipateinthisshareissue,andasaresult,theGroup’spercentageholdinginthebusinesshassignificantlyreducedtoalevelwheretheGroupnolongerclassifiesthebusinessasanassociatecompany.
duringtheprioryearthesmallassociatebusinessinthailandwassoldbacktotheassociatepartnersresultingina£2.5mlossthatwasincludedintheimpairmentchargein2009.
15. inventories 2010 2009 £m £m
rawmaterials 10.1 9.0work-in-progress 4.1 2.4Finishedgoodsandgoodsforresale 0.2 0.2
14.4 11.6
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16. financeleasereceivables
minimumleasepayments
presentvalueofminimum
leasepayments 2010 2009 2010 2009 £m £m £m £m
amountsreceivableunderfinanceleases:withinoneyear 0.4 0.4 0.4 0.4inthesecondtofifthyearsinclusive .– 0.5 .– 0.5
0.4 0.9 0.4 0.9
less:unearnedfinanceincome .– .–
presentvalueofminimumleasepaymentsreceivable 0.4 0.9
analysedas:non-currentfinanceleasereceivables(recoverableafter12months) .– 0.5Currentfinanceleasereceivables(recoverablewithin12months) 0.4 0.4
0.4 0.9
thepresentvalueofminimumleasepaymentsisdenominatedinthefollowingcurrencies:
euro 0.2 0.6usdollar 0.2 0.3
0.4 0.9
theGrouphasenteredintofinanceleasingarrangementswithionbondaG,for3pvdmachines.theaveragetermoffinanceleasesenteredintois7years.unguaranteedresidualvaluesofassetsleasedunderfinanceleasesatthebalancesheetdateare£0.4m(2009:£0.9m).theinterestrateinherentintheleasesisfixedatthecontractdatefortheentireleaseterm.theaverageeffectiveinterestratecontractedapproximatesto4.7%(2009:4.5%).thefairvalueoftheGroup’sfinanceleasereceivablesat31december2010isestimatedat£0.4m(2009:£0.9m).theleasereceivablesaresecuredontherelatedassets.
themaximumexposuretocreditriskoffinanceleasereceivablesforthecurrentandpriorperiodisthecarryingamountastheGrouphasnoallowancefordoubtfuldebts.thefinanceleasereceivablesarenotpastdueandarenotimpairedinthecurrentnorintheprioryear.
17. otherfinancialassets
tradeandotherreceivables 2010 2009 £m £m
amountsfallingduewithinoneyear:amountreceivableforthesupplyofservices 85.3 71.9otherdebtorsandprepayments* 13.9 19.2
99.2 91.1
amountsfallingdueaftermorethanoneyear:otherdebtorsandprepayments* 2.6 3.0
theaveragecreditperiodgiventocustomersforthesupplyofservicesasat31december2010is59days(2009:63days).anallowancehasbeenmadeforestimatedirrecoverableamountsfromthesupplyofservicesof£6.9m(2009:£8.1m).thisallowancehasbeendeterminedbyreferencetopastdefaultexperience.
thedirectorsconsiderthatthecarryingamountoftradeandotherreceivablesapproximatestheirfairvalue.
*otherfinancialassetsincludeprepaymentsandotherdebtors,whicharenotincludedasfinancialassetsunderiFrs7.
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17. otherfinancialassetscontinued
Creditrisk
theGroup’sprincipalfinancialassetsarebankbalances,cashandtradeandotherreceivables.
theGroup’screditriskisprimarilyattributabletoitstradereceivables.theamountspresentedinthebalancesheetarenetofallowancesfordoubtfulreceivables.anallowanceforimpairmentismadewherethereisanidentifiedlosseventwhich,basedonpreviousexperience,isevidenceofareductionintherecoverabilityofcashflows.
thecreditriskonliquidfundsandderivativefinancialinstrumentsislimitedbecausethecounterpartiesarebankswithhighcredit-ratingsassignedbyinternationalcredit-ratingagencies.
theGrouphasnosignificantconcentrationofcreditrisk,withexposurespreadoveralargenumberofcounterpartiesandcustomers.FurtherdisclosureoftheGroup’sfinancialinstrumentriskmanagementactivitiesissetoutinnote20.
includedintheGroup’stradereceivablebalancearedebtorswithacarryingamountof£16.7m(2009:£16.6m)whicharepastdueatthereportingdateforwhichtheGrouphasnotprovidedastherehasnotbeenasignificantchangeincreditqualityandtheamountsarestillconsideredrecoverable.theGroupdoesnotholdanycollateraloverthesebalances.
ageingofpastduebutnotimpairedreceivables: 2010 2009 £m £m
amountsoverduebyupto1month 13.2 12.2amountsoverdueby1-2months 2.2 2.1amountsoverdueby2-3months 0.4 0.6amountsoverduebymorethan3months 0.9 1.7
16.7 16.6
Movementintheallowancefordoubtfuldebts: 2010 2009 £m £m
balanceat1january 8.1 8.4impairmentlossesrecognised 2.6 3.0amountswrittenoffasuncollectable (2.2) (1.2)impairmentlossesreversed (1.5) (1.5)exchangedifferences (0.1) (0.6)
6.9 8.1
indeterminingtherecoverabilityofatradereceivabletheGroupconsidersanychangeinthequalityofthetradereceivablefromthedatecreditwasinitiallygranteduptothereportingdate.theconcentrationofcreditriskislimitedduetothecustomerbasebeinglargeandunrelated.accordinglythedirectorsbelievethatthereisnofurthercreditprovisionrequiredinexcessoftheallowancefordoubtfuldebts.
includedintheallowancefordoubtfuldebtsareindividuallyimpairedtradereceivableswithagrossbalanceof£8.6m(2009:£10.1m).theimpairmentrecognisedrepresentsthedifferencebetweenthecarryingamountofthesetradereceivablesandthepresentvalueoftheexpectedproceeds.theGroupdoesnotholdanycollateraloverthesebalances.
ageingofimpairedtradereceivables: 2010 2009 £m £m
3-12months 1.8 3.4over12months 6.8 6.7
8.6 10.1
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17. otherfinancialassetscontinued
Cashandbankbalances
CashandbankbalancescomprisecashheldbytheGroupandshort-termbankdepositswithanoriginalmaturityofthreemonthsorless.thecarryingamountoftheseassetsapproximatestotheirfairvalue.abreakdownofsignificantcashandbankbalancesbycurrencyisasfollows:
2010 2009 £m £m
sterling 0.2 0.1euro 12.2 8.1swedishKrona 2.3 2.4polishZloty 1.5 2.8brazilianreal 1.1 0.2swissFranc 0.9 0.7usdollar 0.8 2.2CzechrepublicKoruna 0.7 0.7Chineseyuan 0.7 0.4indianrupee 0.5 0.1thaibaht 0.5 0.1japaneseyen 0.4 0.5Mexicanpeso 0.4 0.1romanianleu 0.4 0.2other 0.9 1.0
totalcashandbankbalances 23.5 19.6
18. assetsheldforsale
asaresultoftherestructuringprogrammeanumberofGroupassetsarecurrentlyheldforsale.theycomprisethefollowing:
2010 2009 £m £m
property,plantandequipment 6.2 5.8inventories .– 0.1receivables .– 0.3
6.2 6.2
itisexpectedthatthedisposaloftheseassetswillbecompletedduring2011.theassetsheldforsaleareanalysedbetweenoperatingsegmentsasfollows:
2010 2009 £m £m
ade:westerneurope 1.3 0.9northamerica 0.6 0.6
aGi:westerneurope 1.8 2.4northamerica 0.3 0.7emergingMarkets 2.2 1.6
6.2 6.2
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19. Borrowings 2010 2009 £m £m
borrowingsatamortisedcostbankoverdrafts 5.9 3.3loans 67.8 99.5
73.7 102.8theborrowingsarerepayableasfollows:
ondemandorwithinoneyear 8.9 6.0inthesecondyear 0.1 0.2inthethirdtofifthyears 64.5 96.3afterfiveyears 0.2 0.3
73.7 102.8
less:amountdueforsettlementwithin12months(shownundercurrentliabilities) (8.9) (6.0)
amountdueforsettlementafter12months 64.8 96.8
analysisofborrowingsbycurrency:
sterling euro usDollar swedish krona
othercurrencies total
£m £m £m £m £m £mat31december2010
bankoverdrafts .– 5.0 0.8 .– 0.1 5.9loans 48.0 8.8 9.9 0.7 0.4 67.8
48.0 13.8 10.7 0.7 0.5 73.7
at31december2009bankoverdrafts 1.2 1.0 0.3 0.7 0.1 3.3loans 75.0 14.5 2.6 7.0 0.4 99.5
76.2 15.5 2.9 7.7 0.5 102.8
2010 2009theweightedaverageinterestratespaidwereasfollows: % %
bankoverdraftsandloans 1.7 1.6
loansandfinanceleasesof£1.5m(2009:£3.0m)werearrangedatfixedinterestratesandexposetheGrouptofairvalueinterestraterisk.theremainingborrowingsarearrangedatfloatingrates,thusexposingtheGrouptocashflowinterestraterisk.
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19. Borrowingscontinued
thedirectorsestimatethefairvalueoftheGroup’sborrowingsasfollows: 2010 2009 £m £m
bankoverdrafts 5.9 3.3
loans 67.8 99.5
theotherprincipalfeaturesoftheGroup’sborrowingsareasfollows:
(i)bankoverdraftsarerepayableondemand.nooverdraftsaresecured.
(ii)theGrouphasthreeprincipalloanswhicharesecuredbyupstreamguaranteesprovidedbysubsidiaries:
(a)drawingsof£nil(2009:£nil)underarevolvingCreditFacilityof£110m.thisunsecuredfacilitycommencedon8january2010andmatureson31March2013.themulticurrencydrawingsunderthisfacilitycarryaninterestrateofbetween2.25%and3.25%abovelibor(themarginat31december2010was2.25%).
(b)drawingsof£64.4m(2009:£96.2m)underarevolvingCreditFacilityof€125m.thisunsecuredfacilitycommencedon31july2006foraperiodofsevenyears.theeurodrawingsunderthisfacilitycarryaninterestrateofbetween0.80%and1.10%abovelibor(themarginat31december2010was0.8%).
(c)lettersofcreditandloandrawingsof£5.6m(2009:£6.5m)underarevolvingCreditandletterofCreditFacilityof$20m.thisunsecuredfacilitycommencedon18February2010andmatureson31March2013.theusdollardrawingsandletterofCreditfeesunderthisfacilitycarryamargin/feeofbetween1.00%and3.25%abovelibor(themarginat31december2010was2.25%andtheletterofcreditfeewas1.00%).
at31december2010theGrouphadavailable£160.9m(2009:£245.8m)ofundrawncommittedborrowingfacilities.
allborrowingsareclassifiedasfinancialliabilitiesmeasuredatamortisedcost.
20. Derivativefinancialinstruments
Currencyderivativesthataredesignatedandeffectiveashedginginstrumentscarriedatfairvalue
notional amount fairvalue
notional amount Fairvalue
asset/(liability) 2010 2010 2009 2009 £m £m £m £m
CurrentForwardforeignexchangecontracts 0.9 .– 1.3 0.1Crosscurrencyswaps-fixed/fixed .– .– 31.2 0.2Crosscurrencyswaps-floating/floating .– .– 39.3 (3.3)energycontracts .– .– 1.7 (0.4)
0.9 .– 73.5 (3.4)
non-currentForwardforeignexchangecontracts .– .– 0.7 .–Crosscurrencyswaps-fixed/fixed .– .– 10.7 (0.3)Crosscurrencyswaps-floating/floating .– .– .– .–energycontracts .– .– 0.1 .–
.– .– 11.5 (0.3)
totalForwardforeignexchangecontracts 0.9 .– 2.0 0.1Crosscurrencyswaps-fixed/fixed .– .– 41.9 (0.1)Crosscurrencyswaps-floating/floating .– .– 39.3 (3.3)energycontracts .– .– 1.8 (0.4)
0.9 .– 85.0 (3.7)
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20. Derivativefinancialinstrumentscontinued
theGrouputilisescurrencyderivativestohedgematerialfuturetransactionsandcashflows.theGroupusesforeigncurrencyforwardcontractsinthemanagementofitsexchangerateexposures.thecontractsareprimarilydenominatedinthecurrenciesoftheGroup’sprincipalmarkets.theunrecognisedgainsandlosseswerenotsignificantineither2010or2009.
inaccordancewithiFrs7’improvingdisclosuresaboutFinancialinstruments’,theGroup’sfinancialinstrumentsareconsideredtobeclassifiedaslevel2instruments.Fairvaluemeasurementsarethosederivedfrominputsotherthanquotedpricesincludedwithinlevel1thatareobservablefortheassetorliabilities,eitherdirectly(i.e.asprices)orindirectly(i.e.derivedfromprices).
Fairvalueisdeterminedusingquotedforwardexchangeratesandyieldcurvesderivedfromquotedinterestratesmatchingmaturitiesofthecontracts.
theGroup’sinterestrateriskisprimarilyinrelationtoitsfixedrateborrowings(fairvaluerisk)andfloatingrateborrowings(cashflowrisk).FromtimetotimetheGroupwilluseinterestratederivativecontractstomanageitsexposuretointerestratemovementswithinGrouppolicy.HoweveratthebalancesheetdatetheGrouphadnointerestratederivativecontracts.
duringtheyeartheGroup’sforeigncurrencydenominatedcrosscurrencyswapseithermaturedandwerenotrolledoverorunwound.
sterling euro usDollar swedish krona
total fairvalue
asset/(liability) 2010 2010 2010 2010 2010 £m £m £m £m £m
Forwardforeignexchangecontracts (0.2) 0.3 0.4 (0.5) .–Fixed/fixed .– .– .– .– .–Floating/floating .– .– .– .– .–energycontracts .– .– .– .– .–
total (0.2) 0.3 0.4 (0.5) .–
ondemandorwithinoneyear (0.2) 0.3 0.4 (0.5) .–inthesecondyear .– .– .– .– .–
(0.2) 0.3 0.4 (0.5) .–
sterling euro usdollar swedish Krona
danish Krone
swiss Franc
Czech Koruna
total fairvalue
asset/(liability) 2009 2009 2009 2009 2009 2009 2009 2009 £m £m £m £m £m £m £m £m
Forwardforeignexchangecontracts (0.1) 1.9 (1.5) .– .– .– (0.2) 0.1Fixed/fixed 41.9 (35.5) .– .– .– (6.5) .– (0.1)Floating/floating 39.3 (33.8) .– (3.5) (3.0) (2.3) .– (3.3)energycontracts .– .– .– (0.4) .– .– .– (0.4)
total 81.1 (67.4) (1.5) (3.9) (3.0) (8.8) (0.2) (3.7)
ondemandorwithinoneyear 70.4 (59.2) (0.8) (3.9) (3.0) (6.7) (0.2) (3.4)inthesecondyear 10.7 (8.2) (0.7) .– .– (2.1) .– (0.3)
81.1 (67.4) (1.5) (3.9) (3.0) (8.8) (0.2) (3.7)
financialriskmanagementtheGroup’streasuryfunctionprovidesacentralisedservicetotheGroupforfunding,foreignexchange,interestratemanagementandcounterpartyrisk.treasuryactivitieshavetheobjectiveofminimisingriskandtreasuryoperationsareconductedwithinaframeworkofpoliciesandguidelinesauthorisedandreviewedbytheboard.
theGroupusesanumberofderivativeinstrumentsthataretransacted,forriskmanagementpurposesonly,byspecialisttreasurypersonnel.theuseoffinancialinstruments,includingderivatives,ispermittedwhenapprovedbytheboard,wheretheeffectistominimiseriskfortheGroup.speculativetradingofderivativesorotherfinancialinstrumentsisnotpermitted.therehasbeennosignificantchangeduringthefinancialyear,orsincetheendoftheyear,tothetypesorscopeoffinancialrisksfacedbytheGroup.
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20. Derivativefinancialinstrumentscontinued
liquidityriskliquidityriskisdefinedastheriskthattheGroupmightnotbeabletosettleormeetitsobligationsontimeoratareasonableprice.liquidityriskarisesasaresultofmismatchesbetweencashinflowsandoutflowsfromthebusiness.thisriskismonitoredonacentralisedbasisthroughregularcashflowforecasting,athree-yearrollingstrategicplan,anannualbudgetagreedbytheboardeachdecemberandaquarterlyre-forecastundertakenduringthefinancialyear.tomitigatetherisk,theresultingforecastnetdebtismeasuredagainsttheliquidityheadroompolicywhich,atthecurrentnetdebtlevels,requirescommittedfacilities(plustermloansinexcessofoneyear)toexceednetdebtby50%.
asat31december2010,theGrouphadcommittedfacilitiesof£230.9m(2009:£348.5m)whichexceedednetdebtof£51.3m(2009:£85.5m)by350%(2009:308%).theGroupalsousesuncommittedshort-termbankfacilitiestomanageshort-termliquiditybutthesefacilitiesareexcludedfromtheliquidityheadroompolicy.theGroupmanageslonger-termliquiditythroughcommittedbankfacilitiesandwill,ifappropriate,raisefundsoncapitalmarkets.Followingthecompletionofthe£110mrevolvingCreditFacilityandthe$20mrevolvingandletterofCreditfacilityon8january2010and18February2010respectively,theGroup’sprincipalcommittedbankfacilitieshavethefollowingmaturitydates:
£110mrevolvingCreditFacility31March2013(2.2years)
€125mrevolvingCreditFacility31july2013(2.6years)
$20mrevolvingandletterofCreditFacility31March2013(2.2years)
inaddition,cashmanagementpooling,nettingandconcentrationtechniquesareusedtominimiseborrowings.
asat31december2010,theGrouphadgrosscashof£23.5m(2009:£19.6m).
interestrateriskinterestrateriskarisesonborrowingsandcashbalances(andderivativeliabilitiesandassets)whichareatfloatinginterestrates.ChangesininterestratescouldhavetheeffectofeitherincreasingordecreasingtheGroup’snetprofit.undertheGroup’sinterestratemanagementpolicy,theinterestratesoneachoftheGroup’smajorcurrencymonetaryassetsandliabilitiesaremanagedtoachievethedesiredmixoffixedandvariableratesforeachmajornetcurrencyexposure.themajorinterestrateriskistouKratesbutexposuresalsoexisttoratesintheusa,europeandsweden.MeasurementofthisinterestrateriskanditspotentialvolatilitytotheGroup’sreportedfinancialperformanceisundertakenonamonthlybasisandtheboardusesthisinformationtodetermine,fromtimetotime,anappropriatemixoffixedandfloatingrates.
asat31december2010,3%ofnetdebtwasatfixedrates(2009:3%).theaveragetenureofthefixedratedebtwas5.2years(2009:3.9years).
Currencyriskbodycotehasoperationsin26countriesandisthereforeexposedtoforeignexchangetranslationriskwhentheprofitsandnetassetsoftheseentitiesareconsolidatedintotheGroupaccounts.
over89%oftheGroup’ssalesareincurrenciesotherthansterling(eur38%,usd29%,seK7%andbrl5%).Cumulativelyovertheyear,sterlingratesmovedsuchthatthesalesfortheyearwere£0.3mworsethanifsaleshadbeentranslatedattheratesprevailingin2009.
itisGrouppolicynottohedgeexposureforthetranslationofreportedprofits.
theGroup’sbalancesheettranslationpolicyisnottoactivelyhedgecurrencynetassets.However,whereappropriate,theGroupwillstillmatchcentrallyheldcurrencyborrowingstothenetassets.theGroupprincipallyborrowsinsterlingbutalsomaintainsdebtinusdollar,euroandswedishKrona,consistentwiththelocationoftheGroup’sassets.theGrouprecognisesforeignexchangemovementsinequityforthetranslationofnetinvestmenthedginginstrumentsandbalances.asaresultoftheGroup’schangeofbalancesheettranslationpolicy,£84.6mofcrosscurrencyswapliabilitiesexistingat31december2009wereeithercancelledornotrolledoveratmaturity,duringtheyear.
transactionforeignexchangeexposuresarisewhenentitieswithintheGroupenterintocontractstopayorreceivefundsinacurrencydifferentfromthefunctionalcurrencyoftheentityconcerned.itisGrouppolicytohedgeexposuretocashtransactionsinforeigncurrencieswhenacommitmentarises,usuallythroughtheuseofforeignexchangeforwardcontracts.eventhoughapproximately89%oftheGroup’ssalesaregeneratedoutsidetheuK,thenatureofthebusinessissuchthatcrossbordersalesandpurchasesarelimitedand,otherthaninterest,suchexposuresareimmaterialfortheGroup.
marketrisksensitivityanalysistheGrouphasmeasuredtheestimatedchargetotheincomestatementandequityofeitheraninstantaneousincreaseordecreaseof1%(100basispoints)inmarketinterestratesora10%strengtheningorweakeninginsterlingagainstallothercurrenciesfromtheapplicableratesasat31december2010,forallfinancialinstrumentswithallothervariablesremainingconstant.thisanalysisisforillustrativepurposesonly.thesensitivityanalysisexcludestheimpactofmarketrisksonnetpostemploymentbenefitobligations.
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20. Derivativefinancialinstrumentscontinued
interestratesensitivitytheinterestratesensitivityanalysisisbasedonthefollowingassumptions:
changesinmarketinterestratesaffecttheinterestincomeorexpenseofvariableinterestfinancialinstruments;
changesinmarketinterestratesonlyaffecttheincomestatementinrelationtofinancialinstrumentswithfixedinterestifthesearerecognisedattheirfairvalue;and
changesinmarketinterestratesaffectthefairvalueofderivativefinancialinstrumentsdesignatedashedginginstruments.
undertheseassumptions,aonepercentagepointfallorriseinmarketinterestratesforallcurrenciesinwhichtheGrouphasvariablenetcashornetborrowingsat31december2010wouldreduceorincreaseprofitbeforetaxbyapproximately£0.5m(2009:£0.9m).thereisnosignificantimpactonequity.
Currencysensitivitytakingthe2010salesbycurrency,a10%weakening/strengtheninginthe2010cumulativeaverageratesforallcurrenciesversussterlingwouldhavegivenrisetoa+£50m/-£41mmovementinsalesrespectively.theimpactonheadlineoperatingprofitisaffectedbythemixoflossesandprofitsinthevariouscurrencies.However,takingthe2010operatingprofitmix,a10%weakening/strengtheningin2010cumulativeaverageratesforallcurrencieswouldhavegivenrisetoa+£6m/-£5mmovementinheadlineoperatingprofit.
CounterpartyriskCounterpartyriskencompassessettlementriskonderivativefinancialinstrumentsandmoneymarketcontractsandcreditriskoncash,timedepositsandmoneymarketfunds.theGroupmonitorsitscreditexposuretoitscounterpartiesviatheircreditratings(whereapplicable)andthroughitspolicy,therebylimitingitsexposuretoanyonepartytoensurethereisnosignificantconcentrationofcreditrisk.Grouppolicyistoenterintosuchtransactionsonlywithcounterpartieswithalong-termcreditratingofa-/a3orbetter.However,acquiredbusinessesoccasionallyhavedealingswithbankswithlowercreditratings.businesswithsuchbanksismovedassoonaspracticable.
21. Deferredtax
thefollowingarethemajordeferredtaxliabilitiesand(assets)recognisedbytheGroupandmovementsthereonduringthecurrentandpriorreportingperiods:
accelerated taxdepreciation
tax losses
retirement benefit obligations other total
£m £m £m £m £m
at1january2009 71.1 (9.3) (8.9) (27.1) 25.8(Credit)/chargetoincome (6.0) (12.7) 5.8 5.7 (7.2)Credittoequity .– .– (0.8) (0.1) (0.9)transfers (5.4) 9.3 (0.4) (1.8) 1.7exchangedifferences (5.5) 0.4 0.2 2.0 (2.9)
at1january2010 54.2 (12.3) (4.1) (21.3) 16.5(Credit)/chargetoincome (2.5) 5.3 .– 3.9 6.7Chargetoequity .– .– 0.9 .– 0.9disposalofsubsidiaries .– (0.1) .– .– (0.1)transfers (10.7) (1.7) 0.1 13.0 0.7exchangedifferences .– (0.1) .– 0.2 0.1effectofchangeintaxrate:
incomestatement 0.1 .– .– (0.1) .–
at31december2010 41.1 (8.9) (3.1) (4.3) 24.8
Certaindeferredtaxassetsandliabilitieshavebeenoffset.thefollowingistheanalysisofthedeferredtaxbalances(afteroffset)forfinancialreportingpurposes:
2010 2009 £m £m
deferredtaxliabilities 73.1 73.4deferredtaxassets (48.3) (56.9)
24.8 16.5
otherdeferredtaxassetsrelatetoprovisionsrecognisedinthefinancialstatementsthatarenotyetdeductiblefortaxpurposes,inparticularinrelationtorestructuringchargesandlocalprofitdifferencesthatareexpectedtoreverseovertime.
atthebalancesheetdate,theGrouphasunusedtaxlossesof£208.0m(2009:£177.1m)availableforoffsetagainstfutureprofits.adeferredtaxassethasbeenrecognisedinrespectof£101.0m(2009:£83.4m)ofsuchlosses,basedonmanagementforecastsoffuturetaxableprofitsagainstwhichtheassetscanberecoveredintherelevantjurisdictions.nodeferredtaxassethasbeenrecognisedinrespectoftheremaining£107.0m(2009:£93.7m)ofsuchlosses.allrecognisedlossesmaybecarriedforwardindefinitely.
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22. obligationsunderfinanceleases
minimumleasepayments
presentvalueofminimum
leasepayments 2010 2009 2010 2009 £m £m £m £m
amountspayableunderfinanceleases:withinoneyear 0.5 1.0 0.4 0.7inthesecondtofifthyearsinclusive 0.5 1.5 0.4 1.2afterfiveyears 0.3 0.4 0.3 0.4
1.3 2.9 1.1 2.3
less:futurefinancecharges (0.2) (0.6)
presentvalueofleaseobligations 1.1 2.3
analysedas:amountdueforsettlementafter12months 0.7 1.6amountdueforsettlementwithin12months(shownundercurrentliabilities) 0.4 0.7
1.1 2.3
thepresentvalueofminimumleasepaymentsisdenominatedinthefollowingcurrencies:
sterling 0.6 0.7usdollar 0.3 0.5euro 0.2 0.5danishKrone .– 0.6
1.1 2.3
itistheGroup’spolicytoleasecertainofitsfixturesandequipmentunderfinanceleases.theaverageleasetermis5.2years.Fortheyearended31december2010,theaverageeffectiveborrowingratewas7.8%(2009:7.8%).interestratesarefixedatthecontractdate.allleasesareonafixedrepaymentbasisandnoarrangementshavebeenenteredintoforcontingentrentalpayments.thefairvalueoftheGroup’sleaseobligationsapproximatestotheircarryingamount.
theGroup’sobligationsunderfinanceleasesaresecuredbythelessors’rightsovertheleasedassets.
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23. otherfinancialliabilities
tradeandotherpayables 2010 2009 £m £m
amountsfallingduewithinoneyear:tradecreditors 38.6 29.9othertaxesandsocialsecurity* 16.5 14.7othercreditors 21.8 11.4accrualsanddeferredincome 43.5 37.2
120.4 93.2
amountsfallingdueaftermorethanoneyear:othercreditors 4.1 7.5
tradecreditorsandaccrualsprincipallycompriseamountsoutstandingfortradepurchasesandongoingcosts.theaveragecreditperiodtakenfortradepurchasesasat31december2010is46days(2009:46days).
thedirectorsconsiderthatthecarryingamountoftradepayablesapproximatestotheirfairvalue.
*otherfinancialliabilitiesincludeothertaxesandsocialsecurity,whicharenotincludedasfinancialliabilitiesiniFrs7.
thefollowingtabledetailstheGroup’sremainingcontractualmaturityforitsfinancialliabilities.thetablehasbeendrawnupbasedontheundiscountedcashflowsoffinancialliabilitiesbasedontheearliestdateonwhichtheGroupcanberequiredtopay.thetableincludesbothinterestandprincipalcashflows.
lessthan 1year 1-2years 2-5years 5+years total 2010 2010 2010 2010 2010 £m £m £m £m £m
non-interestbearing* 134.4 3.5 4.7 8.7 151.3Financeleaseliability 0.5 0.3 0.2 0.3 1.3bankloansandoverdrafts 95.5 0.2 0.2 0.3 96.2derivativefinancialinstruments 0.9 .– .– .– 0.9
231.3 4.0 5.1 9.3 249.7
lessthan 1year 1-2years 2-5years 5+years total 2009 2009 2009 2009 2009 £m £m £m £m £m
non-interestbearing* 114.5 9.2 4.8 5.2 133.7Financeleaseliability 0.9 0.9 0.5 0.5 2.8bankloansandoverdrafts 117.4 0.2 0.3 0.3 118.2derivativefinancialinstruments 77.5 11.5 .– .– 89.0
310.3 21.8 5.6 6.0 343.7
ofthe£96.2m(2009:£118.2m)bankloanandoverdraftoutflowsdisclosedabove,£nil(2009:£nil)and£64.4m(2009:£96.2m)ofbankloansaredrawnundercommittedfacilitiesmaturingon31March2013and31july2013respectively.theoverdraftsareon-demandandlargelypartofpoolingarrangements,whichincludeoffsettingcashbalances.ofthe£0.9m(2009:£89.0m)derivativefinancialinstrumentoutflowsdisclosedabove,£0.9m(2009:£85.1m)arematchedbyderivativecashinflows.
*non-interestbearingfinancialliabilitiesincludeothertaxesandsocialsecurity,whicharenotincludedasfinancialliabilitiesiniFrs7.thesearepayableinlessthanoneyear.
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24. provisions
restructuring
restructuring environ- mental
environ- mental total
£m £m £m £m
at1january2010 17.6 9.5 5.9 33.0increaseinprovision 5.1 1.6 0.6 7.3releaseofprovision (1.8) (0.1) .– (1.9)utilisationofprovision (11.1) (1.3) .– (12.4)exchangedifference 0.2 0.5 0.1 0.8
at31December2010 10.0 10.2 6.6 26.8
includedincurrentliabilities 14.0includedinnon-currentliabilities 12.8
26.8
therestructuringprovisionrelatestotheremainingcostsassociatedwiththeclosureofvariousHeattreatmentsites.FurtherdetailsarecontainedintheFinancedirector’sreport.
theGroupprovidesforthecostsofenvironmentalremediationthathavebeenidentified,eitheraspartofacquisitionduediligence,orinothercircumstanceswhereremediationbytheGroupisrequired.thisprovisionisreviewedannuallyandisseparatedintorestructuringenvironmentalandenvironmentaltoseparatelyidentifyenvironmentalprovisionsrelatingtotherestructuringprogrammefromthosearisingintheordinarycourseofbusiness.
theincreaseinrestructuringprovisionsisduetotheongoingimplementationoftheglobalrestructuringinitiatives.inadditionincomeof£4.0mwasrecognisedfollowingthedisposalofnoncoreassetsassociatedwiththerestructuringplans.thereversalofcertainassetimpairmentsof£0.8mwasalsorecognisedinrelationtotheongoingrestructuring.
Cashoutflowsinrespectoftheseliabilitiesareexpectedtooccurwithin5years.
25. sharecapital 2010 2009 £m £m
authorised:248,947,368(2009:248,947,368)ordinarysharesof173/11peach 43.0 43.0
325,000,000(2009:325,000,000)bsharesof40peach 130.0 130.0
issuedandfullypaid:189,881,917(2009:188,167,712)ordinarysharesof173/11peach 32.8 32.5
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26. notestothecashflowstatement
2010 2009 £m £m
profit/(loss)fortheyear 27.7 (51.1)
adjustmentsfor:investmentrevenue (0.3) (1.5)Financecosts 6.3 5.8taxation-continuinganddiscontinued 17.5 (3.4)depreciationofproperty,plantandequipment 46.1 48.5amortisationofintangibleassets 2.2 2.4loss/(profit)ondisposalofproperty,plantandequipment 0.7 (0.1)share-basedpayments 4.2 (0.1)impairmentcharge .– 31.5Majorfacilityclosurecosts (1.6) 12.6
ebitda* 102.8 44.6
(increase)/decreaseininventories (2.7) 1.4(increase)/decreaseinreceivables (4.7) 29.2increase/(decrease)inpayables 15.5 (21.6)decreaseinprovisions (7.0) (5.9)
Cashgeneratedbyoperations 103.9 47.7
Cashoutflowfromsettlementofderivativefinancialinstruments (2.9) (12.3)incometaxespaid (5.4) (24.4)
netcashfromoperatingactivities 95.6 11.0
*earningsbeforeinterest,tax,depreciation,amortisation,impairmentandshare-basedpayments.
Cashandcashequivalentscomprise:Cashandbankbalances 23.5 19.6bankoverdrafts(includedinborrowings) (5.9) (3.3)
17.6 16.3
27. operatingleasearrangements-thegroupaslessee 2010 2009 £m £m
Minimumleasepaymentsunderoperatingleasesrecognisedasanexpense 14.4 14.1
atthebalancesheetdate,theGrouphadoutstandingcommitmentsforfutureminimumleasepaymentsundernon-cancellableoperatingleases,whichfalldueasfollows:
2010 2009 £m £m
withinoneyear 11.7 8.1inthesecondtofifthyearsinclusive 19.2 20.0afterfiveyears 14.6 12.0
45.5 40.1
operatingleasepaymentsrepresentrentalspayablebytheGroupforcertainofitslandandbuildings,fixturesandfittingsandmotorvehicles.
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28. share-basedpayments-equity-settledshareoptionscheme
theCompanyoperates3shareoptionschemesinrelationtoGroupemployees.optionsareexercisableatthemiddlemarketclosingpricefortheworkingdaypriortothedateofgrantandareexcercisable3yearsfromthedateofgrantifstatedperformancecriteriahavebeenmet.optionslapseifnotexcercisedwithintenyears(7yearsforthe1996scheme)ofthedateofgrantoriftheparticipantleavesGroupemployment.
detailsoftheshareoptionsoutstandingduringtheyearareasfollows:
Dateofgrant optionpriceinpence exerciseperiod no.ofoptionsoutstanding 2010 2009
May-00 231.42 2003-2010 – 245,316apr-01 203.37 2004-2011 262,002 471,391sep-02 125.76 2005-2012 112,295 139,032sep-03 147.27 2006-2013 311,654 410,581
685,951 1,266,320
Movementsinshareoptionsaresummarisedasfollows:
numberofshares underoption
weightedaverage exerciseprice
numberofshares underoption
weightedaverage exerciseprice
2010 2010 2009 2009 pence pence
outstandingatthebeginningoftheyear 1,266,320 183.95 2,012,802 197.04exercisedduringtheyear (214,204) 167.77 (261,937) 132.13expiredduringtheyear (366,165) 222.16 (484,545) 267.24outstandingandexercisableattheendoftheyear 685,951 165.18 1,266,320 183.95
theweightedaveragesharepriceatthedateofexerciseforshareoptionsexercisedduringtheyearwas167.77pence.theoptionsoutstandingat31december2010hadaweightedaverageexercisepriceof165.18pence,andaweightedaverageremainingcontractuallifeof1.6years.theaveragesharepriceduringtheyearwas224.2pence.
theinputsintotheblack-scholesmodelareasfollows: 2010 2009
weightedaverageshareprice pence 157.5 157.5weightedaverageexerciseprice pence 157.5 157.5expectedvolatility % 42.7 42.7expectedlife years 3.0 3.0risk-freerate % 4.0 4.0expecteddividends % 4.3 4.3
expectedvolatilitywasdeterminedbycalculatingthehistoricalvolatilityoftheGroup’ssharepriceovertheprevious3years.theexpectedlifeusedinthemodelhasbeenadjusted,basedonmanagement’sbestestimate,fortheeffectsofnon-transferability,exerciserestrictions,andbehaviouralconsiderations.
theGrouprecognisedtotalexpensesof£4.2m(2009:incomeof£0.1m)relatedtoequity-settledshare-basedpaymenttransactions.
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29. relatedpartytransactions
transactionsbetweentheCompanyanditssubsidiaries,whicharerelatedparties,havebeeneliminatedonconsolidationandarenotdisclosedinthisnote.transactionsbetweentheGroupanditsassociatesaredisclosedbelow.transactionsbetweentheCompanyanditssubsidiariesandassociatesaredisclosedintheCompany’sseparatefinancialstatements.
tradingtransactionstheGroup’sassociatedcompanyssCpCoatingss.à.r.l.wasrecapitalisedthroughashareissueinanewcompanyduringtheyear.theGroupchosenottoparticipateinthisshareissue,andasaresult,theGroup’spercentageholdinginthebusinesshassignificantlyreducedtoalevelwheretheGroupnolongerclassifiesthebusinessasanassociatecompany.
duringtheprioryear,GroupcompaniesenteredintothefollowingtransactionswithrelatedpartieswhoarenotmembersoftheGroup,namelyssCpCoatingss.à.r.l.andthaiinductionservicesCompanyltd:
saleofgoodsandservices
purchaseofgoodsandservices
amountsowedbyrelatedparties
amountsowedtorelatedparties
2010 2009 2010 2009 2010 2009 2010 2009 £m £m £m £m £m £m £m £m
associates .– 3.3 .– 0.2 .– 18.0 .– .–
salesofgoodsandservicesincludespaymentsreceivedfromfinanceleases(seenote16),theprovisionofmanagementservicesandinterestreceivable.alltransactionsweremadeatarm’slength.
duringtheprioryearthesmallassociatebusinessinthailandwassoldbacktotheassociatepartnersresultinginacashinflowof£6.9m.asaresultoftheterminationoftheagreementtheGroupreportedalossof£2.5m.
theremunerationoftheboardofdirectors,whoareconsideredkeymanagementpersonneloftheGroup,wasasfollows:
2010 2009 £m £m
short-termemployeebenefits 1.6 1.2share-basedpayments .– 0.4
1.6 1.6
Furtherinformationabouttheremunerationoftheindividualdirectorsisprovidedintheboardreportonremunerationonpages39to43.
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30. retirementbenefitobligations
theGroupoperatedanumberofpensionschemesandprovidedleavingservicebenefitstocertainemployeesduringtheyear.thedefinedbenefitobligationlessfairvalueofassetsattheendoftheyearandtotalexpenserecognisedintheincomestatementaresummarisedbelowasfollows:
Definedbenefitschemes 2010 2009 £m £m
uKscheme (0.6) (3.7)non-uKschemes (11.0) (11.3)
(11.6) (15.0)
totalexpenserecognisedinincomestatement 2010 2009 £m £m
uKscheme 1.1 1.2non-uKschemes 1.2 0.4
2.3 1.6
FurtherdetailsoftheGroup’sdefinedbenefitarrangementsaregivenintheFinancedirector’sreportonpage25.
ukscheme
theCompanysponsorsthebodycoteuKpensionschemewhichisafundeddefinedbenefitarrangementforcertainuKemployees.thelastfullactuarialvaluationoftheschemewascarriedoutbyaqualifiedindependentactuaryasat6april2008usingtheprojectedunitcreditmethodandwasupdatedonanapproximatebasisto31december2010.theprojectedunitcreditmethodisanaccruedbenefitsvaluationmethodinwhichtheschemeliabilitiesmakeallowanceforprojectedearnings.
thecontributionsmadebytheemployeroverthefinancialyearhavebeen£1.0m,comprising£0.6minrespectofbenefitaccrualand£0.4minrespectofongoingexpense.thislevelofcontributionhasbeenreviewedfollowingthetriennialvaluationoftheschemecompletedasat6april2008anditisexpectedthatthedeficitwillbeextinguishedbydecember2016.
itisthepolicyoftheGrouptorecogniseallactuarialgainsandlossesintheyearinwhichtheyoccuroutsideoftheprofitandlossaccountandinthestatementofComprehensiveincome.
theuKschemedeficitdecreasedby£3.1mduringtheyear,primarilyasaresultoftheannouncedchangeintherelevantindexfortheuKschemefromrpitoCpiinrespectoftherevaluationofdeferredmembers’benefits.
reconciliationofopeningandclosingbalancesofthepresentvalueofthedefinedbenefitobligation 2010 2009 £m £m
definedbenefitobligationatstartofyear 73.6 63.7Currentservicecost 0.8 0.8interestcost 4.2 3.8Contributionsbyplanparticipants 0.3 0.4actuarial(gain)/loss (0.8) 7.3benefitspaid,deathinserviceinsurancepremiumsandexpenses (2.3) (2.4)
definedbenefitobligationatendofyear 75.8 73.6
reconciliationofopeningandclosingbalancesofthefairvalueofplanassets 2010 2009 £m £m
Fairvalueofassetsatstartofyear 69.9 63.0expectedreturnonassets 3.9 3.4actuarialgain 2.4 4.5Contributionsbyemployer 1.0 1.0Contributionsbyplanparticipants 0.3 0.4benefitspaid,deathinserviceinsurancepremiumsandexpenses (2.3) (2.4)
Fairvalueofassetsatendofyear 75.2 69.9
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totalexpenserecognisedintheincomestatement 2010 2009 £m £m
Currentservicecost 0.8 0.8interestonpensionschemeliabilities 4.2 3.8expectedreturnonpensionschemeassets (3.9) (3.4)
totalexpenses 1.1 1.2
thecumulativeamountofactuariallossesrecognisedinthestatementofComprehensiveincomesinceadoptionofias19is£9.9m.
oftheexpensefortheyear,£0.8m(2009:£0.8m)hasbeenincludedintheoperatingprofitand£0.3m(2009:£0.4m)hasbeenincludedinfinancecharges.actuarialgainsandlosseshavebeenreportedinothercomprehensiveincome.
assets 2010 2009 2008 £m £m £m
equities(includingproperty) 32.2 26.0 22.1bonds(includinggilts) 38.1 38.7 14.9treasurybonds .– .– 21.0Cash 0.2 0.1 0.6withprofitsinsuredpolicy .– 0.6 0.3Hedgefunds 4.7 4.5 4.1
75.2 69.9 63.0
noneofthefairvalueoftheassetsshownaboveincludeanyoftheGroup’sownfinancialinstrumentsoranypropertyoccupiedby,orotherassetsusedbytheGroup.
expectedlong-termratesofreturn
theexpectedlong-termreturnoncashisequaltobankbaserateatthebalancesheetdate.theexpectedreturnonbondsisdeterminedbyreferencetouKlongdatedgiltandbondyieldsatthebalancesheetdate.theexpectedratesofreturnonequitiesandpropertyhavebeendeterminedbysettinganappropriateriskpremiumabovegilt/bondyieldshavingregardtomarketconditionsatthebalancesheetdate.
theexpectedlong-termratesofreturnareasfollows:
2010 2009 2008 %per annum
%per annum
%per annum
equities 6.9 7.3 6.6bonds 4.9 5.3 4.8treasurybonds .– .– 5.5withprofitsinsuredpolicy .– 5.3 4.8Hedgefunds 6.9 7.3 6.6Cash 0.5 0.5 1.5overallforscheme 5.8 6.1 5.7
actualreturnonplanassetstheactualreturnontheplanassetsfortheyearended31december2010was8.8%(2009:12.5%).
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assumptions 2010 2009 2008 %per annum
%per annum
%per annum
rpiinflation 3.65 3.70 3.15Cpiinflation 3.15 – –salaryincreases 3.00 3.00 3.00rateofdiscount 5.50 5.70 6.00allowanceforpensioninpaymentincreasesofrpior5%p.a.ifless 3.55 3.60 3.10allowanceforpensioninpaymentincreasesofrpior3%p.a.ifless 2.75 2.80 n/aallowanceforrevaluationofdeferredpensions 3.15 3.70 3.15
Mortality–currentpensioners
actuarialtablesused
pa92yoB mC,1% underpin
pa92yob MC,1% underpin
pa92yob MC,1% underpin
lifeexpectancyformemberscurrentlyaged65 22.5 22.5 22.5
Mortality–futurepensioners
actuarialtablesused
pa92yoB mC,1% underpin
pa92yob MC,1% underpin
pa92yob MC,1% underpin
lifeexpectancyatage65formemberscurrentlyaged40 24.0 24.0 24.0
impactofchangestoassumptionstheimpactofchangestocertainassumptionsonthecurrentdeficitandthe2011chargetotheincomestatementontheuKschemeisshowninthetablebelow:
impact oncurrent deficit
impact on2011 charge toincome statement
£m £m
Changeindiscountrateby0.25%(decreaseinrateincreasesliability) 3.6 .–
Changeininflationassumptionby0.25%(increaseinrateincreasesliability) 1.8 0.1Changeinmortalityassumptionfrompa92yob,MediumCohortwitha1%underpintopa92,longCohortwitha1%underpin(changeincreasesliability) 3.7 0.3
Changeinthevalueofequitiesby5%(decreaseincreasesliability) 1.4 0.1
Changeintheexpectedreturnonequitiesassumptionby0.25% .– 0.1
presentvalueofdefinedbenefitobligations,fairvalueofassetsanddeficit 2010 2009 2008 £m £m £m
presentvalueofdefinedbenefitobligation 75.8 73.6 63.7Fairvalueofplanassets (75.2) (69.9) (63.0)
deficitinthescheme 0.6 3.7 0.7
asallactuarialgainsandlossesarerecognised,thedeficitshownaboveat31december2010isthatrecognisedinthebalancesheet.
thebestestimateofcontributionstobepaidintotheplanfortheyearending31december2011is£0.9m.
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amountsforthecurrentandpreviousfouryears 2010 2009 2008 2007 2006 £m £m £m £m £m
Fairvalueofassets (75.2) (69.9) (63.0) (47.6) (43.9)presentvalueofdefinedbenefitobligation 75.8 73.6 63.7 61.0 67.2
deficitinthescheme 0.6 3.7 0.7 13.4 23.3
Gain/(loss)fromexperienceadjustmentonplanliabilities .– .– (0.4) 0.1 .–Gain/(loss)fromexperienceadjustmentonplanassets 2.3 4.5 (10.7) (0.8) 0.7
Combinednon-ukdisclosures
theGroupoperatesschemesintheusa,brazilandcontinentaleurope.intheustherearethreedefinedbenefitpensionarrangements.theseareMetallurgicalincpensionplan,Combinedbodycotepensionplanandthesupplementalretirementplan.allareclosedtonewaccrual.thelastfullactuarialvaluationoftheseschemeswascarriedoutbyaqualifiedindependentactuaryasat1january2008(31december2008fortheMetallurgicalplan)andupdatedonanapproximatebasisto31december2010.ContributionsmadebytheCompanyovertheyearwere$0.6m.theGroupalsooperatesadefinedbenefitschemefor1employeeinbrazil.
ineuropetheGroupoperatesdefinedbenefitpension,postretirementandlong-servicearrangementsforcertainemployeesinFrance,Germany,italy,turkey(allofwhichareunfunded),switzerlandandliechtenstein.
reconciliationofopeningandclosingbalancesofthepresentvalueofthedefinedbenefitobligation 2010 2009 £m £m
definedbenefitobligationatstartofyear 19.8 22.6Currentservicecost 0.6 0.5interestcost 1.0 1.3actuarialloss .– 0.9benefitspaid,deathinserviceinsurancepremiumsandexpenses (0.9) (2.7)settlement .– (1.0)employeecontributions 0.1 0.1pastservicecost 0.6 .–exchangerateloss/(gain) 0.8 (1.9)
definedbenefitobligationatendofyear 22.0 19.8
reconciliationofopeningandclosingbalancesofthefairvalueofplanassets 2010 2009 £m £m
Fairvalueofassetsatstartofyear 8.5 8.4expectedreturnonassets 0.4 0.4actuarialgain 0.1 0.6Contributionsbyemployer 0.5 0.5Contributionsbyemployees 0.1 0.1benefitspaid,deathinserviceinsurancepremiumsandexpenses (0.3) (0.8)exchangerategain/(loss) 1.1 (0.7)
Fairvalueofassetsatendofyear 10.4 8.5
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totalexpenserecognisedintheincomestatement 2010 2009 £m £m
Currentservicecost 0.6 0.5interestonpensionschemeliabilities 1.0 1.3expectedreturnonpensionschemeassets (0.4) (0.4)settlementgain .– (1.0)
totalexpenses 1.2 0.4
oftheexpensefortheyear,£0.6m(2009:incomeof£0.5m)hasbeenincludedintheoperatingprofitand£0.6m(2009:£0.9m)hasbeenincludedinfinancecharges.actuarialgainsandlosseshavebeenreportedinothercomprehensiveincome.
thecumulativeamountofactuariallossesrecognisedinthestatementofComprehensiveincomesinceadoptionofias19is£0.7m.
assets 2010 2009 2008 £m £m £m
equities 1.1 0.9 1.3bonds 0.6 0.7 0.8Cash 1.3 0.9 .–insurancecontracts-brazil 1.2 1.0 0.6insurancecontracts-switzerlandandliechtenstein 6.2 5.0 5.7
10.4 8.5 8.4
noneofthefairvaluesoftheassetsshownaboveincludeanyoftheGroup’sownfinancialinstrumentsoranypropertyoccupiedby,orotherassetsusedbytheGroup.
expectedlong-termratesofreturntheexpectedlong-termreturnonassetsvariesbycountryandeachreflecttherespectiveexpectedfuturemarketratesorreturnsonassetsunderlyinginsurancecontractswhererelevant.
actualreturnonplanassetstheactualreturnontheplanassetsfortheyearending31december2010was6%.
assumptionsfor2010 salary increases
rateof discount inflation
pension increases
%per annum
%per annum
%per annum
%per annum
usa n/a 5.50 n/a n/abrazil 6.59 10.30 4.50 n/aFrance 3.00 4.60 2.00 n/aGermany 2.50 4.65 n/a 1.75italy n/a 4.00 2.00 n/aturkey n/a 10.00 5.10 n/aliechtenstein 2.50 2.75 n/a n/aswitzerland 3.00 2.75 n/a n/a
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presentvalueofdefinedbenefitobligations,fairvalueofassetsanddeficit 2010 2009 2008 £m £m £m
presentvalueofdefinedbenefitobligation 22.0 19.8 22.6Fairvalueofplanassets (10.4) (8.5) (8.4)
deficitinthescheme 11.6 11.3 14.2
unrecognisedpriorservicecost (0.6) .– .–
netliabilityrecognisedinthebalancesheet 11.0 11.3 14.2
asallactuarialgainsandlossesarerecognised,thedeficitshownaboveat31december2010isthatrecognisedinthebalancesheet.
amountsforthecurrentandpreviousfouryears 2010 2009 2008 2007 2006 £m £m £m £m £m
Fairvalueofassets (10.4) (8.5) (8.4) (4.1) (3.7)presentvalueofdefinedbenefitobligation 22.0 19.8 22.6 14.6 14.5
deficitinthescheme 11.6 11.3 14.2 10.5 10.8
Gain/(loss)fromexperienceadjustmentonplanliabilities 0.5 (0.3) (3.7) (0.9) 0.6Gainfromexperienceadjustmentonplanassets 0.1 0.6 2.9 0.1 0.3(loss)/gainfromeffectsofchangingassumptions (0.5) (0.7) (0.5) (1.2) 0.3
theonlyfundedplansarethoseoperatedinusa,brazil,switzerlandandliechtenstein(swedenhavingbeensettledin2009).thebestestimateofcontributionstobepaidintotheplansfortheyearending31december2011is£0.4m.
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FiveyearsuMMary
2010 2009 2008 2007 2006 £m £m £m £m £m
revenueexistingoperations 499.8 435.4 551.8 465.2 413.9discontinuedoperations .– ,– 164.9 175.3 144.7
revenue–continuinganddiscontinuedoperations 499.8 435.4 716.7 640.5 558.6
profitforcontinuinganddiscontinuedoperations:headlineoperatingprofit 52.1 8.0 91.7 91.3 79.7shareofresultsofassociates’interestandtax .– .– .– .– (0.6)amortisationandimpairmentofgoodwillandintangiblefixedassets (0.9) (32.8) (33.8) (9.1) (7.0)impairmentofinvestmentinassociate .– .– (12.1) .– (8.3)Majorfacilityclosurecosts .– (25.4) (77.6) (5.4) (5.0)Changetopensionschemerules .– .– .– 4.1 .–bidresponsecosts .– .– .– (2.1) .–profitondisposalofoperations .– .– 199.3 .– .–
profit/(loss)beforeinterestandtax 51.2 (50.2) 167.5 78.8 58.8netinterestpayable (6.0) (4.3) (10.0) (10.3) (12.2)
profit/(loss)beforetaxation 45.2 (54.5) 157.5 68.5 46.6taxation (17.5) 3.4 (6.8) (14.7) (2.7)
profit/(loss)aftertaxation 27.7 (51.1) 150.7 53.8 43.9non-controllinginterests (0.1) 1.0 (0.9) (1.0) (0.8)
profit/(loss)attributabletotheequityholdersoftheparent 27.6 (50.1) 149.8 52.8 43.1
Headlineearningspershare(pence) 18.3 0.4 17.5 16.6 17.3dividendspershare(pence) 8.7 8.3 8.3 8.0 7.0
assetsemployedintangiblefixedassets 118.1 118.8 154.4 227.3 212.3tangiblefixedassets 458.0 461.8 533.3 508.9 448.4otherassetsandliabilities (74.0) (72.5) (126.1) (41.4) (45.9)
502.1 508.1 561.6 694.8 614.8
financedbysharecapital 32.8 32.5 32.4 32.4 32.2reserves 416.3 387.8 459.6 457.6 417.3
shareholders’funds 449.1 420.3 492.0 490.0 449.5non-controllinginterests 1.7 2.3 4.9 6.6 4.4netborrowings 51.3 85.5 64.7 198.2 160.9
Capitalemployed 502.1 508.1 561.6 694.8 614.8
netassetspershare(pence) 236.5 223.4 262.4 151.4 139.5
returnoncapitalemployed:Headlineoperatingprofit(continuinganddiscontinuedoperations)dividedbyaveragecapitalemployed 10.1 1.5 12.6 13.9 13.8
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CoMpanybalanCesHeetat31deCeMber2010
2010 2009 note £m £m
fixedassetstangiblefixedassets 3.1 2.9 2investments 393.2 395.1 3
396.3 398.0
Currentassetsdebtors-duewithinoneyear 11.2 22.6 4-dueafteroneyear 56.8 70.3 4Cashatbankandinhand 0.7 2.8
68.7 95.7
CurrentliabilitiesCreditors:amountsfallingduewithinoneyear (8.1) (13.4) 5
netcurrentassets 60.6 82.3
totalassetslesscurrentliabilities 456.9 480.3
Creditors:amountsfallingdueaftermorethanoneyear (0.6) (0.5) 5
netassets 456.3 479.8
CapitalandreservesCalled-upsharecapital 32.8 32.5 7sharepremiumaccount 176.3 176.0 7otherreserves 124.6 125.0 7profitandlossaccount 122.6 146.3 7
shareholders’funds 456.3 479.8
thefinancialstatementsofbodycoteplc,registerednumber519057,wereapprovedbytheboardofdirectorsandauthorisedforissueon24February2011.theyweresignedonitsbehalfby:s.C.Harris}
directorsd.F.landless
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independentauditors’reporttotHeMeMbersoFbodyCoteplC
wehaveauditedtheparentcompanyfinancialstatementsofbodycoteplcfortheyearended31december2010whichcomprisetheCompanybalancesheet,theCompanyaccountingpoliciesandtherelatednotes1to11.thefinancialreportingframeworkthathasbeenappliedintheirpreparationisapplicablelawandunitedKingdomaccountingstandards(unitedKingdomGenerallyacceptedaccountingpractice).
thisreportismadesolelytothecompany’smembers,asabody,inaccordancewithChapter3ofpart16oftheCompaniesact2006.ourauditworkhasbeenundertakensothatwemightstatetothecompany’smembersthosematterswearerequiredtostatetotheminanauditors’reportandfornootherpurpose.tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneotherthanthecompanyandthecompany’smembersasabody,forourauditwork,forthisreport,orfortheopinionswehaveformed.
respeCtiveresponsiBilitiesofDireCtorsanDauDitorsasexplainedmorefullyinthedirectors’responsibilitiesstatement,thedirectorsareresponsibleforthepreparationoftheparentcompanyfinancialstatementsandforbeingsatisfiedthattheygiveatrueandfairview.ourresponsibilityistoauditandexpressopinionontheparentcompanyfinancialstatementsinaccordancewithapplicablelawandinternationalstandardsonauditing(uKandireland).thosestandardsrequireustocomplywiththeauditingpracticesboard’s(apb’s)ethicalstandardsforauditors.
sCopeoftheauDitofthefinanCialstatementsanauditinvolvesobtainingevidenceabouttheamountsanddisclosuresinthefinancialstatementssufficienttogivereasonableassurancethatthefinancialstatementsarefreefrommaterialmisstatement,whethercausedbyfraudorerror.thisincludesanassessmentof:whethertheaccountingpoliciesareappropriatetotheparentcompany’scircumstancesandhavebeenconsistentlyappliedandadequatelydisclosed;thereasonablenessofsignificantaccountingestimatesmadebythedirectors;andtheoverallpresentationofthefinancialstatements.
opiniononfinanCialstatementsinouropiniontheparentcompanyfinancialstatements:
giveatrueandfairviewofthestateofthecompany’saffairsasat31december2010;
havebeenproperlypreparedinaccordancewithunitedKingdomGenerallyacceptedaccountingpractice;and
havebeenpreparedinaccordancewiththerequirementsoftheCompaniesact2006.
opiniononothermatterpresCriBeDBytheCompaniesaCt2006inouropiniontheinformationgiveninthedirectors’reportforthefinancialyearforwhichthefinancialstatementsarepreparedisconsistentwiththeparentcompanyfinancialstatements.
mattersonwhiChwearerequireDtoreportByeXCeptionwehavenothingtoreportinrespectofthefollowingmatterswheretheCompaniesact2006requiresustoreporttoyouif,inouropinion:
adequateaccountingrecordshavenotbeenkeptbytheparentcompany,orreturnsadequateforouraudithavenotbeenreceivedfrombranchesnotvisitedbyus;or
theparentcompanyfinancialstatementsandthepartofthedirectors’remunerationreporttobeauditedarenotinagreementwiththeaccountingrecordsandreturns;or
certaindisclosuresofdirectors’remunerationspecifiedbylawarenotmade;or
wehavenotreceivedalltheinformationandexplanationswerequireforouraudit.
othermatterwehavereportedseparatelyonthegroupfinancialstatementsofbodycoteplcfortheyearended31december2010andtheinformationintheboardreportonremunerationthatisdescribedashavingbeenaudited.
nicolamitchell(seniorstatutoryauditor)forandonbehalfofdeloittellpCharteredaccountantsandstatutoryauditorsManchester,uK24February2011
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CoMpanyaCCountinGpoliCies
aCCountingConventionthefinancialstatementshavebeenpreparedunderthehistoricalcostconventionandinaccordancewithapplicablelawandunitedKingdomaccountingstandards.theprincipalaccountingpoliciesaresummarisedbelow.theyhaveallbeenappliedconsistentlythroughouttheyearandtheprecedingyearindealingwithitemsthatareconsideredmaterialinrelationtotheCompany’sfinancialstatements.inaccordancewithsection408oftheCompaniesact2006aseparateprofitandlossaccountdealingwiththeresultsoftheCompanyhasnotbeenpresented.
goingConCernthedirectorshaveatthetimeofapprovingthefinancialstatements,areasonableexpectationthattheCompanyhasadequateresourcestocontinueinoperationalexistencefortheforeseeablefuture.thustheycontinuetoadoptthegoingconcernbasisofaccountinginpreparingthefinancialstatements.FurtherdetailiscontainedintheFinancedirector’sreportonpage25.
investmentsinvestmentsareheldatcostlessprovisionforimpairment.
foreignCurrenCiestransactionsincurrenciesotherthanpoundssterlingarerecordedattheratesofexchangeprevailingonthedatesofthetransactions.ateachbalancesheetdate,monetaryassetsandliabilitiesthataredenominatedinforeigncurrenciesareretranslatedattheratesprevailingonthebalancesheetdate.non-monetaryitemsthataremeasuredintermsofhistoricalcostinaforeigncurrencyarenotretranslated.Gainsandlossesarisingonretranslationareincludedinnetprofitorlossfortheperiod.
pensionCostsFordefinedbenefitanddefinedcontributionschemes,theamountchargedtotheprofitandlossaccountinrespectofpensioncostsisthecontributionspayableintheyear.Forfurtherdetailsseenote10.
leasesassetsheldunderfinanceleasesandothersimilarcontracts,whichconferrightsandobligationssimilartothoseattachedtoownedassets,arecapitalisedastangiblefixedassetsandaredepreciatedovertheshorteroftheleasetermsandtheirusefullives.thecapitalelementsoffutureleaseobligationsarerecordedasliabilities,whiletheinterestelementsarechargedtotheprofitandlossaccountovertheperiodoftheleasetoproduceaconstantrateofchargeonthebalanceofcapitalrepaymentsoutstanding.Hirepurchasetransactionsaredealtwithsimilarly,exceptthatassetsaredepreciatedovertheirusefullives.
rentalcostsunderoperatingleasesarechargedtotheprofitandlossaccountonastraight-linebasisovertheperiodofthelease.
theCompanyaslessoramountsduefromlesseesunderfinanceleasesarerecordedasreceivablesattheamountoftheCompany’snetinvestmentintheleases.FinanceleaseincomeisallocatedtoaccountingperiodssoastoreflectaconstantperiodicrateofreturnontheCompany’snetinvestmentoutstandinginrespectoftheleases.
tangiBlefiXeDassetstangiblefixedassetsarestatedatcostnetofdepreciationandanyprovisionforimpairment.depreciationisprovidedonastraight-linebasis,toreducethecarryingvaluetotheestimatedresidualvalueatthepointofsale,atthefollowingannualrates:
Fixturesandfittings:10%to20%
residualvalueiscalculatedonpricesprevailingatthedateofacquisition.
taXationCurrentuKcorporationtaxandforeigntaxisprovidedatamountsexpectedtobepaid(orrecovered)usingthetaxratesandlawsthathavebeenenactedorsubstantivelyenactedbythebalancesheetdate.
deferredtaxisrecognisedinrespectofalltimingdifferencesthathaveoriginatedbutnotreversedatthebalancesheetdatewheretransactionsoreventsthatresultinanobligationtopaymoretaxinthefutureorarighttopaylesstaxinthefuturehaveoccurredatthebalancesheetdate.timingdifferencesaredifferencesbetweentheCompany’staxableprofitsanditsresultsasstatedinthefinancialstatementsthatarisefromtheinclusionofgainsandlossesintaxassessmentsinperiodsdifferentfromthoseinwhichtheyarerecognisedinthefinancialstatements.
anetdeferredtaxassetisregardedasrecoverableandthereforerecognisedonlywhen,onthebasisofallavailableevidence,itcanberegardedasmorelikelythannotthattherewillbesuitabletaxableprofitsfromwhichthefuturereversaloftheunderlyingtimingdifferencescanbededucted.
deferredtaxismeasuredattheaveragetaxratesthatareexpectedtoapplyintheperiodsinwhichthetimingdifferencesareexpectedtoreversebasedontaxratesandlawsthathavebeenenactedorsubstantivelyenactedbythebalancesheetdate.deferredtaxismeasuredonadiscountedbasistoreflectthetimevalueofmoneyovertheperiodbetweenthebalancesheetdateandthedatesonwhichitisestimatedthattheunderlyingtimingdifferenceswillreverse.thediscountratesusedreflectthepost-taxyieldstomaturitythatcanbeobtainedongovernmentbondswithsimilarmaturitydatesandcurrenciestothoseofthedeferredtaxassetsorliabilities.
DeBtdebtisinitiallystatedattheamountofthenetproceedsafterdeductionofissuecosts.thecarryingamountisincreasedbythefinancecostinrespectoftheaccountingperiodandreducedbypaymentsmadeintheperiod.Financecostsofdebtarerecognisedintheprofitandlossaccountoverthetermofsuchinstrumentsataconstantrateonthecarryingamount.
relateDpartytransaCtionstheCompanyhastakenadvantageoftheexemptioncontainedinFrs8‘relatedpartytransactions’nottodisclosetransactionsorbalanceswithwholly-ownedentitiesoftheGroup.
share-BaseDpaymentstheCompanyhasappliedtherequirementsofFrs20‘share-basedpayment’.
theCompanyissuesequity-settledshare-basedpaymentstocertainemployees.equity-settledshare-basedpaymentsaremeasuredatfairvalueatthedateofgrant.thefairvaluedeterminedatthegrantdateoftheequity-settledshare-basedpaymentsisexpensedonastraight-linebasisoverthevestingperiod.ateachbalancesheetdate,theCompanyrevisesitsestimateofthenumberofequityinstrumentsexpectedtovestasaresultoftheeffectofnon-marketbasedvestingconditions.theimpactoftherevisionoftheoriginalestimates,ifany,isrecognisedinprofitorlosssuchthatthecumulativeexpensereflectstherevisedestimateswithacorrespondingadjustmenttotheequity-settledemployeebenefitsreserve.Fairvalueismeasuredbyuseofablack-scholesmodel.
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1. lossfortheyear
bodycoteplcreportedalossforthefinancialyearended31december2010of£8.3m(2009:loss£1.8m).
theauditors’remunerationforauditandotherservicesisdisclosedinnote3totheconsolidatedfinancialstatements.
totalemployeecosts(includingexecutivedirectors)were: 2010 2009 £m £m
wagesandsalaries 6.7 3.0socialsecuritycosts 0.7 0.3otherpensioncosts 0.5 0.4
7.9 3.7
2. tangiblefixedassets fixtures andfittings £m
Cost
at1january2010 3.9additions 1.1disposals (0.4)
at31December2010 4.6
Depreciation
at1january2010 1.0Chargefortheyear 0.8disposals (0.3)
at31December2010 1.5
netbookvalue
at31December2010 3.1
at31december2009 2.9
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 95
3. investments
shares sharesin associates loans total
£m £m £m £mCost
at1january2010 401.2 7.3 0.1 408.6acquisitionsandadvances 2.1 .– .– 2.1disposalsandrepayments (3.0) (7.3) (0.1) (10.4)
at31December2010 400.3 .– .– 400.3
provisionforimpairmentat1january2010 6.2 7.3 .– 13.5provisionintheyear 0.9 .– .– 0.9disposals .– (7.3) .– (7.3)
at31December2010 7.1 .– .– 7.1
netbookvalue
at31December2010 393.2 .– .– 393.2
at31december2009 395.0 .– 0.1 395.1
theCompany’sassociatedcompanyssCpCoatingss.à.r.l.wasrecapitalisedthroughashareissueinanewcompanyduringtheyear.theCompanychosenottoparticipateinthisshareissue,andasaresult,theCompany’spercentageholdinginthebusinesshassignificantlyreducedtoalevelwheretheCompanynolongerclassifiesthebusinessasanassociatecompany.
4. Debtors 2010 2009 £m £m
amountsfallingduewithinoneyear:amountsowedbysubsidiaryundertakings 0.5 11.7Corporationtaxrecoverable 6.3 7.2deferredtaxation(note6) 2.5 2.3Financeleasereceivables 0.4 0.4otherdebtorsandprepayments 1.5 1.0
11.2 22.6
amountsfallingdueaftermorethanoneyear:amountsowedbysubsidiaryundertakings 56.8 69.8Financeleasereceivables .– 0.5
56.8 70.3
68.0 92.9
96 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
notestotHeCoMpanyFinanCialstateMentsyearended31deCeMber2010
5. Creditors 2010 2009 £m £m
amountsfallingduewithinoneyear:bankloans .– 2.6tradecreditors 0.9 0.6amountsowedtosubsidiaryundertakings 2.9 1.1dividendspayable .– 5.5othertaxesandsocialsecurity 0.1 0.2othercreditors 0.8 0.5accrualsanddeferredincome 3.4 2.9
8.1 13.4
amountsfallingdueaftermorethanoneyear:amountsowedtosubsidiaryundertakings 0.6 0.5
0.6 0.5
Bankloansarerepayable:ondemandorwithin12months .– 2.6
.– 2.6
6. Deferredtaxasset
£mat1january2010 2.3profitandlosscredit 0.2
at31December2010 2.5
2010 2009 £m £m
Deferredtaxisrecognisedasfollows:taxlosses 0.4 1.7othertimingdifferences 2.1 0.6
deferredtaxasset 2.5 2.3
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 97
7. Capitalandreserves
sharecapital:
ordinaryshares(allotted,called-upandfully-paid) numberofshares £m
at1january2010 188,167,712 32.5allottedintheyear 1,714,205 0.3
at31December2010 189,881,917 32.8
detailsofshareoptionsinissueontheCompany’ssharecapitalandshare-basedpaymentsaresetoutinnote28totheconsolidatedfinancialstatements.
reserves: share premium account
other reserves
profit andloss account total
£m £m £m £m
at1january2010 176.0 125.0 146.3 447.3dividendspaid .– .– (15.4) (15.4)lossfortheyear .– .– (8.3) (8.3)premiumarisingonissueofequityshares(netofexpenses) 0.3 .– .– 0.3share-basedpaymentsandacquisitionofownshares .– (0.4) .– (0.4)
at31December2010 176.3 124.6 122.6 423.5
theotherreservesisstatedafterdeducting£8.0m(2009:£7.3m)relatingtosharesheldinthebodycoteinternationalemployeebenefittrust.thebodycoteinternationalemployeebenefittrustholdsbodycoteplcsharesandsatisfiesawardsmadeundervariousemployeeincentiveschemeswhenissuanceofnewsharesisnotappropriate.
at31december20103,837,581(2009:2,100,427)ordinarysharesof173/11peachwereheldbythebodycoteinternationalemployeebenefittrustand,followingrecommendationsbytheemployer,areprovisionallyallocatedtosatisfyawardsunderemployeeincentiveschemes.thetrustwaivespaymentofdividend.themarketvalueoftheseshareswas£10.8m(2009:£3.3m).
includedinotherreservesisthecapitalredemptionreserveof£129.4m(2009:£129.4m).
8. Contingentliabilities
theCompanyhasguaranteedbankoverdrafts,loansandlettersofcreditofcertainsubsidiaryundertakingsamountingto£80.5m(2009:£108.1m).
98 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
notestotHeCoMpanyFinanCialstateMentsyearended31deCeMber2010
9. financialCommitments
annualcommitmentsundernon-cancellableoperatingleasesareasfollows: 2010 2009 £m £m
withinoneyear 0.3 0.3inthesecondtofifthyearsinclusive 0.8 0.9afterfiveyears 0.5 0.7
1.6 1.9
operatingleasepaymentsrepresentrentalspayablebytheCompanyforitslandandbuildings.
10. pensioncommitments
theCompanyparticipatesinagroupdefinedbenefitscheme,thedetailsofwhicharedisclosedinnote30totheconsolidatedfinancialstatements.However,theCompanyisunabletoidentifyitsshareoftheunderlyingassetsandliabilitiesandhasthereforeaccountedfortheschemeasifitwereadefinedcontributionscheme.Fulldisclosuresconcerningtheschemeasrequiredbyias19aresetoutinnote30totheconsolidatedfinancialstatements.thesealsosatisfytherequirementsofFrs17’retirementbenefits’.
thecontributionsmadebytheCompanyoverthefinancialyeartoboththedefinedcontributionandthedefinedbenefitschemesamountedto£0.4m(2009:£0.3m)and£0.1m(2009:£0.1m)respectively.
11. relatedpartytransactions
theCompany’sassociatedcompanyssCpCoatingss.à.r.l.wasrecapitalisedthroughashareissueinanewcompanyduringtheyear.theCompanychosenottoparticipateinthisshareissue,andasaresult,theCompany’spercentageholdinginthebusinesshassignificantlyreducedtoalevelwheretheCompanynolongerclassifiesthebusinessasanassociatecompany.
duringtheprioryear,theCompanyenteredintothefollowingtransactionswithrelatedpartieswhoarenotmembersoftheGroup,namelyssCpCoatingss.à.r.l.
saleofgoodsandservices
amountsowedbyrelatedparties
2010 2009 2010 2009 £m £m £m £m
associates .– 2.4 .– 17.9
salesofgoodsandservicesincludepaymentsreceivedfromfinanceleases,theprovisionofmanagementservicesandinterestreceivable.alltransactionsweremadeatarm’slength.
at31december2009,aprovisionof£17.0mwasrecognisedagainstthe£17.9mamountsowedbyrelatedpartiesabove.
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 99
prinCipalsubsidiaryundertaKinGs
thermalproCessing-heattreatmentanDmetalJoining
Countryofincorporation
*bodycoteHeattreatmentslimited Cambridge,Chard,Cheltenham,Coventry,derby,Gillingham,Greatbarr,HazelGrove,Macclesfield,rotherham,skelmersdale,stillingtonandwoodford england
bodycoteHardiffGmbH landsberg Germany
bodycotewärmebehandlungGmbH
ebersbach,eching,essen,esslingen,Karben,Korntal,langenfeld,langenselbold,lüdenscheid,Menden,nürnberg,otterfing,remscheid,sömmerda,sprockhövelandwehingen Germany
nitrionGmbH otterfing Germany
bodycoteHardingscentrumbv diemen,Hengelo,tilburgandvenlo netherlands
bodycoteHardiffbv apeldoorn netherlands
bodycotevärmebehandlingab Göteborg,Hudiksvall,Karlskoga,Malmö,Mora,stockholm,värnamoandvästerås sweden
bodycotesas
ambazac,amiens,beaugency,billy-berclau,Cernay,Chantelouplesvignes,Chassieu,Condésurnoireau,Gemenos,Gennevilliers,lagnysurMarne,laMonnerieleMontel,latalaudière,lesubdray,neuillyenthelle,nogent,pusignan,serresCastet,staubinleselbeuf,stnicolasd’aliermont,strémyenMauges,villazandvoreppe France
techmetasa Metz-tessy France
nitruvidsas argenteuilandGandrange France
bodycotebelgiumsa brussels belgium
bodycotelämpökäsittelyoy pieksämäki,tampere,vaasaandvantaa Finland
bodycotevarmebehandlinga/s Herlevandejby denmark
bodycoteitaliasrl Gorgonzola italy
bodycotetrattamentitermicispa Flero,Madoneandrodengo italy
bodycotewärmebehandlungwienGmbH Kapfenberg,Marchtrenkandvienna austria
bodycoterheintalwärmebehandlungaG schaan liechtenstein
bodycoteschweizwärmebehandlungaG urdorf switzerland
bodycoteHts.r.o brno,liberec,Krnov,plzenandprague Czechrepublic
bodycotepolskaspz.o.o Czestochowa,Chelmno,Kozerki,swiebodzin,warsawandZabrze poland
bodycotetratamentetermicesrl(75%owned)‡ brasovandCugir romania
bodycoteHökezelöKFt budapest Hungary
bodycoteistasisilislemsanayiveticaretas(60%owned)‡ ankara,bursa,istanbulandizmir turkey
bodycotethermalprocessing,inc.
Fremont,santaFespringsandHuntingtonpark,ranchodominguez,vernon,westminsterCa,berlin,waterbury,southwindsorandsuffieldCt,ipswichandworcesterMa,CantonandlivoniaMi,Cincinnati,ClevelandandlondonoH,oklahomaCityandtulsaoK,arlington,dallas,HoustonandFortworthtx,laconianH,Melroseparkil,indianapolisin,edenprairieMn,rochesterny,sturtevantandnewberlinwi usa
bodycotethermalprocessingCanada,inc. newmarketandKitcheneron Canada
bodycotethermalprocessingMexicolimited silaoandGuaymas,Mexico england
bodycotebrasimetprocessamentotermicoltda Campinas,joinville,saoleopoldoandjundiai brazil
bodycotewuxitechnologyCo.limited wuxi China
bodycote(ningbo)HeattreatmentCo.limited ningbo China
bodycoteMetallurgicalservicesindiapvtlimited ranjangaon india
100 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
prinCipalsubsidiaryundertaKinGsContinued
thermalproCessing-hotisostatiCpressing
*bodycoteH.i.p.ltd ChesterfieldandHereford england
bodycoteiMtinc. andoverMa,londonoHandprincetonKtandCamaswa usa
bodycoteHeiss-isostatischespressenGmbH Haag Germany
bodycoteiMtnv sint-niklaas belgium
bodycotejapanK.K. nagoya japan
bodycotesas Magny-Cours France
thermalproCessing-surfaCeengineering
*bodycoteMetallurgicalCoatingslimited Knowsley,Macclesfield,stonehouse,newport,neath,skelmersdale,wolverhamptonanddubai england
bodycoteK-tech,inc. Hotsprings,ar usa
bodycoteytbehandlingab Katrineholm,Karlstad,andvästraFrölunda sweden
bodycotesingaporepteltd singapore singapore
bodycoteargentinasa buenosaires theargentine
groupserviCes
‡*thomasCook&soninsurancebrokerslimited(75%owned) burnley england
exceptwherestated,thesecompaniesarewhollyownedsubsidiariesandhaveonlyoneclassofissuedshares.subsidiariesmarked*arehelddirectlybybodycoteplc.entitiesmarked‡havebeentreatedassubsidiaryundertakingsinthefinancialstatementsbecausetheGroupexercisescontrolovertheseentities.
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 101
sHareHolderenquiries
enquiriesonthefollowingadministrativematterscanbeaddressedtotheCompany’sregistrarsattheregistry,34beckenhamroad,beckenham,Kentbr34tu.telephone08716640300(callsto0871numberscost10pperminuteplusnetworkextras–linesareopen8.30amuntil5.30pm,MondaytoFriday)or+44(0)2086393399;Fax:+44(0)1484600911;andemail;[email protected].
Changeofaddress
lostsharecertificatesordividendcheques
dividendmandates
amalgamationofholdings
Formsforthesematterscanbedownloadedfromtheregistrars’websiteatwww.capitaregistrars.com,whereshareholderscanalsochecktheirholdingsanddetails.
sHaredealinGserviCe
informationonalowcostsharedealingserviceofferedbyourregistrarisavailablefromCapitaon08716640300(callsto0871numberscost10pperminuteplusnetworkextras)oratwww.capitadeal.com.
sHareHolderanalysis
analysisofshareregisterasat18February2011:
Holdingrange numberofshareholders % numberofshares %
1to1,000 1,095 41.9 483,143 0.31,001to10,000 1,124 43.0 3,471,321 1.810,001to100,000 244 9.3 7,368,852 3.9100,001to500,000 87 3.3 18,787,570 9.9500,001andover 64 2.5 159,816,482 84.1
2,614 100.0 189,927,368 100.0
typeofshareholders %ofshareholders %oftotal shares
directors’interests 0.1 2.2Majorinstitutionalandcorporateholdings 7.0 91.6othershareholdings 92.9 6.2
100.0 100.0
asat24February2011thefollowingvotingrightsintheCompanyhadbeennotifiedinaccordancewiththedisclosureandtransparencyrules.
numberofshares %
standardlifeinvestmentsltd 26,580,513 14.00schrodersplc 13,187,266 6.94aberforthpartnersllp 9,427,581 4.96baillieGifford&Co 9,402,000 4.95legal&GeneralGroupplc 7,546,421 3.97
102 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
FinanCialCalendar
annualgeneralmeeting 27april2011
finaldividendfor2010 6May2011
interimresultsfor2011 july2011
interimdividendfor2011 november2011
resultsfor2011 February2012
businessreview:CorporateGovernanCe:aCCountsbodyCoteannualreport2010 103
notes
104 bodyCoteannualreport2010businessreview:CorporateGovernanCe:aCCounts
notes
Bodycote plc Springwood Court Springwood Close Tytherington Business Park Macclesfield Cheshire SK10 2XF
Tel: +44 (0)1625 505300 Fax: +44 (0)1625 505313 Email: [email protected]
© Bodycote plc 2011Ref: ID5284
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www.bodycote.com