Elementis plc
10 Albemarle Street
London W1S 4HH, UK
Tel: +44 (0) 20 7408 9300
Fax: +44 (0) 20 7493 2194
www.elementisplc.com
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A global specialty
chemicals company
Investing
in growth
2012
Annual report and accounts
KEY INVESTMENT dRIVERS
– Solid fi nancial track record, profi table
well run businesses with a proven
and respected management team.
– Highly cash generative with a strong
balance sheet and special dividend
programme announced.
– Double digit operating margins.
– Balanced geographic exposure to
mature and emerging markets.
– Global leader in rheology with a
broad, patent protected product
portfolio with applications in
different markets and sectors.
– Investment in further growth: strong
new product pipeline, multiple
capacity expansion programmes
and selective acquisitions.
WHAT WE dO
The Company comprises three
businesses: Specialty Products,
Chromium and Surfactants. Both
Specialty Products and Chromium
hold leading market positions in their
chosen sectors. Elementis employs
over 1,300 people at more than
30 locations worldwide.
Specialty Products
provides high value functional
additives to the decorative and
industrial coatings, personal care
and oilfi eld drilling markets that
improve the fl ow characteristics
and performance of its customers’
products or production processes.
Chromium
is a leading producer of chromium
chemicals that make its customers’
products more durable.
Surfactants
manufactures a wide range of surface
active ingredients and products that
are used as intermediates in the
production of chemical compositions.
AT A GLANCE
WHO WE ARE
Elementis plc (the “Company”)
is a global specialty chemicals
company with operations
worldwide that serve customers
in North and Latin America,
Europe and Asia Pacifi c in a wide
range of markets and sectors.
The Company has a premium
listing in the UK on the London
Stock Exchange and is a
member of the FTSE 250 Index,
making it one of the 350 largest
companies in the UK by market
capitalisation, and is also a
member of the FTSE4Good
Index – a leading global
responsible investment index.
WHERE WE dO IT
9 countries
30+ locations
1,300+ employees
Executive Management Headquarters
Corporate Head Offi ce
Specialty Products
Chromium
Surfactants
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The cover and text sections are printed on HannoArt Silk, comprising of
fi bres sourced from sustainable forest reserves and bleached without the
use of chlorine. The production mill for this paper operates to EMAS, ISO
14001 environmental and ISO 9001 quality standards. The accounts section
is printed on Challenger Offset, comprising of fi bres sourced from
sustainable forest reserves and bleached without the use of Chlorine.
Designed and produced by Carnegie Orr +(0)20 7610 6140
www.carnegieorr.co.uk
ANNUAL REPORT ANd ACCOUNTS 2012 ELEMENTIS PLC
HIGHLIGHTS
FINANCIAL SUMMARY
01
Group earnings per share
increased by 12.0 per cent*
Operating margin* improved to
19.0 per cent (2011: 18.0 per cent)
Resilient performance in Specialty
Products
• Constant currency sales up
4 per cent; operating profit*
up 3 per cent
• Investing in growth
– New plant commissioned;
new technical facilities;
acquisition in Brazil
Solid performance in Chromium
• Robust earnings and strong
cash flow
Excellent cash generation
• Net cash position increased
to $44.0 million
Final ordinary dividend
increased by 14 per cent, full
year up 11 per cent
First payment announced under
special dividend programme,
proposing to distribute
50 per cent of year end net cash
CONTENTS
Company overview
Ifc At a glance
01 Highlights and financial summary
02 Opportunities for growth
Summary of strategic progress
Business review
04
08 Chairman’s statement
10 Group Chief Executive’s overview
13 Our businesses
Finance report
21
25
25 Risk management report
Corporate social responsibility report
Key performance indicators
29
Sales
Operating profit
Profit before tax
Diluted earnings per share
Net cash
2012
$757.0m
$143.9m
$141.2m
23.3c
$44.0m
2011
$760.5m
$137.1m*
$134.5m*
20.8c*
$26.2m
Change
+5%
+5%
+12%
+68%
Profit for the year
Basic earnings per share
$107.1m
23.7c
$124.1m**
27.8c**
Dividends to shareholders:
– Interim dividend
– Final proposed
– Total ordinary dividend
2.45c
5.32c
7.77c
2.34c
4.66c
7.00c
+5%
+14%
+11%
– Special dividend
4.79c
–
* before exceptional items, all of which relate to 2011
** includes one-time gain from recovery of funds from EU commission
Board of directors and senior executives
Directors’ report
Directors’ responsibility statement
Corporate governance report
Corporate governance
36
38
41
42
46 Report of the Audit Committee
47 Report of the Nomination Committee
48
61
Report of the Remuneration Committee
Independent auditor’s report
Financial statements
62
62
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated balance sheet
Consolidated statement of changes
in equity
63
64
65
66
Consolidated cash flow statement
Notes to the consolidated financial
statements
101 Parent company statutory accounts
102 Notes to the financial statements
of Elementis plc
Shareholder information
106 Five year record
107 Shareholder services
108 Corporate information
108 Financial calendar
108 Annual General Meeting
108 Principal offices
Cautionary statement:
The Annual Report and Accounts for the financial year ended 31 December 2012, as contained in this document (“Annual Report”), contain information which
viewers or readers might consider to be forward looking statements relating to or in respect of the financial condition, results, operations or businesses of
Elementis plc. Any such statements involve risk and uncertainty because they relate to future events and circumstances. There are many factors that could cause
actual results or developments to differ materially from those expressed or implied by any such forward looking statements. Nothing in this Annual Report should
be construed as a profit forecast.
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCompany ifc – 03 overviewbusiness 04 – 35reviewCorporate 36 – 61 governanCefinanCial 62 – 105statementsshareholder 106 – 108information
02
OPPORTUNITIES
FOR GROwTH
Elementis is highly cash generative, operates on
a resilient and sustainable business model and
has multiple opportunities for significant growth.
New Martinsville,
West Virginia
East Windsor,
New Jersey
GLObAL
COATINGS
MARKET
Global industrial coatings
market: $53bn (additives
segment: $1.8bn).
Global decorative coatings
market: $36bn (additives
segment: $1.6bn).
Source: Kusumgar, Nerlfi &
Growney, Global coatings and ink
additives, March 2010
LATIN AMERICA
Specialty Products
completed its acquisition
of Brazilian coatings
additives company,
watercryl, on 28 September
2012. The manufacturing
and technical facilities
based in Palmital, São
Paulo will provide the
platform to accelerate
growth in this region.
2013 GDP growth forecast
for Brazil: 3.95%.
Source: IMF, world Economic
Outlook Database, October 2012
Livingston, UK
Cologne, Germany
UK ANd
EUROPE
Research & development
focus and strengthened
leadership team in the
personal care business has
led to good progress being
made to grow this high
margin business, through
a combination of a new
range of eco-certified
products and geographic
expansion into high
growth markets in Asia
Pacific and Latin America.
São Paulo, brazil
NORTH
AMERICA
A $7.4m investment in a
state of the art research &
development centre of
excellence (comprising
process development
and laboratory facilities)
and management and
administration offices.
This new 65,000 sq. ft.
facility in East windsor,
New Jersey was
commissioned in April 2012.
In addition, Specialty
Products is investing $20m
to expand manufacturing
through a new 44,000 sq. ft.
facility in North America to
support specialty rheology
additives and dispersants
for the decorative coatings
market. Production at the
New Martinsville site in
west Virginia commenced
in early 2013.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012 03
INdIA
New technical services
centre based in Mumbai
will be fully operational
during the early half of
2013 to support sales.
ASIA PACIFIC
Our Asia business, based
mainly in China and Taiwan
and headquartered in
Shanghai, is strongly
positioned to exploit and
benefit from the increasing
sophistication of the fast
growing Chinese and
Asian markets.
Shanghai, China
Taiwan
ASIA PACIFIC
MARKET
IMF 2013 GDP growth
forecasts in a selection
of Elementis markets:
China
India
ASEAN (avg.)
Taiwan
South Korea
Australasia (avg.)
Japan
8.23%
5.97%
5.32%
3.87%
3.63%
3.03%
1.23%
Source: IMF, world Economic
Outlook Database, October 2012
Mumbai, India
GLObAL SHALE
GAS & OIL
MARKET
33 countries identified as
having shale gas reserves.
A total of 6,600 trillion cubic
feet of technically
recoverable shale gas
reserves identified.
Equivalent to 40% of the
total world technically
recoverable natural gas
reserves.
Summary breakdown
of the largest reserves
(cubic feet in trillions):
North America
China
Latin America
Europe
1,931
1,275
1,225
639
Source: US EIA, world Shale Gas
Resources: An Initial Assessment,
April 2011
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCompany ifc – 03 overviewbusiness 04 – 35reviewCorporate 36 – 61 governanCefinanCial 62 – 105statementsshareholder 106 – 108information 04
SUMMARY OF STRATEGIC PROGRESS
Elementis Group
OUR STRATEGY A ExECUTING
OUR STRATEGY
B PERFORMANCE AGAINST
STRATEGY IN 2012 C
PRIORITIES FOR 2013
D KPIs (2012)
Definitions are shown in the
KPI section of the Finance report
E
1 Grow the Specialty Products
business profitably, utilising cash
flow from the Chromium and
Surfactants businesses.
See sections on Specialty Products, Chromium
and Surfactants on pages 6 and 7.
See Box B1.
See Box B1.
See Box B1.
2 Improve the quality of the Group’s
balance sheet by generating strong
free cash flow and reducing the
proportion of non-business items,
such as legacy pension funds.
• Managing the businesses to deliver financial
performance that generates strong operating
cash flow.
• Managing the capital base effectively.
• Managing legal and financial risks to the
Company (including UK pension fund).
3 Maintain our global leadership
position in rheology.
4 Generate and preserve value over
the longer term to create sustainable
shareholder value.
• Robust new product pipeline to meet
market needs.
• Patent protected product innovation.
• Acquiring proprietary technology.
• Delivering operating plans that meet
consensus earnings forecasts.
• Maintaining a strong balance sheet to reinvest
in growth and finance returns to shareholders.
• Managing business and corporate risks.
• Proactive investor relations programme.
5 Manage significant business and
corporate risks.
• Proper identification, assessment and
mitigation of risks.
• Effective risk management policies,
communication and training.
6 Maintain high standards of business
conduct, ethics and corporate
responsibility (e.g. health, safety &
environment – “HSE”).
• Setting high standards and fostering
appropriate culture through leadership,
policies, communication and training.
• Maintaining membership of
FTSE4Good index.
• Operating cash flow of $117.2 million
generated.
• $37.4 million of capital expenditure and
$24.0 million spent acquiring watercryl
in Brazil.
• Special dividend programme announced
in 2012.
• Agreed UK pension fund triennial valuation
and funding plan.
New products and applications developed for
the decorative and industrial coatings, personal
care and oilfield drilling markets.
• Diluted EPS before exceptional items of
23.3 cents reported in 2012.
• Total shareholder return (“TSR”) over the
last three years was 375 per cent
compared to 45 per cent for the FTSE 250
index in the same period.
• Active programme of formal and ad hoc
meetings (including investor conferences)
with investors and potential investors in
the UK, US and Europe.
• Appropriate engagement with financial
press and analyst community.
See Box E5 and E6.
• Business conduct and ethics compliance
programme in place, including policies,
training and communication.
• No major HSE incident or litigation/
compliance breach to report.
• Membership of FTSE4Good retained.
• Ensure funding is available to invest in further organic and
acquisitive growth.
• Renew Group revolving credit facility.
• Maintain progressive dividend policy and special dividend
programme.
• Operating cash flow of $117.2 million generated.
• Average working capital (“AwC”) to sales ratio of 19.1 per cent reflects
strategic holding of key raw materials.
• Return on operating capital employed (“ROCE”) before tax and excluding
goodwill decreased slightly to 49.0 per cent.
See also Box E5.
See sections on Specialty Products on pages 6 and 7.
See Box D3.
• Deliver 2013 operating plans.
• Maintain investor relations activity.
See also Box B4.
• Operating profit* on a constant currency basis increased by 7 per cent.
• Operating* and contribution margins improved to 19 per cent and
38.5 per cent respectively.
• Total dividend for 2012 of 12.56 cents per share, including special dividend
of 4.79 cents per share, represents an increase of 79.4 per cent.
* before exceptional items, all of which relate to 2011
• Continue to manage significant business and corporate risks.
See also Risk management report on page 25.
• No new contingent liabilities.
• Continue to maintain high standards of business conduct, ethics
and corporate responsibility.
• Continue to meet criteria for FTSE4Good membership.
See also Corporate social responsibility (“CSR”) report on page 29.
• Two “Lost time accidents”.
• No Tier 2 or 3 environmental incidents.
See CSR report.
ELEMENTIS PLC ANNUAL REPORT ANd ACCOUNTS 2012
1 Grow the Specialty Products
business profitably, utilising cash
flow from the Chromium and
Surfactants businesses.
2 Improve the quality of the Group’s
balance sheet by generating strong
free cash flow and reducing the
proportion of non-business items,
such as legacy pension funds.
• Managing the businesses to deliver financial
performance that generates strong operating
cash flow.
• Managing the capital base effectively.
• Managing legal and financial risks to the
Company (including UK pension fund).
3 Maintain our global leadership
position in rheology.
4 Generate and preserve value over
the longer term to create sustainable
shareholder value.
• Robust new product pipeline to meet
market needs.
• Patent protected product innovation.
• Acquiring proprietary technology.
• Delivering operating plans that meet
consensus earnings forecasts.
• Maintaining a strong balance sheet to reinvest
in growth and finance returns to shareholders.
• Managing business and corporate risks.
• Proactive investor relations programme.
5 Manage significant business and
corporate risks.
• Proper identification, assessment and
mitigation of risks.
• Effective risk management policies,
communication and training.
6 Maintain high standards of business
conduct, ethics and corporate
responsibility (e.g. health, safety &
environment – “HSE”).
• Setting high standards and fostering
appropriate culture through leadership,
policies, communication and training.
• Maintaining membership of
FTSE4Good index.
• Operating cash flow of $117.2 million
generated.
• $37.4 million of capital expenditure and
$24.0 million spent acquiring watercryl
in Brazil.
in 2012.
• Special dividend programme announced
• Agreed UK pension fund triennial valuation
and funding plan.
New products and applications developed for
the decorative and industrial coatings, personal
care and oilfield drilling markets.
• Diluted EPS before exceptional items of
23.3 cents reported in 2012.
• Total shareholder return (“TSR”) over the
last three years was 375 per cent
compared to 45 per cent for the FTSE 250
index in the same period.
• Active programme of formal and ad hoc
meetings (including investor conferences)
with investors and potential investors in
the UK, US and Europe.
• Appropriate engagement with financial
press and analyst community.
See Box E5 and E6.
• Business conduct and ethics compliance
programme in place, including policies,
training and communication.
• No major HSE incident or litigation/
compliance breach to report.
• Membership of FTSE4Good retained.
OUR STRATEGY A ExECUTING
OUR STRATEGY
B PERFORMANCE AGAINST
STRATEGY IN 2012 C
PRIORITIES FOR 2013
D KPIs (2012)
Definitions are shown in the
KPI section of the Finance report
See sections on Specialty Products, Chromium
See Box B1.
and Surfactants on pages 6 and 7.
See Box B1.
See Box B1.
05
E
• Ensure funding is available to invest in further organic and
acquisitive growth.
• Renew Group revolving credit facility.
• Maintain progressive dividend policy and special dividend
programme.
• Operating cash flow of $117.2 million generated.
• Average working capital (“AwC”) to sales ratio of 19.1 per cent reflects
strategic holding of key raw materials.
• Return on operating capital employed (“ROCE”) before tax and excluding
goodwill decreased slightly to 49.0 per cent.
See also Box E5.
See sections on Specialty Products on pages 6 and 7.
See Box D3.
• Deliver 2013 operating plans.
• Maintain investor relations activity.
See also Box B4.
• Operating profit* on a constant currency basis increased by 7 per cent.
• Operating* and contribution margins improved to 19 per cent and
38.5 per cent respectively.
• Total dividend for 2012 of 12.56 cents per share, including special dividend
of 4.79 cents per share, represents an increase of 79.4 per cent.
* before exceptional items, all of which relate to 2011
• Continue to manage significant business and corporate risks.
See also Risk management report on page 25.
• No new contingent liabilities.
• Continue to maintain high standards of business conduct, ethics
and corporate responsibility.
• Continue to meet criteria for FTSE4Good membership.
See also Corporate social responsibility (“CSR”) report on page 29.
• Two “Lost time accidents”.
• No Tier 2 or 3 environmental incidents.
See CSR report.
ANNUAL REPORT ANd ACCOUNTS 2012 ELEMENTIS PLC
Company ifc – 03 overviewbusiness 04 – 35 reviewCorporate 36 – 61 governanCefinanCial 62 – 105 statementsshareholder 106 – 108information
06
SUMMARY OF STRATEGIC PROGRESS CONTINUED
Our businesses
OUR STRATEGY A ExECUTING
OUR STRATEGY
B PERFORMANCE AGAINST
STRATEGY IN 2012 C
PRIORITIES
FOR 2013
D KPIs (2012)
Definitions are shown in the
KPI section of the Finance report
E
7 Specialty Products
To be the fastest growing and most
competitive supplier of specialty
chemicals additives in the world.
Growing the business, revenue and
market share, while maintaining
margins.
• Organic growth from new products,
markets, applications or geographies.
• Selective acquisitions in rheology or
complementary additives.
• Excellent customer service and understanding.
• Technical expertise and support, and
product innovation.
• Operational excellence to maintain margins
and improve procurement and supply
chain efficiencies.
8 Chromium
Consistently deliver a relatively stable
and sustainable level of earnings and
cash flow.
• Maintain high capacity utilisation and
optimising operational performance by
flexing our low cost manufacturing footprint
to respond to changes in demand.
• Operational discipline to maintain price and
cost competitiveness and margins.
• Improve cost base by securing supply of
raw materials and energy.
• Serve higher margin markets and customers
with value added products and just in
time service via custom designed
delivery systems.
9 Surfactants
Steadily upgrading the product
portfolio in Surfactants by focusing
on higher margin applications, while
at the same time transitioning the
manufacturing facility to produce
more higher margin coatings
additives for Specialty Products.
• Focus on higher margin markets to balance
the base load activity in high volume
commodity applications.
• Offer innovative products to the market and
to customers.
• Target growth in higher margin segments to
improve profitability.
• Improve productivity, operational efficiencies
and sales focus.
ELEMENTIS PLC ANNUAL REPORT ANd ACCOUNTS 2012
• Market share gains and robust new product
pipeline delivering results.
• Capacity expansion projects to support
growth in the coatings and oilfield drilling
markets.
• Acquisition of watercryl in Brazil gives the
business a significant platform to grow in
the Latin American markets.
• New R&D centre of excellence in New
Jersey commissioned in April 2012 and a
new technical service centre established
in Mumbai that will be commissioned in
early 2013.
• Operating margin of approximately 20 per cent
is consistent with that of a true specialty
chemicals company and AwC metrics
show that this aspect of the business is
managed well.
• Business delivered strong operating profit
and cash flow results despite challenging
economic conditions and shifts in market
and regional demand.
• Operating margin being maintained within
a sustainable range.
• Contracts secured to deliver stable energy
prices and consistent and reliable supplies
of key raw materials.
• Operating profit of $4.8 million reflects a
decrease in sales, as the business continues
to transition its product portfolio mix away
from lower margin surfactants to higher
margin specialty additives.
• Revenue split approximately 50:50 between
additives and surfactants, while volume split
is 40:60 respectively.
• Operating margin improved.
• AwC to sales ratio continues to show
solid performance.
• Achieve 2013 operating plan.
• Maintain operating margins at around 20 per cent and AwC levels
at a sustainable level.
• win new customers and work with existing customers to help them
solve their formulary problems and to provide a level of performance
that improves the effectiveness or efficiency of their products,
processes or applications.
• Using the watercryl acquisition as a platform for growing sales in
• Continue to develop new products for the decorative and industrial
coatings, personal care and oilfield drilling markets.
• Commission the technical service centre in Mumbai to support
Latin America.
sales into India.
Financial
• Constant currency sales increased by 4.2 per cent.
• Operating profit* on a constant currency basis increased by 3.8 per cent.
• Operating margin* remained at c.20 per cent.
• ROCE before tax and excluding goodwill decreased to 40.2 per cent.
• AwC to sales ratio maintained at 18.8 per cent.
Non-financial
• Two “Lost time accidents”.
• No Tier 2 or 3 environmental incidents.
See CSR report.
• Maintain current level of operating and financial performance:
– Deliver consistent level of earnings and operating cash flow.
– Flex the business model to adjust to changes in customer demand.
– Continue to provide value added products in unique delivery
systems that enable customers to improve efficiency, reduce
working capital and meet regulatory standards.
– Optimise capacity utilisation.
– Optimise supply chain and secure supplies of key raw materials.
Financial
• Constant currency sales increased by 3.9 per cent.
• Operating profit* on a constant currency basis increased by 11.9 per cent.
• Operating margin improved to 26.2 per cent.
• ROCE before tax and excluding goodwill decreased to 64.5 per cent.
• AwC to sales ratio (excluding chrome ore) improved to 16.2 per cent.
Non-financial
• No “Lost time accidents”.
• No Tier 2 or 3 environmental incidents.
See CSR report.
See Box B9.
Financial
• Constant currency sales decreased by 17. 5 per cent.
• Operating profit* on a constant currency basis decreased by 4.0 per cent.
• Operating margin* improved to 6.6 per cent.
• ROCE before tax and excluding goodwill increased to 25.1 per cent.
• AwC to sales ratio improved to 9.6 per cent.
Non-financial
• No “Lost time accidents”.
• No Tier 2 or 3 environmental incidents.
See CSR report.
* before exceptional items, all of which relate to 2011
OUR STRATEGY A ExECUTING
OUR STRATEGY
B PERFORMANCE AGAINST
STRATEGY IN 2012 C
PRIORITIES
FOR 2013
D KPIs (2012)
Definitions are shown in the
KPI section of the Finance report
07
E
7 Specialty Products
To be the fastest growing and most
competitive supplier of specialty
chemicals additives in the world.
Growing the business, revenue and
market share, while maintaining
margins.
• Organic growth from new products,
markets, applications or geographies.
• Selective acquisitions in rheology or
complementary additives.
• Excellent customer service and understanding.
• Technical expertise and support, and
product innovation.
• Operational excellence to maintain margins
and improve procurement and supply
chain efficiencies.
• Market share gains and robust new product
pipeline delivering results.
• Capacity expansion projects to support
growth in the coatings and oilfield drilling
markets.
• Acquisition of watercryl in Brazil gives the
business a significant platform to grow in
the Latin American markets.
• New R&D centre of excellence in New
Jersey commissioned in April 2012 and a
new technical service centre established
in Mumbai that will be commissioned in
early 2013.
• Operating margin of approximately 20 per cent
is consistent with that of a true specialty
chemicals company and AwC metrics
show that this aspect of the business is
managed well.
• Achieve 2013 operating plan.
• Maintain operating margins at around 20 per cent and AwC levels
at a sustainable level.
• win new customers and work with existing customers to help them
solve their formulary problems and to provide a level of performance
that improves the effectiveness or efficiency of their products,
processes or applications.
• Using the watercryl acquisition as a platform for growing sales in
Latin America.
• Continue to develop new products for the decorative and industrial
coatings, personal care and oilfield drilling markets.
• Commission the technical service centre in Mumbai to support
sales into India.
Financial
• Constant currency sales increased by 4.2 per cent.
• Operating profit* on a constant currency basis increased by 3.8 per cent.
• Operating margin* remained at c.20 per cent.
• ROCE before tax and excluding goodwill decreased to 40.2 per cent.
• AwC to sales ratio maintained at 18.8 per cent.
Non-financial
• Two “Lost time accidents”.
• No Tier 2 or 3 environmental incidents.
See CSR report.
8 Chromium
Consistently deliver a relatively stable
and sustainable level of earnings and
cash flow.
• Maintain high capacity utilisation and
optimising operational performance by
• Business delivered strong operating profit
and cash flow results despite challenging
flexing our low cost manufacturing footprint
economic conditions and shifts in market
to respond to changes in demand.
• Operational discipline to maintain price and
cost competitiveness and margins.
• Improve cost base by securing supply of
raw materials and energy.
• Serve higher margin markets and customers
with value added products and just in
time service via custom designed
delivery systems.
and regional demand.
• Operating margin being maintained within
a sustainable range.
• Contracts secured to deliver stable energy
prices and consistent and reliable supplies
of key raw materials.
• Maintain current level of operating and financial performance:
– Deliver consistent level of earnings and operating cash flow.
– Flex the business model to adjust to changes in customer demand.
– Continue to provide value added products in unique delivery
systems that enable customers to improve efficiency, reduce
working capital and meet regulatory standards.
– Optimise capacity utilisation.
– Optimise supply chain and secure supplies of key raw materials.
Financial
• Constant currency sales increased by 3.9 per cent.
• Operating profit* on a constant currency basis increased by 11.9 per cent.
• Operating margin improved to 26.2 per cent.
• ROCE before tax and excluding goodwill decreased to 64.5 per cent.
• AwC to sales ratio (excluding chrome ore) improved to 16.2 per cent.
Non-financial
• No “Lost time accidents”.
• No Tier 2 or 3 environmental incidents.
See CSR report.
9 Surfactants
Steadily upgrading the product
portfolio in Surfactants by focusing
on higher margin applications, while
at the same time transitioning the
manufacturing facility to produce
more higher margin coatings
additives for Specialty Products.
• Focus on higher margin markets to balance
the base load activity in high volume
commodity applications.
• Offer innovative products to the market and
to customers.
• Target growth in higher margin segments to
improve profitability.
• Improve productivity, operational efficiencies
and sales focus.
• Operating profit of $4.8 million reflects a
decrease in sales, as the business continues
to transition its product portfolio mix away
from lower margin surfactants to higher
margin specialty additives.
• Revenue split approximately 50:50 between
additives and surfactants, while volume split
is 40:60 respectively.
• Operating margin improved.
• AwC to sales ratio continues to show
solid performance.
See Box B9.
Financial
• Constant currency sales decreased by 17. 5 per cent.
• Operating profit* on a constant currency basis decreased by 4.0 per cent.
• Operating margin* improved to 6.6 per cent.
• ROCE before tax and excluding goodwill increased to 25.1 per cent.
• AwC to sales ratio improved to 9.6 per cent.
Non-financial
• No “Lost time accidents”.
• No Tier 2 or 3 environmental incidents.
See CSR report.
* before exceptional items, all of which relate to 2011
ANNUAL REPORT ANd ACCOUNTS 2012 ELEMENTIS PLC
Company ifc – 03 overviewbusiness 04 – 35 reviewCorporate 36 – 61 governanCefinanCial 62 – 105 statementsshareholder 106 – 108information
08
CHAIRMAN’S STATEMENT
Robert Beeston
Chairman
I am pleased to report another year of excellent progress at
Elementis. As has been widely documented, the economic
environment remained challenging in 2012 and continues to
test the resilience of our strategy and business model. It is
therefore gratifying to report that we have yet again delivered
improvements in earnings and operating margin in the year.
The well invested and cash generative nature of our businesses
means that we have been able to make further value added
investments and yet still increase the amount of net cash on our
balance sheet in 2012 by $17.8 million, to a total of $44.0 million
at the end of the year. As a result the Board is recommending
the first distribution under the recently announced special
dividend programme.
The Group has continued to benefit from its strategy of investing
in Specialty Products, where opportunities are plentiful and
prospective returns are high, funding this investment through
the positive cash flow generated by this business and the stable
earnings and cash flow from the Chromium business. The period
has seen several exciting investments in Specialty Products, and
already in 2013 we have announced the acquisition of Hi-Mar,
further expanding our product offering and technical service in
the area of defoamers. These investments will further enhance the
growth prospects and resilience of both Specialty Products and
the Group as a whole.
Group revenues in 2012 were $757.0 million compared to
$760.5 million in the previous year, with Specialty Products and
Chromium both showing revenue growth, while the Surfactants
business continued to reduce revenue in low margin activities
in line with its strategy. Group operating profit* increased by
5 per cent to $143.9 million, or 7 per cent on a constant currency
basis, and operating margin* increased from 18.0 per cent in 2011
to 19.0 per cent in the year. Diluted earnings per share* improved
by 12 per cent to 23.3 cents per share.
* before exceptional items, all of which relate to 2011
ELEMENTIS PLC ANNUAL REPORT ANd ACCOUNTS 2012
Balance sheet
The Group continues to be in a robust financial position and has
a balance sheet that provides a strong platform to fund future
growth. During the year a new funding plan was agreed with
the trustees of the Group’s UK pension plan that will finance the
agreed funding deficit over the next six years. Under the new plan
the Group will make affordable contributions that strike the right
balance between meeting our commitments under the plan,
while supporting our growth, and providing appropriate returns
to our shareholders and other stakeholders. Under IAS 19 the total
deficit in the Group’s retirement plans at the end of 2012 was
$136.0 million, compared to $94.8 million in the previous year.
This increase is largely due to decreases in real bond yields during
the year.
Ordinary dividend
The Board is recommending a final dividend of 5.32 cents
(2011: 4.66 cents) per share which will be paid on 31 May 2013 in
pounds sterling at an exchange rate of £1=$1.5266 (equivalent to
a sterling amount of 3.4849 pence per share), to shareholders on
the register on 3 May 2013. This brings the total ordinary dividend
to shareholders for the year to 7.77 cents (2011: 7.00 cents),
representing an increase of 11 per cent over the previous year.
Going forward the Board intends to maintain a progressive ordinary
dividend policy as the Group’s dollar earnings and cash flow permit.
Special dividend
Following a review of the Group’s capital in the year the Board
announced that it intended to institute a special dividend
programme to provide shareholders with an enhanced return,
in recognition of the strong cash generative nature of the Group.
Under this programme, at any year end when the Group is in a
net cash position and there are no immediate investment plans
for that cash, the Board will recommend an additional special
dividend of up to 50 per cent of the net cash amount. The Board
is confident in the Group’s ability to continue to fund growth
investments, similar to those made in 2012, from internally
generated cash flow. The Board has therefore concluded that it
would be appropriate to distribute the full 50 per cent of the net
cash balance at the end of 2012 as a special dividend. The amount
of this special dividend will therefore be $22 million, or 4.79 cents
per share (equivalent to a sterling amount of 3.1377 pence per
share), and will be paid under the same terms and exchange
rate as the ordinary dividend, bringing the combined dividend
for the full year to 12.56 cents per share.
09
Health, safety and the environment
Our performance in this important area of our business continues
to be of a high industry standard and showed an improvement
over the previous year. Nevertheless, we remain extremely vigilant
in monitoring and continuously improving our processes and
activities that impact upon the safety of our employees and
the environment.
Corporate governance
Your Board remains committed to maintaining high standards
of corporate governance and is satisfied that the Company has
complied fully with all of the relevant provisions of the UK Corporate
Governance Code (June 2010 version) (“CGC”) throughout the
financial year ended 2012. In my introduction to the Corporate
governance report for 2012, I set out how your Board has applied
the main principles in the CGC relating to the role and effectiveness
of the Board.
People
Our progress and successes are only possible through the
significant efforts and dedication of our employees around the
world. I would therefore like to thank and congratulate them on
behalf of the Board for yet another year of notable achievements.
Outlook
The resilient performance demonstrated by the Group in 2012,
combined with new investments in Specialty Products, are further
evidence that Elementis is adopting the right strategy to drive
profitable growth and create value for shareholders and other
stakeholders. The Board is therefore confident that the Group
can continue to make progress in the medium term.
The Board welcomes the changes that have been made to the
UK Corporate Governance Code (September 2012 version) and is
confident that the Company will comply fully with these new
provisions during 2013.
Robert Beeston
Chairman
26 February 2013
As previously reported, a recruitment process is underway that
should lead to changes being made to the Board during the course
of 2013. Two additional directors will be appointed to replace Chris
Girling and Kevin Matthews, who will be retiring towards the end
of the year. Both individuals have served as non-executive directors
since 2005. Chris Girling is Chairman of the Audit Committee and
it is planned that this role will be taken over by one of the two
new appointees after a period of induction and handover.
Kevin Matthews is Chairman of the Remuneration Committee
and he will be succeeded in this role by current Board member
Andrew Christie. The Board is mindful of the benefits of gender
diversity on boards and has taken these factors into consideration
in the recruitment process. All Board changes will be announced
at the appropriate time.
ANNUAL REPORT ANd ACCOUNTS 2012 ELEMENTIS PLC
Company ifc – 03 overviewbusiness 04 – 35 reviewCorporate 36 – 61 governanCefinanCial 62 – 105 statementsshareholder 106 – 108information
10
GROUP CHIEF ExECUTIVE’S OVERVIEw
David Dutro
Group Chief Executive
Dear Shareholders,
It is my pleasure to report another excellent year for Elementis,
with 2012 marking a new level of achievement for our Company.
Collectively our businesses delivered the highest EPS* level in the
Group’s history. Even more remarkably, this strong performance
was achieved in the face of a global economy and market
environment that grew more uncertain as the year progressed.
These results further validate the resilience and inherent quality
of our businesses. This record performance is especially notable
when viewed as a continuation of the striking improvements in
performance we have achieved over the past three years, during
which we increased EPS* by more than 440 per cent. Our total
shareholder return of 375 per cent over this period puts the
Group in the top percentile of all FTSE All Share companies. we are
resolute in our commitment to deliver profitable growth across
all stages of the economic cycle and our internal performance
targets continue to be independent of improvements in
market conditions.
The Board recently announced that, in addition to its current
progressive dividend policy, a special dividend programme
has been instituted that will provide an additional return to
shareholders of up to 50 per cent of year end net cash on the
balance sheet. This programme reflects the Board’s high level of
confidence in the Company’s financial strength and our ability to
continue to deliver strong cash flows. with a positive outlook for
the future and ample cash to fund bolt on acquisitions and growth
investments, we are sure that our new dividend programme will
enhance our ability to provide strong returns to our shareholders.
Elementis Specialty Products
Consistent with our strategic focus on growth in 2012, Specialty
Products introduced new products, expanded our geographic
presence and made investments to serve our customers’ growing
demand. These investments included:
• The acquisition of Watercryl in Brazil, strengthening
Specialty Products’s position in Latin America.
• Completion of a new Specialty Products North American
additives plant – supporting the sale of recently introduced
products in decorative coatings.
• A new world class US based technology centre and pilot
plant – to better support our innovation model and
product development programme.
* before exceptional items
• On-going investment in new capacity to support both the
current high demands and future growth of our coatings,
personal care and oilfield customers.
• An office and technical service lab being opened in
Mumbai, India.
These investments will contribute significantly to our continued
growth and further strengthen our product innovation model
and technological leadership. we are in the enviable position of
having manufacturing facilities that are extremely well invested,
thus requiring only modest levels of maintenance capital,
resulting in the majority of our capital spend being invested in
growth projects.
The Specialty Products business provides a robust growth
platform, with our balanced geographic exposure across mature
and emerging economies, strong technology base and strategic
market diversification. In addition to an impressive proprietary
product offering, we also own and operate a high purity hectorite
clay mine. Hectorite clay is highly valued by coatings and personal
care, and increasingly by our oilfield, customers for its unique
rheology characteristics and colour purity, which create a distinct
long term competitive advantage for both Specialty Products
and our customers. Specialty Products has a significant technical
service and application support presence in our market segments,
which has been built on long term relationships of trust,
collaboration and technical expertise. Our differentiated
technological innovation is supported by best in class process
technology and tightly held manufacturing know-how.
The Specialty Products growth strategy is two pronged: internally
generated growth through innovative new products, geographic
expansion and gains in market share, along with value adding
acquisitions that are consistent with our business model.
On the acquisition front, Specialty Products acquired watercryl,
a Brazilian based specialty additives manufacturer. Through this
acquisition, we enhanced our penetration of the very important,
high growth Latin American region and obtained a portfolio of
innovative products that complements our own. while our global
presence enables us to develop and leverage solutions for our
customers around the world, a strong local presence is critical in
allowing us to truly understand our customers and their specific
needs, and to respond proactively to address them. The
integration of watercryl, which is expected to be accretive to
earnings in 2013, is well underway and delivering a number of
ELEMENTIS PLC ANNUAL REPORT ANd ACCOUNTS 2012
11
3
0
–
C
F
I
y
n
a
p
m
o
C
i
w
e
v
r
e
v
o
3
3
–
4
0
s
s
e
n
s
u
b
i
i
w
e
v
e
r
exciting growth opportunities in the fast growing Latin America
markets. The announcement on 20 February 2013 that we have
acquired Hi-Mar, a leading supplier of defoamers, demonstrates
our continued commitment to targeting bolt on acquisitions that
extend our product range into adjacent, high growth markets and
that are synergistic with our current technologies, product
portfolio, customer base and margin expectations.
At the heart of nearly every investment we make in this business
is innovation. Innovation at Elementis is about leveraging our
expertise, market knowledge and deep customer relationships
to develop and commercialise value added solutions for our
customers and markets. This concept is captured in the Specialty
Products tagline “your one-stop solution provider.” Our R&D
pipeline is stronger than ever and, more importantly, our new
products are delivering real value to our customers and to the
bottom line. Our ability to consistently deliver innovative products
has been a critical component of our growth strategy and
performance improvement to date, and it will drive our next
level of success as well.
Elementis Chromium
Elementis Chromium reported its best year ever in terms of
earnings, further confirming the business’s ability to adjust to
rapidly changing market dynamics. In 2012 this business delivered
operating margins of 26.2 per cent and a return on capital
employed (before tax and excluding goodwill) of 65 per cent.
The Chromium business’s strategy is primarily focused on
reducing cyclical fluctuations and consistently delivering more
predictable and therefore higher quality earnings and cash flow.
The business provides products that serve a diverse range of
customers, geographies and applications, allowing it to quickly
shift products and resources away from sluggish areas to those
offering better returns. As the only North American based
manufacturer of chromium chemicals, the business is able to
provide North American customers with a differentiated and
highly valued closed loop delivery model, providing a long term
competitive advantage to Elementis. The business has a significant
share of North American chromium chemicals sales and 58 per
cent of its sales were into this region in 2012. In addition, on the
manufacturing side, the business completed its alternative energy
project, which allows the Castle Hayne, North Carolina facility to
operate on natural gas as well as fuel oil. This investment gives the
business far greater flexibility to procure energy in a more cost
effective manner going forward.
Elementis Surfactants
we continue to improve the quality of the product portfolio and
margins in our Surfactants business. This business, located in
Delden, the Netherlands, shares its production facility with the
Specialty Products business. The goal remains to utilise more
of the facility’s capacity over time to support the higher margin
product range in the Specialty Products business. The Delden
facility is a large and well maintained site and we are pleased to
have the available capacity to support the Specialty Products
growth strategy.
Summary
I am proud of Elementis’s accomplishments in 2012, which are a
direct reflection of the hard work and dedication of our global
team and performance driven culture.
Regardless of the overall economic conditions, Elementis will
continue to execute our well defined growth strategy of
focusing on market share gains, introducing new products and
strengthening our position in new geographies and technologies
with complementary bolt on acquisitions.
As we embark on a new financial year we have excellent
momentum. what’s more, I believe we are only now beginning to
see the full earnings and cash generating ability of the businesses.
we will continue to provide value for our customers, which will
deliver results for you our shareholders. we have established goals
and plans to make 2013 another exceptional year for our Company.
we continue to be positive about the future at Elementis and our
ability to continue to make progress in this outstanding company
for our stakeholders. In closing, we would like to sincerely thank
our shareholders and customers for their continued confidence
and support.
David Dutro
Group Chief Executive
26 February 2013
ANNUAL REPORT ANd ACCOUNTS 2012 ELEMENTIS PLC
corporate 36 – 61 governancefinancial 62 – 105statementsshareholder 106 – 108information
12
GROUP CHIEF ExECUTIVE’S OVERVIEw CONTINUED
GROUP OPERATING PROFIT AND MARGIN
NET CASH/(DEBT)
19.0%
18.0%
137.1
143.9
14.7%
102.3
$m
200
180
160
140
120
100
80
60
40
20
0
$m
60
40
20
0
-20
-40
-60
-80
-100
%
20
18
16
14
12
10
8
6
4
2
0
44.0
26.2
(79.3)
2010
2011
2012
2010
2011
2012
Net cash/(debt) ($m)
Group operating profit* ($m)
Operating margin* (%)
* before exceptional items, all of which relate to 2010 and 2011
EARNINGS PER SHARE
23.3
20.8
15.2
Cents
24
22
20
18
16
14
12
10
8
6
4
2
0
2010
2011
2012
Diluted earnings per share before exceptional items, all of which relate
to 2010 and 2011 (cents)
ELEMENTIS PLC ANNUAL REPORT ANd ACCOUNTS 2012
OUR BUSINESSES
13
REVENUE
OPERATING PROFIT
Revenue
2011
$million
449.9
231.0
94.3
(14.7)
760.5
Effect of
exchange
rates
$million
Increase/
(decrease) Revenue
2012
$million
2012
$million
(9.6)
–
(6.4)
–
(16.0)
18.4 458.7
9.1 240.1
(15.4) 72.5
0.4
(14.3)
12.5 757.0
Specialty Products
Chromium
Surfactants
Central costs
* before exceptional items
Operating
profit
2011*
$million
Effect of
exchange
rates
$million
Increase/ Operating
profit
(decrease)
2012
2012
$million
$million
89.7
56.1
5.4
(14.1)
137.1
(2.9)
–
(0.4)
0.3
(3.0)
3.3
6.7
(0.2)
–
90.1
62.8
4.8
(13.8)
9.8 143.9
ELEMENTIS CHROMIUM
ELEMENTIS SURFACTANTS
Specialty Products
Chromium
Surfactants
Inter-segment
KEY FACTS
ELEMENTIS SPECIALTY
PROdUCTS
we are the Group’s largest business,
accounting for 61 per cent of Group
sales and 63 per cent of Group
operating profit in 2012.
we are a leading producer and
global supplier of chromium
chemicals, and the only
domestic producer in the US.
we provide surfactant based
chemical solutions for industrial
processes and products involving
interfacial surface chemistry.
we are based in 27 locations
around the world, in North and
Latin America, Europe and Asia,
and our sales are approximately
split equally between the Americas,
Europe and Asia.
we have over 900 employees
globally, 12 manufacturing facilities,
3 research centres of excellence
(including a process development
facility) based in North America,
Europe and Asia, 6 technical
service centres and 11 dedicated
sales offices.
www.elementis.com
Our business accounts for
32 per cent of Group sales and
44 per cent of Group operating
profit in 2012.
we operate from two major facilities
in Castle Hayne, North Carolina
and Corpus Christi, Texas, and
three smaller processing facilities
supplying local tanneries.
we share a manufacturing plant
in Delden, the Netherlands, with
Elementis Specialty Products
and the plant is in the process of
transitioning its product portfolio
to producing more higher margin
specialty additives.
we employ over 150 employees
at our Delden site.
we have over 250 employees, most
of whom are located in the US.
www.elementis.com
www.elementischromium.com
ANNUAL REPORT ANd ACCOUNTS 2012 ELEMENTIS PLC
Company ifc – 03 overviewbusiness 04 – 35 reviewCorporate 36 – 61 governanCefinanCial 62 – 105 statementsshareholder 106 – 108information
Sales
Operating profit
Operating margin
ROCE**
* before exceptional items
** before tax and excluding goodwill
2012
$458.7m
$90.1m
19.6%
40.2%
2011
$449.9m
$89.7m*
19.9%*
42.6%
HOW WE dO IT
• Proven leadership team with solid track record in the management of the
business including risk, working capital, HSE and supply chain matters.
• world class R&D leadership, focused on product innovation and a robust
• Balanced geographic growth platform, spread across developed and
new product pipeline.
emerging markets.
Specialty Products worldwide
• Tightly held manufacturing know-how, best in class process technology
and manufacturing and operational excellence.
• Diversified portfolio of proprietary technology.
• Aligned with global market leaders in coatings, personal care and
oilfield drilling markets; opportunities to leverage relationships to
cross-sell into different markets or sectors.
• Strong reputation for customer service, technical support and long term
• Product portfolio has many end users and a wide range of applications
• Commercial teams (sales and marketing) work with R&D function to
develop new products to give customers an alternative or to address
a specific market or customer need.
relationships of trust, collaboration and technical expertise.
in multiple high growth markets and sectors.
SciPark, East Windsor, New Jersey
14
OUR BUSINESSES CONTINUED
Elementis Specialty Products
Greg McClatchy
President of Elementis Specialty
Products and Elementis Surfactants
WHAT WE dO
we provide high value functional
additives to the decorative and
industrial coatings, personal care
and oilfield drilling markets that
improve the flow characteristics
and performance of our customers’
products or production processes.
we have significant expertise in
the science of rheology, which,
in its simplest form, means our
technology imparts thickness and
viscosity control. For example, paint
without rheological additives would
have the consistency of water, but
paint with our additives is smooth,
homogeneous and has a controlled,
even spread on a surface.
The same requirements for
rheological additives exist in
personal care products, such as
creams and lotions, and in oilfield
drilling applications, providing
viscosity control to thicken and
suspend solids in drilling
formulations and to stabilise
stimulation packages used in the
drilling process.
Our patent-protected technology
addresses the performance needs
of our customers through our
rheological modifiers for aqueous
and solvent systems, wetting and
dispersing agents, colourants and
tinting systems, defoamers, waxes
and slip aids, adhesion promoters
and other performance enhancing
or surface active additives.
ELEMENTIS PLC ANNUAL REPORT ANd ACCOUNTS 2012
15
WHERE WE dO IT
Key segments served
• Decorative paints and coatings
• Industrial paints and coatings
• Oilfield drilling
• Personal care
Key products
• Rheological additives/modifiers
• High performance
dispersing agents
• Flow and levelling additives
• Other specialty additives
and resins
• Organoclays
• Colourants and pigments
Key applications
• Decorative coatings: homes,
offices and similar environments
• Industrial coatings: protective
applications in automotive,
containers, furniture, flooring,
marine, plastics and construction
• Oilfield: drilling and fracturing
fluids utilised in oil and gas
extraction activities
Other segments served:
• Adhesives and sealants
• Asphalt and bitumen
• Construction
• Inks
• Lubrication
• Plastics
• Refractory and ceramics
• water treatment
• Defoamers and
coalescing agents
• wetting and slip agents
• Lanolin and other natural
oil derivatives
• Personal care: antiperspirants,
nail polish, mascara, make-up,
eye shadow, lipsticks,
creams, lotions and suncare
products
• Construction: concrete, plasters,
mortars, renderings, stuccos,
flooring systems and building
adhesives
INdUSTRY STRUCTURE ANd SUPPLY CHAIN
Our coatings customers are the global, regional and local coatings
companies. Elementis has a unique global position, providing
technical service and a broad product offering to both multinational
and regional coatings companies. The rheology solutions of
Elementis are critical to the performance of our coatings customers’
products. In personal care, Elementis is a significant player in
additives for cosmetic products based on its expertise in hectorite
rheology and other complementary technologies. In oilfield drilling,
Elementis is the preferred supplier to oil service companies for high
performance rheological additives. Its unique technologies and
strong alignment with key industry players have allowed the business
to benefit from the recent increase in drilling activity for shale gas in
North America, as well as the continuing global trend of exploiting
oil and gas reserves in more extreme environments, both of which
require greater and more sophisticated rheological solutions.
The top ten customers account for less than 30 per cent of total sales.
In each key segment, the business has many competitors from
multinationals to smaller, privately owned businesses.
The business has long term agreements in place to secure supplies
of key raw materials, such as clays, quaternary amines and other
chemical intermediates. The business owns and operates the only
rheology grade hectorite mine in the world in a sustainable way.
Hectorite clay is a key ingredient in many of our products and
formulations across our market segments.
SPLIT OF SALES REVENUE 2012 (%)
GEOGRAPHIC
SEGMENT
9
32
29
30
North America
Asia Pacific
Europe
Rest of the world
9
14
22
55
Industrial coatings
Decorative coatings
Oilfield
Personal care
ANNUAL REPORT ANd ACCOUNTS 2012 ELEMENTIS PLC
Company ifc – 03 overviewbusiness 04 – 35 reviewCorporate 36 – 61 governanCefinanCial 62 – 105 statementsshareholder 106 – 108information
16
OUR BUSINESSES CONTINUED
Elementis Specialty Products continued
OUR bUSINESS MOdEL
Our growth strategy is shaped by our unique
commercial advantage
Elementis Specialty Products displays all the characteristics of a true
specialty chemicals company: highly segmented markets; balanced
exposure to mature and emerging markets; differentiation through
customer service and technical support; long term relationships of
trust, collaboration and technical expertise; high operating margins
and return on operating capital; ability to pass on raw material
inflationary price increases; and products that are critical ingredients
in customers’ formulations and essential to their performance.
In addition, it is the owner of the only rheology grade hectorite
mine in the world.
How our business is organised
The Specialty Products business is organised into five business units
that reflect the four principal strategic segments served (industrial
and decorative coatings, personal care and oilfield drilling):
1. Coatings americas
4. personal Care
2. Coatings europe
5. oilfield Drilling
3. Coatings asia
Each of our five business units has the following reporting structure:
business President
Business Unit Director
The five business units are supported by business and corporate
support functions:
business Finance (including
shared service centres, credit
control, accounts payable/
receivable)
product stewardship &
regulatory affairs, Hse and
Quality
procurement & supply
Chain, Commercial (sales &
marketing), Technical service
and r&D
Group Finance (including
Treasury), Hr, iT, Legal &
Compliance and Governance
& risk management
Where we add value
Coatings is the largest segment of our business and the performance
requirements for decorative and industrial coatings are very different
and can vary depending on the exact application or regional factors
and preferences. In decorative coatings, the reason for such a wide
range of brands and paints is partly down to providing a better
choice to the end consumer, be it value, colour or performance
with additives for environmentally friendly coatings systems. 1
The paint required for all the different surfaces in the home are
formulated specifically for each room. For example, paint should
be water resistant in the bathroom, stain and scrub resistant in the
kitchen and scuff resistant in the hallway.
The performance requirements of industrial coatings are higher still,
for example, ships, bridges or cargo containers. A coating may have
to be resistant to hot and cold weather, be rust and mould proof and
durable against rough handling. 2 Just about every object that has
a surface will have a coating, from laptops and washing machines,
to commercial aircraft and luxury cars.
Growth of our coatings business is linked to GDP factors, as well as
product innovation and customer service, so a strong, vibrant global
economy will mean more house building, construction and other
infrastructure projects, as well as consumption of luxury goods,
all of which provide a significant boost to economic activity.
However, our business has a very balanced geographic footprint,
providing a natural hedge against differing economic conditions
depending on geographic region. This has helped to ensure our
business is more sustainable, can maintain margins and generate
value for our shareholders.
In addition to servicing a wide base of customers (existing and new),
the business responds to the changing needs of customers and
actively seeks to identify gaps in the market, and these drive our R&D
programmes. For example, we have helped a motorcycle and a ship
manufacturer overcome the rheology challenges of applying just a
single coating on their surfaces, without compromising on quality
and performance, which saved them both time and cost – helping
them to service their customers. 3 Other examples include a
customer who needed better spatter control or higher efficiency
when spraying a coating on floor covering products.
An example of targeting a niche market with a new product is from
our personal care business. we launched a natural oil based rheology
modifier for colour cosmetics and skin care in the form of a gel, using
our eco-certified ingredients. This was a new product innovation that
was introduced into the market with good results. 4
Watercryl, Brazil
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012 1
2
3
4
17
In oilfield drilling, there is a strong underlying demand for rheology
additives in North American shale drilling as well as drilling for oil
and gas in extreme environments, such as deep water and high
temperature and pressure. However, customer inventory adjustments
in the North American market during the second half of the year had a
significant impact on sales in that period. As a result, the strong sales
growth seen throughout 2011 and into the first half of 2012, with sales
28 per cent ahead of the previous year, were offset in the second half
of the year, such that overall sales for the year were 6 per cent lower
than the previous year.
In personal care, sales for the year were 8 per cent higher than the
previous year, or 13 per cent on a constant currency basis, as the
business continued to experience good demand for rheology
additives, particularly for applications such as aerosol antiperspirants
and colour cosmetics. Organisational changes in the business during
the year provided greater focus and helped drive higher growth in
the second half, where sales grew by 18 per cent excluding currency,
compared to 9 per cent in the first half.
Operating profit* in 2012 was $90.1 million compared to $89.7 million
in the previous year, which is an increase of 4 per cent excluding
currency movements. Operating margin* remained resilient, at just
under 20 per cent, despite changes in the sales mix, while raw
material inflation was less evident due to the diverse nature of the
materials utilised by the business. Selective price increases during
the year had a positive impact on operating profit and fixed costs
increased by 6 per cent, partly to support a number of growth
investments made during the year.
* before exceptional items, all of which relate to 2011
2012 PERFORMANCE
Sales in Specialty Products for 2012 were $458.7 million compared
to $449.9 million in the previous year, an increase of 2 per cent, or
4 per cent on a constant currency basis. The increase was primarily
due to higher sales volumes as the business experienced good
growth in most of its key markets and geographies.
In the coatings market, additives sales in North America increased by
7 per cent as the business continued to benefit from market share
gains and new product launches. A particular feature was the growth
in decorative paints where several new NiSAT products were launched
and a new US plant producing these products began production in
early 2013. Marine and ink coatings applications also showed robust
growth, while a slowdown in some construction markets impacted
sales in the second half of the year, such that first half sales were 14 per
cent ahead of the same period last year, while second half sales were
similar to the previous year.
In Europe, sales increased by 2 per cent, after adjusting for currency
movements, due to market share gains in a number of end applications,
including wood coatings and construction. Year on year constant
currency sales were 3 per cent lower in the first six months of the year
and 8 per cent higher than the previous year in the second half.
In Asia Pacific, coatings sales have continued to show good growth
as a result of our strong presence in China and our ability to leverage
a differentiated customer offering and technical service into other
high growth markets, such as India. Comparisons with the previous
year are somewhat impacted by a portfolio optimisation strategy,
implemented during the first half of 2011 to improve margins.
This strategy offset the underlying growth that the business was
experiencing, such that first half sales in 2012 were 1 per cent higher
than the same period last year. However, this programme did not
impact the second half and sales in that period were 15 per cent
higher than the previous year. For the year as a whole, coatings sales
in Asia Pacific increased by 7 per cent.
In Latin America, coatings sales benefited from the acquisition of
watercryl in Brazil, which completed on 28 September 2012. The
acquisition added $2.5 million to sales in the fourth quarter of 2012
and contributed to the full year regional sales increase of 17 per cent.
Company ifc – 03 overviewbusiness 04 – 35 reviewCorporate 36 – 61 governanCefinanCial 62 – 105 statementsshareholder 106 – 108information ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLC 18
OUR BUSINESSES CONTINUED
Elementis Chromium
Dennis Valentino
President of Elementis Chromium
Sales
Operating profit
Operating margin
ROCE*
* before tax and excluding goodwill
2012
$240.1m
$62.8m
26.2%
64.5%
2011
$231.0m
$56.1m
24.3%
67.0%
WHAT WE dO
WHERE WE dO IT
we provide chromium chemicals
to our customers that make their
products more durable and are
used in a wide range of sectors
and applications.
Our reputation for quality and
operational excellence, and our
high levels of customer service
and technical support are key
differentiating factors for us that
enable us to develop long term,
mutually advantageous
relationships with our customers.
The key products in our broad
product portfolio include:
chromic acid, chromic oxide,
sodium dichromate and chrome
sulphate. These products are used
in very diverse end markets
around the world.
HOW WE dO IT
• The business is structured to benefit from a flexible and cost competitive
operating footprint capable of delivering stable earnings and cash flow
over a broad range of economic conditions.
• The business focuses on key regional sectors and value added product
offerings and retains a strong geographic presence in North America,
with export sales to Latin America, Europe and Asia Pacific.
Chromium – United States
• As well as being the only domestic producer in the US, the business has
a unique product delivery system that meets high regulatory standards
and helps our customers manage their supply chain more effectively.
ELEMENTIS PLC ANNUAL REPORT ANd ACCOUNTS 2012
•
•
•
Pigments/ceramics
Refractory
Chrome metal (super alloys)
Key segments served
• Metal finishing
• Timber treatment
• Leather tanning
Key products and applications
• Chromic oxide: as a pigment in paints, decorative coatings, plastics,
roofing tiles and ceramic tiles; in the construction of high temperature
and abrasion resistant refractory brick for glass and fibreglass; and in
the production of super alloy metals for use in aeroplane and land
based turbines.
• Chromic acid: in plating metal and plastic to produce a strong, tarnish
resistant chrome finish for appliances, automobiles and many other
applications; and as a wood preservative for marine pilings, telegraph
poles, landscape timbers and other industrial wood applications.
• Chrome sulphate: in tanning to produce high quality leathers for a
• Sodium dichromate: as an intermediate chemical to produce
wide range of end uses.
pigment for industrial coatings and traffic paint.
SPLIT OF SALES REVENUE 2012 (%)
GEOGRAPHIC
SEGMENT
8
16
18
58
North America
Asia Pacific
Europe
Rest of the world
10
33
12
15
30
Metal finishing
Other
Timber treatment
Pigmentary
Leather tanning
INdUSTRY STRUCTURE ANd SUPPLY CHAIN
The business has a large customer base with customers located in
different regions around the world. Our top ten customers account
for 46 per cent of total sales.
The business has many competitors from multinationals to smaller
privately owned businesses.
The business has agreements in place to secure supplies of key raw
materials, such as chrome ore, soda ash and sulphuric acid.
19
OUR bUSINESS MOdEL
2012 PERFORMANCE
Our strategy is to operate at high capacity utilisation to
generate sustainable earnings and cash flow to reinvest
into the Specialty Products business
Elementis Chromium manufactures a range of chromium
chemicals. The business has the ability to flex its manufacturing
operations to respond to changes in demand and its diverse end
markets (by geography, application and sector), giving our
business model the strength and resilience to generate sustainable
earnings and cash flow over a broad range of economic conditions.
How our business is organised
The Chromium business operates with a lean management
structure:
Business President
Leadership team:
• Vice President Finance (also responsible
for sourcing of key materials and energy)
• Global Commercial director (sales and marketing)
• President of the leather tanning products
(“LTP”) business
• Operations director
The Product Stewardship & Regulatory Affairs, HSE and
Quality functions report to the Operations director
The business is supported by corporate support functions:
shared service centres
(credit control, accounts
payable/receivable)
Group Finance (including
Treasury), Hr, iT, Legal &
Compliance and Governance
& risk management
How our business operates
The two main facilities in Castle Hayne and Corpus Christi produce
all of our chromium chemicals, with the exception of liquid chrome
sulphate which is manufactured at the LTP sites. The commercial
and operations teams work together closely to flex our production
output to meet current customer demand, to respond to regional
or market shifts and to optimise product mix and margins.
Chromium sales in 2012 were $240.1 million compared to
$231.0 million in 2011, an increase of 4 per cent. Currency had
no material impact on year on year sales. Sales volumes were
1 per cent higher than the previous year, as the business operated
at high rates of capacity and adjusted its production mix to optimise
output in response to changes in global demand patterns. Sales
volumes in the first half of the year were 2 per cent ahead of the
previous year, while second half volumes were similar to the
previous year. In North America, which accounted for 58 per cent
of sales in 2012 (2011: 57 per cent), sales volumes were 5 per cent
higher than the previous year, as higher sales of chromic acid used
in timber treatment offset lower sales of chrome sulphate for leather
tanning applications. The demand in timber treatment was driven
by a continuing preference by consumers for chrome based
products over more expensive petrochemical based alternatives,
while the softer demand in leather tanning applications was a
result of lower herd sizes in North America following recent
drought conditions.
In Europe, sales volumes were significantly higher than the previous
year, growing by 29 per cent, as solid growth in the global chrome
metal market for aerospace applications created opportunities to
sell high quality chrome oxide to key manufacturers, a number of
whom are based in Europe.
In Asia Pacific, sales volumes were 18 per cent lower than the
previous year as strong sales of chromic acid for auto applications in
China were more than offset by lower sales in Japan caused by the
merger of two major customers. Average selling prices increased by
3 per cent in response to higher raw material prices.
Operating profit improved by 12 per cent versus the previous year
to $62.8 million and operating margin increased to 26.2 per cent
from 24.3 per cent. Lower energy costs contributed $7.4 million to
the operating profit improvement and were largely a result of the
conversion of Castle Hayne to natural gas during the first quarter of
2011, as well as lower average gas prices compared to the previous
year. This, combined with higher average selling prices, more than
compensated for higher raw material costs experienced in the year,
while fixed costs remained firmly under control.
ANNUAL REPORT ANd ACCOUNTS 2012 ELEMENTIS PLC
Company ifc – 03 overviewbusiness 04 – 35 reviewCorporate 36 – 61 governanCefinanCial 62 – 105 statementsshareholder 106 – 108information
20
OUR BUSINESSES CONTINUED
Elementis Surfactants
Sales
Operating profit
Operating margin
ROCE**
* before exceptional items
** before tax and excluding goodwill
WHAT WE dO
we manufacture a wide range of
surface active ingredients and
products that are used as
intermediates in the production of
chemical compositions.
Our products have many
applications and are used in a
large number of industries and
sectors, such as in oilfield services,
household and industrial cleaning,
textiles and leather, and other
niche markets including animal
feed, agriculture and plastics.
Our broad range of specialty
surfactants include non-ionic,
anionic, cationic and amphoteric
surfactants, blended products, as
well as specialty additives, such as
dispersing agents, emulsifiers and
defoamers.
HOW WE dO IT
• Our unique and versatile product portfolio, broad expertise in surfactants
chemistry, flexibility and ability to produce a wide range of complex
products, often in relatively small quantities and customised to meet our
customers’ requirements, are key strengths of the business.
• Through close customer relationships and by maximising synergies of
customers’ application experience, as well as our chemical knowledge,
we continuously strive to offer tailor made products and system solutions
that contribute to our customers’ success.
• Our plant is equipped with both continuous and multi-purpose batch
reactors for various chemical processes, including polymerisation and
condensation reactions, ethoxylation, propoxylation, phosphation,
sulphation, sulphonation and quaternisation.
WHERE WE dO IT
Key segments served
• Oilfield production chemicals
• Construction chemicals
• Agro-chemical and animal
• Pharmaceutical ingredients
feed markets
• Textiles and leather
• Plastics and resins
• Household
•
Resin and polymer
emulsification
SPLIT OF SALES REVENUE 2012 (%)
GEOGRAPHIC
SEGMENT
35
13
79
Europe
Rest of
the world
Asia Pacific
North
America
4
7
15
39
35
ELEMENTIS PLC ANNUAL REPORT ANd ACCOUNTS 2012
Oilfield chemicals
Other
Textiles and Leather
Water Treatment
Feed
2012
$72.5m
$4.8m
6.6%
25.1%
2011
$94.3m
$5.4m*
5.7%*
21.7%
INdUSTRY STRUCTURE ANd SUPPLY CHAIN
The business has many competitors from multinationals to smaller
privately owned businesses.
The business has long term agreements in place to secure supplies
of key raw materials, which include ethylene and propylene oxides,
nonylphenol ethoxylate and fatty alcohols.
OUR bUSINESS MOdEL
Our strategy is to shift our product portfolio towards
higher margin applications, while transitioning our
manufacturing facility towards producing additives
for Specialty Products, and to improve our level of
profitability and operating margin.
How our business is organised
The President of the Specialty Products business is also the
President of the Surfactants business which, in addition to
sharing a site, also shares a common management framework and
resources, although its performance is reported separately. The
Surfactants facility is headed by a business unit managing director
into whom the operations and commercial sales teams report. The
business shares various business and corporate support functions
with the Specialty Products business, as illustrated on page 16.
The business’s customers are mainly based in Europe and its top
ten customers represent 64 per cent of revenue. The focus of the
business is to continue operational excellence by maintaining a
tight control over costs and to increase sales of our higher margin
and more profitable products.
2012 PERFORMANCE
Sales in Surfactants for 2012 were $72.5 million compared to
$94.3 million in the previous year, a decrease of 23 per cent, or
18 per cent on a constant currency basis. The majority of sales in
this business are denominated in euros. In line with the business’s
strategy to produce more additives for Specialty Products, sales
volumes in Surfactants declined by 21 per cent compared to the
previous year. This was exacerbated by the economic downturn
in Europe, with approximately 80 per cent of sales in Surfactants
going into this region. During this transition, the business
continues to improve the sales portfolio by increasing the
proportion of higher value products and this was evident in the
2012 sales mix. Average selling prices improved by 3 per cent in
response to increases in raw material costs.
Operating profit* in 2012 was $4.8 million compared to $5.4 million
in the previous year. Operating profit was lower due to the planned
reduction in sales volumes, however, operating margin* improved
to 6.6 per cent, compared to 5.7 per cent in the previous year.
Improved selling prices largely compensated for increases in raw
material costs and the increase in operating margin was a result of
portfolio optimisation and positive cost control.
* before exceptional items, all of which relate to 2011
FINANCE REPORT
Brian Taylorson
Finance Director
OPERATING PROFIT
Specialty Products
Chromium
Surfactants
Central costs
REVENUE
Specialty Products
Chromium
Surfactants
Inter-segment
21
2012
$million
458.7
240.1
72.5
(14.3)
757.0
2011
$million
449.9
231.0
94.3
(14.7)
760.5
Operating
profit
$million
90.1
62.8
4.8
(13.8)
143.9
Exceptional
items
$million
–
–
–
–
–
2012
Adjusted
operating
profit
$million
90.1
62.8
4.8
(13.8)
143.9
Operating
profit
$million
87.9
56.1
0.2
20.4
164.6
Exceptional
items
$million
1.8
–
5.2
(34.5)
(27.5)
2011
Adjusted
operating
profit
$million
89.7
56.1
5.4
(14.1)
137.1
Group results
Group sales in 2012 were $757.0 million compared to $760.5 million
in the previous year, an increase of 2 per cent excluding currency
movements. Sales in both Specialty Products and Chromium
increased over the previous year, while sales in Surfactants declined,
in line with that business’s strategy. Overall sales volumes for the
Group were higher than the previous year, largely due to growth in
Specialty Products, and pricing also improved, compensating for
increases in raw material costs.
Central costs
Central costs are costs that are not identifiable as expenses of a
particular business and comprise expenditures of the Board of
directors and the corporate office. In 2012 central costs were
$0.3 million lower than the previous year, before exceptional
items, at $13.8 million. The decrease was largely due to foreign
currency movements.
Exceptional items
There were no exceptional items in 2012.
Group operating profit* increased by 5 per cent to $143.9 million, an
increase of 7 per cent on a constant currency basis. Operating margin*
improved to 19.0 per cent, compared to 18.0 per cent in the previous
year, as each business continued to focus on sustainable higher
margin and differentiated business opportunities, and maintained
a strict operating discipline. The Group also benefited from lower
energy costs in the year as a result of structural changes in Chromium
operations and generally lower gas prices in North America.
Two items were recorded in 2011 under “Exceptional items”. The
first item was in relation to the recovery of $34.5 million from the
European Commission as first reported in the 2011 interim results
announcement. The recovery of these funds came about after the
Commission repealed its decision of November 2009 to impose
fines on Elementis. The second item was a provision of $7.0 million
relating to the Group’s pension arrangements in the Netherlands.
Currency hedging
Although a large proportion of the Group’s business is transacted in
US dollars, the Group also transacts in other currencies, in particular
euros and pounds sterling. In order to reduce earnings volatility
from these currency exposures, the Group takes out cash flow
hedges in these currencies each year. In 2012 a credit of $1.2 million
(2011: $0.3 million cost) resulted from these hedge transactions and
was reported in the Specialty Products results.
Net finance costs
Finance income
Finance cost of borrowings
Net pension finance income
Discount on provisions
2012
$million
0.8
(3.4)
(2.6)
1.2
(1.3)
(2.7)
2011
$million
0.7
(4.0)
(3.3)
1.9
(1.2)
(2.6)
* before exceptional items, all of which relate to 2011
Company ifc – 03 overviewbusiness 04 – 35 reviewCorporate 36 – 61 governanCefinanCial 62 – 105 statementsshareholder 106 – 108information ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLC
22
FINANCE REPORT CONTINUED
Net finance costs increased by $0.1 million in 2012 to $2.7 million,
largely due to a reduction in the net pension credit on the Group’s
pension deficits under IAS 19. Net interest costs on borrowings and
deposits were $2.6 million compared to $3.3 million in the previous
year. A significant part of the finance cost of borrowings is fixed in
nature and relates to arrangement and commitment fees on the
Group’s borrowing facilities. The discount on provisions of $1.3 million
(2011: $1.2 million) relates to environmental provisions, which are
evaluated on a discounted basis and hence the cost of the discount
is recognised each year as an interest charge.
Taxation
Tax charge
Before exceptional items
Exceptional items
Total
2012
Effective
rate
per cent
24.2
–
24.2
$million
34.1
–
34.1
2011
Effective
rate
per cent
29.5
(1.3)
28.2
$million
39.7
(1.8)
37.9
The tax charge of $34.1 million (2011: $39.7 million) represents an
effective tax rate of 24.2 per cent (2011: 29.5 per cent) with the
decrease in tax rate resulting from structural changes within the
Group’s financing arrangements, as well as certain credits for the
cost of share options. Set against these credits is an increase in
deferred taxation due to the changes in the UK tax rate resulting in
a reduction in the amount of the deferred tax asset as well as increases
in overseas taxes.
Earnings per share
Note 9 to the Financial Statements sets out a number of calculations of
earnings per share. To better understand the underlying performance
of the Group, earnings per share reported under IFRS is adjusted for
items classified as exceptional.
Diluted earnings per share* was 23.3 cents compared to 20.8 cents in
the previous year, with the improvement mainly due to an increase in
operating profit* of $6.8 million and a reduction in the Group tax rate
from 29.5 per cent to 24.2 per cent.
Basic earnings per share including exceptional items (all of which
relate to 2011) was 23.7 cents compared to 27.8 cents in 2011. The 2011
result benefited from a one-time recovery of funds from the EU
Commission of $34.5 million.
Distributions to shareholders
During 2012 the Group paid a final dividend in respect of the year
ended 31 December 2011 of 4.66 cents per share (2011: 2.60 cents).
An interim dividend of 2.45 cents per share (2011: 2.34 cents) was paid
on 5 October 2012 and the Board is recommending a final dividend
of 5.32 cents per share (2011: 4.66 cents) and a special dividend of
4.79 cents per share, both of which will be paid on 31 May 2013.
Cash flow
The cash flow is summarised below:
EBITDA1
Change in working capital
Capital expenditure
Other
Operating cash flow
Pension deficit payments
Interest and tax
Exceptional items
Other
Free cash flow
Dividends paid
Acquisitions and disposals
Currency fluctuations
Movement in net cash
Net cash/(borrowings) at start of year
Net cash at end of year
2012
$million
165.2
(12.9)
(37.4)
2.3
117.2
(27.9)
(15.7)
(3.7)
3.1
73.0
(32.2)
(24.0)
1.0
17.8
26.2
44.0
2011
$million
157.0
(9.3)
(20.8)
(0.6)
126.3
(22.0)
(11.3)
31.8
1.7
126.5
(21.9)
–
0.9
105.5
(79.3)
26.2
1 EBITDA – earnings before interest, tax, exceptional items, depreciation
and amortisation
The Group delivered a positive cash flow performance in 2012 and,
as a result, increased net cash on the balance sheet from $26.2 million
at the end of 2011 to $44.0 million at the end of 2012. Contributing to
operating cash flow in the year, EBITDA increased from $157.0 million
to $165.2 million consistent with the improvement in operating profit.
Cash flow relating to working capital was an outflow of $12.9 million
compared to an outflow of $9.3 million in 2011. The increase was largely
due to additional spending of $13.3 million to increase the strategic
level of chrome ore inventories held by the Chromium business, in
order to mitigate supply chain risks. This was offset by other structural
improvements in working capital, as part of the Group’s programme to
continuously improve working capital efficiency. Capital expenditure in
2012 increased by $16.6 million to $37.4 million as the Group continued
to invest in the growth of Specialty Products. In Specialty Products,
spending on the new technical centre in the US, the new plant to
produce innovative products for decorative coatings and the plant
expansion to serve the oilfield drilling sector accounted for almost
$15 million of the Group capital spend in 2012, while capital spending
on plant maintenance across the Group was approximately $15 million
(2011: $13 million). Pension deficit payments in 2012 were $27.9 million,
compared to $22.0 million in the previous year, and mostly relate to
payments to the UK plan which are discussed further below. Interest
and tax payments in 2012 were $15.7 million (2011: $11.3 million) and the
increase relates mostly to higher tax payments associated with a higher
level of profits in 2012. Dividends paid are in line with distributions
described in the previous paragraph and acquisition spending of
$24.0 million in 2012 relates to the acquisition of watercryl in Brazil by
Specialty Products.
* before exceptional items, all of which relate to 2011
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
23
Balance sheet
Intangible fixed assets
Other net assets
Net cash
Equity
2012
$million
342.6
94.0
44.0
480.6
480.6
2011
$million
335.1
87.9
26.2
449.2
449.2
Group equity increased by $31.4 million in 2012 (2011: $69.5 million).
Capital expenditure and the recognition of plant acquired with
watercryl led to an increase in property, plant and equipment of
$33.4 million (2011: $0.7 million) and working capital increased by
$17.0 million (2011: $11.8 million), much of which related to the
increase in strategic stocks of chrome ore. Offsetting these
increases, the retirement benefit obligation increased by $41.2 million
(2011: increase of $27.4 million) driven mainly by actuarial losses
following a decline in corporate bond yields. Net cash increased by
$17.8 million (2011: $105.5 million) as the Group continues to be cash
generative after its operating, investment and financing activities.
The main dollar exchange rates relevant to the Group are set out
below:
Pounds sterling
Euro
Year end
0.62
0.76
2012
Average
0.63
0.78
Year end
0.64
0.77
2011
Average
0.62
0.71
Provisions
A provision is recognised in the balance sheet when the Group has
a present obligation as a result of past events, which is expected to
result in an outflow of economic benefits in order to settle the
obligation. At the end of 2012 the Group held provisions of $40.5 million
(2011: $43.6 million), of which $37.6 million (2011: $41.3 million) relates
to environmental matters, including the closure of the Eaglescliffe
facility in the UK. The Group’s environmental provision has been
calculated using a methodology consistent with previous years.
Approximately $25.2 million relates to sites maintained by the Group
(2011: $28.8 million) with the remainder relating to sites no longer
under Group control. $3.7 million was spent on the Eaglescliffe
closure programme in 2012 with an anticipated spend in 2013 of
approximately $2.5 million.
Pensions and other post-retirement benefits
Net liabilities:
UK
US
Other
2012
$million
2011
$million
72.9
51.3
11.8
136.0
35.0
49.6
10.2
94.8
UK plan
The largest of the Group’s retirement plans is the UK defined benefit
pension scheme (“UK Scheme”) which had a deficit under IAS 19 of
$72.9 million at the end of 2012, compared to $35.0 million at the end
of 2011. The UK Scheme is relatively mature, with approximately
66 per cent (2011: 66 per cent) of its gross liabilities represented by
pensions in payment, and was closed to new members during 2012.
Funding
The most recent triennial valuation was completed as of 30 September
2011 and resulted in an agreed deficit with the trustees of the UK
Scheme, for funding purposes, of £91.1 million. The deficit at the
previous triennial valuation (30 September 2008) was £101.7 million.
A new funding plan was agreed with the trustees in 2012 which
includes a fixed payment schedule plus two contingent payments
linked to dividends paid to shareholders in each of 2012 and 2013.
Based on dividends paid in 2012, the first contingent payment of
£2.9 million was made to the fund in 2012. A second payment will
be made in the first half of 2014 based on dividends paid in 2013.
For example, based on the ordinary and special dividends announced
on 26 February 2013 and assuming that the interim dividend in 2013
is the same as 2012 (2.45 cents per share), the second contingent
payment would be approximately £8.2 million. The overall payment
schedule is designed to eliminate the funding deficit by the end of
2018 and, using the above example, the combined fixed and
contingent payments are likely to be as follows:
Year payable
2012
2013
2014
2015
2016
2017
2018
Amount (£million)
12.9
14.5
23.8
14.9
10.9
9.7
7.4
IAS 19 valuation
In 2012 the UK Scheme deficit, under IAS 19, increased to $72.9 million
(2011: $35.0 million) as a result of an increase in scheme assets of
$47.6 million (2011: $29.0 million), offset by an increase in scheme
liabilities of $85.5 million (2011: increase of $35.1 million). The scheme
assets increased due to a 5 per cent return on investments for the year
(2011: 9 per cent), contributions from the Company of $21.1 million
(2011: $16.3 million), less benefit payments of $40.2 million
(2011: $40.0 million). Currency movements also increased the
asset value by $31.6 million (2011: reduced by $3.9 million). The
scheme liabilities increased due to actuarial losses of $57.5 million
(2011: $41.9 million), mainly due to a decline in real corporate bond
yields of approximately 30 basis points (2011: 30 basis points), finance
costs of $33.2 million (2011: $36.5 million) and currency movements of
$34.1 million (2011: decreased by $4.2 million), which were offset by
benefit payments as described above.
Company ifc – 03 overviewbusiness 04 – 35 reviewCorporate 36 – 61 governanCefinanCial 62 – 105 statementsshareholder 106 – 108information ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLC
Other liabilities amounted to $3.3 million (2011: $2.7 million) and
relate to pension arrangements for a relatively small number of
employees in Germany.
Amendments to IAS 19 impacting reporting from
2013 onwards
Amendments to IAS 19 Employee Benefits make substantial
changes to the recognition, measurement and disclosure of
retirement benefit obligations. The most significant change is that
the expected return on plan assets, currently calculated using
management’s estimate of the return on the appropriate assets,
will be replaced by a figure calculated by applying the liability
discount rate to the pension plan assets. The Group estimates
that had the revised standard been applied in the 2012
financial year the profit before tax figure would have been
lower by $7.8 million, or 1.5 cents per share. The impact in
2013 is likely to be of a similar amount.
24
FINANCE REPORT CONTINUED
Investment strategy
with the support of the Company, the trustees are operating an
investment strategy that broadly includes 50 per cent of the assets
being invested in a “liability matching fund” and 50 per cent in
an “investment fund”. The liability matching fund consists of bonds,
gilts and liquid assets, plus a portfolio of interest and inflation
swaps constructed in such a way as to match the interest and
inflation risks inherent in a similar percentage of the scheme
liabilities. The purpose of this fund is to finance a portion of the
liabilities without creating significant volatility in the reported
deficit. The investment fund, on the other hand, consists of a
portfolio of “return seeking” assets, largely equity based, with the
aim of funding part of the liabilities by generating higher returns
with an acceptable level of risk, while also contributing to reducing
the deficit over time.
US plans
The US liabilities in 2012 comprised a defined benefit pension
plan, with a deficit value of $42.8 million (2011: $41.4 million),
and a post-retirement medical plan with a value of $8.5 million
(2011: $8.2 million). The US pension plan is smaller than the UK
Scheme and is closed to future accruals. The deficit in the plan
increased by $1.4 million (2011: $15.2 million) during the year,
due to an increase in the scheme assets of $10.5 million
(2011: decrease of $2.8 million) and an increase in the scheme
liabilities of $11.9 million (2011: $12.4 million). The scheme assets
were 73 per cent (2011: 74 per cent) invested in equities and
generated a return of 13 per cent in the year (2011: minus one per
cent), which was the main contributor to the increase in value.
The scheme liabilities increased mainly due to a fall in real
corporate bond yields during the year of approximately 60 basis
points (2011: 100 basis points).
Other plans
In the Netherlands, the Group operates an insured defined benefits
plan as is customary in that country. At the end of 2012 the deficit
value for this plan was $8.5 million, compared to $7.5 million in the
previous year and the increase was mostly due to a fall in real
corporate bond yields of 125 basis points. In 2005 a number of
changes were made to the benefits provided by the plan, as well
as other non-pension benefits, as part of a negotiation with labour
unions. In 2009 a group of pensioners challenged the benefit
changes in court, on the basis that they should not be applied
to them, and in 2010 the court ruled in favour of Elementis. The
pensioner group challenged the court’s decision in an appellate
court and in 2011 the appellate court overturned the original
decision. Elementis has appealed that court’s decision to the
Supreme Court of the Netherlands, which is expected to review
the case sometime in 2013. The majority of the deficit value in 2012
relates to this case.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
25
Key performance indicators
The Group’s key performance indicators
are a standard set of measures against
which each business reports on a
monthly basis. Incentive plans include
targets against the annual operating
plan for earnings per share, operating
profit and average trade working
capital to sales ratio.
3. Return on operating capital employed
The return on operating capital employed (“ROCE”) is defined as
operating profit before exceptional items divided by operating
capital employed, expressed as a percentage. Operating capital
employed comprises fixed assets (excluding goodwill), working
capital and operating provisions. Operating provisions include
self insurance and environmental provisions but exclude
restructuring provisions and retirement benefit obligations.
The Group’s ROCE was 49.0 per cent for the year ended
31 December 2012 (2011: 52.6 per cent).
ROCE for the Group including goodwill was 31.2 per cent in 2012
(2011: 23.0 per cent).
1. Operating profit/operating margin
Operating profit is the profit derived from the normal operations of
the business. Operating margin is the ratio of operating profit or
loss, before exceptional items, to sales. The Group achieved an
operating profit of $143.9 million for the year ended 31 December
2012 (2011: $137.1 million before exceptional items). The Group’s
operating margin was 19.0 per cent compared to 18.0 per cent in 2011.
4. Lost time accidents
A lost time accident (“LTA”) is any work related injury or illness
sustained by an employee or directly employed contractor whilst
working at the Group’s premises that results in greater than three
days lost, excluding the day of accident. There were two LTAs in
2012 (2011: five).
2. Average trade working capital to sales ratio
The trade working capital to sales ratio is defined as the 12 month
average trade working capital divided by sales, expressed as
a percentage. Trade working capital comprises inventories,
trade receivables and trade payables. It specifically excludes
prepayments, capital or interest related receivables or payables,
working capital related to acquisitions made in the year,
changes due to currency movements and items classified as other
receivables and other payables. The Group’s 12 month average
trade working capital to sales ratio at 31 December 2012 was
19.1 per cent (2011: 17.2 per cent).
5. Contribution margin
The Group’s contribution margin, which is defined as sales less
all variable costs, divided by sales and expressed as a percentage,
in 2012 was 38.5 per cent (2011: 37.7 per cent).
6. Operating cash flow
The operating cash flow is defined as the net cash flow from
operating activities less net capital expenditure but excluding
income taxes paid or received, interest paid or received, pension
contributions net of current service cost and exceptional items. In
2012 the operating cash flow was $117.2 million (2011: $126.3 million).
Risk management report
Risk management leadership
The Board is ultimately responsible for the management of risk in the
Group. It sets the tone for the Group’s policies on risk, appetite for risk
and levels of risk tolerance. However, the day to day management of
risk is delegated to the executive directors and the management team
who have specific responsibility for ensuring compliance with and
implementing policies at corporate, divisional and business unit level.
The Board retains an oversight role and has a schedule of matters
specifically reserved to it for decision, with strict delegation of
authority limits. The Board is supported by the Audit Committee,
which is assisted by the internal and external auditors. The Audit
Committee plays an important role monitoring our risk management
and internal control system. In addition to these formal structures, the
Board considers and reviews many different types of risks regularly in
its annual programme of meetings.
Risk management structure
The illustration overleaf is intended to show that a holistic approach
is taken to the management of risk throughout the Group, which is
a responsibility shared by all directors, executives, managers and
employees alike.
A summary of the key components of the Elementis risk management
system can be found on our website under “Principal features of
our risk management system” at: www.elementisplc.com/
governance-responsibility/risk-management.
The principal objectives of risk management are preventing material
financial loss and fraud, safeguarding the value of assets (including
reputation) and ensuring compliance with laws, regulations and
Group policies. In seeking to generate and preserve value over the
longer term, the Board sets the tone and direction for the way the
businesses are managed that strikes the right balance between
being too risk tolerant and being too risk averse. This is reflected
in the decisions that have been taken, such as in relation to the
acquisition of watercryl, the approval of capital investment plans
to support further growth in the Specialty Products business and
agreeing the pension deficit and new funding plan with the trustees
of the UK pension scheme.
Company ifc – 03 overviewbusiness 04 – 35 reviewCorporate 36 – 61 governanCefinanCial 62 – 105 statementsshareholder 106 – 108information ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLC 26
FINANCE REPORT CONTINUED
Elementis risk management structure
Risk management
policies and processes,
communication and training
^
Board of Directors
d
o v er n a n c e a n
strate gic risk
G
Executive Directors and
management team
(risk committee)
Audit
Committee
^
Compliance monitoring
and external audit
R
e
le
g
g
ulatory, co
al, fi
risks an
nancial an
ntrols
d co
m
pliance,
d IT
Business
leadership teams
Operational management
and HSE, risk management
and compliance
professionals
Site management
and employees
Risk identification,
assessment and mitigation
^
Commercial, supply chain,
HSE and operational risks
^
Review and evaluation of
risk management systems
Risk management review
The following is a summary of the Board’s formal programme for
reviewing risk during the year:
• Reviewing and approving the 2011 annual report and accounts.
• Considering and approving the risk transference and
insurance programme.
• Receiving and considering periodic litigation and
compliance reports and presentations.
• Presentations from business units.
• Approving amendments to the risk management policy
and associated organisation and resource arrangements.
• Considering and approving the major risks identified by the
management team in its formal risk review process, including
mitigation action and testing of business continuity plans.
• Reviewing business performance through CEO and Finance
Director board reports, approving annual operating plans and
monitoring performance against updated forecasts during the year.
• Receiving incident notification reports on health, safety and
environmental matters.
• Considering the views of shareholders through regular feedback
from investors on meetings with management, analysts’ research
reports and presentations from the Company’s corporate advisers.
• Board, Committee and individual director performance evaluation.
• Board succession planning exercise and the work of the
Nomination Committee.
• work of the Remuneration Committee in setting remuneration
policies and incentive targets that encourages the business to
deliver exceptional performance without excessive levels of
risk taking.
• work of the Audit Committee and the internal audit
service providers.
Internal control system
A critical component of the Group’s risk management is the internal
control system and the role of the Audit Committee in overseeing and
managing the Company’s relationship with both the internal and
external auditors. The Audit Committee is responsible for monitoring,
and reviewing the effectiveness of, the Group’s system of internal
controls, which comprises financial, operational and compliance risks
and controls. Although the Audit Committee has been delegated
specific tasks in connection with this role, the Board is ultimately
responsible for the effectiveness of such a system, which can only
be designed to manage, rather than eliminate, the risk of failure to
achieve business objectives. Our risk management and internal
control system can therefore only provide reasonable, and not
absolute, assurance against material mis-statement or loss.
A separate description of the work of the Audit Committee appears
in the corporate governance section of the Annual Report.
The Board is of the view that an on-going process for identifying,
evaluating and managing significant risks faced by the Group was
in place throughout the financial year under review and up to the
date that this Annual Report was approved. This process is regularly
reviewed by the Board and accords with the Financial Reporting
Council’s guidance on audit committees.
Set out below is a summary of the key features of the Group’s internal
control system:
Control environment
A key factor in the Group’s approach to internal control is the
recognition of the need for risk awareness and the ownership of
risk management by executives at all levels.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
27
The Group has policies and procedures that set out the responsibilities
of divisional management, including authority levels, reporting
disciplines and responsibility for risk management and internal
control. Certain activities, including treasury, taxation, insurance,
pension, compliance and legal matters are controlled centrally with
reports reviewed by the Board as appropriate. Site level policies and
procedures are set by divisional management as appropriate to the
needs of each business unit.
An internal audit programme is agreed by the Finance Director
and approved by the Audit Committee each year, setting out a
programme of audits over the course of the next 12 months.
This focuses mainly on financial controls but also includes other
operational or compliance controls e.g. IT security, HSE reporting
and compliance with Group policies.
Risk identification and review
Key identified risks, both financial and non-financial, are reviewed by
the Board, which is supported by the work of the Audit Committee
and the internal auditors, as well as by divisional management.
A formal annual review of risks and controls is carried out by both
the management team and the Board, and includes presentations
from senior managers.
The management team, which comprises the executive directors,
business presidents and functional business leaders, meets on a
regular basis to review each division’s and the Group’s performance,
strategy and risk management. Its work is supported by the internal
audit programme which covers the monitoring of the effectiveness of
internal controls and the design of processes to test the effectiveness
of controls.
At an operating level, all divisions are required to have processes to
identify risks and, so far as possible, take action to reduce those risks.
In addition annual compliance statements on internal control are
certified by each operating division.
Financial reporting
There is a comprehensive Group-wide system of financial reporting.
The Board reviews at each of its meetings reports from the Chief
Executive and the Finance Director, as well as full management
accounts, comprising monthly and year to date profit and loss
statements, cash flows and balance sheet, with segmental and
individual business performance analyses. In addition, capital
expenditure and relevant performance indicators are reported.
Actual monthly results are monitored against budget, forecasts and
the previous year’s results. Any significant variances are investigated
and acted upon as appropriate. As well as monthly management
accounts, each operating division prepares an annual and a three
year operating plan which is approved by the Board. Thereafter a
formal re-forecasting exercise is undertaken three times a year.
The Audit Committee considers that the Group’s systems of internal
control and risk management (including those relating to the financial
reporting process) are robust and effective. The Audit Committee is
responsible for ensuring the integrity of the Group’s financial
statements and other communications to the market about trading
performance relative to market forecasts. The Audit Committee
approves and keeps under review significant accounting policies,
particularly in areas where judgements and estimates are made.
Investment appraisal
There are clearly defined investment guidelines for capital expenditure.
All investment expenditure is subject to formal authorisation
procedures, with major proposals being considered by the Board.
Audit Committee
The role of the Audit Committee is critical within the Company’s
system of internal control and risk management. For a description
of its work during the year, see page 46.
Principal risks and uncertainties
The table below is a summary of the principal risks agreed by the
Board, together with a description of how the risks are mitigated.
Principal risks and uncertainties
RISK
Sub-optimal global economic conditions can
affect sales, capacity utilisation and cash
generation, as well as increase competitive
pressure in the marketplace, impacting
profitability and operating margins. The
resultant non-delivery of operating plans can
lead to market expectations of Group earnings
not being met.
Growth opportunities and product innovation
may not materialise.
MITIGATION
• Specialty Products is well positioned against a deterioration in economic conditions
due to its balanced geographic footprint, broad differentiated product offering and
the broad application of its technology across different sectors.
• Chromium business model is flexible and can be adapted to respond to variances in
regional demand patterns.
• Financial performance (including monthly sales, profit and cash flows) is closely
monitored with full year forecasts updated three times a year and variances explained
and investigated.
• Contingency and cost reduction plans can be implemented in the event of an
economic downturn to reduce operating costs, including freezing salaries and
non-essential capital expenditure items.
• Organic and acquisitive growth is a priority for the Board and a key area of focus for the
management team.
• Experienced Board and management team, robust due diligence processes and
support of professional advisers.
• Capacity expansion programmes are being implemented to ensure the business can
supply to high growth markets.
• Regular Board reports on new product pipeline and progress on R&D projects.
Company ifc – 03 overviewbusiness 04 – 35 reviewCorporate 36 – 61 governanCefinanCial 62 – 105 statementsshareholder 106 – 108information ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLC 28
FINANCE REPORT CONTINUED
RISK
Disruption to supply chain, key raw materials,
infrastructure (e.g. IT networks or transportation)
and energy price stability can impact capacity
utilisation and add to operating costs.
Major regulatory enforcement action/litigation
and other claims from products and historical/
on-going operations can lead to higher
operating costs and reputational damage.
MITIGATION
• Raw materials are sourced from a broad and diverse supplier base.
• Strategic holding of key raw materials.
• Transport and carrier mitigation plans and insurance in place.
• Energy costs are hedged where possible.
• Active compliance and risk management programmes in place (including policies,
procedures and training).
• Insurance programme and risk transfer strategy in place to mitigate financial losses.
• Experienced General Counsel supported by in-house and external legal teams.
• Regular reviews of litigation and compliance reports by the Board and role of the
Audit Committee, as well as the internal audit programme, help ensure these key
risks are managed effectively.
UK pension fund:
•
Volatile financial markets, poor investment
returns and increased life expectancy can all
result in higher funding costs.
• Pension investment strategy includes significant element of liability matching,
including the use of interest rate and inflation hedging instruments.
• Options for pension de-risking periodically reviewed.
• Deficit funding plan agreed with pension trustees through to 2018.
Regulation/technological advances:
•
New technology, methods of production
or processes giving competitors a
market advantage.
New regulations restricting the use or
carriage of chemicals can lead to loss
of applications and sales or add to
operating costs.
•
• R&D team aims to develop new products and technologies for use in an evolving
market to meet the changing needs of our sophisticated customers.
• Active REACh programme in which the businesses participate in industry consortia,
providing data and information to regulators and experts, to support safety reviews
of our products in a broad range of applications.
Major event or catastrophe
(e.g. IT failure or operations/HSE incident).
Volatile financial markets and/or major
disruptions to global or regional banking
systems can affect liquidity, the ability to access
cash, make payments and fund operations,
and lead to higher operating costs.
• Good housekeeping, preventative maintenance and other safety procedures help to
mitigate the effects of a major incident.
• Reliance on hectorite mine and flood risk mitigated by the installation of drainage pumps
at the mine in 2011.
• Insurance programme and business continuity plans that are tested regularly help to
mitigate the effects of a major incident.
• HSE management programme with environmental compliance audits in place.
• Company was in a net cash position at the year end with extensive borrowing facilities
in place, so any impact is unlikely to materially impact on the ability to trade and
fund operations.
• Company cash is deposited with a syndicate of banks with high credit approval ratings.
• Company has a strong unleveraged balance sheet so could raise alternative sources of
funding in emergencies.
• Treasury policies implemented and compliance monitored, strong focus on cash
management with weekly cash reports so that cash requirements are known in advance.
These principal risks and uncertainties should be read in conjunction with the note on contingent liabilities on page 100.
Brian Taylorson
Finance Director
26 February 2013
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012 CORPORATE SOCIAL RESPONSIBILITY REPORT
29
Compliance programme
The Elementis Board and senior management team view the
effectiveness of the Elementis compliance programme as
fundamental to the Group’s continuing success and in meeting its
corporate responsibilities. The high expectations Elementis has for
all of its employees around the world are set out in the Group’s Code
of Business Conduct and Ethics (the “Code”), a summary of which
appears on our website at: www.elementisplc.com/governance-
responsibility. All employees receive training on the Code, which
has been translated into five languages. The Code is supplemented
by an extensive global network of policies, processes and guidelines
covering a wide range of compliance matters including, for example,
anti-bribery and corruption. On completion of training, employees
are required to certify that they understand and agree to be bound by
the Code and various other policies.
In 2012, numerous online training courses were provided to Elementis
employees on the Code and other compliance areas including:
global export controls, human rights, the UK Bribery Act, records
management and financial integrity. These training courses were
made available to employees in multiple languages. Online training is
supplemented by personal training, where appropriate, with senior
executives also receiving training through briefings by the General
Counsel. The Code also requires independent contractors,
consultants, agents and sales representatives who represent the
Group to agree to the same high standards as the Group’s employees
while working on Group business. It is the Group’s practice to
undertake an extensive due diligence review of all potential
acquisition targets before completing any transaction.
Beyond its compliance policies and training, a critical aspect of the
Elementis compliance programme is the Group’s strong commitment
to having employees feel that they can raise compliance concerns
without fear of retaliation. During 2012, our employees were
reminded of the Group’s whistleblowing arrangements and
information and AlertLine posters were distributed to all sites in local
languages, where appropriate. Reporting options for employees,
which include their manager, Human Resources and the General
Counsel and Chief Compliance Officer, are well publicised within the
Group. while employees are encouraged to report concerns through
these routes, a toll-free hotline is also available. The Group views its
employees as its best form of defence in detecting compliance issues
and early detection is essential to effectively protecting Elementis.
Introduction
The Company recognises that corporate social responsibility (“CSR”)
is a fundamental part of its business activities, from employee safety
and environmental awareness, to supply chain responsibility and
business ethics. How it performs in this important area is critical to the
long term success of the Company, which is why the Chief Executive
is responsible for CSR matters at Board level.
Elementis joined the FTSE4Good
index in September 2009
To demonstrate the Company’s commitment to CSR, it is a member
of the FTSE4Good index, a leading global responsible investment
index, and its CSR activities are centred on four core areas: people,
community, environment and business relationships.
People
Our people remain our most valuable asset and are a key differentiator
between Elementis and its competitors. The long term success of
the Group depends on the passion, attitude, commitment and work
ethic of all our employees around the world. A strong culture of
performance, leadership and success, with a focus on innovation
and customer service, fosters this Elementis “can do” spirit and this
is supported by Group policies, training and guidelines.
Diversity
we have a global workforce (including contractors and temporary
workers) of over 1,300 spread across three continents (42 per cent
in the Americas, 27 per cent in Europe and 31 per cent in Asia).
Gender diversity in the workplace continues to be a focus of
governance in UK public companies. Elementis is committed to
equality of opportunity and firmly believes that women contribute
equally in the workplace at all levels, which is demonstrated through
the recent appointment of a new Vice President of Global Human
Resources, Ling Dawes, at the beginning of 2013. She is a member
of the senior executive team and reports directly to the CEO. Out of
our total workforce (excluding contractors or temporary workers),
24 per cent are female. Of these female employees, 16 per cent (just
under 50) hold managerial positions and 8 per cent (over 20) hold an
executive management position (within the four tiers below Board
level). The Group, however, does not consider targets or quotas to be
appropriate for increasing the percentage of women in management
positions. In terms of a diversity policy more generally, a summary
of our employment policies appears on page 38 in the Directors’
report but the principal message is that we apply a policy of non-
discrimination (except as it relates to a person’s ability or potential in
relation to the needs of a job) throughout the Group – to recruitment
and promotion, layoffs, training and grievance procedures. Our HR
policies seek to ensure decisions are based on objective criteria and
merit. Staff turnover across the Group, for 2012, was under 0.5 per
cent (2011: 0.6 per cent).
Company ifc – 03 overviewbusiness 04 – 35 reviewCorporate 36 – 61 governanCefinanCial 62 – 105 statementsshareholder 106 – 108information ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLC 30
CORPORATE SOCIAL RESPONSIBILITY REPORT CONTINUED
Health and safety
Elementis cares about the health and safety of its employees,
contractors and visitors. As such, safety performance and the
effectiveness of current programmes are reviewed on a regular basis
by management at all levels. New initiatives are commonly developed
and implemented as part of the Group’s continuing commitment to
reduce risk within the work environment.
The Group must, of course, comply with all applicable regulatory
requirements in each country in which it operates. A programme of
health and safety audits is undertaken on a three year rolling cycle
to ensure regulatory compliance. However, Elementis takes health
and safety beyond regulatory compliance and has Group policies,
procedures and standards, supplemented by local instructions on
how requirements are to be applied specifically at manufacturing
sites. Senior operations management routinely review, improve and
implement new Group policies and practices. Internal and external
subject experts provide guidance and training in the development
and implementation of these new policies and practices. An incident
notification and reporting system is in place to ensure that safety
incidents are reported to the management team and the Board.
Incidents, including near misses, are recorded and managed
through an HSE database. Investigations are carried out following
any incidents and appropriate corrective action is taken to mitigate
the risk of their recurrence. In addition, safety incidents and general
safety topics are often highlighted in safety alerts and shared
throughout the Group sites to raise awareness.
A summary of the Group’s policy on health, safety and
environmental matters can be found on the Group’s website at:
www.elementisplc.com/governance-responsibility.
Safety performance
The Company continually strives to eliminate accidents and injuries
within the workplace. we seek to achieve this through maintaining
our strong focus on, and commitment to, safety design, a safe
environment, setting and communicating safety standards, training,
encouraging safe behaviours and developing a corporate culture that
emphasises and supports all of the above.
The Group uses recordable incidents as its principal measure of
safety performance. Recordable incidents (as defined by the US
Occupational Safety & Health Administration) are work related
injuries and illnesses that require medical treatment beyond first aid.
To monitor performance and trends among more serious injuries
and illnesses, the Group also records lost time accidents (“LTAs”),
as defined by the UK Health & Safety Executive – greater than
three days lost, not including the day of incident. The number of
recordable incidents across the Group in 2012 was 14 (2011: 15).
Of the 14 recordable incidents only two required time away from
work greater than three days (2011: five).
As well as the total number of recordable and lost time incidents,
the Board uses an overall recordable incident rate as a performance
indicator based on the industry standard of 200,000 hours worked.
The total recordable incident rate in 2012 was 1.11 (2011: 1.20).
within the chemical industry, the sustained performance of
Elementis is comparable to companies that are generally viewed
as having “industry best” safety performance (based on American
Chemistry Council – Responsible Care® members, 0.85 in 2011) and
significantly better than the general chemical industry in the US
(2.4 in 2011 based on latest data available from the US Bureau of
Labour Statistics).
RECORDABLE INCIDENT RATE
Recordable incidents per 200,000 hours worked
5
4
3
2
1
0
2008
2009
2010
2011
2012
Key
Elementis
ACC (RC)
US chemical
(2011 is latest data available for ACC and US chemical)
To ensure comprehensive monitoring of our safety performance,
Elementis also records and reports separately the recordable injury
rate for contractors working at our sites. Contractors are closely
supervised and compliance with Elementis policies and procedures
is strictly enforced. As a result, there were no recordable injuries to
contractors on Elementis sites in 2012 (2011: zero).
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012 31
Safety improvement initiatives
During 2012, we completed the implementation of the basic safety
process that we started in 2011 following a comprehensive review.
The changes introduced a new level of focus on safety leadership
and communication, policies and behavioural safety.
Keeping track of safety related actions and reporting can be a
complex task. To help manage this, a compliance calendar system
introduced in recent years has become a critical tool that ensures
safety related actions and training are completed in a timely manner.
In addition, new policies continue to be developed and instituted
based on the needs within the Group.
The Group collects a significant amount of data in an incident
reporting database. The original purpose of the database was as a
tool for investigation and establishing corrective actions. A major
improvement initiated in 2012 is to use the data in the database
to identify trends and manage safety proactively rather than the
traditional reactive approach. A collaborative exercise to enhance
the current database was conducted during 2012 involving
representatives from manufacturing and external consultants and
experts. This has led to a specification for modifications that will
help site and corporate management to understand and manage
HSE related trends, as well as specific HSE incidents.
Some sites have experimented with bringing in recognised safety
professionals to help make safety personal and show the individual
contributions that everyone can make to safety.
Fundamental human rights
Elementis supports the wider fundamental human rights of all its
employees and all those who may be affected by our business
activities. These include, for example, the right to the freedom of
speech, thought, movement, association, a right to privacy and to
make decisions and contracts, and a right to equality of treatment,
protection and non-discrimination. while the application of some of
these principles has centred on employment practices, such as child
or forced labour, these concepts can have daily application in many
different aspects of our activities. Employees can expect to be treated
fairly, with dignity and respect. Anti-harassment and anti-retaliation
policies and grievance procedures all allow employees to speak
freely and openly. Our employment policies recognise the right
of employees to join a union and to be treated equally without
discrimination. Currently over 40 per cent of our employees are
union members and over a fifth are subject to collective bargaining
agreements.
Further information on human rights at Elementis can be found on
our website at: www.elementisplc.com/governance-responsibility.
Community
Elementis understands the need to work with local communities to
provide information on its activities and be a responsible neighbour.
The Group continues to be a sponsoring partner of the Mojave
Environmental Education Consortium in California, which provides
many environmental education programmes and resources for
teachers and students. Our Newberry Springs mine is located near
the Mojave desert.
Our community programme remains centred on encouraging and
supporting employees to be active in their communities through
volunteer work or fundraising. The Company has guidelines for
charitable giving but does not dictate any specific areas or priority
for corporate support. This approach is designed to encourage
management and employees at individual sites to focus on local
issues and to take the initiative. Their efforts are often rewarded by
either a Company donation or programme that matches amounts
raised by employees.
In 2012, the Group made charitable donations of $28,563
(2011: $51,113) to a wide range of groups and organisations
supporting many different causes. Examples of organisations and
groups supported last year include local youth and sports clubs,
schools, arts groups, hospice and other welfare related groups and
medical research/health related charities.
Environment
Elementis seeks to operate its facilities in a way that minimises the
impact on the environment. we view compliance with all applicable
legal requirements and other codes of practice as our minimum
standard. Our sustainable development strategy requires that we
work proactively to reduce emissions, minimise waste from our
processes, conserve valuable natural resources and ensure
responsible product stewardship throughout the supply chain.
In addition to complying with environmental regulatory reporting
requirements, Elementis records and categorises incidents into tiers
based on the severity of the incident on the environment or actions
taken by regulatory authorities. Tier 3 incidents are those that have
an impact on the environment and require reporting to an external
authority, and where enforcement action is likely. Tier 2 incidents
have a minor impact and require notification but are likely to result in
minimal or no action being taken by the authorities. Tier 1 incidents
require no external reporting and are recorded internally and
investigated so that continual improvements can be made to reduce
the likelihood of future Tier 2 and Tier 3 incidents.
Company ifc – 03 overviewbusiness 04 – 35 reviewCorporate 36 – 61 governanCefinanCial 62 – 105 statementsshareholder 106 – 108information ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLC 32
CORPORATE SOCIAL RESPONSIBILITY REPORT CONTINUED
Environmental performance
Our target is to comply with all environmental regulations and
permits, with zero environmental incidents classed as Elementis
Tiers 2 and 3. Beyond that we strive for continual improvement in
standards to reduce our impact on the environment. In 2012,
Elementis had no Tier 2 or Tier 3 incidents (2011: one).
Emissions to air, discharges to water and waste disposal are regulated
by external authorities and controlled carefully within Elementis.
The table below shows our performance in this area, as well as our
water and energy usage over the past three years.
The data presented in Table 1 is influenced by production levels
and specific events, so an increase or decrease does not necessarily
mean our performance in these areas has improved or deteriorated.
The information in Table 1 showing our performance per tonne of
production is affected by changes in the type of fuel, production
processes, product mix and plant efficiencies, which may change
with different levels of capacity utilisation. As is standard practice in
the chemical industry, some emission values may be calculated from
energy use or based on samples rather than continuous monitoring.
The changes in performance data shown in Table 1 is explained in the
commentary following.
Table 1 – Environmental performance
CO2 emissions (tonnes)
water consumed (m3)
Energy consumed (GJ)
Hazardous waste disposed (tonnes)
Non-hazardous waste disposed (tonnes)
Absolute
(‘000s)
183
1,928
4,910
Absolute
(‘000s)
1.70
104
2012
Per
tonne of
production
0.76
7.97
12.9
Per 1,000
tonnes of
production
7.01
430
Absolute
(‘000s)
200
1,889
4,862
Absolute
(‘000s)
1.54
116
2011
Per
tonne of
production
0.74
6.97
12.1
Per 1,000
tonnes of
production
5.67
431
Absolute
(‘000s)
261
1,848
4,926
Absolute
(‘000s)
1.20
114
2010
Per
tonne of
production
0.99
6.99
12.1
Per 1,000
tonnes of
production
4.54
433
Emissions to air
The Group is committed to reducing, wherever it can, its greenhouse
gas (“GHG”) emissions, which for Elementis are principally carbon
dioxide (“CO2”) and some nitrous oxide. Elementis complies with
relevant national CO2 reduction schemes, such as the UK Carbon
Reduction Commitment energy efficiency scheme, and will comply
with future requirements under the Companies Act 2006 requiring the
directors to report on specific GHG emissions.
The reduction in CO2 emissions is largely due to the change of fuel
from oil to natural gas used for firing the chromate kilns at Castle
Hayne, North Carolina.
In addition to the GHG potential, the emissions of the oxides of
sulphur and nitrogen arising from the Group’s operations can
contribute towards acid rain. Volatile organic compounds, where
emitted, can damage soil and ground water or combine with
nitrous oxide to cause smog. However, all these emissions are
controlled to comply with regulatory permits and, as the volumes
are not considered to be significant, they are not reported here.
For information on these emissions, visit our website at
www.elementisplc.com/governance-responsibility.
discharges to water
Maintaining the water quality of the areas in which we operate is a
regulatory issue and vital to protect the ecosystems and communities
in which we operate. The Group’s production activity generates
process effluent with low concentrations of organic material that are
discharged to water. This is measured as chemical and biological
oxygen demand. These are regulated by external authorities and
managed carefully by Elementis. However, the volumes of these
discharges are not considered to be significant and are not reported
here, but can also be found on our website.
Any emissions to air or discharges to water above regulatory
permitted levels will continue to be reported each year under
environmental incidents.
Water consumption
Generally, the Company does not operate in areas of extreme water
shortage. Nevertheless, water is a valuable resource and the
Company recognises the global need to conserve water. water
consumption is minimised where possible by treatment and recycling.
water consumption is related to production output, product mix,
plant utilisation and cleaning activities. water consumption increased
in 2012 due to the varying nature of plant operating and cleaning
requirements.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
33
Energy consumption
The Group is committed to reducing its consumption of energy
derived from fossil fuels as a contribution towards reducing GHG
emissions and the consequential impact on global warming. There is
nevertheless an energy requirement for production, so the Group has
taken steps to move towards cleaner energy sources, such as natural
gas in place of oil. In 2012 natural gas represented 96 per cent of the
fossil fuel consumption (gas, oil and coal measured in consistent
energy units, GJ) (2011: 69 per cent). There is also the added incentive
that, as energy is an expensive resource, its efficient use has a
significant effect on the cost of production. As the Group uses a range
of fuel sources purchased conventionally in a variety of units, we
report usage in gigajoules (“GJ”) to provide consistent energy units.
Energy reduction initiatives
Under the Group’s policy on sustainable development, one area
which our businesses have been working on is energy efficiency.
There are a number of initiatives underway to increase the Group’s
energy efficiency. The facility at Delden in the Netherlands, shared by
Specialty Products and Surfactants, is working on an energy efficiency
plan for the period 2013 to 2016. Under the plan, several process
efficiency measures have been identified and the facility is targeted to
reduce energy usage by an estimated 6 per cent over the next four
years, with an additional 6 per cent in the same period being subject
to further study and investment. Areas where such improvements are
anticipated include ventilation, replacement of the nitrogen supply
and through the activities of our operational excellence initiative.
There is also an energy management plan at the Specialty Products
site in Livingston, Scotland. A number of processes and procedures
have been developed to enable continual monitoring of the facility’s
energy usage and waste water generation by product. This enhanced
monitoring has enabled the site to identify specific projects to reduce
its energy consumption. The facility has specific targets to reduce its
natural gas consumption by 10 per cent, electricity consumption by
5 per cent and waste water generation by 5 per cent over the next
two years. This equates to a reduction of over 1,100 tonnes of CO2 per
annum. It is intended to achieve these reductions through investment
in new technology and improvements to operating practice.
In our Chromium business, the main focus of its energy efficiency
plans has been on its largest energy usage plant in Castle Hayne,
North Carolina. During 2012, phase two of a major conversion process
at this facility from heavy fuel oil to natural gas on three large process
driers yielded a 5 per cent reduction in CO2 emissions per tonne
produced. This followed on from phase 1, completed during 2011,
where the major operating kilns and boilers were converted to natural
gas, reducing CO2 emissions by 35 per cent from 2010.
Switching from heavy fuel oil to natural gas has additional benefits
with a reduction in sulphur oxide (“SOx”) emissions by over 99 per cent
and nitrogen oxide (“NOx”) emissions by about 75 per cent.
Solid waste
As part of our commitment to sustainable development, Elementis
seeks to minimise the quantity of all types of waste. The quantity
of hazardous waste resulting from our operations has reduced
significantly over the last decade. However, cleaning out a storm
water tank damaged by a hurricane at Corpus Christi, Texas created
an exceptional generation of hazardous waste in 2012.
In 2012, the New Jersey Department of Environmental Protection
recognised Elementis Specialty Products under its environmental
stewardship initiative. The award cited the voluntary and proactive
measures taken in environmental policy and hazardous materials
reduction to go beyond compliance in an effort to improve the
environment and achieve a sustainable future. The hazardous
waste reduction involves separating out solvent waste from the
cleaning process at our Jersey City facility. This waste is now
distilled and recycled.
Non-hazardous waste is minimised and recycled as far as possible.
It is predominantly the inert residue from the chromate kiln
operations, which is deposited in our own permitted impoundments
and licensed landfill sites adjacent to the manufacturing facilities.
Hazardous waste generated by our operations is disposed of at
licensed disposal sites.
Product stewardship
Elementis products benefit our customers and society in many ways,
but they must be used in a way to ensure safety to people and the
environment throughout the product’s entire life cycle. Our principles
and culture are such that each employee takes responsibility to ensure
health, safety and environmental protection are a part of their daily
personal and commercial activities.
we ensure that health, safety and environmental protection are an
integral part of our products’ life cycle, including development,
manufacture, sales, distribution, use, recycle and final disposal by:
• The identification and evaluation of any significant hazards for
each product or family of products at all stages of their life cycle.
• The characterisation and review of any risks associated with these
products or product families in their intended use.
• The establishment of risk management practices to minimise the
potential risks associated with use to people and the environment.
• Proactively communicating the hazards associated with our
products and their proper handling, recycling, use and disposal to
employees, customers, distributors and the general public.
• The application of our product stewardship principles when
selecting suppliers, toll manufacturers and distributors.
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CORPORATE SOCIAL RESPONSIBILITY REPORT CONTINUED
we continue to actively meet the requirements of new, or revised,
chemical control regulations across our global markets. At Elementis
we are continually evaluating and improving our product stewardship
programme to ensure best practices protection of our employees,
customers, society and the environment.
R&D and sustainable development
Our global R&D team continues its focus on:
• Reduction in the use of materials that contribute to
greenhouse gases.
• Development of biodegradable new products for use in
aqueous environments.
• Expanded use of bio-based materials in our products.
• Facilitating the migration of decorative coatings to aqueous
solutions from solvent-based systems.
we further advanced our offerings of zero VOC (“volatile organic
compound”) rheological additives with the introduction of a second
generation of products to serve a larger section of the decorative
coatings market than before.
New manufacturing processes were defined to meet the increasing
demand for two of our new bio-based products. These new
manufacturing techniques substantially increased yield from
the renewable raw materials while at the same time reduced
process waste.
Our global commitment to these and other environmentally friendly
initiatives continues to be very high.
Biodiversity
Elementis takes care to ensure that its activities do not cause long term
damage to biodiversity in the areas where it has operations. In this
regard, the Group has policies and systems in place to ensure full
compliance with environmental requirements.
To implement these practices, Elementis relies on a highly
experienced global product stewardship team, as well as expert
consultants, academics and government authorities. we use
up-to-date hazard communications and compliance tools to
communicate product safe handling, transport and disposal
information to our employees, customers and the general public
via technical bulletins, safety data sheets (“SDS”) and labelling.
These communications are further enhanced by product safety
briefings with our employees, suppliers, distributors and customers.
Indeed, each year our global product stewardship team responds
to several thousand product safety and compliance questions from
our customers, the general public and regulatory authorities.
whilst we practice a consistent and coordinated approach to
regulatory compliance at state, national, regional and global levels,
our internal IT systems are being enhanced to automatically flag when
a compliance review is needed. we continue to support efforts, by
taking opportunities to work with government authorities, to develop
regulations to enhance the protection of society and the environment
that are based on established scientific risk assessment and risk
management principles. Our goal is to work with industry groups
to support regulations that are predictable, flexible and capable of
responsibly addressing society’s economic, environmental and safety
requirements.
Through our global product stewardship team, Elementis continues
to be fully engaged in the European REACh programme and will
successfully deliver on its 2013 Tier 2 REACh obligations. During 2012
our REACh programme was reviewed by our internal auditors and
found to be robust and capable of meeting our obligations in 2013
through to 2018.
we continue to support our global customers and markets through
our “Only Representative” services under REACh covering imports
into Europe by Elementis entities and key customers. The product
stewardship team continues to be actively involved in many consortia
coordinating the REACh registration of our most important product
categories. we continue providing active support to consortia and
organisations such as CEFIC (European Chemical Industry Council)
and numerous SIEFs (Substance Information Exchange Forum).
In addition to complying with the REACh regulatory requirements
for our products during 2012, Elementis continued to focus on
compliance with the United Nations GHS (Globally Harmonized
System) hazard communications standard as it is implemented around
the world. For example, the necessary GHS safety data sheets and
labels were available for our products in Singapore when that
country’s new GHS regulation came into effect in late 2012. Other
important regulatory milestones successfully achieved in 2012 were
completion of our chemical data reporting for the US Environment
Protection Agency, In-Commerce listings for Health Canada and
recertification under the US National Organic Programme.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012 35
Innovation award
During the year, Elementis was invited to submit an entry to the
British Business Awards 2012 (the “Awards”), which is an event
organised by the British Chamber of Commerce in China every two
years. Elementis entered the innovation award category, which is
judged on the basis of: commercial success; long term commitment
to continuous investment in China; best practice in innovation; and
the wider benefits of the innovation in the Chinese market. The
Awards attract strong interest from British companies operating in
China across many industrial sectors. Elementis won the prestigious
innovation award by demonstrating a deep understanding of the
Chinese market and tailoring its innovation to this market.
This success and recognition exemplify our long standing commitment
to product innovation, fostered on technical excellence, knowledge of
our markets and customers, teamwork and collaboration, and will help
drive further growth of our business in China, where Elementis has
already established a leading market position.
Business relationships
Customers
Each of our business strategies has as its cornerstone an intense focus
on our customers with the goal of offering value added, high quality
solutions that are supported by strong technical service. Best in class
technical service and innovative product development are critical
elements in helping our customers be successful and in how we
differentiate ourselves from our competitors. we monitor our
performance with metrics, for example, OTIF (“on-time, in full
delivery”) which improved by 41 basis points over 2011. we develop
and nurture close customer relationships through our key account
business process and participation in trade shows and industry
forums, as well as conducting numerous group workshops,
training seminars and hosting collaborative laboratory sessions
to work with customers on a one-on-one basis.
Suppliers and supply chain
Over the last several years we have seen a growth in global trade
compliance requirements through increased legislation and
regulations, such as GHS and CLP (Classification for Labels
Documentation and Packaging). These define information to be
provided on safety data sheets, product labels and transportation
tariffs. They include documentation requiring an effective supply
chain methodology to identify the affirmative measures to be taken
by our suppliers, internal operations, external warehouses and
distribution channels to ensure our customers are able to receive
products in a timely manner which we monitor, as explained above,
on an OTIF basis globally.
we have continued to address questions from our customers on social
responsibility and environmental awareness programmes and have
successfully completed a number of surveys and informal audits.
Training worldwide for all procurement members continues to ensure
compliance and adherence to our Purchasing Code of Practice and
Anti-corruption policy. Suppliers are likewise expected to affirm their
conformity to international labour laws, social and environmental
responsible legislation and best practices. Conflict minerals continue
to be absent from our supply chain.
Our North American freight activities have included a focus on the
expanded use of back-hauls by carriers to reduce our carbon footprint
through an outsourced third party that has greater access to the
carrier network. Shipments routed through the third party network
reduce both logistics carrier rates and fuel consumption. Our New
Martinsville, west Virginia facility, which came on-stream in early 2013,
will also address ocean and road freight usage, as we seek to produce
rheological products that are currently imported for our North
American customers from Europe. we regularly monitor and amend
the European and Asian distribution networks using our regional
distribution centres to limit our carbon footprint.
Use of natural products within our supply chain grew by $4.5 million
in 2012 and is now up to $15.8 million annually. This represents a
rise of 40 per cent from 2011 ($11.3 million).
Company ifc – 03 overviewbusiness 04 – 35 reviewCorporate 36 – 61 governanCefinanCial 62 – 105 statementsshareholder 106 – 108information ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLC 36
BOARD OF DIRECTORS
Non-executive directors
Robert Beeston
Chairman
Committee
membership:
N (c)
Andrew Christie
Non-executive director
Committee
membership:
A, N, R
Robert Beeston was appointed non-executive
Chairman of Elementis and Chairman of the
Nomination Committee in September 2006.
He was non-executive chairman of Cookson
Group plc from April 2003 to May 2010 and a
non-executive director of D S Smith plc between
December 2000 and December 2010, where
he was the senior independent director and
chairman of the remuneration committee from
2003 to 2009. From 1992 until 2002 he was chief
executive officer of FKI plc. He spent 18 years with
Dowty Group before joining John Brown Plastics
Machinery (UK) Ltd as managing director. In 1985,
he was appointed managing director of BTR Valve
Group, a position he held for six years before
joining FKI plc.
Andrew Christie was appointed a non-executive
director in August 2008 and has over 25 years of
investment banking and international corporate
finance experience. He is a partner of Smith
Square Partners LLP, a corporate finance advisory
firm, and before that was, until March 2008, a UK
managing director in the European Investment
Banking Group at Credit Suisse. In his prior role
at Credit Suisse, he was head of Investment
Banking, Asia Pacific, based in Hong Kong and,
before that, held the same position with Barclays
de Zoete wedd. He was previously chairman
and non-executive director of Ark Therapeutics
Group plc and holds an MBA and a Bachelor of
Science degree in engineering.
Executive directors
David Dutro
Group Chief Executive
David Dutro was appointed Group Chief
Executive in January 2007. He joined Elementis
in November 1998 as President of Elementis
Pigments then became President and Chief
Operating Officer of Elementis worldwide in
October 2005. He was vice president and
general manager of Universal Foods’ Dairy and
Food Ingredient businesses (now Sensient
Technologies Corp), and also spent time with
ICI in their colours, polymer additives and
surfactants businesses. David Dutro was born
and educated in the US and holds a Bachelor
of Science degree in marketing.
Ian Brindle
Senior Independent director
Chris Girling
Non-executive director
Brian Taylorson
Finance director
Committee
membership:
A, N
Committee
membership:
A (c), N, R
Ian Brindle was appointed a non-executive director
and Chairman of the Audit Committee in June 2005.
He retired as Chairman of the Audit Committee in
April 2008 and was appointed Senior Independent
Director. He was senior partner of Price waterhouse
from 1991 to 1998 and UK chairman of
PricewaterhouseCoopers until 2001. He was also a
member of the Accounting Standards Board
between 1992 and 2001 and the deputy chairman
of the Financial Reporting Review Panel between
2001 and 2008. He is senior independent director
and chairman of the audit committee of Spirent
Communications plc, a non-executive director of
F&C Asset Management plc and non-executive
chairman of Sherborne Investors (Guernsey) A
Limited and Sherborne Investors (Guernsey) B
Limited. From October 2003 to June 2012, he was a
non-executive director of 4imprint Group plc where
he was also the senior independent director.
Chris Girling was appointed a non-executive
director in April 2005 and Chairman of the Audit
Committee in April 2008. He was group finance
director of Carillion plc, a construction and
support service group, from 1999 to 2007, and
previous to that he was finance director of Vosper
Thornycroft plc for ten years. He holds an MBA
and is a Fellow of the Institute of Chartered
Accountants in England and wales. He is a
non-executive director of Keller Group plc,
workspace Group plc and ARCO Limited,
and chairman of the board of trustees of the
Slaughter and May pension scheme.
Brian Taylorson was appointed Finance Director
in April 2002. Before joining Elementis he was
head of European chemicals M&A group at
KPMG Corporate Finance. He joined KPMG in
2000 from the Dow Chemical Company where
he held a number of positions in finance over
a period of 17 years. He holds an MA from
Cambridge University, is a member of the
Institute of Chartered Accountants in England
and wales and a member of the Association of
Corporate Treasurers. He was a non-executive
director of Fiberweb plc between September
2006 and August 2012.
Kevin Matthews
Non-executive director
Committee
membership:
A, N, R (c)
Kevin Matthews was appointed a non-executive
director in February 2005 and Chairman of the
Remuneration Committee in April 2008. He is
chief executive officer of Isogenica Limited, a
private biotechnology business based in the UK
and established in 2000. Prior to that, he was
CEO of Oxonica plc, a UK based nanotechnology
company, a role he held from April 2001 to
September 2009, and previous to that he held
roles in Rhodia Consumer Specialties Limited,
Albright & wilson UK Limited and ICI Chemicals
and Polymers. He is a non-executive director of
Cellectricon AB, a Swedish private biotechnology
business, and holds a D.Phil in chemistry.
Key
a – Audit Committee
n – Nomination Committee
r – Remuneration Committee
(c) – Chairman of Committee
ELEMENTIS PLC ANNUAL REPORT ANd ACCOUNTS 2012
SENIOR ExECUTIVES
37
Greg McClatchy
President of Elementis
Specialties (comprising
Elementis Specialty Products
and Elementis Surfactants)
Greg McClatchy was appointed President of
Elementis Specialties in January 2007. He joined
Elementis Pigments in 1999, served as managing
director of its Durham UK operations, and was
appointed President of Specialty Rubber in 2002
and President of Elementis Chromium in 2005.
He was previously with Universal Foods (now
Sensient Technologies Corp) and ICI’s polymer
additives business. Greg McClatchy completed
his undergraduate studies in chemistry and
economics at the University of Delaware.
Walker Allen
General Counsel and
Chief Compliance Officer
Ken Morris
Chief Information Officer
walker Allen joined Elementis as General Counsel
in 1999 and was appointed General Counsel and
Chief Compliance Officer in 2006. Prior to joining
Elementis, he was associate general counsel with
GE Americom (a GE Capital company) and before
that senior business counsel with GE Plastics (a
division of General Electric Company). He began
his legal career as a lawyer in private practice with
two leading New York City law firms, where he
specialised in corporate law, securities, and
mergers and acquisitions. walker Allen is a
member of the New York Bar and is admitted as
in-house counsel in New Jersey.
Ken Morris was appointed Chief Information
Officer in October 2012, bringing over 30 years
of experience in the chemical industry. Prior to
joining Elementis, he held senior IT positions
with Ashland, International Specialty Products
(now Ashland), and The BOC Group (now Linde).
He also worked as a chemical engineer for
Exxon (now ExxonMobil). Ken Morris holds a
Master of Science degree in management from
the Massachusetts Institute of Technology
and a Bachelor of Science degree in chemical
engineering from Penn State University.
Dennis Valentino
President of Elementis
Chromium
Ling Dawes
Vice President Global
Human Resources
Wai Wong
Company Secretary
Dennis Valentino re-joined Elementis as
President of Elementis Chromium in April 2009.
His previous positions at Elementis included
managing director of Asia Pacific and President
of Elementis Pigments until it was sold in August
2007 when he left the Group. Prior to Elementis,
he joined Pfizer Pigments in 1975 and held
various positions there including vice president
of manufacturing and vice president of
its North America Coatings business. Dennis
Valentino completed his undergraduate study
in chemical engineering at the University of
Missouri – Rolla, and obtained his MBA from
St. Louis University.
Ling Dawes joined Elementis as the Vice President
of Global Human Resources in January 2013,
bringing to the Company over 20 years of
experience as a senior global HR business
executive and consultant for mid to large-sized
companies, including Aramark International,
Cox Enterprise Sales, Corning Technology,
Cisco Systems, SAE Corporation and DuPont
Global Operations. She holds an MA degree
from the University of Arizona and is a certified
professional in compensation, benefits and
global remuneration with worldatwork. Ling
Dawes is also a certified senior professional in HR
with the Society for HR Management.
wai wong joined Elementis and was appointed
Company Secretary in May 2007. He is a Fellow
of the Institute of Chartered Secretaries and
Administrators (“ICSA”). Prior to joining Elementis,
he held a number of senior company secretarial
positions including at John Menzies plc, ICSA
and PricewaterhouseCoopers. wai wong has a
Bachelor’s degree in commerce and law from the
University of Edinburgh and a Master’s degree in
corporate and commercial law from Queen Mary
College, University of London.
ANNUAL REPORT ANd ACCOUNTS 2012 ELEMENTIS PLC
Company ifc – 03 overviewbusiness 04 – 35reviewCorporate 36 – 61 governanCefinanCial 62 – 105 statementsshareholder 106 – 108information
38 Directors’ report
Report and financial statements
the directors submit their report and the audited financial statements
for the year ended 31 December 2012.
Principal activities, business review and future
development
For the purposes of this report, the expression “company” or
“elementis” means elementis plc and the expression “Group” means
the company and its subsidiaries.
the main activities of the Group are the manufacture and sale of
specialty chemicals. the Business review, comprising the following
sections, “summary of strategic progress”, “chairman’s statement”,
“Group chief executive’s overview”, “our businesses”, “Finance report”
(incorporating Key performance indicators and the risk management
report) and “corporate social responsibility report”, forms part of this
Directors’ report and contains a fair review of, and likely future trends
and factors that might affect, the development, performance and
position of the Group.
the Group undertakes, on a continuing basis, research and
development activities for new products and to improve
existing products.
Takeover directive disclosures
this Directors’ report constitutes the management report for the
purposes of the UK Listing Authority’s Disclosure and transparency
rules (“Dtr”). in addition, the corporate governance report on
pages 42 to 45, the Directors’ responsibility statement on page 41
and the biographical information on the directors shown on page 36
all form part of this Directors’ report for the purposes of the Dtr.
Results and dividend
the Group profit for the year attributable to equity holders of the
parent amounted to $107.1 million (2011: $124.1 million).
Details about the final dividend for the year, as well as a special
dividend, are disclosed in the chairman’s statement on pages 8 and 9.
Directors and their share interests
the directors of the company are robert Beeston, ian Brindle,
Andrew christie, David Dutro, chris Girling, Kevin Matthews and
Brian taylorson. All of these directors served on the Board throughout
the financial year. Biographical information about each director is
shown on page 36.
the interests of directors in the share capital of the company are set
out in the report of the remuneration committee.
Re-election of directors and Board evaluation
All directors will be retiring at the 2013 Annual General Meeting
(“AGM”) but will be standing for re-election by shareholders.
information about the Board’s evaluation is described in the
corporate governance report.
Employment policies and equal opportunities
the Group is an inclusive and equal opportunity employer that
relies on Hr specialists throughout its worldwide locations to
ensure compliance with all applicable laws governing employment
practices and to advise on all Hr policies and practices, including
recruitment and selection, training and development, and promotion
and retirement.
elementis policies seek to create a workplace that has an open
atmosphere of trust, honesty and respect. Harassment or
discrimination of any kind based on race, colour, religion, gender,
age, national origin, citizenship, mental or physical disabilities, sexual
orientation, veteran status, or any other similarly protected status
is not tolerated. this principle applies to all aspects of employment
from recruitment and promotion, through to termination and all
other terms and conditions of employment.
it is Group policy not to discriminate on the basis of any unlawful
criteria and its practices include the prohibition on the use of child
or forced labour. employment policies are fair and equitable and
consistent with the skills and abilities of the employee and the needs
of the business. employees are free to join a trade union or participate
in collective bargaining arrangements.
it is also Group policy, for employees who have a disability, to provide
continuing employment under normal terms and conditions, where
practicable, and to provide training, career development and
promotion, as appropriate.
elementis supports the wider fundamental human rights of its
employees worldwide, as well as those of our customers and
suppliers, and further details are set out in the corporate social
responsibility report.
Employee communications and involvement
the Group has processes in place for communicating with all its
employees. employee communications include information about
the performance of the Group, on major matters affecting their work,
employment or workplace and to encourage them to get involved in
social or community events.
As is common practice, the company operates savings-based share
option schemes in the Us and UK to encourage employees to become
shareholders and share in the success of the Group. Further details of
these schemes are set out on page 96 and 97.
Going concern
in assessing the Group as a going concern, the directors have given
consideration to the factors likely to affect its future performance and
development, the Group’s financial position and the principal risks
and uncertainties facing the Group, including the Group’s exposure
to credit, liquidity and market risk and the mechanisms for dealing
with these risks.
the Group had a net cash position at the year end of $44.0 million
and also had access to a syndicated revolving credit facility of
$200 million, which expires in July 2014. Due to the highly cash
generative nature of Group businesses and the strong balance sheet,
the company reduced its borrowing facility from January 2013 to
$100 million. the borrowing facility will be renewed well in advance
of its expiry date, after taking into account the Group’s funding needs.
Under the current borrowing facility, the Group has to perform
covenant tests for net debt:eBitDA ratio, interest cover and net worth.
No breaches in these covenant tests were reported during the year.
the Group uses various short and medium term forecasts to monitor
anticipated future compliance and these include stress testing
assumptions to identify the headroom on the covenant tests.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012 39
After evaluating the covenant compliance modelling and the
on-going trading of the businesses, the directors are satisfied that
the company and the Group have adequate resources to continue
to operate for the foreseeable future as going concerns. For this
reason they continue to adopt the going concern basis in preparing
these financial statements.
Share capital
the company’s share capital consists of ordinary shares, as set
out in Note 7 to the parent company Financial statements on page
104. All of the company’s issued ordinary shares are fully paid up and
rank equally in all respects. the rights attached to them, in addition
to those conferred on their holders by law, are set out in the
company’s articles of association (“the Articles”). other than those
specific provisions set out in the Articles, there are no restrictions
on the transfer of ordinary shares or on the exercise of voting rights
attached to them. From time to time the elementis employee share
ownership trust (“trust”) holds shares in the company for the
purposes of various share incentive plans and the rights attaching
to them are exercised by independent trustees, who may take into
account any recommendation by the company. As at 31 December
2012 the trust held no ordinary shares of 5 pence each in the company
(2011: 1,165,719 shares). A dividend waiver is in place in respect of all
shares that may become held by the trust.
Directors, Articles and purchase of shares
the directors’ powers are conferred on them by UK legislation and
by the company’s Articles. rules about the appointment and
replacement of directors are also set out in the Articles.
changes to the Articles must be approved by shareholders passing
a special resolution. the Notice of Meeting for the 2013 AGM
includes information about proposed changes to the Articles which
shareholders are being asked to approve. these are largely changes
of a procedural nature or to tidy up provisions that have become
redundant. the changes include: deleting the objects clauses from
the Articles; putting all resolutions to be voted on at general meetings
to a poll (ballot) without a vote on a show of hands first; removing the
chairman’s right to a casting vote; amending the retirement by
rotation provision so that all directors stand for annual re-election
rather than at three year intervals; and increasing the maximum limit
for non-executive directors’ fees (currently fixed at £500,000 per
annum). the reasons for the changes are explained in the Notice
of Meeting.
the Board has the power conferred on it by shareholders to
purchase its own shares and is seeking renewal of that power
at the forthcoming AGM within the limits set out in the Notice
of Meeting.
Significant agreements – change of control
there are few significant agreements which the company is party
to that take effect, alter or terminate in the event of change of control
of the company. the company is a guarantor under the Group’s
$100 million revolving credit facility and, in the event of a change of
control, any lender among the facility syndicate, of which there are
six with commitments ranging from $10 million to $22.5 million,
may withdraw from the facility and that lender’s participation in
any loans drawn down are required to be repaid.
Under David Dutro’s service contract with the company,
compensation is payable to him equivalent to one year’s basic salary
if he terminates his contract upon a change of control provided that
the company has not first obtained a written agreement to be bound
by his service contract from any successor in a change of control.
there is no specific change of control provision in Brian taylorson’s
service contract with the company but the provisions on early
termination set out on page 55 of the report of the remuneration
committee apply to him.
the rules of the company’s various share incentive schemes set out
the consequences of a change of control of the company on the
rights of the participants under those schemes. Under the rules of the
respective schemes, participants would generally be able to exercise
their options on a change of control, provided that the relevant
performance conditions have been satisfied and, where relevant,
options are not exchanged for new options granted by an
acquiring company.
Significant relationships
the Group has in place a number of supply contracts for key raw
materials that are essential to the business and maintains a broad
supplier base for these key raw materials. in specialty products,
supply contracts are for clays, quaternary amines and other chemical
intermediates. specialty products also owns and operates a hectorite
clay mine in california which reduces our reliance on third party
suppliers for raw materials. the surfactants business sources a
number of products from a reasonably wide base of third party
suppliers for use in the manufacturing of its products. these include
supplies for ethylene oxide, propylene oxide, nonylphenol ethoxylate
and fatty alcohols. the chromium division’s key raw materials are
chrome ore, soda ash and sulphuric acid. in addition, all businesses
purchase energy in the form of natural gas, fuel oil or electricity and
it is Group practice to enter into agreements with suppliers to lock
in the price of at least 50 per cent of its energy costs for each year.
information about individual suppliers is not disclosed as the Board
considers that disclosure would be seriously prejudicial to the Group.
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON 40
Directors’ report continued
the Group is not dependent on any particular customer and supplies
some of its products through approved distributors. in addition, the
Group has a joint venture partner in china at its Anji organoclay plant.
While all these relationships are important to our business, the Board
does not consider any individual relationship to be material to the
Group. the Board also does not consider that the Group’s success is
materially dependent on any single individual and is satisfied that the
company’s incentive arrangements are appropriate to attract, retain
and motivate key people within the organisation.
Policy on payment of suppliers
the company’s and the Group’s policies concerning payments
to suppliers are to agree terms of payment at the start of business
with each supplier and to adhere to these, subject to satisfactory
performance by the suppliers. the company and the Group do not
follow any code or statement on payment practice. trade creditors
for the Group at 31 December 2012 represented 64 days (2011: 55 days)
of annual purchases, adjusted for currency, acquisitions and disposals.
the company has no trade creditors.
Substantial shareholders
As at 26 February 2013 the company had been notified, in accordance
with rule 5 of the Disclosure and transparency rules, of the following
interests in its issued ordinary capital:
schroders plc
AXA investment Managers sA
Norges Bank
Ameriprise Financial, inc. and its group
Blackrock, inc.
Legal & General Group plc
Percentage
of issued
ordinary
share capital
9.84
6.34
5.08
5.01
5.00
3.80
Ordinary
shares
44,613,178
28,739,014
23,037,188
22,734,503
22,684,705
17,219,369
Auditor
A resolution to re-appoint KpMG Audit plc as auditors of the company
will be proposed at the forthcoming AGM to be held on 25 April 2013.
each director in office at the date of this Directors’ report confirms that
(a) so far as he is aware, there is no relevant audit information of which
the company’s auditors are unaware and (b) he has taken all the steps
that he ought to have taken as a director to make himself aware of any
relevant audit information and to establish that the company’s
auditors are aware of that information.
Political and charitable donations
During the year, the Group donated $28,563 (2011: $51,113) for
charitable purposes of which $1,034 (2011: $17,394 ) was made
in the UK. the Group made no political donations during the year
(2011: nil).
Directors’ and officers’ liability insurance
the company maintains liability insurance for the directors and
officers of the company and its subsidiaries. since 2008, the directors
of the company have been in receipt of an indemnity from the
company in respect of any liability or loss that may arise out of,
or in connection with, the execution of their powers, duties and
responsibilities as directors of the company, or of any subsidiary,
to the extent permitted under the companies Act 2006. copies of
these indemnities, which continue to remain in place, are available
for inspection at the company’s registered office during normal
business hours and will be available for inspection at the AGM.
Directors’ conflict of interest
since 2008, Brian taylorson, who is Finance Director and a trustee
of the UK pension scheme, has been the only director who is
in receipt of a conflict authorisation from the company. the
conflict authorisation enables him to continue to act as a trustee
notwithstanding that this role could give rise to a situation in which
there is a conflict of interest. the conflict authorisation is subject
to annual review by the Board and was renewed during 2012
for another year. the terms of the conflict authorisation have
remained unchanged since 2008 and details can be found in
last year’s annual report.
Post balance sheet events
on 19 February 2013, the Group acquired the assets of Hi-Mar
specialty chemicals, LLc, a Us coatings additives company, for a cash
consideration of $33.0 million.
Annual General Meeting
the sixteenth Annual General Meeting of the company will be held on
thursday 25 April 2013. the Notice of Meeting is included in a separate
document sent to shareholders.
By order of the Board
Wai Wong
Company Secretary
26 February 2013
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
Directors’ respoNsiBiLity stAteMeNt
41
the directors are responsible for preparing the Annual report and the
Group and parent company financial statements in accordance with
applicable law and regulations.
Under applicable law and regulations, the directors are also
responsible for preparing a Directors’ report, Directors’ remuneration
report and corporate governance report that complies with that law
and those regulations.
company law requires the directors to prepare Group and parent
company financial statements for each financial year. Under that law
they are required to prepare the Group financial statements in
accordance with iFrss as adopted by the eU and applicable law and
have elected to prepare the parent company financial statements in
accordance with UK Accounting standards and applicable law (UK
Generally Accepted Accounting practice).
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and parent company and of their
profit or loss for that period. in preparing each of the Group and
parent company financial statements, the directors are required to:
• select suitable accounting policies and then apply them
consistently.
• Make judgements and estimates that are reasonable and prudent.
• For the Group financial statements, state whether they have been
prepared in accordance with iFrss as adopted by the eU.
• For the parent company financial statements, state whether
applicable UK Accounting standards have been followed, subject
to any material departures disclosed and explained in the parent
company financial statements.
• prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Group and the parent
company will continue in business.
the directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the parent company and enable them to ensure
that its financial statements comply with the companies Act 2006.
they have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group
and to prevent and detect fraud and other irregularities.
the directors are responsible for the maintenance and integrity of
the corporate and financial information included on the company’s
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
the directors, all of whom are shown on page 36, confirm that to the
best of their knowledge:
• the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss of the
company and the undertakings included in the consolidation
taken as a whole.
• the Directors’ report includes a fair review of the development and
performance of the business and the position of the issuer and the
undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties
that they face.
By order of the Board
Brian Taylorson
Finance Director
26 February 2013
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON
42 corporAte GoverNANce report
Chairman’s introduction
one of the Board’s priorities in 2012 has been the implementation of succession plans that should see two additional directors being
appointed this year to replace non-executive directors who should be retiring in the latter half of 2013. these appointments and retirements
will be announced at the relevant time, since the recruitment process is on-going. As part of this process, the Board appointed recruitment
advisers who also facilitated an external evaluation of the Board’s performance. More details are set out below and in the report of the
Nomination committee.
corporate governance, of course, is not restricted to just how the Board is structured and operates, but extends to the role of the Board in:
(i) setting strategy, priorities and standards; (ii) providing leadership, support and guidance to the management team; and (iii) reviewing
and exercising oversight in respect of the way in which the businesses (including risk and internal controls) are managed as a whole. in the
table below i describe how the main principles of the UK corporate Governance code (June 2010 version) (“cGc”), concerning the role and
effectiveness of your Board, have been applied. the rest of the corporate governance report will give a more detailed update on the Board’s
activities and arrangements as they relate to the other cGc principles and provisions.
CGC main prinCiple
How elementis Has applied tHe prinCiple
Role of the Board
Division of responsibilities
Role of the Chairman
the elementis Board is collectively responsible for the long term success of the Group.
this means the Board as a whole determines the Group’s strategy and key priorities and
keeps under review management and business performance. it approves annual operating
plans, defines the risk profile of the Group and sets the standards and values by which the
businesses should be managed, as well as ensuring appropriate relationships are maintained
with shareholders and other stakeholders. to do this, the Board has implemented systems
and processes to ensure appropriate resources, time and focus are given to properly
discharging these functions. these systems and processes include the role of Board
committees, as well as a schedule of matters that define what powers are delegated to
the executive directors who are responsible for the running of the Group’s businesses.
Underpinning the effectiveness of these structures are the personal relationships on
the Board and these are discussed below.
As chairman, i am responsible for leadership of the Board, while the executive directors
(David Dutro, chief executive, and Brian taylorson, Finance Director) are responsible for
managing the Group’s businesses. the roles of chairman and chief executive are separate,
clearly defined and well understood by the Board, such that no individual has unfettered
powers of decision.
My role as chairman is to lead and manage the Board and to set the style and the tone in
which the Board operates. this includes ensuring that there is a forum for constructive
discussion and challenge, as well as for an open, frank and informed exchange of views, and
creating a framework and the conditions to enable the Board as a whole, and its individual
directors, to contribute effectively in the performance of their role. such framework and
conditions include access to information, support and development opportunities,
understanding the views of shareholders, and maintaining constructive relationships
between executive and non-executive members of the Board.
Role of non-executive directors
Within the framework of a unitary board and the structure of board committees, non-
executive members of the Board have an important role to play in the development of
strategy, reviewing management and business performance and approving business and
operating plans, as well as in monitoring risks, controls and the integrity of financial
information, determining executive remuneration levels and Board succession planning.
Board composition: skills and experience
critical to the effectiveness of any system of corporate governance is the mix of knowledge,
skills, experience, aptitudes and personalities on the Board. your Board does not consider the
lack of gender diversity has impeded the performance of the Board or its decision making, but
recognises that it is a topical issue which is being addressed in our recruitment process. the
Board considers its diversity in terms of international and sector/industry experience and
background to be a positive attribute in Board discussions and, notwithstanding the respect
directors have for their colleagues, there is appropriate and constructive tension between
executives and non-executives for them to perform their responsibilities effectively.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012 43
CGC main prinCiple
How elementis Has applied tHe prinCiple
Board appointments
except when meeting to discuss specific matters, such as appraising the role of the
chairman or meeting without the executives present, the Board as a whole sits as the
Nomination committee when it considers Board appointments, succession plans and
Board evaluation. this ensures all directors are kept informed of the work of the committee,
although directors do not participate in the decision making on any matter concerning
them personally. the Nomination committee selected Korn/Ferry Whitehead Mann, after
a tender process, to assist its implementation of Board succession plans. this included
an external evaluation of the Board that was used to facilitate a Board discussion about its
composition, strengths and weaknesses, and the recruitment strategy. A role specification
was prepared followed by a long list then short list of candidates for the Audit committee
chairman role. the process is currently on-going. During 2012, my appointment as
chairman was renewed for a final three year term, until september 2015.
Commitment of directors
A clear condition of appointment is that all directors should devote sufficient time and
commitment to their roles and the expected time commitment is made clear to all
non-executive directors.
Board induction and development
Information and support
Board evaluation
All directors are encouraged to undertake training to refresh their skills and knowledge.
No specific training needs were identified in the Board evaluation process, but individual
directors are proactive in addressing their own development needs. the company secretary
keeps the directors informed regularly about training opportunities that are available. these
include courses and events run by the company’s professional advisers, as well as by third
party organisations, and cover a diverse range of topics from accountancy and legal, to
pensions and executive remuneration. in addition, as part of a teach-in programme initiated
by the Audit committee, all directors receive two briefings a year from finance staff on the
more technical aspects of accounting policy and their application.
the Board has an established programme to ensure all aspects of its role and duties and
those of its committees are properly met and discharged. this includes formal processes in
respect of all Board and committee papers, communication of information to all directors
and the dissemination/implementation of Board decisions. the company secretary keeps
the Board informed on governance matters and developments and ensures non-executive
directors receive the information and support they need.
the Board considers that a formal and rigorous evaluation of its performance and those of
its committees and individual directors was undertaken during 2012. Korn/Ferry Whitehead
Mann interviewed all directors individually, discussing openly the Board’s performance,
strategy, priorities and development needs. other than as a recruitment adviser, Korn/Ferry
Whitehead Mann have no other connection with the company. your Board considers that,
following this formal performance evaluation, each director contributes effectively and
demonstrates appropriate commitment to the role.
Re-election of directors
All directors will be standing for re-election by shareholders at the Annual General Meeting
in April and the Board recommends their re-election.
Robert Beeston
Chairman
26 February 2013
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON 44
corporAte GoverNANce report continued
Board composition
As identified on page 36, the Board comprises two executive directors
(chief executive and Finance Director) and five non-executive
directors (chairman, senior independent Director and three other
non-executive directors). information about the executive directors’
service contracts with the company is set out in the report of the
remuneration committee. All non-executive directors are appointed
for three year terms that can be renewed by mutual agreement,
subject to annual re-election by shareholders, satisfactory
performance and meeting independence requirements.
robert Beeston’s appointment as chairman was renewed in
september 2012. Further details about the non-executive directors’
terms of appointment are set out in the report of the remuneration
committee. changes are expected to be made to the Board’s
composition this year, as described elsewhere in the Annual report,
in connection with the Board’s succession plans. However, it is
intended that the current number of executives and non-executives
will be retained following the refreshment process.
With regards to gender diversity, the Board is addressing this as part of
its recruitment programme by requiring both long and short lists to
include a high proportion of female candidates. However, the Board’s
policy is that appointments will be made on the basis of qualification
and a preference for a woman would only be given in the event that
two candidates are equally matched in all other respects in relation to
the role specification. Gender diversity below Board level is discussed
in the corporate social responsibility report.
Board independence
the Board considers all the non-executive directors to be
independent in character and judgement. the Board is satisfied
that each director exercises independent judgement and believes
no individual or group dominates decision making.
Board operation
the Board has a formal programme of activities that are undertaken
at scheduled meetings throughout the year and this is supplemented
by ad hoc meetings, conference calls or other Board events, as and
when appropriate. eight formal meetings were held in 2012 and these
were attended by all the directors. the Board is supported in its
activities by Board committees that have been delegated specific
responsibilities as set out in their terms of reference. in addition, a
formal schedule of matters reserved for the Board allows certain
decisions to be delegated to the executive directors. the schedule
of matters reserved to the Board includes: strategic and annual
operating plans; approval of financial statements, acquisitions and
disposals; risk compliance and management programmes, as well as
insurance arrangements; major non-recurring projects and major
capital expenditures. the Board reviews the business, financial and
operational (Hse) performance of the Group at each of its formal
meetings, including major business initiatives and progress on
product innovation.
Director attendance in 2012
robert Beeston
David Dutro
Brian taylorson
ian Brindle
Andrew christie
chris Girling
Kevin Matthews
Board
8/8
8/8
8/8
8/8
8/8
8/8
8/8
Audit Nomination Remuneration
Committee
–
–
–
4/4
4/4
4/4
4/4*
Committee
4/4*
–
–
4/4
4/4
4/4
4/4
Committee
–
–
–
4/4
4/4
4/4*
4/4
* denotes chairman of the committee
to assist the Board in carrying out its duties, information of an
appropriate quality is issued in a timely manner ahead of Board and
committee meetings, and any unresolved matters concerning Board
decisions, of which there were none in 2012, would be recorded in
the minutes of meetings. A programme exists to ensure new directors
receive appropriate induction tailored to their needs. All directors
have access to the advice and services of the company secretary and
may take independent professional advice, as appropriate, at the
expense of the company.
on an annual basis, the Board visits one of the Group’s overseas
locations where it will also hold one of its formal meetings. Last year
the annual overseas visit was in east Windsor, New Jersey, at the
recently commissioned technical facility of the specialty products
business, which includes management and administrative offices.
As well as receiving presentations from the personal care and oilfield
drilling businesses, the Board toured the new lab facilities to learn
about some of the projects the product innovation team is working
on and participated in an all-employee social event on site attended
by some 100 employees. the Board considers that these interactions
are important in the development of understanding about the
business and the risks and opportunities it faces. these visits also
put into an operational context Board discussions relating to risk
management and Hse matters, as well as the wider culture and
commitment of the workforce.
Board committees
A description of how the Board has discharged its responsibilities
through the work of the Audit, Nomination and remuneration
committees is set out in their respective reports, together
with information about their composition, meetings and terms
of reference.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
45
Communications with shareholders
the company undertakes a comprehensive programme of
activities throughout the year to ensure there is effective
communications with shareholders, analysts and the financial
press. these include: results statements and trading updates; other
regulatory announcements; investor meetings and conferences;
the Annual General Meeting (“AGM”); annual report and accounts;
and information on its corporate website.
shareholders are encouraged to attend the company’s AGM where
they can speak and ask questions. the chairmen of the Audit and
remuneration committees will also be available to answer
questions from shareholders.
Management’s meetings with shareholders and analysts are
reported to the Board on a regular basis as well as feedback from
investors following results roadshows. research reports about the
company and wider chemicals sector, as well as presentations
and reports from the company’s corporate brokers, are provided
to all directors in a timely basis, helping non-executive directors to
develop a clear understanding of the views of major shareholders.
the chairman and senior independent Director are available for
contact by shareholders at any time.
From time to time, where appropriate, the chairman and, in
connection with remuneration proposals, the chairman of the
remuneration committee will organise a programme of meetings
with major shareholders to update them on any significant
developments in business strategy, corporate governance
matters or consult them on proposals for executive remuneration.
By order of the Board
Wai Wong
Company Secretary
26 February 2013
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON 46 report oF tHe AUDit coMMittee
the chairman and members of the Audit committee (the “committee”)
are shown on page 36, together with their biographical information.
chris Girling and ian Brindle are considered to have the necessary
financial experience under governance requirements and all
committee members are considered to be independent. Four
meetings were held during 2012, all of which were attended by
committee members, as well as by the chairman of the company
and both executive directors.
A copy of the committee’s terms of reference is available on the
company’s website and the following is a summary of its
responsibilities:
• Monitoring the integrity of the financial statements, accounting
policies and financial reporting.
• reviewing the effectiveness of internal control, compliance and
risk management systems.
• overseeing all aspects of the relationship with the internal and
external auditors.
the following is a description of the work of the committee to show
how it has discharged its responsibilities:
• reviewed the annual and interim reports and financial
statements, together with the report of the external auditors
and accompanying management representation letter.
• reviewed interim management statements.
• received two technical briefings from finance staff on inventory
accounting and accounting for insurance.
• received internal audit reports by email, as and when
these became available, and discussed these, together
with half yearly reports, with the internal audit providers,
pricewaterhousecoopers (“pwc”), as well as representations
from management.
• reviewed the effectiveness of pwc and the external auditors
(“KpMG”).
• considered and approved the continued outsourcing of the
internal audit function to pwc, since it has the resources to access
the skills, knowledge and experience required to staff such a
function.
• considered and approved the scope of work of, and the fees and
engagement letters for, both internal and external auditors.
• reviewed and discussed periodic compliance and litigation
reports from the Group’s General counsel, including matters
under the Group’s code of Business conduct and ethics, such
as its anti-bribery and corruption compliance programme and
whistleblowing arrangements.
• reviewed the company’s policy on non-audit services,
considered and reviewed the objectivity and independence of
the external auditors, as well as the nature and extent of non-
audit services they provide.
• considered and recommended the re-appointment of KpMG as
external auditors.
• received and discussed management reports on tax planning,
business continuity plans and the system of internal controls and
risk management (the latter is set out on pages 25 to 27 of the
risk management report).
• reviewed and amended its terms of reference.
• Discussed the new requirements of the amended UK corporate
Governance code (september 2012 version) .
• Discussed the subject of internal and external auditor rotation
and tendering.
in connection with the review of the work of the external and internal
auditors, no significant internal control failings or weaknesses were
reported so none are disclosed here. there were also no significant
matters raised by the external auditors, needing to be resolved,
concerning the financial statements that had to be discussed by
the committee and Board and, therefore, no disclosure of such
discussion is made.
in 2012, non-audit services of $0.8 million from KpMG were approved
by the committee (2011: $0.5 million). these services consisted
mainly of tax advisory services in relation to the Us, UK, Netherlands,
Germany, china, taiwan and the Group’s acquisition in Brazil. KpMG’s
knowledge of the business meant it could provide these services cost
effectively. the committee is satisfied that the provision of these
services does not affect the independence of the external auditors
and that KpMG has appropriate procedures in place to safeguard its
independence and objectivity, such as having quality control systems
and policies on the rotation of key roles, which have been presented
to and approved by the committee.
the company’s policy on non-audit services contains guidance on the
types of non-audit work that the external auditors may be considered
for. this guidance is in addition to other specified factors that must be
taken into consideration, such as the expertise and resources of the
firm, whether the services could risk jeopardising audit independence
and the fee relative to the audit fee.
examples of services that the external auditors may be allowed to
perform under the policy include due diligence work related to
corporate transactions, work involving giving compliance certificates/
opinions/comfort letters and advisory work in connection with the
interpretation or application of accounting standards or tax legislation.
Non-audit work that the external auditors would not normally be
considered for include management consulting work, such as on
strategy or the redesigning of a significant process, corporate finance
work involving the recommendation of a specific transaction or where
the fee includes a material success component, and interim
management assignments or secondments.
Under the policy, the Finance Director may approve individual
engagements where the fee is up to 15 per cent of the Group’s
audit fee for the previous year, provided that the total non-audit
fees in the year do not exceed 50 per cent of that Group audit fee.
Decisions above these thresholds must be referred to the
committee for determination.
By order of the Board
Chris Girling
Chairman, Audit Committee
26 February 2013
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012 report oF tHe NoMiNAtioN coMMittee
47
some shareholders have asked for additional information about
directors to help them understand the extent to which a director’s
background or experience helps shape or influence the contribution
he makes to the operation and effectiveness of the Board. Board
members are available to meet with shareholders if requested.
the biographical information provided on page 36 should assist
shareholders to assess the skills and experience of the Board, as a
whole, when determining how to vote on certain resolutions at
the AGM.
the topics covered in the Board evaluation process, and discussed
in the individual director interviews, included Board priorities,
dynamics and inter-personal relationships, processes and support.
in terms of the specific findings, the collegiate nature of the Board
was confirmed as well as the view that it operates effectively, with
appropriate tension and no major issues. the challenge is to refresh
the Board without excessively disrupting the current dynamics,
which have served the current Board well. However, one challenge
noted, despite a strong performing Board, was the need to ensure
the Board evolves as the company continues to develop and this
is being addressed with the Board’s succession plans. the major
risks and opportunities of the Group are well understood and
these are set out in the summary of strategic progress on pages
4 to 7.
Robert Beeston
Chairman
26 February 2013
the chairman and members of the Nomination committee (the
“committee”) are shown on page 36, together with their biographical
information. Four meetings were held during 2012 and were attended
by all committee members, as well as by the executive directors.
A copy of the committee’s terms of reference is available
on the company’s website and the following is a summary
of its responsibilities:
• reviewing the size and composition of the Board, together with
the skills, knowledge, experience and diversity of its members
and making recommendations for change as necessary.
• carrying out an annual performance evaluation of the Board,
its committees and individual members.
• Keeping succession planning for the Board and senior executive
team under review.
the following is a description of the work of the committee to show
how it has discharged its responsibilities:
• received and discussed presentations from two external search
consultancies (following a tender involving eight firms) and
selected Korn/Ferry Whitehead Mann (“Korn/Ferry”) to assist in the
recruitment of additional non-executive directors as part of the
Board’s succession plans.
• Agreed the strategy, process and timetable for the Board
recruitment programme, including a programme of induction for
Korn/Ferry, as well as a Board candidate role specification.
• reviewed and discussed a long list (gender balanced) and short list
(>40% female) of potential candidates, including further
representations/presentations from Korn/Ferry, and selected from
the short list four candidates (gender balanced) for interview in
early 2013.
• All directors participated individually in interviews with Korn/Ferry,
as part of its induction, but also as part of the Board’s externally
facilitated evaluation process.
• reviewed and discussed the outcome of the director interviews and
further discussed this in the context of and as part of the Board’s
annual formal evaluation of the Board’s performance and that of its
committees and individual directors.
• considered and approved the re-appointment of robert Beeston as
chairman of the Board and company for a further three year period
to september 2015.
• Led by the senior independent Director, conducted an annual
appraisal of the chairman’s performance, in which it was
considered that the chairman remains effective in and committed
to the role.
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Letter from the Chairman of the Remuneration Committee
(the “Committee”)
Dear shareholders,
Introduction
i am pleased to introduce the committee’s report on directors’
remuneration for 2012, which has been approved by all the directors
of the company. the report, in its entirety, will be subject to a single
advisory vote at the 2013 Annual General Meeting, which your Board
hopes you will support, and i will be available to answer questions
from shareholders on the decisions of the committee at the meeting.
the Government has tabled proposals to reform the way directors’
remuneration is voted upon and reported. in particular, the
Department for Business, innovation and skills has produced two
consultation papers, the results of which will have an impact on
the presentation of information in the remuneration report.
the new legislative requirements will not come into effect until
october 2013 but, although not mandatory for this report, the
committee has decided to adopt some of these changes early by
incorporating extra information. consistent with the proposals, this
report has been split into two sections. the first section contains a
policy report which sets out the different components that make up
total remuneration for the executive directors, explains how each
component operates and summarises the committee’s strategy and
approach in this important area during 2012. the policy report will
also apply for 2013. the second section contains an implementation
report which discloses how the policy for executive remuneration
policy has been applied in 2012.
taking the two sections of the report together, the aim of the
Directors’ remuneration report is to provide you with the necessary
information explaining and illustrating how the Group’s strategy
and its performance is linked to, and drives, the remuneration of
the executive directors, as well as for other senior executives.
Remuneration strategy
our remuneration strategy is designed to incentivise the executive
directors and business presidents to execute effectively our corporate
and business strategies in order to generate and preserve value for our
shareholders over the longer term, without encouraging excessive
risk taking. the principles and values applied to remuneration at
senior management level also underpin our policies and practices
throughout the Group. We seek to reward all employees fairly,
responsibly and by reference to local market practices, by providing
an appropriate balance between fixed and variable remuneration, the
payment of which is linked to the achievement of what are intended
to be demanding Group performance measures aligned to our
strategic objectives.
2012 overview
the Group delivered another solid year of earnings growth, as a result
of which the executive directors will receive bonus payments equal to
81.25 per cent of their basic salaries. No awards were made under the
Long term incentive plan to the executive directors and business
presidents in 2009 and, therefore, there were none to vest in 2012.
2013 highlights
No changes are being proposed to our policy on executive
remuneration and the following summarises the application of the
policy in the current year:
• After reviewing basic salary levels for the executive directors, an
increase for 2013 of three per cent was awarded, which is in line
with the increase for the workforce as a whole.
• the structure and operation of the annual bonus scheme and Long
term incentive plan (“Ltip”) for 2013 will remain the same as in 2012
except that, in respect of the performance metrics in the annual
bonus scheme, the actual target ranges will be revised in line with
the 2013 operating plan.
it is appropriate to mention here that the Ltip awards made to the
executive directors and other senior executives in 2010, which have
a three year performance period ended 31 December 2012, will be
vesting in full in April 2013. All performance conditions attaching to
those awards have been fully met and details of these are given later.
During 2013, the three yearly review of salaries of executive directors,
as well as fees of non-executive directors, will be carried out. Any
changes will be implemented from January 2014 and reported in
next year’s remuneration report.
We continue to monitor our remuneration policy to ensure we have
the correct alignment with the business strategy. Furthermore, the
committee encourages dialogue with the company’s shareholders
and will consult with major shareholders ahead of any significant
future changes to remuneration policy. We were very pleased
to receive a significant level of support for our remuneration
report from shareholders at last year’s AGM. thank you for your
continued support.
Kevin Matthews
Chairman, Remuneration Committee
26 February 2013
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
49
Policy report
the information in the table below sets out the remuneration policy for the different elements that make up total remuneration applying to the
executive directors. the policy was applied throughout 2012 and will also apply during 2013.
BasiC salary
Purpose and link to Company’s strategy
targeted at a level to attract and retain the world-class executives who are
essential to drive the business forward and deliver the company’s strategic goals.
How it operates in practice
Annual salary increase broadly in line with the local workforce, subject to
committee approval. the committee would take into consideration whether
the performance of the business and the executive director merits the award.
Formal salary review every three years, with benchmarking analysis utilised for
reference purposes, taking into consideration the following factors: corporate
performance; the performance of the executive; market practice; and changes
in responsibility, complexity and size of role over the previous three year period.
salaries are normally reviewed in December and any changes are effective
from January following.
Maximum potential value
targeted at median level when compared to companies of a similar size in
terms of revenue and market capitalisation that are in our sector or a similar
industrial sector.
Description of performance metrics applying
N/a
Changes to policy for 2013
No change to policy.
Benefits
Purpose and link to Company’s strategy
to aid retention and to remain competitive in the market place.
Healthcare benefits in order to minimise business disruption.
How it operates in practice
Life assurance and private medical health insurance are provided.
Benefits in the Us, where it is standard, include cover for dental costs,
accidental death and disablement, and long term disability.
provision of either a company car (for business and personal purposes) or a car
allowance, in both cases having a value that is consistent and commensurate
with the executive’s status and seniority.
Maximum potential value
Description of performance metrics applying
N/a
N/a
Changes to policy for 2013
No change in policy.
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annual CasH Bonus sCHeme
Purpose and link to Company’s strategy
to incentivise the senior management team to deliver the annual operating
plans approved by the Board at the start of each financial year.
How it operates in practice
to ensure that a significant proportion of an executive’s total remuneration
(about a third) is linked to corporate/business financial performance that is
tied to the company’s annual operating plan.
the committee does not incorporate corporate or business performance in
environmental, social and governance matters when setting targets in the
variable parts of remuneration. the safety and environmental performance of
Group businesses is accorded high importance and the committee considers
that management should aspire to achieving high standards in both safety
and environmental performance without the need for incentives. Governance
standards are set by the Board as a whole.
internal guidelines exist that enable the committee to claw back bonuses paid
(from 2012 onwards) that are later found to have been based on performance
that was mis-stated or incorrect calculations.
Maximum potential value
Maximum bonus opportunity of one times basic salary (executive directors
and business presidents).
Description of performance metrics applying
the bonus, which is paid in cash, is based on the achievement of challenging
financial targets relative to the annual operating plan, taking into account
general GDp factors, consensus brokers’ forecasts and current and past
performance of the businesses, together with any organic or acquisitive
growth plans.
two performance conditions apply:
• earnings per share (“eps”) and Group average trade working capital to sales
ratio expressed as a percentage (“AWc”) split 75:25.
For the eps condition, the targets are set at threshold, plan and stretch
level, with threshold being previous year actual and the plan and stretch
targets set at a level considered to be sufficiently challenging.
the AWc condition is structured in a similar way, except that an over-riding
condition means the AWc condition would only be operative if the eps
target at plan level has been met.
• Bonus accrual (as a percentage of basic salary) for both conditions is linear
between threshold and stretch, although vesting under the AWc condition
only operates above the plan level.
• the annual bonus scheme for the business presidents generally operates in the
same way except that the metrics used are business operating profit and AWc.
• the eps, operating profit and AWc conditions were selected because they
are considered to be the most appropriate measures of the Group’s
strategic, operational and financial performance, and targets are set at
levels which the committee considers to be appropriately challenging.
• eps and operating profit targets are set to ensure that maximum bonuses
are only payable for exceptional performance.
the committee keeps all three performance metrics under review on an
annual basis to ensure they continue to remain appropriate and has the
discretion to amend the weighting.
the committee considers that the current weighting of 75:25 eps:AWc is
appropriate and that it would not be appropriate for the eps (or operating
profit measure) to be reduced to below 50 per cent.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
51
annual CasH Bonus sCHeme coNtiNUeD
Changes to policy for 2013
No change in policy.
lonG term inCentives
Purpose and link to Company’s strategy
the Ltip is the sole long term incentive mechanism and is intended to align
the interests of the executives with the Group’s long term performance.
How it operates in practice
Maximum potential value
Further, the general policy is to ensure that a significant proportion of total
remuneration is aligned with the long term strategy and the interests of
shareholders.
• Nil cost options or conditional shares are awarded annually. options are
exercisable three years from, and within ten years of, the date of award,
subject to achievement of challenging performance conditions.
share awards vest on the third anniversary of the date of award and
are also subject to the achievement of challenging performance conditions.
• other executives participate in an executive share option scheme (“esos”).
the maximum value of any award under the Ltip is one times an individual’s
base salary, plus up to 50 per cent of the chief executive’s base salary (fixed at
its 2010 level but this base level is revalued annually by the same percentage
increase each participant receives on his own base salary in each subsequent
year). in the case of the chief executive, the maximum award is limited to
1.5 times his base salary at the time of the award.
Description of performance metrics applying
Awards are subject to achievement of the eps and tsr performance
conditions (split 50:50), as follows:
eps condition – awards vest on a linear scale from 0 per cent to 100 per cent
for average annual eps growth of rpi + 4 per cent to rpi + 10 per cent,
respectively. the committee considers that these targets are appropriately
challenging after taking into consideration the company’s strategic and
operating plans. the committee considers the target range each year prior
to grant to ensure it remains appropriate.
tsr condition – awards vest on a linear scale from 3.85 per cent to 100 per cent
for median to upper quartile performance, respectively. the tsr condition
will be measured against the companies comprising the Ftse All share index
(excluding investment trusts). this index was selected as it provides a better
indication of relative performance than the Ftse 250 index which is heavily
weighted towards cyclical sectors.
the performance period for both eps and tsr conditions will correspond to
the three financial years beginning with the financial year in which the award
is made.
Changes to policy for 2013
No change in policy.
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report oF tHe reMUNerAtioN coMMittee coNtiNUeD
pension
Purpose and link to Company’s strategy
to aid retention and remain competitive in the marketplace.
How it operates in practice
to provide appropriate retirement benefits commensurate with local market
practice, seniority of the role and tenure with the company together with
giving the executive an opportunity to contribute to their own retirement.
Group Chief Executive
David Dutro participates in a defined contribution scheme and receives
an annual salary supplement of 20 per cent of his basic salary as part of his
contractual entitlement.
For Us employees (including executive directors) the Group operates a
Us 401(k) plan, which is similar to a money purchase scheme, and a
Non-Qualified Deferred compensation plan (the “Defined contribution
plans”). the latter plan mirrors the 401(k) plan except it allows for
contributions in respect of earnings over an annual compensation limit
set by the Us internal revenue service (2012: $250,000). the employer match
under these two plans includes a regular match of up to 4 per cent of total
pensionable remuneration and a supplemental match of up to 4 per cent,
based on age and length of service.
prior to its closure to future accruals in 2006, David Dutro participated in the
elementis career reward retirement plan (“ecrrp”), which falls under the
category of defined benefit pension plans in the Us. As the plan is closed to
future accruals, participants’ account balances are no longer credited with
contributions, however, interest is credited each year at the Us treasury
30 year bond rate. the normal pensionable retirement age for David Dutro
under the ecrrp is 65.
Finance Director
Brian taylorson participates in a defined benefit scheme in the UK (“DB
scheme”) and receives a salary supplement to compensate him for the
restricted pension entitlements under the DB scheme as a result of the
former HM revenue & customs’ earnings cap on the amount of salary
which may be treated as pensionable (see below).
the main benefits to Brian taylorson as a UK salaried executive director
who contributes a percentage of his salary to the scheme each year are:
• An accrual rate of 1/30 for each year of pensionable service.
• Life assurance cover of four times pensionable salary.
• pensions to spouse and dependent children payable on death.
the normal pensionable retirement age for Brian taylorson is 60.
the annual salary supplement that Brian taylorson receives is an amount
(gross) equal to 44 per cent of his basic salary above the notional earnings cap.
Maximum potential value
Description of performance metrics applying
N/a
N/a
Changes to policy for 2013
No change in policy.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012 53
sHare ownersHip Guidelines
Purpose and link to Company’s strategy
to align an executive’s interests with those of shareholders and to encourage
executives to participate and share in the success of the Group.
How it operates in practice
executive directors are expected to build up a stake in the company over a
period of time that is equal in value to one times their basic annual salary.
the committee monitors compliance with these guidelines and can make
changes to them from time to time.
Maximum potential value
Description of performance metrics applying
N/a
N/a
Changes to policy for 2013
No change in policy.
savinGs-related sHare option sCHeme
Purpose and link to Company’s strategy
Helps align an employee’s interests with those of shareholders and to
encourage employees to participate in the success of the Group.
How it operates in practice
Both executive directors, like other senior executives, also participate in
non-discretionary savings-based share plans and information about these can
be found in Note 24 to the consolidated financial statements.
Maximum potential value
UK sharesave – maximum saving of £250 per month
Us sharesave – maximum saving of $2,000 per month
Description of performance metrics applying
N/a
Changes to policy for 2013
No change in policy.
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report oF tHe reMUNerAtioN coMMittee coNtiNUeD
non-exeCutive CHairman and
direCtors’ fees
Purpose and link to Company’s strategy
How it operates in practice
Maximum potential value
to attract individuals with the relevant skills, knowledge, experience,
aptitudes and personalities that the Board considers necessary in order to
maintain an optimal mix that ensure the effectiveness of the Board as a whole
in carrying out its duties and responsibilities.
Non-executive directors’ fees are determined by the chairman and the
executive directors, having regard to fees paid to non-executive directors
in other UK quoted companies, the time commitment and responsibilities
of the role.
in the case of the chairman, the fee level is determined by the remuneration
committee. As well as taking into consideration the above factors, the
committee sets the fee at an appropriate level necessary to attract a role
holder qualified to effectively lead a board of a company of a similar size and
prestige as elementis.
Fees are reviewed every three years and the next review is in December 2013
to take effect from January 2014.
Non-executive directors are not eligible to participate in any pension,
bonus or share incentive schemes. No individual is allowed to vote on their
own remuneration.
current annual fees:
• chairman: £137,150.
• Non-executive director basic fee: £40,000.
• Audit or remuneration committee chairman fee: £5,000.
• senior independent Director fee: £5,000.
Description of performance metrics applying
N/a
Changes to policy for 2013
No change in policy.
Remuneration policy and Group employees
As stated earlier, the same principles and values behind the design
of remuneration for the executive directors and business presidents
apply to other senior managers and employees throughout the rest
of the Group, with modifications to reflect local market practice and
the level of seniority and ability to influence Group performance.
Basic salaries throughout the Group are reviewed on an annual basis
and increases made on the basis of merit, generally equivalent to
an average workforce increase of 3 per cent. For the general body
of employees, the level of pay and pay increases are determined by
reference to local market factors, which may include collective
agreements. For managerial level employees, or those in specific
technical or professional roles, basic salary (and associated increases)
may be determined by reference to benchmark studies for employees
in roles with a similar level of responsibility in the same or a related
industry or sector. in this respect, the benchmarking studies used in
determining salary increases for senior executives, such as the
executive directors, are no different. However, the use of
benchmarking studies is only one factor that is considered and others
include, for example, the role, contribution and performance of the
individual. As the general level of annual salary increase is the same
for executive directors and employees, the committee does not
engage with employees for their views when setting policy on
executive remuneration.
employee benefits, such as life assurance or car allowance, are paid
dependent on grade or seniority, as well as local market practice.
the Group operates pension plans for all its employees that generally
provide the same type of benefits as for senior executives, with the
actual level of benefit commensurate with the seniority of the role and
length of service. in addition, the structure and design of pension
arrangements reflect local laws and market practice.
the Group’s annual bonus scheme is operated for executive directors
and other manager grades alike. there are about 100 participants
from across the Group each year (8 per cent of all employees) and
participation is on the basis of invitation. the performance conditions
for the executive directors and business presidents apply on a similar
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012 55
basis to other participants, and the principal difference is in respect
of the maximum amount of bonus that can be accrued, which can
range from nine per cent of basic salary to 100 per cent in the case
of the executive directors and business presidents. the businesses
also operate other incentive plans e.g. sales incentive plans or other
reward or recognition plans that are used to motivate or incentivise
positive behaviour.
the Group operates a Long term incentive plan (“Ltip”) for the five
most senior executives (including executive directors) in the Group
(discussed above) and, for all other executive and manager grades,
an executive share option scheme (“esos”) is operated to provide
share-based incentives. there are about 60 participants in the esos
and a cash-settled shadow scheme exists to provide the same
share-based incentive to a number of executives in china. the esos
is a traditional type of scheme under which employees are awarded
options to purchase shares at the share price at the time of grant.
in this respect, it differs from the Ltip under which awards of nil cost
options are made, giving the full value of the share. the level of grants
under the esos typically range from options having a market value at
the date of grant equal to between 20 per cent and 60 per cent of a
participant’s basic salary. Further details about the esos can be
found on page 96. otherwise, the same eps and tsr performance
conditions apply to both the esos and Ltip, except that the respective
targets are more difficult under the Ltip than the esos.
employees (including executive directors) in the Us and UK can
participate in an all-employee savings-based share option scheme
and further details about these arrangements can be found on page
96. owing to local law, the cost of provision and local market practice,
this type of provision has not been extended further within the Group.
When reviewing remuneration policies and practices, as well as the
total level of remuneration of the executive directors, the committee
is aware of how the total remuneration of the executive directors
compares with those of other executives, managers and employees
in the Group.
Other Information
Service contracts
executive directors’ service contracts contain a termination notice
period not exceeding 12 months.
Name
David Dutro, ceo
Brian taylorson, Finance Director
Date of contract
16 January 2007
5 June 2005
Notice period
12 months
12 months
Termination payments
the terms covering termination are agreed at the date the contracts
are made. Both executive directors are required to mitigate their loss
in the event of loss of office.
Group Chief executive
the total amount that would be payable to David Dutro for early
termination by the company of his service agreement is between
50 per cent and 100 per cent of the aggregate of:
(i) his basic annual salary, and
(ii) any bonus which he may be eligible to receive.
finance director
the total amount that would be payable to Brian taylorson for early
termination by the company of his service agreement is between
50 per cent and 100 per cent of the aggregate of:
(i) his basic annual salary,
(ii) the sums that would have become payable to him or on his
behalf, had 12 months’ notice of termination been given, by
way of pension accruals and any pension cash salary
supplement,
(iii) the cost of providing private medical insurance for him and his
spouse for the 12 months following termination, and
(iv) his monthly car allowance for a 12 month period.
the above terms for both executive directors were agreed at the
time the contracts were made and the committee is aware that
governance guidelines ask remuneration committees generally
to commit to a policy that precludes the inclusion of any payment
(benefits or bonus) other than basic salary in the calculation of
termination payments. As stated above, the committee’s position is
to ensure a director mitigates his loss, but the committee does not
consider that it would be in the best interests of the company, or
likely to promote its success, to adopt a policy in public that might
otherwise restrict its flexibility in future contract negotiations.
As new executive directors are appointed, their service contracts will
reflect best practice at that time.
Non-executive directors’ letters of appointment
each letter provides that the director’s appointment can be
terminated by the company on six months’ notice on any grounds
without claim for compensation.
Non-executive directors are not eligible to participate in any pension,
bonus or share incentive schemes. No individual is allowed to vote on
their own remuneration.
the table below provides further details of the letters of appointment
that the non-executive directors held with the company during
the year.
name
robert Beeston
ian Brindle
Andrew christie
chris Girling
Kevin Matthews
date of
appointment
21/09/06
06/06/05
11/08/08
29/04/05
16/02/05
date of last
re- appointment
21/09/12
06/06/11
11/08/11
29/04/11
16/02/11
date of
expiry
20/09/15
05/06/14
10/08/14
28/04/14
15/02/14
copies of the executive directors’ service contracts and all letters of
appointment of non-executive directors are available for inspection
at the company’s registered office during normal business hours and
will be available for inspection at the AGM.
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report oF tHe reMUNerAtioN coMMittee coNtiNUeD
Implementation report
the information contained in this section of the report includes information required under existing regulations. Where the committee
has provided supplemental information, it is not intended that this should necessarily meet the requirements of the new regulations.
the information presented shows how the company’s policies and practices on executive remuneration were applied in 2012.
Directors’ remuneration
Although the company reports its results in Us dollars, the remainder of this report on remuneration is presented in pounds sterling because
the majority of the directors are UK based and paid in pounds sterling.
Directors’ emoluments for the year ended 31 December 2012 were:
Salary/fees
Benefits(2)
Chairman
robert Beeston
Executive directors
David Dutro(3)
Brian taylorson(4) (5)
Non-executive directors
ian Brindle
Andrew christie
chris Girling
Kevin Matthews
Date of
appointment(1)
2012
£’000
21.09.12
137
17.01.07
02.04.02
26.04.12
26.04.12
26.04.12
26.04.12
468
310
45
40
45
45
1,090
2011
£’000
137
449
301
45
40
45
45
1,062
2012
£’000
2011
£’000
Total
excluding pensions
Bonus
2012
£’000
2011
£’000
2012
£’000
–
22
18
–
–
–
–
40
–
32
17
–
–
–
–
49
–
–
137
388
257
–
–
–
–
645
458
306
–
–
–
–
764
878
585
45
40
45
45
1,775
2011
£’000
137
939
624
45
40
45
45
1,875
Notes
1
For executive directors, this is their date of appointment, and for non-executive directors, the later of the date of appointment, re-appointment or latest date
of re-election to the Board.
the benefit package mainly comprises of a car allowance or company car, life assurance and medical cover.
David Dutro as Group chief executive, who is based in the Us and receives his salary in Us dollars, received a salary of $744,769 (2011: $723,078). His emoluments
exclude salary supplements paid as compensation for the closing to future accruals of the Us defined benefit scheme and these are shown on page 59.
emoluments for Brian taylorson also exclude salary supplements paid as compensation for the limitation of pension rights to the former HM revenue and
customs’ earnings cap. these are shown in the Directors’ retirement benefits table on page 59.
the company had previously released Brian taylorson to serve on the Board of Fiberweb plc, from which he resigned on 31 August 2012. Fees of £21,333
(2011: £32,000) were paid to him during the year, which he retained.
2
3
4
5
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
57
Determination of annual bonus outcome
this section sets out the various targets that were agreed in respect of the 2012 annual bonus scheme, which the committee has previously
agreed to disclose retrospectively to shareholders.
eps (cents)
AWc (%)
total
Relative
weighting of
performance
conditions
75%
25%
100%
2012 bonus plan targets
Bonus received as % of basic salary
Threshold
20.8
19.95
–
Plan
22.4
19.45
–
Stretch
23.9
18.95
–
Actual
result
23.3
19.10
–
Group Chief
Executive
60.00%
21.25%
81.25%
Finance
Director
60.00%
21.25%
81.25%
Bonus accrual under both performance conditions is linear from threshold to stretch.
2013 annual bonus scheme
the structure, operation and information about performance conditions are as set out in the policy report and are unchanged from 2012, except
for the actual targets which are not disclosed here due to commercial sensitivity but will be disclosed in next year’s remuneration report.
Directors’ share options/LTIP awards
David Dutro
Brian taylorson
Option
type
A
A
A
B
B
B
A
B
B
B
01.01.12
32,351
4,929
–
988,149
451,350
–
43,778
768,103
343,951
–
Granted
during
2012
–
–
13,144
–
–
359,846
–
–
–
273,693
Exercised
during
2012
30,688
–
–
–
–
–
–
–
–
–
Lapsed
during
2012
1,663
–
–
–
–
–
–
–
–
–
31.12.12
–
4,929
13,144
988,149
451,350
359,846
43,778
768,103
343,951
273,693
Option
price (p)
76.7
119.3
184.6
–
–
–
35.5
–
–
–
Earliest exercise
date/date
of vesting
27.08.2012
26.08.2013
30.08.2014
22.04.2013
04.04.2014
27.06.2015
01.10.2014
22.04.2013
04.04.2014
27.06.2015
Expiry
date
27.11.2012
26.11.2013
30.11.2014
22.04.2020
04.04.2021
27.06.2022
01.04.2015
22.04.2020
04.04.2021
27.06.2022
A savings-related share option schemes.
B
Long term incentive plan. the same eps growth and relative tsr performance conditions apply in respect of the awards in 2011
and 2012 as for the proposed awards in 2013, as described in the policy report. the conditions applying in respect of the 2010 award
are described below.
Price on
Gain on
exercise (£) exercise (£)
46,459
–
–
–
–
–
–
–
–
–
2.28
–
–
–
–
–
–
–
–
–
1.
2.
the number of savings-based share options shown as lapsed for David Dutro is the difference between the number granted and exercised, and is
attributable to currency movements.
the option price shown is the market price at the date of grant. earliest exercise date/date of vesting is 36 months from the date of grant.
the market price of ordinary shares at 31 December 2012 was 232.5 pence (2011: 137.2 pence) and the range during 2012 was 135.1 pence to
240.3 pence (2011: 107.5 pence to 187.4 pence).
determination of 2010 ltip awards
the awards made in 2010, shown in the table above as having a vesting date of 22 April 2013, will vest in full on that date. the performance
conditions (eps and tsr, split 50:50) relate to the three financial years ended 31 December 2012. Under the eps condition, all of the awards
subject to that condition will vest in full if eps for the 2012 financial year was 7.5 pence or more (equivalent to 11.54 cents based on the
£: $ exchange rate on the date of award). Under the tsr condition, all of the awards subject to that condition will vest in full if the company’s
tsr performance (against the Ftse All share index excluding investment trusts) in the three financial years ended 31 December 2012 was at
or above upper quartile. the company’s eps for 2012 was 23.3 cents and it was ranked fifth out of 412 companies for tsr performance in the
above period and, therefore, since both conditions have been met in full, all 2010 awards will be vesting.
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON
58
report oF tHe reMUNerAtioN coMMittee coNtiNUeD
ltip awards granted in the year
Ltip awards made in 2012 are set out in the previous table. the 2012 Ltip awards are subject to eps and tsr performance conditions (split 50:50),
as in the previous year, and the vesting schedule for each is shown in the charts below.
EPS
TSR
Percentage of award subject to EPS performance vesting
110
100
90
80
70
60
50
40
30
20
10
0
100% vesting at or above 10% p.a.
No vesting at or below 4% p.a.
Percentage of award subject to TSR performance vesting
110
100% vesting at Upper quartile or better
100
90
80
70
60
50
40
30
20
10
0
No vesting below Median
3.85% vesting at Median
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
Median
Upper quartile
Average EPS growth above RPI (% p.a.)
Elementis position relative to the FTSE All Share index (excluding investment trusts)
For the eps condition, the chart shows that awards will vest on a linear scale from 0 per cent to 100 per cent for average annual eps growth of
rpi + 4 per cent to rpi + 10 per cent, respectively. For the tsr condition, the chart shows that awards will vest on a linear scale from 3.85 per cent
to 100 per cent for median to upper quartile performance, respectively. the tsr condition will be measured against the companies comprising
the Ftse All share index (excluding investment trusts).
Sourcing shares for our share plans
elementis share plans comply with the current ABi guidelines on headroom which provide that overall dilution under all plans should not exceed
10 per cent over any ten year period in relation to the company’s issued share capital, with a further limitation of 5 per cent in any ten year period
on discretionary plans. Based on the number of awards that remain outstanding as at the year end and having included all exercised awards and
awards that have lapsed, the company’s headroom for all plans is 5.6 per cent and for discretionary plans 4.0 per cent.
the costs of operating all of the company’s share incentive schemes and the total number of options granted to all directors and employees
that remain outstanding as at the year end are disclosed in Note 24 to the consolidated financial statements.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012 59
Retirement benefits
the table below shows the breakdown of the retirement benefits of the executive directors, comprising employer contributions to defined
contribution plans, benefits under defined benefit schemes and salary supplements paid in cash. For a description of these schemes and an
explanation of which scheme each executive director participates in, see the policy report.
the amount shown for David Dutro under defined contribution plans reflects total employer contributions in 2012. the amounts paid under
these plans were £53,848 (2011: £53,893) equivalent to 6.3 per cent (2011: 6.0 per cent) of his total pensionable remuneration (comprising basic
salary and bonus payments) in 2012.
the payment of a salary supplement is explained in the policy report on page 52.
in the case of the defined benefit schemes, the transfer values for David Dutro and Brian taylorson have been calculated in accordance with
pension regulations. the transfer value of the increase in accrued benefits discloses the current value of the increase in accrued benefits that the
director has earned in the year, whereas the increase in transfer value less directors’ contributions discloses the absolute change in transfer value
and includes the change in value of the accrued benefits resulting from changes in market rates affecting the transfer value at the start of the
year, as well as the additional value earned in the year.
directors’ retirement benefits
Name
Defined
contribution plans
Salary
supplements
David Dutro
Brian taylorson
2012
£’000
54
–
2011
£’000
54
–
2012
£’000
94
160
Accrued
benefits
2011 31.12.12
£’000
£’000
9
90
50
136
Increase
in
accrued
benefits
2012
£’000
–
7
Defined benefit schemes
Transfer
value of
increases
in accrued
benefits
less
Total
directors’ transfer
Increase
in
accrued
benefits
(net of
Increase
in
transfer
value
less
directors’
inflation) contributions value at value at contributions
2012
£’000
2
129
2012 31.12.11 31.12.12
£’000
£’000
£’000
67
66
–
138 1,221 1,357
2012
£’000
–
6
Total
transfer
Directors’ shareholdings
As at 31 December 2012, the interests of the persons who were then directors in the issued shares of the company (excluding any interests
under the Group’s employee share schemes) were:
robert Beeston
ian Brindle
Andrew christie
David Dutro(1)
chris Girling
Kevin Matthews
Brian taylorson(2)
Ordinary
shares
31.12.12
50,000
31,172
10,000
294,912
5,000
11,633
331,096
Ordinary
shares
31.12.11
50,000
31,172
10,000
264,224
5,000
11,633
381,096
David Dutro retained 30,688 shares (2011: 13,903) following the exercise of savings-based share options in 2012.
1.
2. Brian taylorson made a charitable donation of 50,000 shares in 2012.
As at 26 February 2013, the trustee of the company’s employee share ownership trust (“esot”) held nil shares (2011: 1,165,719). As executive
directors, David Dutro and Brian taylorson, as potential beneficiaries under the esot, are deemed to have an interest in any shares that become
held in the esot.
As at 26 February 2013, no person who was then a director had any interest in any derivative or other financial instrument relating to the
company’s shares and, so far as the company is aware, none of their connected persons had such an interest. Between 31 December 2012 and
26 February 2013 there was no change in the relevant interests of any such directors nor, so far as the company is aware, in the relevant interests
of any of their connected persons.
other than their service contracts, letters of appointment and letters of indemnity with the company, none of the directors had an interest in
any contract of significance in relation to the business of the company or its subsidiaries at any time during the financial year.
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON
60
report oF tHe reMUNerAtioN coMMittee coNtiNUeD
Total shareholder return performance
the graph below illustrates the company’s total shareholder
return (“tsr”) for the five years ending 31 December 2012, relative to
the Ftse 250 index.
evaluation, training and development
on an annual basis the committee’s effectiveness is reviewed as part
of the evaluation of the Board. Following the evaluation last year,
there were no major issues to report.
As the company’s shares are denominated and listed in pence, the
graph below looks at the total return, to the end of 2012, of £100
invested in elementis on 31 December 2007 compared with that of
the total return of £100 invested in the Ftse 250 index. this index
was selected for the purpose of providing a relative comparison of
performance because the company is a member of it.
During 2012 committee members attended various external seminars
on the latest developments on executive remuneration and all Board
members received briefings from the company secretary and the
committee’s remuneration advisers throughout the year, to keep
them updated on topical matters and developments relating to
executive remuneration.
remuneration advisers
the committee’s external advisers are New Bridge street (“NBs”) who
were appointed after a tender in 2008. the committee is satisfied that
there is no over-reliance on NBs, who have no connection with the
company other than as remuneration advisers. total fees paid to NBs
in 2012 amounted to less than $20,000 and consisted mainly of fees for
advisory services in connection with the adoption by shareholders of
a new 2012 executive share option scheme last year.
operation of the Committee
the committee’s work during these meetings and throughout the
year included:
• review and approval of the 2011 Directors’ remuneration report;
• Approval of bonus payments made in 2012.
• consideration of the Government’s proposals on disclosures in the
Directors’ remuneration report.
• review and approval of an annual increase to the executive
directors’ basic salaries.
• review of the structure and operation of the annual bonus scheme
and Ltip, as well as the approval of awards under both schemes,
including setting associated performance targets.
Auditable section of the report on remuneration
the sections and tables that constitute the auditable part of
this report as defined in the companies Act 2006 are as follows:
sections relating to “Determination of annual bonus outcome”
and “Determination of 2010 Ltip awards”; and tables headed
“Directors’ remuneration”, “Directors’ share options/Ltip awards”,
“Directors’ retirement benefits” and “Directors’ shareholdings”.
this report of the remuneration committee is prepared on behalf
of the Board and has been approved by the committee and signed
on its behalf by:
Kevin Matthews
Chairman, Remuneration Committee
26 February 2013
TSR PERFORMANCE
£
400
350
300
250
200
150
100
50
0
Key
2007
2008
2009
2010
2011
2012
Elementis
FTSE 250 Index
Other information about the Committee’s membership
and operation
Committee composition
the chairman and members of the committee are shown on page 36,
together with their biographical information. Four meetings were
held during 2012 and were attended by all committee members. All
meetings were also attended by the chairman of the company and
the senior independent Director, to ensure that all non-executive
Board members were kept fully informed on the operation and work
of the committee. Both executive directors also attend meetings by
invitation as appropriate, although they are not present when their
own remuneration arrangements are discussed or, if they are, they
do not participate in the decision making process.
As reported elsewhere in this Annual report, the Board refreshment
process will result in two new non-executive directors being
appointed in 2013 and this is likely to lead to a change in the
committee’s composition. Further details will be announced
by the company as and when it is appropriate to do so.
terms of reference
A full description of the committee’s terms of reference is available
on the company’s website and the following is a summary of
its responsibilities:
• Determining the levels of remuneration for the chairman and
executive directors and keeping these under review.
• Making awards under the annual bonus scheme and Ltip, including
setting performance targets.
• Monitoring and making recommendations on the structure and
level of remuneration for senior executives, ensuring that these are
appropriately linked to the Group’s strategy and aligned with the
Board’s risk profile.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
Independent audItor’s report
to the members of elementIs plc
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
under the companies act 2006 we are required to report to you if,
in our opinion:
•
•
•
•
•
adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
the parent company financial statements and the part of the
directors’ remuneration report to be audited are not in agreement
with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are
not made; or
we have not received all the information and explanations we
require for our audit; or
a Corporate governance report has not been prepared by
the company
Under the Listing Rules we are required to review:
•
the directors’ statement, set out on page 38, in relation to
going concern;
•
the part of the Corporate governance report on page 42 relating to
the company’s compliance with the nine provisions of the uK
corporate Governance code specified for our review; and
•
certain elements of the report to shareholders by the Board on
directors’ remuneration.
Myles Thompson (Senior Statutory Auditor)
for and on behalf of KpmG audit plc, statutory auditor
chartered accountants
15 canada square
london e14 5Gl
26 february 2013
We have audited the financial statements of elementis plc for the year
ended 31 december 2012 set out on pages 62 to 105. the financial
reporting framework that has been applied in the preparation of the
group financial statements is applicable law and International financial
reporting standards (“Ifrss”) as adopted by the eu. the financial
reporting framework that has been applied in the preparation of the
parent company financial statements is applicable law and uK
accounting standards (uK Generally accepted accounting practice).
this report is made solely to the company’s members, as a body,
in accordance with chapter 3 of part 16 of the companies act 2006.
our audit work has been undertaken so that we might state to the
company’s members those matters we are required to state to them
in an auditors’ report and for no other purpose. to the fullest extent
permitted by law, we do not accept or assume responsibility to anyone
other than the company and the company’s members, as a body, for
our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
as explained more fully in the directors’ responsibility statement
set out on page 41, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true
and fair view. our responsibility is to audit, and express an opinion
on, the financial statements in accordance with applicable law and
International standards on auditing (uK and Ireland). those standards
require us to comply with the auditing practices board’s (apb’s) ethical
standards for auditors.
Scope of the audit of the financial statements
a description of the scope of an audit of financial statements is provided
on the apb’s web-site at www.frc.org.uk/apb/scope/private.cfm.
Opinion on financial statements
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the
Group’s and of the parent company’s affairs as at 31 december 2012
and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in
accordance with Ifrss as adopted by the eu;
the parent company financial statements have been properly
prepared in accordance with uK Generally accepted accounting
practice; and
the financial statements have been prepared in accordance with
the requirements of the companies act 2006; and, as regards the
Group financial statements, article 4 of the Ias regulation.
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
•
•
•
the part of the Directors’ remuneration report to be audited has been
properly prepared in accordance with the companies act 2006;
the information given in the Directors’ report for the financial year
for which the financial statements are prepared is consistent with
the financial statements; and
the information given in the Finance report set out on pages 26 and
27 with respect to internal control and risk management systems in
relation to financial reporting processes and in the director's report
on page 39 about share capital structures is consistent with the
financial statements.
61
61
1
6
–
6
3
e
c
n
a
n
r
e
v
o
g
e
t
a
r
o
p
r
o
c
5
0
1
–
2
6
s
t
n
e
m
e
t
a
t
s
i
l
a
c
n
a
n
f
i
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCompany ifc – 03 overviewbusiness 04 – 35reviewCorporate 36 – 61 governanCefinanCial 62 – 105 statementsshareholder 106 – 108information
62 consolIdated Income statement
for the year ended 31 december 2012
revenue
cost of sales
Gross profit
distribution costs
administrative expenses
operating profit
finance income
finance costs
profit before income tax
tax
profit for the year
attributable to:
equity holders of the parent
non-controlling interests
Earnings per share
basic (cents)
diluted (cents)
Before
exceptional
items
$million
757.0
(465.6)
291.4
(80.6)
(66.9)
143.9
2.0
(4.7)
141.2
(34.1)
107.1
107.1
–
107.1
Exceptional
items
(note 5)
$million
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Note
2
2
3
4
6
9
9
Before
exceptional
items
$million
760.5
(473.6)
286.9
(82.7)
(67.1)
137.1
2.6
(5.2)
134.5
(39.7)
94.8
Exceptional
items
(note 5)
$million
–
–
–
–
27.5
27.5
–
–
27.5
1.8
29.3
94.8
–
94.8
29.3
–
29.3
2012
After
exceptional
items
$million
757.0
(465.6)
291.4
(80.6)
(66.9)
143.9
2.0
(4.7)
141.2
(34.1)
107.1
107.1
–
107.1
23.7
23.3
2011
After
exceptional
items
$million
760.5
(473.6)
286.9
(82.7)
(39.6)
164.6
2.6
(5.2)
162.0
(37.9)
124.1
124.1
–
124.1
27.8
27.2
consolIdated statement of
comprehensIve Income
for the year ended 31 december 2012
Profit for the year
Other comprehensive income:
exchange differences on translation of foreign operations
actuarial loss on pension and other post-retirement schemes
effective portion of changes in fair value of cash flow hedges
fair value of cash flow hedges transferred to income statement
deferred tax associated with pension and other post-retirement schemes
other comprehensive income
total comprehensive income for the year
attributable to:
equity holders of the parent
non-controlling interests
total comprehensive income for the year
2012
$million
107.1
2011
$million
124.1
1.4
(67.3)
(0.5)
0.8
5.1
(60.5)
46.6
46.6
–
46.6
1.3
(44.7)
(0.8)
(0.9)
8.1
(37.0)
87.1
87.1
–
87.1
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
consolIdated balance sheet
at 31 december 2012
63
Non-current assets
Goodwill and other intangible assets
property, plant and equipment
deferred tax assets
Total non-current assets
Current assets
Inventories
trade and other receivables
derivatives
cash and cash equivalents
Total current assets
Total assets
Current liabilities
bank overdrafts and loans
trade and other payables
derivatives
current tax liabilities
provisions
Total current liabilities
Non-current liabilities
loans and borrowings
derivatives
retirement benefit obligations
deferred tax liabilities
provisions
Government grants
Total non-current liabilities
Total liabilities
Net assets
Equity
share capital
Share premium
Other reserves
Retained earnings
Total equity attributable to equity holders of the parent
non-controlling interests
Total equity
2012
31 December
$million
2011
31 December
$million
Note
10
11
16
12
13
20
19
14
15
19
23
16
15
17
18
18
18
342.6
197.2
12.4
552.2
128.8
119.1
–
63.1
311.0
863.2
(5.6)
(100.3)
(0.4)
(8.7)
(6.6)
(121.6)
(13.5)
–
(136.0)
(75.4)
(33.9)
(0.6)
(259.4)
(381.0)
482.2
43.7
14.7
130.3
291.9
480.6
1.6
482.2
335.1
163.8
7.4
506.3
119.8
99.1
0.8
48.2
267.9
774.2
(6.2)
(88.3)
(1.0)
(4.6)
(7.9)
(108.0)
(15.8)
(0.4)
(94.8)
(67.7)
(35.7)
(1.0)
(215.4)
(323.4)
450.8
43.4
12.7
125.8
267.3
449.2
1.6
450.8
the financial statements on pages 62 to 100 were approved by the board on 26 february 2013 and signed on its behalf by:
David Dutro
Group Chief Executive
Brian Taylorson
Finance Director
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON
64 consolIdated statement of chanGes In equIty
Balance at 1 January 2011
comprehensive income
profit for the year
other comprehensive income
exchange differences
fair value of cash flow hedges
transferred to the income statement
effective portion of changes in fair value
of cash flow hedges
actuarial loss on pension scheme
tax credit on actuarial loss on
pension scheme
transfer
total other comprehensive income
Total comprehensive income
transactions with owners
purchase of shares by the esot
Issue of shares by the company and
the esot
share based payments
dividends paid
total transactions with owners
Balance at 31 December 2011
Balance at 1 January 2012
comprehensive income
profit for the year
other comprehensive income
exchange differences
fair value of cash flow hedges
transferred to the income statement
effective portion of changes in
fair value of cash flow hedges
actuarial loss on pension scheme
tax credit on actuarial loss on
pension scheme
transfer
total other comprehensive income
total comprehensive income
transactions with owners
Issue of shares by the company and
the esot
share based payments
deferred tax on share based payments
recognised within equity
dividends paid
total transactions with owners
Balance at 31 December 2012
Share
capital
$million
43.2
Share
premium
$million
11.6
Translation
reserve
$million
(30.3)
Hedging
reserve
$million
(6.1)
Other
reserves
$million
163.1
Retained
earnings
$million
198.2
Non-
controlling
interest
$million
1.6
Total
$million
379.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.3
–
–
–
–
–
1.3
1.3
–
0.2
–
–
0.2
43.4
1.1
–
–
1.1
12.7
–
–
–
–
(29.0)
–
–
(0.9)
(0.8)
–
–
–
(1.7)
(1.7)
–
–
–
–
–
(7.8)
–
–
–
–
–
–
(3.1)
(3.1)
(3.1)
124.1
124.1
–
–
–
(44.7)
8.1
3.1
(33.5)
90.6
1.3
(0.9)
(0.8)
(44.7)
8.1
–
(37.0)
87.1
–
(2.2)
(2.2)
–
2.6
–
2.6
162.6
2.6
–
(21.9)
(21.5)
267.3
3.9
2.6
(21.9)
(17.6)
449.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.6
Total
equity
$million
381.3
124.1
1.3
(0.9)
(0.8)
(44.7)
8.1
–
(37.0)
87.1
(2.2)
3.9
2.6
(21.9)
(17.6)
450.8
43.4
12.7
(29.0)
(7.8)
162.6
267.3
449.2
1.6
450.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.3
–
–
–
0.3
43.7
2.0
–
–
–
2.0
14.7
–
1.4
–
–
–
–
–
1.4
1.4
–
–
–
–
–
(27.6)
–
–
0.8
(0.5)
–
–
–
0.3
0.3
–
–
–
–
–
(7.5)
–
–
–
–
–
–
(0.8)
(0.8)
(0.8)
–
3.6
–
–
3.6
165.4
107.1
107.1
–
–
–
(67.3)
5.1
0.8
(61.4)
45.7
1.4
0.8
(0.5)
(67.3)
5.1
–
(60.5)
46.6
0.5
–
2.8
3.6
–
–
–
–
–
–
–
–
–
–
–
107.1
1.4
0.8
(0.5)
(67.3)
5.1
–
(60.5)
46.6
2.8
3.6
10.6
(32.2)
(21.1)
291.9
10.6
(32.2)
(15.2)
480.6
–
–
–
1.6
10.6
(32.2)
(15.2)
482.2
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
consolIdated cash floW statement
for the year ended 31 december 2012
65
Operating activities:
profit for the year
adjustments for:
finance income
finance costs
tax charge
depreciation and amortisation
decrease in provisions
pension contributions net of current service cost
share based payments
exceptional items
cash flow in respect of exceptional items
operating cash flow before movement in working capital
Increase in inventories
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
cash generated by operations
Income taxes paid
Interest paid
Net cash flow from operating activities
Investing activities:
Interest received
disposal of property, plant and equipment
purchase of property, plant and equipment
purchase of business
acquisition of intangible assets
Net cash flow from investing activities
Financing activities:
Issue of shares by the company and the esot
dividends paid
receipt of unclaimed dividends
purchase of shares by the esot
decrease in borrowings
Net cash used in financing activities
Net increase in cash and cash equivalents
cash and cash equivalents at 1 January
foreign exchange on cash and cash equivalents
Cash and cash equivalents at 31 December
Note
2012
$million
2011
$million
107.1
124.1
(2.0)
4.7
34.1
21.3
(1.9)
(27.9)
4.2
–
(3.7)
135.9
(6.1)
(16.2)
9.4
123.0
(13.1)
(3.6)
106.3
1.1
1.5
(38.3)
(24.0)
(0.7)
(60.4)
2.8
(32.2)
0.3
–
(3.3)
(32.4)
13.5
48.2
1.4
63.1
(2.6)
5.1
37.9
19.9
(3.2)
(22.0)
2.6
(27.5)
31.8
166.1
(17.8)
12.8
(4.2)
156.9
(8.0)
(4.2)
144.7
0.9
2.1
(22.5)
–
(0.4)
(19.9)
3.9
(21.9)
–
(2.2)
(97.9)
(118.1)
6.7
40.8
0.7
48.2
20
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON
66 notes to the consolIdated fInancIal statements
for the year ended 31 december 2012
1 Accounting policies
elementis plc is a company incorporated in the uK. the Group
financial statements have been prepared and approved by the
directors in accordance with International financial reporting
standards as adopted by the eu (“adopted Ifrs”). the company
has elected to prepare its parent company financial statements in
accordance with the uK Gaap. these are presented on
pages 101 to 105.
Basis of preparation the financial statements have been
prepared on the historical cost basis except that derivative financial
instruments and financial instruments held for trading or available
for sale are stated at their fair value. non-current assets held for
sale are stated at the lower of carrying amount and fair value less
costs to sell. the preparation of financial statements requires the
application of estimates and judgements that affect the reported
amounts of assets and liabilities, revenues and costs and related
disclosures at the balance sheet date. the accounting policies set
out below have been consistently applied across Group companies
to all periods presented in these consolidated financial statements.
the financial statements have been prepared on a going concern
basis. the rationale for adopting this basis is discussed in the
Directors’ report on page 38.
Reporting currency as a consequence of the majority of the Group’s
sales and earnings originating in us dollars or us dollar linked
currencies, the Group has chosen the us dollar as its reporting
currency. this aligns the Group’s external reporting with the profile
of the Group, as well as with internal management reporting.
Critical accounting policies critical accounting policies are those
that require significant judgements or estimates and potentially
result in materially different results under different assumptions or
conditions. It is considered that the Group’s critical accounting
policies are limited to those described below. the development of
the estimates and disclosures related to each of these matters has
been discussed by the audit committee.
(a) Provisions a provision is recognised in the balance sheet when
the Group has a present legal or constructive obligation as a result
of a past event, and it is probable that an outflow of economic
benefits will be required to settle the obligation. If the effect is
material, provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and, where appropriate,
the risks specific to the liability.
a provision for restructuring is recognised when the Group has
approved a detailed and formal restructuring plan, and the
restructuring has either commenced or has been announced
publicly. In accordance with the Group’s environmental policy
and applicable legal requirements, a provision for site restoration
in respect of contaminated land is recognised when the land is
contaminated. provisions for environmental issues are
judgemental by their nature and more difficult to estimate when
they relate to sites no longer directly controlled by the Group.
elementis has taken a consistent approach to estimating
environmental provisions.
(b) Pension and other post-retirement benefits In respect of the
Group’s defined benefit schemes, the Group’s net obligation in
respect of defined benefit pension plans is calculated by
estimating the amount of future benefit that employees have
earned in return for their service in the current and prior periods;
that benefit is discounted to determine its present value, and the
fair value of any plan assets is deducted. the liability discount rate
is the yield at the balance sheet date on aa credit rated bonds that
have maturity dates approximating to the terms of the Group’s
obligations. pension and post-retirement liabilities are calculated
by qualified actuaries using the projected unit credit method. the
expected increase in the present value of scheme liabilities and
the long term expected return on assets based on the fair value of
the scheme assets at the start of the period, are included in the
income statement under finance income.
any difference between the expected return on assets and that
achieved is recognised in the statement of comprehensive
income together with the difference from experience or
assumption changes. the Group recognises all such actuarial
gains and losses in the period in which they occur through the
statement of comprehensive income. the Group also operates
a small number of defined contribution schemes and the
contributions payable during the year are recognised as incurred.
due to the size of the pension scheme assets and liabilities,
relatively small changes in the assumptions can have a significant
impact on the expense recorded in the income statement and on
the pension liability recorded in the balance sheet.
(c) Intangible assets
(i) Goodwill all business combinations since the transition to Ifrs
on 1 January 2004 are accounted for by applying the purchase
method. In respect of business acquisitions that have occurred
since the transition date, goodwill represents the difference
between the cost of the consideration given and the fair value
of net identifiable assets, liabilities and contingent liabilities
acquired. In respect of acquisitions prior to this date, goodwill is
included on the basis of its deemed cost, which represents the
amount recorded under previous Gaap. Goodwill is allocated
to cash-generating units and tested annually for impairment.
changes to the assumptions used in impairment testing could
have a material impact on the financial position of the Group and
of the result for the year.
(ii) Research and development expenditure on research is
recognised in the income statement as an expense as incurred.
expenditure on development where research findings are applied
to a plan or design for the production of new or substantially
improved products and processes is capitalised if the product or
process is technically and commercially feasible and the Group
has sufficient resources to complete development. expenditure
capitalised is stated as the cost of materials, direct labour and
an appropriate proportion of overheads less accumulated
amortisation. other development expenditure is recognised
in the income statement as an expense as incurred.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
6767
(iii) Other intangible assets other intangible assets are stated
at cost or when arising in a business combination, estimated fair
value, less accumulated amortisation.
(iv) Amortisation amortisation is charged to the income
statement on a straight-line basis over the estimated useful lives of
intangible assets unless such lives are indefinite. on this basis
there is no amortisation of intangible assets relating to brand.
Goodwill is systematically tested for impairment at each balance
sheet date. other intangible assets, comprising customer lists,
trademarks, patents and non-compete clauses, are amortised
over their estimated useful lives which range from 5-10 years.
(d) Derivative financial instruments the Group uses derivative
financial instruments to hedge its exposure to foreign exchange
and interest rate risks. the Group does not hold or issue derivative
financial instruments for trading purposes. however, derivatives
that do not qualify for hedge accounting are accounted for as
trading instruments. due to the requirement to measure the
effectiveness of hedging instruments, changes in market
conditions can result in the recognition of unrealised gains or
losses on hedging instruments in the income statement.
derivative financial instruments are recognised initially at fair value.
the gain or loss on remeasurement to fair value is recognised
immediately in the income statement. however, where derivatives
qualify for hedge accounting, recognition of any resultant gain or
loss depends on the nature of the item being hedged. the fair value
of forward exchange contracts is their quoted market price at the
balance sheet date, being the present value of the quoted
forward price.
Cash flow hedges Where a derivative financial instrument is
designated as a hedge of the variability in cash flows of a
recognised asset or liability, or a highly probable forecast
transaction, the effective part of any gain or loss on the derivative
financial instrument is recognised directly in the hedging reserve.
any ineffective portion of the hedge is recognised immediately in
the income statement.
Fair value hedges Where a derivative financial instrument is
designated as a hedge of the variability in a fair value of a
recognised asset or liability or an unrecognised firm commitment,
all changes in the fair value of the derivative are recognised
immediately in the income statement. the carrying value of
the hedged item is adjusted by the change in fair value that is
attributable to the risk being hedged (even if it is normally
carried at cost or amortised cost) and any gains or losses on
remeasurement are recognised immediately in the income
statement (even if those gains would normally be recognised
directly in reserves).
(e) Exceptional items the Group presents certain items separately
as “exceptional”. these are items which in management’s
judgement, need to be disclosed by virtue of their size and
incidence in order for the user to obtain a proper understanding
of the financial information. the determination of which items are
separately disclosed as exceptional items requires a significant
degree of judgement.
(f)
Income tax Income tax on the profit or loss for the year comprises
current and deferred tax. Income tax is recognised in the income
statement except to the extent that it relates to items recognised
directly in equity or in other comprehensive income. current tax is
the expected tax payable on the taxable income for the year, using
tax rates enacted or substantively enacted at the balance sheet
date, and any adjustment to tax payable in respect of previous
years. deferred tax is provided on temporary differences between
the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. the
following temporary differences are not provided for: the initial
recognition of goodwill; the initial recognition of assets or liabilities
that affect neither accounting nor taxable profit other than in a
business combination; and differences relating to investments
in subsidiaries to the extent that they will probably not reverse in
the foreseeable future. the amount of deferred tax provided is
based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates enacted or
substantively enacted at the balance sheet date. a deferred tax
asset is recognised only to the extent that it is probable that future
taxable profits will be available against which the asset can be
utilised. deferred tax assets are reduced to the extent that it is no
longer probable that the related tax benefit will be realised.
the Group is required to estimate the income tax in each of the
jurisdictions in which it operates. this requires an estimation of
current tax liability together with an assessment of the temporary
differences which arise as a consequence of different accounting
and tax treatments. the Group operates in a number of countries
in the world and is subject to many tax jurisdictions and rules.
as a consequence the Group is subject to tax audits, which by
their nature are often complex and can require several years to
conclude. management’s judgement is required to determine
the total provision for income tax. amounts are accrued based
on management’s interpretation of country specific tax law and
likelihood of settlement. however the actual tax liabilities could
differ from the position and in such events an adjustment would
be required in the subsequent period which could have a material
impact. tax benefits are not recognised unless it is probable that
the tax positions are sustainable. once considered to be probable,
management reviews each material tax benefit to assess whether
a provision should be taken against full recognition of the benefit
on the basis of potential settlement through negotiation. this
evaluation requires judgements to be made including the forecast
of future taxable income.
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCompany ifc – 03 overviewbusiness 04 – 35reviewCorporate 36 – 61 governanCefinanCial 62 – 105 statementsshareholder 106 – 108information
68 notes to the consolIdated fInancIal statements
for the year ended 31 december 2012 continued
1 Accounting policies (continued)
(g) Property, plant and equipment Items of property, plant and
equipment are stated at cost less accumulated depreciation and
impairment losses. freehold land is not depreciated. leasehold
property is depreciated over the period of the lease. freehold
buildings, plant and machinery, fixtures, fittings and equipment
are depreciated over their estimated useful lives on a straight line
basis. depreciation methods, useful lives and residual values are
assessed at the reporting date. no depreciation is charged on
assets under construction until the asset is brought into use.
estimates of useful lives of these assets are:
buildings
plant and machinery
fixtures, fittings and equipment
10 – 50 years
2 – 20 years
2 – 20 years
the cost of replacing part of an item of property, plant and
equipment is recognised in the carrying amount of the item if it
is probable that the future economic benefits embodied within
it will flow to the Group and its cost can be measured reliably.
the costs of the day-to-day servicing of property, plant and
equipment are recognised in the income statement as incurred.
management regularly considers whether there are any
indications of impairment to carrying values of property, plant
and equipment. Impairment reviews are based on risk adjusted
discounted cash flow projections. significant judgement is
applied to the assumptions underlying these projections which
include estimated discount rates, growth rates, future selling
prices and direct costs. changes to these assumptions could have
a material impact on the financial position of the Group and on
the result for the year.
Basis of consolidation the consolidated financial statements include
the financial statements of the company and its subsidiaries for the
period. a subsidiary is an entity that is controlled by the company.
control exists when the company has the power, directly or indirectly,
to govern the financial and operating policies of an entity to obtain
benefits from its activities. the results of subsidiaries acquired or
disposed of during a period are included in the consolidated financial
statements from the date that control commences until the date that
control ceases.
the Group adopted Ifrs 3 (revised), business combinations, for
business combinations where the acquisition date was on or after
1 January 2010. this measures goodwill at the acquisition date as the
fair value of the consideration transferred, the recognised amount
of any non-controlling interests in the acquiree plus, if the business
combination is achieved in stages, the fair value of the existing equity
interest in the acquiree, less the fair value of the identifiable assets
acquired and liabilities assumed. acquisition costs are accounted
for as an expense in the period incurred. for acquisitions that were
made by the Group between its initial adoption of Ifrs in 2005 and
31 december 2009 goodwill represents the excess of the cost of the
acquisition over the Group’s interest in the fair value of the identifiable
assets, liabilities and contingent liabilities of the acquiree. transaction
costs, other than those associated with the issue of debt or equity
securities, that the Group incurred in connection with business
combinations were capitalised as part of the cost of the acquisition.
In accordance with the transitional rules of Ifrs 1, the company has not
restated business combinations that took place prior to the date of
transition to Ifrs of 1 January 2004. as a consequence the scheme of
Arrangement entered into in 1998 whereby the Company acquired
elementis holdings limited and applied the true and fair override to
account for the transaction as a merger has not been restated under Ifrs.
Intragroup balances and any unrealised gains and losses or income and
expenses arising from intragroup transactions, are eliminated in
preparing the consolidated financial statements. unrealised gains
arising from transactions with associates and jointly controlled entities
are eliminated to the extent of the Group’s interest in the entity.
unrealised losses are eliminated in the same way as unrealised gains,
but only to the extent that there is no evidence of impairment.
Associates associates are those entities in which the Group has
significant influence, but not control over the financial and operating
policies. the consolidated financial statements include the Group’s
share of the post-acquisition total recognised gains and losses and the
net assets of associates on an equity accounted basis. Where the
Group’s share of losses exceeds its investment in an associate, the
Group’s carrying amount is reduced to nil and recognition of further
losses is discontinued except to the extent that the Group has incurred
a legal or constructive obligation.
Foreign currency
(a) Foreign currency transactions transactions in foreign
currencies are translated at the foreign exchange rate ruling
at the date of the transaction. monetary assets and liabilities
denominated in foreign currencies at the balance sheet date
are translated at the foreign exchange rate ruling at that date.
foreign exchange differences arising on translation are recognised
in the income statement. non-monetary assets and liabilities
denominated in foreign currencies that are stated at fair value are
translated at exchange rates ruling at the dates the fair value
was determined.
(b) Financial statements of foreign operations the assets and
liabilities of foreign operations, including goodwill and fair value
adjustments arising on consolidation, are translated at exchange
rates ruling at the balance sheet date. the revenues and expenses
of foreign operations are translated at the average rates of
exchange ruling for the relevant period. exchange differences
arising since 1 January 2004 on translation are taken to the
translation reserve. they are recognised in the income statement
upon disposal of the foreign operation. the Group may hedge a
portion of the translation of its overseas net assets through
pounds sterling and euro borrowings. from 1 January 2005, the
Group has elected to apply net investment hedge accounting
for these transactions where possible. Where hedging is applied,
the effective portion of the gain or loss on an instrument used to
hedge a net investment is recognised in equity. any ineffective
portion of the hedge is recognised in the income statement.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
6969
Leased assets leases which result in the Group receiving substantially
all of the risks and rewards of ownership of an asset are treated as
finance leases. an asset held under a finance lease is recorded in the
balance sheet and depreciated over the shorter of its estimated useful
life and the lease term. future instalments net of finance charges are
included within borrowings. minimum lease payments are
apportioned between the finance charge, which is allocated to
each period to produce a constant periodic rate of interest on the
remaining liability and charged to the income statement and
reduction of the outstanding liability. rental costs arising from
operating leases are charged on a straight line basis over the period
of the lease.
Inventories Inventories are stated at the lower of cost and net
realisable value. net realisable value is the estimated selling price,
less estimated costs of completion and selling expenses. cost, which
is based on a weighted average, includes expenditure incurred in
acquiring stock and bringing it to its existing location and condition.
In the case of manufactured inventories and work in progress, cost
includes an appropriate share of overheads attributable to
manufacture, based on normal operating capacity.
Trade receivables trade receivables are non interest bearing and are
stated at their nominal amount which is the original invoiced amount
less provision made for bad and doubtful receivables. estimated
irrecoverable amounts are based on the ageing of receivables and
historical experience. Individual trade receivables are written off when
management deem them no longer to be collectable.
Cash and cash equivalents cash and cash equivalents comprise
cash balances and call deposits with an original maturity of three
months or less. bank overdrafts that are repayable on demand and
form an integral part of the Group’s cash management are included
as a component of cash and cash equivalents for the purpose of the
statement of cash flows.
Borrowings borrowings are initially measured at cost (which is equal
to the fair value at inception), and are subsequently measured at
amortised cost using the effective interest rate method. any
difference between the proceeds, net of transaction costs and the
settlement or redemption of borrowings is recognised over the terms
of the borrowings using the effective interest rate method.
Trade payables trade payables are non interest bearing borrowings
and are initially measured at fair value and subsequently carried at
amortised cost.
Share capital Incremental costs directly attributable to issue of
ordinary shares and share options are recognised as a deduction from
equity. When share capital recognised as equity is repurchased, the
amount of the consideration paid, including directly attributable
costs, is recognised as a deduction from equity. repurchased shares
by the company are classified as treasury shares and are presented as
a deduction from total equity.
Impairment the carrying amount of non-current assets other than
deferred tax is compared to the asset’s recoverable amount at each
balance sheet date where there is an indication of impairment. for
goodwill, assets that have an indefinite useful life and intangible
assets that are not yet available for use, the recoverable amount is
estimated at each balance sheet date. an impairment loss is
recognised whenever the carrying amount of an asset or its cash-
generating unit exceeds its recoverable amount. Impairment losses
are recognised in the income statement.
Impairment losses recognised in respect of cash-generating units are
allocated first to reduce the carrying amount of any goodwill allocated
to cash-generating units and then to reduce the carrying amount of
the other assets in the unit on a pro rata basis. a cash generating unit
is the smallest identifiable group of assets that generates cash inflows
that are largely independent of the cash inflows from other assets or
groups of assets.
the recoverable amount is the greater of their fair value less costs to sell
and value in use. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the
risks specific to the asset. for an asset that does not generate largely
independent cash inflows, the recoverable amount is determined for the
cash generating unit to which the asset belongs.
Revenue revenue from the sale of goods is measured at the fair value
of the consideration received or receivable, net of returns, trade
discounts and rebates. revenue is recognised in the income
statement only where there is evidence, usually in the form of a sales
agreement, that the significant risks and rewards of ownership have
been transferred to the customer and where the collectability of
revenue is reasonably assured.
Finance income and finance costs finance income comprises
interest income on funds invested and changes in the fair value of
financial assets at fair value taken to the income statement. Interest
income is recognised as it accrues, using the effective interest
method. finance costs comprise interest expense on borrowings,
unwinding of the discount on provisions, dividends on preference
shares classified as liabilities, foreign currency losses and changes in
the fair value of financial assets at fair value taken to the income
statement. all borrowing costs are recognised in the income
statement using the effective interest method.
Share based payments the fair value of equity settled share options,
cash-settled shadow options and ltIp awards granted to employees is
recognised as an expense with a corresponding increase in equity. the
fair value is measured at grant date and spread over the period during
which the employees become unconditionally entitled to the options/
awards. the fair value of the options/awards granted is measured using
a binomial model, taking into account the terms and conditions upon
which the options/awards were granted. the amount recognised as an
employee expense is adjusted to reflect the actual number of share
options/awards that vest except where forfeiture is only due to share
prices not achieving the threshold for vesting.
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCompany ifc – 03 overviewbusiness 04 – 35reviewCorporate 36 – 61 governanCefinanCial 62 – 105 statementsshareholder 106 – 108information 70 notes to the consolIdated fInancIal statements
for the year ended 31 december 2012 continued
1 Accounting policies (continued)
Own shares held by Employee Share Ownership Trust (“ESOT”)
transactions of the Group-sponsored esot are included in the
consolidated financial statements. In particular, the esot’s purchases
of shares in the company are charged directly to equity.
Investments Investments comprising loans and receivables are stated
at amortised cost.
Government grants Grants against capital expenditure from
government and other bodies are shown separately in the balance
sheet. such grants are released to the profit and loss account over the
same period for which the relevant assets are depreciated.
Non-current assets held for sale and discontinued operations
a non-current asset or a group of assets containing a non-current asset
(a disposal group), is classified as held for sale if its carrying amount will
be recovered principally through sale rather than through continuing
use, it is available for immediate sale and is highly probable within one
year. on initial classification as held for sale, non-current assets and
disposal groups are measured at the lower of previous carrying amount
and fair value less costs to sell with any adjustments taken to profit or
loss. the same applies to gains and losses on subsequent
remeasurement.
a discontinued operation is a component of the Group’s business that
represents a separate major line of business or geographic area of
operations or is a subsidiary acquired exclusively with a view to resale,
that has been disposed of has been abandoned or that meets the
criteria to be classified as held for sale.
Termination benefits termination benefits are recognised as an expense
when the Group is demonstrably committed, without realistic possibility of
withdrawal, to a formal detailed plan to terminate employment before the
normal retirement date. termination benefits for voluntary redundancies
are recognised if the Group has made an offer encouraging voluntary
redundancy, it is probable that the offer will be accepted, and the number
of acceptances can be estimated reliably.
New standards and interpretations not yet adopted new standards,
amendments to standards and interpretations that are not yet effective
for the year ended 31 december 2012, and have not been applied in
preparing these consolidated financial statements, but that become
mandatory for the Group’s 2013 financial statements are as follows:
Amendment to IAS 19 Employee Benefits
the amendments to Ias 19 employee benefits make substantial changes
to the recognition, measurement and disclosure of retirement benefit
obligations. the most significant change is that the expected return on
plan assets, currently calculated using management’s estimate of the
return on the appropriate assets, will be replaced by a figure calculated
by applying the liability discount rate to the pension plan assets.
additionally, past service costs may no longer be amortised over the
average period until the benefits become vested and therefore are
recognised earlier. the Group estimates that had the revised standard
been applied in the current financial year the profit before tax figure
would have been $7.8 million lower.
Amendments to IAS1 ‘Presentation of Items of Other
Comprehensive Income’
the amendments require an entity to present the items of other
comprehensive that may be recycled to profit or loss in the future if
certain conditions are met, separately from those that would never
be recycled to profit or loss.
Amendments to IFRS7 ‘Disclosures – Offsetting Financial Assets
and Financial Liabilities’
the amendments require disclosure of include information that will
enable users of an entity’s financial statements to evaluate the effect
or potential effect of netting arrangements, including rights of set-off
associated with the entity’s recognised financial assets and recognised
financial liabilities, on the entity’s financial position.
IFRS 13 Fair Value Measurement
this standard explains how to measure fair value and introduces
enhanced fair value disclosure.
the Group has not yet determined the potential impact of amendments to
Ias1, amendments to Ifrs 7 and Ifrs 13 on the 2013 financial statements.
2 Operating segments
Business segments
the Group has determined its operating segments on the basis of those
used for management, internal reporting purposes and the allocation
of strategic resources. In accordance with the provisions of IFRS 8,
the Group’s chief operating decision maker is the board of directors.
the three reportable segments, specialty products, surfactants and
chromium each have distinct product groupings and, with the
exception of surfactants which shares a common management
structure with specialty products, separate management structures.
segment results, assets and liabilities include items directly attributable
to a segment and those that may be reasonably allocated from
corporate activities. presentation of the segmental results is on a basis
consistent with those used for reporting Group results. principal
activities of the reportable segments are as follows:
specialty products – production of rheological additives,
surfactants
chromium
compounded products and colourants.
– production of surface active ingredients.
– production of chromium chemicals.
the inter-segment revenue identified below represents the sale of these
products from the chromium to specialty products business. Inter-
segment pricing is set at a level that equates to the manufacturing cost
of the product plus a commercially appropriate mark up.
unallocated items and those relating to corporate functions such as tax
and treasury are presented in the tables below as central costs.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012 segmental analysis for the year ended 31 december 2012
revenue
Internal revenue
revenue from external customers
operating profit before exceptionals
head office cost allocations
profit/(loss) before interest
finance income
finance expense
taxation
Profit/(loss) for the period
fixed assets
Inventories
trade and other receivables
deferred tax assets
cash and cash equivalents
Segment assets
trade and other payables
operating provisions
other liabilities
bank overdrafts and loans
derivatives
current tax liabilities
retirement benefit obligations
deferred tax liabilities
Government grants
Segment liabilities
Net assets
capital additions
depreciation and amortisation
Information by geographic area
revenue from external customers
non current assets
capital additions
depreciation and amortisation
71
Specialty
Products
$million
458.7
–
458.7
90.4
(0.3)
90.1
–
–
–
90.1
465.6
67.7
62.8
–
–
596.1
(46.4)
–
–
–
–
–
–
–
–
(46.4)
549.7
26.3
(11.9)
2012
Chromium
$million
240.1
(14.3)
225.8
63.7
(0.9)
62.8
–
–
–
62.8
66.9
54.1
38.4
–
–
159.4
(29.4)
–
(11.9)
–
–
–
–
–
–
(41.3)
118.1
7.8
(6.6)
United
Kingdom
$million
31.7
43.7
2.3
(1.0)
Surfactants
$million
72.5
–
72.5
5.1
(0.3)
4.8
–
–
–
4.8
18.5
7.0
11.2
–
–
36.7
(12.8)
–
–
–
–
–
–
–
–
(12.8)
23.9
3.4
(2.3)
North
America
$million
274.5
394.4
30.3
(13.5)
Segment
totals
$million
771.3
(14.3)
757.0
159.2
(1.5)
157.7
–
–
–
157.7
551.0
128.8
112.4
–
–
792.2
(88.6)
–
(11.9)
–
–
–
–
–
–
(100.5)
691.7
37.5
(20.8)
Rest of
Europe
$million
196.3
33.6
4.9
(3.3)
Central
costs
$million
–
–
–
(15.3)
1.5
(13.8)
2.0
(4.7)
(34.1)
(50.6)
(11.2)
–
6.7
12.4
63.1
71.0
(11.7)
(28.6)
–
(19.1)
(0.4)
(8.7)
(136.0)
(75.4)
(0.6)
(280.5)
(209.5)
1.5
(0.5)
Rest of the
World
$million
254.5
68.1
1.5
(3.5)
Total
$million
771.3
(14.3)
757.0
143.9
–
143.9
2.0
(4.7)
(34.1)
107.1
539.8
128.8
119.1
12.4
63.1
863.2
(100.3)
(28.6)
(11.9)
(19.1)
(0.4)
(8.7)
(136.0)
(75.4)
(0.6)
(381.0)
482.2
39.0
(21.3)
Total
$million
757.0
539.8
39.0
(21.3)
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON
72 notes to the consolIdated fInancIal statements
for the year ended 31 december 2012 continued
2 Operating segments (continued)
segmental analysis for the year ended 31 december 2011
revenue
Internal revenue
revenue from external customers
operating profit before exceptionals
Head office cost allocations
Exceptionals
Profit before interest
finance income
finance expense
taxation – pre-exceptional
Taxation – exceptional
Profit/(loss) for the period
Fixed assets
Inventories
Trade and other receivables
deferred tax assets
Derivatives
Cash and cash equivalents
Segment assets
Trade and other payables
Operating provisions
other liabilities
bank overdrafts and loans
derivatives
current tax liabilities
Retirement benefit obligations
deferred tax liabilities
Government grants
Segment liabilities
Net assets
capital additions
depreciation and amortisation
Information by geographic area
Revenue from external customers
Non current assets
Capital additions
depreciation and amortisation
3 Finance income
Interest on bank deposits
expected return on pension scheme assets
Interest on pension scheme liabilities
pension and other post retirement liabilities
Specialty
Products
$million
449.9
–
449.9
91.4
(1.7)
(1.8)
87.9
–
–
–
–
87.9
430.5
61.3
58.7
–
–
–
550.5
(46.4)
–
–
–
–
–
–
–
–
(46.4)
504.1
11.9
(10.9)
2011
Chromium
$million
231.0
(14.7)
216.3
56.9
(0.8)
–
56.1
–
–
–
–
56.1
65.8
50.8
23.5
–
–
–
140.1
(19.2)
–
(15.0)
–
–
–
–
–
–
(34.2)
105.9
9.1
(6.4)
United
Kingdom
$million
23.1
40.6
1.9
(0.5)
Segment
totals
$million
775.2
(14.7)
760.5
154.0
(2.8)
(7.0)
144.2
–
–
–
–
144.2
513.6
119.8
89.4
–
–
–
722.8
(75.4)
–
(15.0)
–
–
–
–
–
–
(90.4)
632.4
21.7
(19.6)
Rest of
Europe
$million
226.7
31.9
1.1
(3.3)
Surfactants
$million
94.3
–
94.3
5.7
(0.3)
(5.2)
0.2
–
–
–
–
0.2
17.3
7.7
7.2
–
–
–
32.2
(9.8)
–
–
–
–
–
–
–
–
(9.8)
22.4
0.7
(2.3)
North
America
$million
270.8
377.0
18.7
(12.7)
Central
costs
$million
–
–
–
(16.9)
2.8
34.5
20.4
2.6
(5.2)
(39.7)
1.8
(20.1)
(14.7)
–
9.7
7.4
0.8
48.2
51.4
(12.9)
(28.6)
–
(22.0)
(1.4)
(4.6)
(94.8)
(67.7)
(1.0)
(233.0)
(181.6)
1.2
(0.3)
Rest of the
World
$million
239.9
49.4
1.2
(3.4)
2012
$million
0.8
43.0
(41.8)
1.2
2.0
Total
$million
775.2
(14.7)
760.5
137.1
–
27.5
164.6
2.6
(5.2)
(39.7)
1.8
124.1
498.9
119.8
99.1
7.4
0.8
48.2
774.2
(88.3)
(28.6)
(15.0)
(22.0)
(1.4)
(4.6)
(94.8)
(67.7)
(1.0)
(323.4)
450.8
22.9
(19.9)
Total
$million
760.5
498.9
22.9
(19.9)
2011
$million
0.7
47.7
(45.8)
1.9
2.6
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
4 Finance costs
Interest on bank loans
unwind of discount on provisions
5 Exceptional items
refund of eu commission fine
curtailment losses on pension schemes
deferred tax asset
73
2012
$million
3.4
1.3
4.7
2012
$million
–
–
–
–
–
2011
$million
4.0
1.2
5.2
2011
$million
34.5
(7.0)
27.5
1.8
29.3
the Group has continued its separate presentation of certain items as exceptional. these are items which, in management’s judgement, need
to be disclosed separately by virtue of their size or incidence in order for the reader to obtain a proper understanding of the financial information.
there were no exceptional items in 2012.
In 2011 following a repeal of the earlier decision, the european commission repaid a total of $34.5 million to the Group in respect of fines
imposed in 2009, plus associated interest. a charge of $7.0 million was booked in respect of curtailment losses in respect of the dutch pension
scheme, along with an associated deferred tax credit of $1.8 million.
6
Income tax expense
Current tax:
overseas corporation tax
adjustments in respect of prior years:
united Kingdom
overseas
total current tax
Deferred tax:
united Kingdom
adjustment in respect of prior year
overseas
adjustments in respect of prior years
total deferred tax
Income tax expense for the year
Comprising:
before exceptional items
exceptional items*
* see note 5
2012
$million
2011
$million
15.6
–
(1.1)
14.5
3.7
–
15.1
0.8
19.6
34.1
34.1
–
34.1
9.8
–
0.5
10.3
2.1
(1.8)
27.7
(0.4)
27.6
37.9
39.7
(1.8)
37.9
the tax charge on profit represents an effective tax rate on profit before exceptional items for the year ended 31 december 2012 of 24.2 per cent
(2011: 29.5 per cent). as a Group involved in overseas operations, the amount of profitability in each jurisdiction, transfer pricing legislation and
local tax rate changes, will affect future tax charges.
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON
74 notes to the consolIdated fInancIal statements
for the year ended 31 december 2012 continued
Income tax expense (continued)
6
the total charge for the year can be reconciled to the accounting profit as follows:
profit before tax
tax on ordinary activities at 24.5 per cent (2011: 26.5 per cent)*
difference in overseas effective tax rates
Income not chargeable for tax purposes
expenses not deductible for tax purposes
tax losses and other deductions
tax rate adjustments to deferred tax
adjustments in respect of prior years
share options tax credit
tax charge and effective tax rate for the year
2012
$million
141.2
34.6
14.3
(5.8)
0.2
(8.7)
1.8
(0.3)
(2.0)
34.1
2012
per cent
–
24.5
10.1
(4.1)
0.1
(6.2)
1.3
(0.1)
(1.4)
24.2
* tax rate reflects reduction in uK corporation tax rate from 26 per cent to 24 per cent with effect from april 2012
7 Profit for the year
profit for the year has been arrived at after charging/(crediting):
employee costs
net foreign exchange (gains)/losses
research and development costs
Government grants
depreciation of property, plant and equipment
amortisation of intangible assets
total depreciation and amortisation expense
cost of inventories recognised as expense
fees available to the company’s auditor and its associates:
audit of the company’s financial statements
audit of the company’s subsidiaries
audit related assurance services (half year review)
taxation compliance services
other tax advisory services
other assurance services
2011
$million
162.0
42.9
10.4
(9.1)
0.8
(8.0)
1.7
(0.8)
–
37.9
2012
$million
98.8
(1.2)
7.2
(0.4)
19.7
2.1
21.8
368.8
0.2
0.5
0.1
0.2
0.6
–
2011
per cent
–
26.5
6.4
(5.6)
0.5
(4.9)
1.0
(0.5)
–
23.4
2011
$million
100.6
0.9
7.8
(0.4)
18.5
1.9
20.4
378.3
0.2
0.4
0.1
0.2
0.2
0.1
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
8 Employees
employee costs:
Wages and salaries
social security costs
pension costs
average number of fte employees*:
specialty products
surfactants
chromium
central
Total
* full-time equivalent including contractors
75
2012
$million
2011
$million
87.0
7.6
4.2
98.8
88.9
8.2
3.5
100.6
Number
Number
883
161
266
13
1,323
877
168
271
14
1,330
9 Earnings per share
the calculation of the basic and diluted earnings per share attributable to the ordinary equity holders of the parent is based on the following:
Earnings:
earnings for the purpose of basic earnings per share
exceptional items net of tax
adjusted earnings
Number of shares:
Weighted average number of shares for the purposes of basic earnings per share
effect of dilutive share options
Weighted average number of shares for the purposes of diluted earnings per share
2012
$million
2011
$million
107.1
–
107.1
124.1
(29.3)
94.8
2012
2011
451.8
8.6
460.4
446.5
9.9
456.4
the calculation of the basic and diluted earnings per share from continuing operations attributable to the ordinary equity holders of the parent is
based on the following:
Earnings per share:
basic
diluted
basic before exceptional items
diluted before exceptional items
2012
cents
23.7
23.3
23.7
23.3
2011
cents
27.8
27.2
21.2
20.8
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON
76 notes to the consolIdated fInancIal statements
for the year ended 31 december 2012 continued
10 Goodwill and other intangible assets
Cost:
at 1 January 2011
exchange differences
additions
At 1 January 2012
exchange differences
acquisition of subsidiary
additions
At 31 December 2012
Amortisation:
at 1 January 2011
charge for the year
at 1 January 2012
charge for the year
At 31 December 2012
Carrying amount:
At 31 December 2012
At 31 December 2011
At 1 January 2011
Goodwill
$million
Brand
$million
Other
intangible
assets
$million
305.3
(0.5)
–
304.8
1.5
4.4
–
310.7
–
–
–
–
–
17.9
(0.5)
–
17.4
0.5
–
–
17.9
–
–
–
–
–
310.7
304.8
305.3
17.9
17.4
17.9
20.1
(0.4)
0.3
20.0
0.5
2.0
0.7
23.2
5.2
1.9
7.1
2.1
9.2
14.0
12.9
14.9
Total
$million
343.3
(1.4)
0.3
342.2
2.5
6.4
0.7
351.8
5.2
1.9
7.1
2.1
9.2
342.6
335.1
338.1
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (“cGus”) that are expected to benefit from
that business combination. the carrying value of goodwill relates to elementis specialty products $307.3 million, including $4.4 million from the
Watercryl acquisition (see note 29), and elementis surfactants $3.4 million. there is no goodwill associated with elementis chromium.
the Group tests annually for impairment, or more frequently if there are indications that goodwill might be impaired. the recoverable
amounts of the cGus are determined from value in use calculations. the key assumptions for the value in use calculations are those regarding
the discount rates, growth rates and expected changes to selling prices and direct costs during the period. management estimates discount
rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the cGus. In order to stress
test the results over a wider range of conditions, management has expanded its testing to include discount rates based on a variety of equity
risk premiums and different capital structures that reflect the potential variability of risk within the cGus and the Group’s long term financing
options. In this exercise a range of discount rates from 9.0 per cent to 13.8 per cent (2011: 9.0 per cent to 11.8 per cent) was used.
the Group prepares cash flow forecasts derived from the most recent three year plans approved by management for the next three years
and extrapolates cash flows for the following seventeen years based on estimated growth rates of 0-2.5 per cent. the rates do not exceed the
average long term growth rate for the relevant markets and also take into account potential, future capacity limitations for the chromium
business. changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. the results
of the impairment testing using the assumptions discussed show that there is no indication that goodwill might be impaired.
the brand intangible represents the value ascribed to the trading name and reputation of the deuchem and fancor acquisitions. the Group
considers these to have significant and on-going value to the business that will be maintained and it is therefore considered appropriate to
assign these assets an indefinite useful life. the remaining intangible assets comprise of the value ascribed to customer lists, patents and
non-compete clauses, which are being amortised over periods of 5-10 years.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
11 Property, plant and equipment
Cost:
At 1 January 2011
additions
exchange differences
Disposals
Reclassifications
At 31 December 2011
Additions
exchange differences
Acquisitions
disposals
Reclassifications
At 31 December 2012
Accumulated depreciation:
At 1 January 2011
Charge for the year
Exchange differences
Disposals
reclassifications
At 31 December 2011
charge for the year
exchange differences
disposals
reclassifications
At 31 December 2012
Net book value:
At 31 December 2012
At 31 December 2011
At 1 January 2011
77
Land &
buildings
$million
Plant & Fixtures, fittings
& equipment
$million
machinery
$million
Under
construction
$million
146.8
–
(1.7)
(0.2)
1.3
146.2
0.1
2.6
5.0
(9.3)
8.7
153.3
98.2
2.8
(0.8)
(0.1)
0.1
100.2
3.5
1.9
(9.0)
–
96.6
56.7
46.0
48.6
480.5
0.5
(4.1)
(8.8)
18.9
487.0
0.3
10.3
7.8
(5.0)
14.5
514.9
382.1
13.8
(3.9)
(6.8)
1.2
386.4
14.9
9.9
(4.1)
–
407.1
107.8
100.6
98.4
50.8
0.1
(0.5)
(3.1)
–
47.3
–
0.2
2.0
(7.2)
3.1
45.4
45.1
1.9
(0.4)
(3.1)
(1.3)
42.2
1.3
0.2
(7.0)
–
36.7
8.7
5.1
5.7
13.5
22.0
(0.1)
(3.1)
(20.2)
12.1
37.9
0.3
–
–
(26.3)
24.0
3.1
–
–
(3.1)
–
–
–
–
–
–
–
24.0
12.1
10.4
Total
$million
691.6
22.6
(6.4)
(15.2)
–
692.6
38.3
13.4
14.8
(21.5)
–
737.6
528.5
18.5
(5.1)
(13.1)
–
528.8
19.7
12.0
(20.1)
–
540.4
197.2
163.8
163.1
Group capital expenditure contracted but not provided for in these financial statements amounted to $nil (2011: $7.2 million).
land and buildings comprised the following:
freehold property
short leasehold properties
2012
$million
153.0
0.3
153.3
2011
$million
145.9
0.3
146.2
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON
78 notes to the consolIdated fInancIal statements
for the year ended 31 december 2012 continued
12 Inventories
raw materials and consumables
Work in progress
finished goods and goods purchased for resale
Inventories are disclosed net of provisions for obsolescence of $7.8 million (2011: $6.2 million).
13 Trade and other receivables
trade receivables
other receivables
prepayments and accrued income
14 Trade and other payables
trade payables
other taxes and social security
other payables
accruals and deferred income
15 Provisions
At 1 January 2011
charge to income statement
Utilised during the year
currency translation differences
At 1 January 2012
charge to income statement
utilised during the year
Currency translation differences
At 31 December 2012
due within one year
Due after one year
2012
$million
61.9
9.7
57.2
128.8
2012
$million
108.9
4.8
5.4
119.1
2012
$million
47.9
1.4
5.2
45.8
100.3
2011
$million
46.0
13.6
60.2
119.8
2011
$million
89.3
1.1
8.7
99.1
2011
$million
42.0
2.8
4.1
39.4
88.3
Total
$million
48.5
2.0
(6.8)
(0.1)
43.6
2.0
(6.3)
1.2
40.5
6.6
33.9
Chromium UK
Environmental
$million
24.9
1.9
(4.0)
(0.1)
22.7
1.3
(2.5)
0.4
21.9
closure Self insurance
$million
$million
2.3
21.3
0.1
–
(0.1)
(2.7)
–
–
2.3
18.6
0.7
–
(0.1)
(3.7)
–
0.8
2.9
15.7
3.9
18.0
2.5
13.2
0.2
2.7
environmental provisions relate to manufacturing and distribution sites including certain sites no longer owned by the Group. these provisions
have been derived using a discounted cash flow methodology and reflect the extent to which it is probable that expenditure will be incurred
over the next 20 years.
the chromium uK closure provision contains all anticipated costs relating to closure including environmental costs.
self insurance provisions at 31 december 2012 represent the aggregate of outstanding claims plus a projection of losses incurred but not
reported. the self insurance provisions are expected to be utilised within five years.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
79
16 Deferred tax
At 1 January 2011
(Charge)/credit to the income statement
Exceptional credit
Credit to other comprehensive income
currency translation differences
At 1 January 2012
(charge)/credit to the income statement
credit to other comprehensive income
credit to retained earnings
currency translation differences
At 31 December 2012
Deferred tax assets
Deferred tax liabilities
Retirement
benefit plans
$million
14.6
(4.9)
1.8
8.1
–
19.6
(1.3)
5.1
–
–
23.4
Accelerated
tax
depreciation
$million
(22.3)
(0.4)
–
–
–
(22.7)
4.6
–
–
(0.1)
(18.2)
Amortisation
of US
goodwill
$million
(77.7)
(8.2)
–
–
–
(85.9)
(7.0)
–
–
–
(92.9)
Temporary
differences
$million
2.8
(1.0)
–
–
(0.6)
1.2
(5.0)
–
10.6
1.3
8.1
Unrelieved
tax losses
$million
43.8
(16.3)
–
–
–
27.5
(10.9)
–
–
–
16.6
3.3
20.1
0.5
(18.7)
–
(92.9)
6.6
1.5
2.0
14.6
Total
$million
(38.8)
(30.8)
1.8
8.1
(0.6)
(60.3)
(19.6)
5.1
10.6
1.2
(63.0)
12.4
(75.4)
at 31 december 2012 the full amount of act previously written-off, available for offset against future uK profits, was $41.1 million
(2011: $39.2 million). additional tax losses for which no deferred tax asset has been recognised and for which there is no expiry date were
$4.4 million (2011: $4.2 million). these relate to restricted losses within the uK and have reduced in the year due to the restructuring
within subsidiaries.
deferred tax assets have been recognised to the extent that it is considered more likely than not that there will be taxable profits from which the
future reversal of the underlying timing differences can be deducted. Where this is not the case, deferred tax assets have not been recognised.
there are no significant temporary differences arising in connection with interests in subsidiaries and associates.
17 Share capital
at 1 January
Issue of shares
at 31 december
details of share capital are set out in note 7 to the parent company financial statements.
2012
$million
43.4
0.3
43.7
2011
$million
43.2
0.2
43.4
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON
80 notes to the consolIdated fInancIal statements
for the year ended 31 december 2012 continued
18 Share premium, other reserves and retained earnings
Balance at 1 January 2011
Issue of shares
share based payments
profit for the year
dividends paid
purchase of shares by the esot
actuarial gain on pension scheme
exchange differences
Tax credit on actuarial gain on pension scheme
Increase in fair value of derivatives
transfer
Balance at 1 January 2012
Issue of shares
share based payments
profit for the year
dividends paid
actuarial loss on pension scheme
exchange differences
tax credit on actuarial loss on pension scheme
deferred tax on share based pay recognised within equity
decrease in fair value of derivatives
Transfer
Balance at 31 December 2012
other reserves comprise:
At 1 January 2011
share based payments
exchange differences
decrease in fair value of derivatives
transfer
At 1 January 2012
share based payments
exchange differences
decrease in fair value of derivatives
Transfer
Balance at 31 December 2012
Share
premium
$million
11.6
1.1
–
–
–
–
–
–
–
–
–
12.7
2.0
–
–
–
–
–
–
–
–
–
14.7
Other
reserves
$million
126.7
–
2.6
–
–
–
–
1.3
–
(1.7)
(3.1)
125.8
–
3.6
–
–
–
1.4
–
–
0.3
(0.8)
130.3
Retained
earnings
$million
198.2
2.6
–
124.1
(21.9)
(2.2)
(44.7)
–
8.1
–
3.1
267.3
0.5
–
107.1
(32.2)
(67.3)
–
5.1
10.6
–
0.8
291.9
Capital
redemption
reserve
$million
158.8
–
–
–
–
158.8
–
–
–
–
158.8
Translation
reserve
$million
(30.3)
–
1.3
–
–
(29.0)
–
1.4
–
–
(27.6)
Hedging
reserve
$million
(6.1)
–
–
(1.7)
–
(7.8)
–
–
0.3
–
(7.5)
Share options
reserve
$million
4.3
2.6
–
–
(3.1)
3.8
3.6
–
–
(0.8)
6.6
Total
$million
336.5
3.7
2.6
124.1
(21.9)
(2.2)
(44.7)
1.3
8.1
(1.7)
–
405.8
2.5
3.6
107.1
(32.2)
(67.3)
1.4
5.1
10.6
0.3
–
436.9
Total
$million
126.7
2.6
1.3
(1.7)
(3.1)
125.8
3.6
1.4
0.3
(0.8)
130.3
the translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations
as well as from the translation of liabilities that hedge the company’s net investment in a foreign subsidiary. the hedging reserve comprises the
effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not
yet occurred.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
19 Borrowings
bank loans
the borrowings are repayable as follows:
on demand or within one year
In the second year
In the third year
In the fourth year
after more than five years
the weighted average interest rates paid were as follows:
bank loans
8181
2012
$million
19.1
2011
$million
22.0
5.6
12.3
1.0
0.2
–
19.1
6.2
1.7
11.7
1.7
0.7
22.0
2012
per cent
2.0
2011
per cent
4.4
of the us dollar borrowings, $11.0 million was unsecured, bearing interest at the relevant interbank rates plus a margin. the taiwan dollar and
remaining us dollar borrowings consisted of unsecured borrowings, those secured by time deposits and those secured by charges over various
land and buildings in taiwan. Group borrowings were denominated as follows:
bank loans
31 December 2011
31 December 2012
20 Cash and cash equivalents
cash and cash equivalents for the purpose of the consolidated cash flow statement comprise the following:
cash and cash equivalents
21 Financial risk management
the Group has exposure to the following risks from its use of financial instruments:
•
•
•
credit risk;
liquidity risk; and
market risk.
US Dollar
Taiwan Dollar
Total
14.2
13.0
7.8
6.1
22.0
19.1
2012
$million
63.1
2011
$million
48.2
the board of directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. the Group’s
risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to
monitor risks and adherence to limits. risk management policies and systems are reviewed regularly to reflect changes in market conditions and
the Group’s activities.
the Group’s audit committee oversees how management monitors compliance with the Group’s risk management policies and procedures
and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. the Group’s audit committee is
assisted in its oversight role by Internal audit. Internal audit undertakes both regular and ad hoc reviews of risk management controls and
procedures, the results of which are reported to the audit committee.
Credit risk
credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations,
and arises principally from the Group’s receivables from customers.
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCompany ifc – 03 overviewbusiness 04 – 35reviewCorporate 36 – 61 governanCefinanCial 62 – 105 statementsshareholder 106 – 108information
82 notes to the consolIdated fInancIal statements
for the year ended 31 december 2012 continued
21 Financial risk management (continued)
Trade and other receivables
the Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. the demographics of the Group’s
customer base, including the default risk of the industry and country in which customers operate, has less of an influence on credit risk.
no single customer accounts for a significant proportion of the Group’s revenue and geographically there is no concentration of credit risk.
each new customer is analysed individually for creditworthiness before the Group’s standard payment and delivery terms and conditions are
offered. the Group’s review includes external ratings, where available, and in some cases bank references. purchase limits are established for
each customer, which represents the maximum open amount without requiring approval from the board. customers that fail to meet the
Group’s benchmark creditworthiness may transact with the Group only on a prepayment basis.
the Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables.
the main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss
component established for groups of similar assets in respect of losses that have been incurred but not yet identified. the collective loss
allowance is determined based on historical data of payment statistics for similar assets.
Investments
the Group limits its exposure to credit risk through a treasury policy that imposes graduated limits on the amount of funds that can be
deposited with counterparties by reference to the counterparties’ credit ratings, as defined by standard & poor’s or moody’s. management
does not expect any counterparty to fail to meet its obligations.
Liquidity risk
liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. the Group’s approach to managing
liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. the Group’s funding policy is to have
committed borrowings in place to cover at least 125 per cent of the maximum forecast net borrowings for the next 12 month period. at the year
end the Group had $203.5 million (2011: $201.9 million) of undrawn committed facilities, of which $190.0 million expires after more than one
year.
Market risk
market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Group’s income or the value
of its holdings of financial instruments. the objective of market risk management is to manage and control market risk exposures within
acceptable parameters, whilst optimising the return on risk.
the Group uses derivatives in the ordinary course of business, and also incurs financial liabilities, in order to manage market risks. all such
transactions are carried out within the guidelines set by the board.
Currency risk
the Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a foreign currency other than the respective
functional currencies of Group entities, primarily the us dollar and the euro. the Group hedges up to 100 per cent of current and forecast trade
receivables and trade payables denominated in a foreign currency. the Group uses forward exchange contracts to hedge its currency risk, most
with a maturity of less than one year from the reporting date.
Interest on borrowings is denominated in currencies that match the cash flows generated by the underlying operations of the Group, primarily
us dollar, but also euro and Gbp. this provides an economic hedge and no derivatives are entered into. In respect of other monetary assets and
liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level by buying or selling foreign
currencies at spot rates when necessary to address short term imbalances. the Group’s investment in overseas subsidiaries is hedged by
us dollar denominated drawdowns under the syndicated facility, which mitigates the currency risk arising from the translation of a subsidiary’s
net assets.
Interest rate risk
the Group’s policy is to borrow at both fixed and floating interest rates and to use interest rate swaps to generate the required interest profile.
the policy does not require that a specific proportion of the Group’s borrowings are at fixed rates of interest.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012 83
Other market price risk
equity price risk arises from available-for-sale equity securities held within the Group’s defined benefit pension obligations. In respect of the us
schemes, management monitors the mix of debt and equity securities in its investment portfolio based on market expectations. the primary
goal of the Group’s investment strategy is to maximise investment returns, without excessive risk taking, in order to meet partially the Group’s
unfunded benefit obligations; management is assisted by external advisors in this regard. In respect of the uK scheme, the investment strategy
is set by the trustees and the board is kept informed.
the Group does not enter into commodity contracts other than to meet the Group’s expected usage and sale requirements; such contracts are
not settled net.
Capital management
the board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future
development of the business. the board monitors the return on operating capital employed (“roce”) including goodwill, as defined on
page 25. the Group’s target is to achieve a roce (including goodwill) in excess of our weighted average cost of capital.
the board encourages employees to hold shares in the company through the Group’s savings related share option schemes. at present,
employees, including executive directors hold 0.3 per cent (2011: 0.3 per cent) of ordinary shares, or 2.7 per cent (2011: 3.5 per cent) assuming
that all outstanding options vest or are exercised.
current dividend policy is to pay a progressive dividend of approximately one third of earnings per share before exceptional items. additionally
if the Group finishes the year in a net balance sheet cash position, and there are no immediate investment plans for that cash, the Group may
recommend an additional special dividend of up to 50 per cent of the net cash amount. these dividend policies remain under review to ensure
that they remain appropriate to the circumstances and strategy of the Group.
Recognised in profit or loss
Interest income on bank deposits
net pension interest
financial income
net change in fair value of cash flow hedges transferred from equity
Interest on bank loan
financial costs
net financial costs
none of the above relates to financial assets or liabilities held at fair value through profit and loss.
Recognised directly in equity
effective portion of changes in fair value of cash flow hedge
fair value of cash flow hedges transferred to income statement
effective portion of change in fair value of net investment hedge
foreign currency translation differences for foreign operations
recognised in
hedging reserve
translation reserve
2012
$million
2011
$million
0.8
1.2
2.0
1.2
(3.4)
(2.2)
(0.2)
(0.5)
0.8
0.4
1.0
0.3
1.4
0.7
1.9
2.6
(0.3)
(4.0)
(4.3)
(1.7)
(0.8)
(0.9)
3.6
(2.3)
(1.7)
1.3
derivatives used for hedging included within current assets amounted to $ nil at 31 december 2012 (2011: $0.8 million) and $0.4 million within
current liabilities (2011: $1.4 million).
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON
84 notes to the consolIdated fInancIal statements
for the year ended 31 december 2012 continued
2012
$million
2011
$million
1.0
4.6
10.0
3.5
4.0
2.2
10.0
5.8
2011
Carrying
amount
$million
10.0
4.0
0.2
7.8
22.0
21 Financial risk management (continued)
Loans and borrowings
Current liabilities
unsecured bank loan
secured bank loan
Non-current liabilities
unsecured bank loan
secured bank loan
Terms and debt repayment schedule
the terms and conditions of outstanding loans were as follows:
unsecured bank loan
unsecured bank loan
secured bank loan
secured bank loan
total interest-bearing liabilities
Year of
maturity
Currency
2014
multi
usd
2013
usd 2013-2017
tWd 2013-2015
Face value
$million
10.0
1.0
2.0
6.1
19.1
2012
Carrying
amount
$million
10.0
1.0
2.0
6.1
19.1
Face value
$million
10.0
4.0
0.2
7.8
22.0
the multi-currency unsecured bank facility bears interest at libor of the currency drawn down plus a margin based on the ratio of the Group’s
net borrowings to ebItda (earnings before interest, tax, exceptional items, depreciation and amortisation). the remaining loans bear interest at
interest rates of between 2.6 per cent and 2.9 per cent. the secured bank loans are secured against land and buildings in taiwan with a carrying
value of $10.3 million.
Exposure to credit risk
the carrying amount of financial assets represents the maximum credit exposure. the maximum exposure to credit risk at the reporting
date was:
trade receivables
cash and cash equivalents
the maximum exposure to credit risk for trade receivables at the reporting date by geographic region was:
north america
europe
rest of the World
Carrying amount
2012
$million
108.9
63.1
172.0
2011
$million
89.3
48.2
137.5
Carrying amount
2012
$million
29.7
34.9
44.3
108.9
2011
$million
30.5
24.7
34.1
89.3
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
Impairment losses
the ageing of trade receivables at the reporting date was:
not past due
past due 0-30 days
past due 31-120 days
past due > 1 year
total
Gross
2012
$million
98.4
10.9
1.0
0.3
110.6
Impairment
2012
$million
(1.0)
(0.2)
(0.2)
(0.3)
(1.7)
the movement in the allowance for impairment in respect of trade receivables during the year was as follows:
balance at 1 January
Impairment loss recognised
acquisition fair value adjustment
balance at 31 december
85
Gross
2011
$million
83.3
6.7
0.6
–
90.6
2012
$million
1.3
0.2
0.2
1.7
Impairment
2011
$million
(1.0)
–
(0.3)
–
(1.3)
2011
$million
1.4
(0.1)
–
1.3
the provision for impairment relates primarily to customers of elementis chromium who, due to their payment history and geographic
location, are assessed as having a higher exposure to credit risk than is acceptable. a provision is therefore deemed to be appropriate.
during the year an additional provision of $0.2 million has been set up as a fair value adjustment in respect of certain debtors acquired as
part of the Watercryl transaction.
Liquidity risk
the following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of netting agreements:
non-derivative financial liabilities:
unsecured bank loan
secured bank loan
trade and other payables*
* excludes derivatives
non-derivative financial liabilities:
unsecured bank loan
Secured bank loan
Trade and other payables*
* excludes derivatives
31 December 2012
Carrying
amount
$million
Contractual
cash flows
$million
6 months
or less
$million
6-12 months
$million
1 year
or more
$million
11.0
8.1
54.5
73.6
(11.0)
(8.1)
(54.5)
(73.6)
(10.0)
(0.3)
(54.5)
(64.8)
(1.0)
(4.3)
–
(5.3)
–
(3.5)
–
(3.5)
31 December 2011
Carrying
amount
$million
Contractual
cash flows
$million
6 months
or less
$million
6-12 months
$million
1 year
or more
$million
14.0
8.0
48.9
70.9
(14.0)
(8.0)
(48.9)
(70.9)
(10.0)
–
(48.9)
(58.9)
(4.0)
(2.2)
–
(6.2)
–
(5.8)
–
(5.8)
bank loans have been drawn under committed facilities and can be re-financed on maturity from the same facilities. the contractual maturities
indicated reflect the maturing of the loans rather than the end date of the facilities.
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON
86 notes to the consolIdated fInancIal statements
for the year ended 31 december 2012 continued
21 Financial risk management (continued)
Cash flow hedges
the following table indicates the periods in which the cash flows associated with derivatives that are cash flow hedges are expected to occur:
forward exchange contracts:
assets
liabilities
Interest rate swaps:
assets
liabilities
forward gas contracts:
assets
liabilities
Carrying
amount
$million
Expected
cash flows
$million
2012
6 months
or less
$million
6-12
months
$million
1-2 years
$million
Carrying
amount
$million
Expected
cash flows
$million
2011
6 months
or less
$million
6-12
months
$million
1-2 years
$million
–
–
18.5
(18.5)
–
(0.3)
–
(0.1)
(0.4)
0.3
(0.6)
1.2
(1.3)
(0.4)
8.1
(8.0)
0.1
(0.2)
0.5
(0.6)
(0.1)
7.8
(7.9)
0.1
(0.2)
0.7
(0.7)
(0.2)
2.6
(2.6)
0.1
(0.2)
–
–
(0.1)
0.8
–
–
(0.6)
–
(0.8)
(0.6)
22.1
(21.3)
11.3
(10.9)
0.8
(1.4)
2.1
(2.9)
(0.6)
0.2
(0.3)
0.9
(1.3)
(0.1)
8.1
(7.8)
0.2
(0.3)
1.2
(1.6)
(0.2)
2.7
(2.6)
0.4
(0.8)
–
–
(0.3)
the following table indicates the periods in which the cash flows associated with derivatives that are cash flow hedges are expected to impact
the income statement:
forward exchange contracts:
assets
liabilities
Interest rate swaps:
assets
liabilities
forward gas contracts:
assets
liabilities
2012
2011
Carrying
amount
$million
Expected
cash flows
$million
6 months
or less
$million
6-12
months
$million
1-2 years
$million
Carrying
amount
$million
Expected
cash flows
$million
6 months
or less
$million
6-12
months
$million
1-2 years
$million
–
(0.2)
–
(0.3)
–
(0.1)
(0.6)
15.7
(15.9)
0.3
(0.6)
1.2
(1.3)
(0.6)
7.8
(7.9)
0.1
(0.2)
0.5
(0.6)
(0.3)
7.9
(8.0)
0.1
(0.2)
0.7
(0.7)
(0.2)
–
–
0.1
(0.2)
–
–
(0.1)
0.6
–
–
(0.6)
–
(0.8)
(0.8)
16.2
(15.6)
0.8
(1.4)
2.1
(2.9)
(0.8)
8.1
(7.8)
0.2
(0.3)
0.9
(1.3)
(0.2)
8.1
(7.8)
0.2
(0.3)
1.2
(1.6)
(0.2)
–
–
0.4
(0.8)
–
–
(0.4)
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
87
Currency risk
exposure to currency risk
the Group’s exposure to currency risk was as follows based on notional amounts:
trade receivables
trade payables
Gross balance sheet exposure
forward exchange contracts
net exposure
USD
$million
62.7
(24.4)
38.3
–
–
2012
Euro
$million
30.1
(12.9)
17.2
(15.9)
1.3
Other
$million
16.1
(10.6)
5.5
–
5.5
USD
$million
49.8
(22.4)
27.4
–
–
2011
Euro
$million
26.9
(11.7)
15.2
(15.6)
(0.4)
Other
$million
12.6
(7.9)
4.7
–
4.7
the main exchange rates relevant to the Group are set out in the business review on page 23.
Sensitivity analysis
a 10 per cent strengthening of us dollar against the following currencies at 31 december would have increased/(decreased) equity and profit
or loss by the amounts shown below. the analysis assumes that all other variables, in particular interest rates, remain constant.
31 December 2012
Gbp
euro
rmb
tWd
31 December 2011
Gbp
Euro
rmb
tWd
Equity
$million
Profit or loss
$million
2.0
(1.7)
(3.0)
(3.0)
0.5
(0.8)
(5.5)
(1.9)
2.9
(4.0)
(1.1)
0.3
2.4
(5.4)
(1.1)
0.2
a 10 per cent strengthening of usd against all currencies will have increased/(decreased) the carrying amount of variable rate instruments
as follows:
Variable rate instruments
financial liabilities
Carrying amount
2012
$million
2011
$million
(0.6)
(0.8)
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON
88 notes to the consolIdated fInancIal statements
for the year ended 31 december 2012 continued
21 Financial risk management (continued)
Cash flow sensitivity analysis for variable rate instruments
a change of 100 basis points in interest rates at the reporting date would have increased/(decreased) profit or loss by the amounts shown below.
this analysis assumes that all other variables, in particular foreign currency rates, remain constant.
variable rate instruments
2012
Profit or loss
100bp
decrease
$million
–
100bp
increase
$million
–
2011
Profit or loss
100bp
decrease
$million
–
100bp
increase
$million
–
Fair values
fair values versus carrying amounts
the fair values of financial assets and liabilities, together with carrying amounts shown in the balance sheet, are as follows:
trade and other receivables
cash and cash equivalents
derivative contracts used for hedging:
assets
liabilities
unsecured bank facility
secured bank loan
trade and other payables*
unrecognised gain/(loss)
* excludes derivatives
31 December 2012
Fair
value
$million
113.7
63.1
Carrying
amount
$million
113.7
63.1
31 December 2011
Fair
value
$million
90.4
48.2
Carrying
amount
$million
90.4
48.2
–
(0.4)
(11.0)
(8.1)
(100.3)
57.0
–
–
(0.4)
(11.0)
(8.1)
(100.3)
57.0
–
0.8
(1.4)
(14.0)
(8.0)
(88.3)
27.7
–
0.8
(1.4)
(14.0)
(8.0)
(88.3)
27.7
–
Basis for determining fair values
the Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the
measurements:
level 1: quoted market price (unadjusted) in an active market for an identical instrument.
level 2: valuation techniques based on observable inputs, either directly or indirectly.
level 3: valuation techniques using significant unobservable inputs.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
31 December 2012
trade and other receivables
cash and cash equivalents
derivative contracts used for hedging
unsecured bank facility
secured bank loan
trade and other payables*
31 December 2011
trade and other receivables
Cash and cash equivalents
derivative contracts used for hedging
unsecured bank facility
Secured bank loan
Trade and other payables*
* excludes derivatives
89
Level 1
$million
Level 2
$million
Level 3
$million
Total
$million
–
63.1
(0.4)
(11.0)
(8.1)
–
43.6
–
48.2
(0.6)
(14.0)
(8.0)
–
25.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
113.7
–
–
–
–
(100.3)
13.4
90.4
–
–
–
–
(88.3)
2.1
113.7
63.1
(0.4)
(11.0)
(8.1)
(100.3)
57.0
90.4
48.2
(0.6)
(14.0)
(8.0)
(88.3)
27.7
the following summarises the significant methods and assumptions used in estimating the fair values of financial instruments reflected in the
table above.
Derivatives (level 1)
the fair value of forward exchange contracts is based on their listed market price, if available. If a listed market price is not available, then fair
value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity
of the contract using a risk-free interest (based on government bonds).
Non-derivatives financial liabilities (level 2)
fair value is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the
reporting date.
Trade and other receivables (level 3)
the fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at
the reporting date.
Interest rates used for determining fair value
the interest rates used to discount estimated cash flows, where applicable, are based on the government yield curve at the reporting date
plus an adequate constant credit spread, and were as follows:
derivatives
borrowings
2012
per cent
4.1 – 7.8
2.6 – 2.9
2011
per cent
4.1 – 7.1
2.6 – 2.9
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON
90 notes to the consolIdated fInancIal statements
for the year ended 31 december 2012 continued
22 Operating leases
minimum lease payments under operating leases recognised as an expense in the year
2012
$million
4.0
2011
$million
4.5
at the balance sheet date, the Group has outstanding commitments under non-cancellable operating leases, which fall due as follows:
Within one year
In the second to fifth years inclusive
after five years
2012
$million
0.7
1.8
23.3
25.8
2011
$million
1.9
1.0
24.9
27.8
operating lease payments represent rentals payable by the Group for certain of its properties, plant and machinery. leases have varying terms
and renewal rights.
23 Retirement benefit obligations
the Group has a number of contributory and non-contributory post retirement benefit plans providing retirement benefits for the majority of
employees and executive directors. the main schemes in the uK, us and the netherlands are of the defined benefit type, the benefit being
based on number of years of service and either the employee’s final remuneration or the employee’s average remuneration during a period of
years before retirement. the assets of these schemes are held in separate trustee administered funds or are unfunded but provided for on the
Group balance sheet. In addition the Group operates an unfunded post-retirement medical benefit (“prmb”) scheme in the us. the entitlement
to these benefits is usually based on the employee remaining in service until retirement age and completion of a minimum service period.
a full actuarial valuation was carried out on 30 september 2011 for the uK scheme and at 31 december 2012 for the us and netherlands
schemes. the assumed life expectancies on retirement are:
retiring at 31 december 2012
males
females
retiring in 20 years
males
females
the principal assumptions used by the actuaries were as follows:
2012
years
22
24
25
26
UK
2011
years
22
23
24
25
2012
years
19
21
19
21
US
2011
years
19
21
21
22
2012
years
Netherlands
2011
years
22
23
23
24
19
21
19
21
2012
rate of increase in salaries
rate of increase in pensions in payment
discount rate
Inflation
2011
rate of increase in salaries
rate of increase in pensions in payment
discount rate
Inflation
2010
rate of increase in salaries
rate of increase in pensions in payment
discount rate
Inflation
UK
per cent
US
per cent
Netherlands
per cent
3.90
2.80
4.10
2.90
4.20
3.10
4.70
3.20
4.60
3.50
5.40
3.60
3.45
N/A
3.65
2.50
3.45
n/a
4.75
3.00
3.45
n/a
5.75
3.00
2.00
N/A
3.50
2.00
2.00
n/a
4.75
2.00
2.00
n/a
4.75
2.00
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
the main assumptions for the prmb scheme are a discount rate of 3.65 per cent (2011: 4.75 per cent) per annum and a health care cost trend
of 6.5 per cent (2011: 6.5 per cent) per annum for claims pre age 65 reducing to 4.5 per cent per annum by 2020 (2011: 4.5 per cent). actuarial
valuations of retirement benefit plans in other jurisdictions have either not been updated for Ias 19 purposes or disclosed separately because
of the costs involved and the considerably smaller scheme sizes and numbers of employees involved.
the expected rates of return and assets of the defined benefit retirement benefit plans were:
91
2012
Long term rate of return
uK
us
netherlands
Asset value
uK
us
netherlands
total
2011
Long term rate of return
uK
US
netherlands
Asset value
UK
US
Netherlands
Total
Equities
per cent
Gilts
per cent
Bonds
per cent
7.25
8.00
–
$million
336.9
68.0
–
404.9
3.00
–
–
$million
–
–
–
–
4.10
5.50
3.50
$million
219.2
23.6
60.5
303.3
Equities
per cent
Gilts
per cent
Bonds
per cent
7.25
8.00
–
$million
289.2
61.4
–
350.6
3.00
–
–
$million
–
–
–
–
4.70
5.50
4.75
$million
152.3
20.8
45.8
218.9
Cash
& insured
annuities
per cent
3.00
–
–
$million
168.6
1.8
–
170.4
Cash
and insured
annuities
per cent
3.00
–
–
$million
235.6
0.7
–
236.3
Total
–
–
–
$million
724.7
93.4
60.5
878.6
Total
–
–
–
$million
677.1
82.9
45.8
805.8
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON
92 notes to the consolIdated fInancIal statements
for the year ended 31 december 2012 continued
23 Retirement benefit obligations (continued)
the net liability was as follows:
2012
total market value of assets
present value of scheme liabilities
net liability recognised in the balance sheet
2011
Total market value of assets
Present value of scheme liabilities
Net liability recognised in the balance sheet
UK
pension
scheme
$million
724.7
(797.6)
(72.9)
UK
pension
scheme
$million
677.1
(712.1)
(35.0)
US
pension
schemes
$million
93.4
(136.2)
(42.8)
US
pension
schemes
$million
82.9
(124.3)
(41.4)
US
PRMB
scheme
$million
Netherlands
pension
scheme
$million
Total
$million
–
(8.5)
(8.5)
60.5
(69.0)
(8.5)
878.6
(1,011.3)
(132.7)
US
PRMB
scheme
$million
Netherlands
pension
scheme
$million
–
(8.2)
(8.2)
45.8
(53.3)
(7.5)
Total
$million
805.8
(897.9)
(92.1)
the net pension liability in respect of pension schemes in other jurisdictions at 31 december 2012 was $3.3 million (2011: $2.7 million).
the following amounts have been recognised in the financial statements:
2012
Consolidated income statement
current service cost
expected return on pension scheme assets
Interest on pension scheme liabilities
net finance income/(charge)
net income statement
Other comprehensive income
actual return less expected return on pension scheme assets
experience gains and losses arising on scheme liabilities
changes in assumptions underlying the present value of scheme liabilities
actuarial loss recognised
2011
Consolidated income statement
Current service cost
expected return on pension scheme assets
Interest on pension scheme liabilities
net finance income/(charge)
curtailment loss
Net income statement
Other comprehensive income
actual return less expected return on pension scheme assets
Experience gains and losses arising on scheme liabilities
Changes in assumptions underlying the present value of scheme liabilities
actuarial (loss)/gain recognised
UK
pension
scheme
$million
US
pension
schemes
$million
US
PRMB
scheme
$million
Netherlands
pension
scheme
$million
Total
$million
(0.8)
35.3
(33.3)
2.0
1.2
(0.3)
(11.0)
(46.5)
(57.8)
(0.4)
5.9
(5.8)
0.1
(0.3)
4.7
(0.7)
(12.0)
(8.0)
(0.1)
–
(0.4)
(0.4)
(0.5)
–
(0.5)
–
(0.5)
(1.0)
1.8
(2.3)
(0.5)
(1.5)
10.9
0.2
(12.1)
(1.0)
(2.3)
43.0
(41.8)
1.2
(1.1)
15.3
(12.0)
(70.6)
(67.3)
UK
pension
scheme
$million
US
pension
schemes
$million
US
PRMB
scheme
$million
Netherlands
pension
scheme
$million
Total
$million
(0.7)
39.2
(36.5)
2.7
–
2.0
17.2
(9.8)
(32.1)
(24.7)
(0.4)
6.6
(6.3)
0.3
–
(0.1)
(7.4)
(0.7)
(12.3)
(20.4)
(0.1)
–
(0.4)
(0.4)
–
(0.5)
–
(0.4)
–
(0.4)
(0.8)
1.9
(2.4)
(0.5)
(7.0)
(8.3)
0.6
0.6
(0.8)
0.4
(2.0)
47.7
(45.6)
2.1
(7.0)
(6.9)
10.4
(10.3)
(45.2)
(45.1)
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
In addition to the current service cost above, $1.9 million (2011: $1.5 million) was charged to the income statement in respect of defined
contribution schemes and smaller defined benefit schemes.
changes in the present value of the defined benefit obligation are as follows:
93
2012
opening defined benefit obligation
service cost
Interest cost
contributions by employees
actuarial losses
benefits paid
curtailments and settlements
exchange differences
closing defined benefit obligation
2011
Opening defined benefit obligation
Service cost
Interest cost
Contributions by employees
actuarial losses
benefits paid
curtailments and settlements
exchange differences
Closing defined benefit obligation
UK
pension
scheme
$million
(712.1)
(0.8)
(33.2)
(0.1)
(57.5)
40.2
–
(34.1)
(797.6)
UK
pension
scheme
$million
(677.0)
(0.7)
(36.5)
(0.2)
(41.9)
40.0
–
4.2
(712.1)
US
pension
schemes
$million
(124.3)
(0.4)
(5.8)
–
(12.7)
7.0
–
–
(136.2)
US
PRMB
scheme
$million
Netherlands
pension
scheme
$million
(8.2)
(0.1)
(0.4)
–
(0.5)
0.7
–
–
(8.5)
(53.3)
(1.0)
(2.3)
(0.8)
(11.9)
1.5
–
(1.2)
(69.0)
Total
$million
(897.9)
(2.3)
(41.7)
(0.9)
(82.6)
49.4
–
(35.3)
(1,011.3)
US
pension
schemes
$million
US
PRMB
scheme
$million
Netherlands
pension
scheme
$million
(111.9)
(0.4)
(6.3)
(0.1)
(13.0)
7.4
–
–
(124.3)
(8.2)
(0.1)
(0.4)
–
(0.4)
0.9
–
–
(8.2)
(45.7)
(0.8)
(2.4)
(0.8)
(0.2)
1.7
(7.0)
1.9
(53.3)
Total
$million
(842.8)
(2.0)
(45.6)
(1.1)
(55.5)
50.0
(7.0)
6.1
(897.9)
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON
94 notes to the consolIdated fInancIal statements
for the year ended 31 december 2012 continued
23 Retirement benefit obligations (continued)
changes in the fair value of plan assets are as follows:
2012
opening fair value of plan assets
expected return
actuarial gain/(loss)
contributions by employer
contributions by employees
benefits paid
exchange differences
closing fair value of plan assets
2011
Opening fair value of plan assets
expected return
actuarial gain/(loss)
contributions by employer
Contributions by employees
benefits paid
exchange differences
Closing fair value of plan assets
2012
Movement in deficit during the year
deficit in schemes at 1 January
current service cost
contributions
net interest income/(expense)
actuarial loss
curtailments and settlements
currency translation differences
Deficit in schemes at 31 December
UK
pension
scheme
$million
677.1
35.3
(0.3)
21.1
0.1
(40.2)
31.6
724.7
US
pension
schemes
$million
US
PRMB
scheme
$million
Netherlands
pension
scheme
$million
82.9
5.9
4.7
6.9
–
(7.0)
–
93.4
–
–
–
–
–
–
–
–
45.8
1.8
10.9
1.8
0.8
(1.5)
0.9
60.5
UK
pension
scheme
$million
US
pension
schemes
$million
US
PRMB
scheme
$million
Netherlands
pension
scheme
$million
648.1
39.2
17.2
16.3
0.2
(40.0)
(3.9)
677.1
85.7
6.6
(7.4)
5.3
0.1
(7.4)
–
82.9
–
–
–
–
–
–
–
–
44.3
1.9
0.6
1.5
0.8
(1.7)
(1.6)
45.8
UK
pension
scheme
$million
US
pension
schemes
$million
US
PRMB
scheme
$million
Netherlands
pension
scheme
$million
(35.0)
(0.8)
21.1
2.0
(57.8)
–
(2.4)
(72.9)
(41.4)
(0.4)
6.9
0.1
(8.0)
–
–
(42.8)
(8.2)
(0.1)
0.7
(0.4)
(0.5)
–
–
(8.5)
(7.5)
(1.0)
1.8
(0.5)
(1.0)
–
(0.3)
(8.5)
Total
$million
805.8
43.0
15.3
29.8
0.9
(48.7)
32.5
878.6
Total
$million
778.1
47.7
10.4
23.1
1.1
(49.1)
(5.5)
805.8
Total
$million
(92.1)
(2.3)
30.5
1.2
(67.3)
–
(2.7)
(132.7)
employer contributions in 2012 were $21.1 million (2011: $16.3 million) to the uK scheme; $7.6 million (2011: $6.2 million) to us schemes and
$1.8 million (2011: $1.5 million) in respect of the netherlands scheme. contributions in 2013 are expected to be approximately $26 million.
employers’ contributions in 2012 in respect of defined contribution schemes and smaller defined benefit schemes were $1.6 million
(2011: $1.0 million).
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
95
Year ended 31 December 2012
Difference between expected and actual return on scheme assets
amount ($million)
percentage of scheme assets
Experience gains and losses on scheme liabilities
amount ($million)
percentage of scheme assets
Total amount recognised in consolidated statement of comprehensive income
amount ($million)
percentage of scheme assets
year ended 31 december 2011
Difference between expected and actual return on scheme assets
amount ($million)
Percentage of scheme assets
Experience gains and losses on scheme liabilities
amount ($million)
percentage of scheme assets
Total amount recognised in consolidated statement of comprehensive income
amount ($million)
percentage of scheme assets
year ended 31 december 2010
Difference between expected and actual return on scheme assets
amount ($million)
Percentage of scheme assets
Experience gains and losses on scheme liabilities
amount ($million)
Percentage of scheme assets
Total amount recognised in consolidated statement of comprehensive income
amount ($million)
percentage of scheme assets
Historical summary
present value of scheme liabilities
fair value of plan assets
deficit in the plan
experience adjustments arising on plan liabilities
experience adjustments arising on plan assets
2012
$million
(1,011.3)
878.6
(132.7)
(12.0)
15.3
UK
US
Netherlands
Total
(0.3)
0.0%
(11.0)
(1.5)%
(57.8)
(8.0)%
4.7
5.1%
(1.2)
(1.3)%
(8.5)
(9.1)%
10.9
18.0%
15.3
1.7%
0.2
0.3%
(12.0)
(1.4)%
(1.0)
(1.7)%
(67.3)
(7.7)%
UK
US
Netherlands
Total
17.2
2.5%
(9.8)
(1.4)%
(7.4)
(8.9)%
(1.1)
(1.3)%
(24.7)
(3.6)%
(20.8)
(25.1)%
0.6
1.3%
0.6
1.3%
0.4
0.9%
10.4
1.3%
(10.3)
(1.3)%
(45.1)
(5.6)%
UK
US
Netherlands
Total
37.1
5.7%
9.1
1.4%
27.4
4.2%
2011
$million
(897.9)
805.8
(92.1)
(10.3)
10.4
5.6
6.5%
(6.9)
(8.1)%
(1.3)
(1.5)%
2010
$million
(842.8)
778.1
(64.7)
3.3
46.3
3.6
8.1%
1.1
2.5%
–
–
2009
$million
(847.6)
737.0
(110.6)
1.7
67.5
46.3
6.0%
3.3
0.4%
26.1
3.4%
2008
$million
(672.6)
602.6
(70.0)
(13.8)
(114.7)
the sensitivities regarding the principal assumptions used to measure the scheme liabilities are set out below:
Assumption
discount rate
rate of inflation
rate of salary growth
rate of mortality
Change in assumption
Increased/decreased by 0.5 per cent
Increased/decreased by 0.5 per cent
Increased/decreased by 0.5 per cent
Increased by 1 year
Impact on scheme liabilities
decreased/increased by 6 per cent
Increased/decreased by 5 per cent
Increased/decreased by 1 per cent
Increased by 4 per cent
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON
96 notes to the consolIdated fInancIal statements
for the year ended 31 december 2012 continued
24 Share based payments
the company has several share incentive schemes for certain directors and employees of the Group.
A Long Term Incentive Plan was adopted in 2008 (amended in 2010) (“2010 LTIP”) for selected senior executives then including the executive
directors and business presidents. awards of nil cost share options are normally made annually and the maximum value of any grant to an
individual is 1.5 times the ceo’s basic salary. awards vest after three years and are subject to eps and tsr performance conditions over a three
year period. vested awards are then exercisable for up to seven years, subject to the rules of the plan.
for other executives, shareholders approved at the 2012 aGm a new approved and unapproved executive share option scheme (“2012 esos”).
this scheme replaces the previous approved and unapproved executive share option scheme (“2003 esos”) which expires in 2013. under the
2003 and 2012 esos, options are usually granted annually to purchase shares in the company at an exercise price per share based on the
company’s average mid-market closing share price on the dealing day preceding the date of grant with no discount applied. the number of
options that are granted are based on a percentage of the participant’s basic salary. options vest after three years and are subject to eps and
tsr performance conditions. vested options are then exercisable for up to seven years, subject to the rules of the schemes.
The Company also operates a 2008 UK Savings-Related Share Option Scheme, which is a save as you earn scheme (“SAYE”), under which UK
employees can enter into contracts to save up to a maximum of £250 per month with a bank or building society, for a period of three or five
years, and use the proceeds from their savings accounts to purchase shares in the company on the exercise of their options. the option price
is the average mid-market closing share price over the five working days preceding the invitation date, discounted by 20 per cent. options may
be exercised typically within six months following the end of the savings period. A similar scheme exists for US employees. Under the 2008
us sharesave scheme, us employees can enter into contracts to save up to a maximum of $2,000 per month with a bank or similarly approved
institution, for a period of two years, and use the proceeds from their savings accounts to purchase shares in the company on the exercise of
their options. the option price is the average mid-market closing share price on the date of the grant, discounted by 15 per cent. options may
be exercised typically within three months following the end of the savings period.
options were valued (as shown in the table below) using the binomial option pricing model. the fair value per option granted and the
assumptions used in the calculations are as follows:
fair value per option (pence)
expected volatility (per cent)
risk free rate (per cent)
expected dividend yield (per cent)
2012
114.3
46.4
0.5
2.3
2011
93.5
53.0
2.1
2.0
expected volatility was determined by calculating the historical volatility of the company’s share price over the previous 5 years. the
expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise
restrictions and behavioural considerations. the Group recognised total expenses of $4.0 million (2011: $2.5 million) related to share based
payment transactions during the year which includes awards made under the long term Incentive plan (as amended in 2010) as shown in
the table opposite.
the table opposite also shows all outstanding options granted under the 2010 ltIp and the executive and savings related share option schemes.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
97
at 31 december 2012 the following options/awards to subscribe for ordinary shares were outstanding:
Year of grant
UK savings-related share option scheme
2008
2009
2009
2010
2011
2011
2012
2012
US savings-related share option scheme
2010
2011
2012
Executive share option scheme/awards
granted under the Long term incentive plan*
2003
2004
2005
2006
2008
2009
2009
2009+
2010
2010*
2011
2011*
2012
2012*
Exercise
price (p)
Exercisable
From
To
68.96 01/10/11 31/03/12
35.52 01/10/12 31/03/13
35.52 01/10/14 31/03/15
69.28 01/10/13 31/03/14
121.66 01/10/14 01/04/15
121.66 01/10/16 01/04/17
168.06 07/09/15 07/03/16
168.06 07/09/17 07/03/18
76.71 27/08/12 27/11/12
119.34 26/08/13 26/11/13
184.62 30/08/14 30/11/14
24.75 29/04/06 29/04/13
35.00 23/04/07 23/04/14
51.25 30/03/08 30/03/15
85.50 04/04/09 04/04/16
71.25 28/04/11 28/04/18
29.50 25/03/12 25/03/19
25.25 29/04/12 29/04/19
54.00 14/09/12 14/09/19
57.00 06/04/13 06/04/20
nil 22/04/13 22/04/20
149.90 04/04/14 04/04/21
nil 04/04/14 04/04/21
194.30 27/06/15 27/06/22
nil 27/06/15 27/06/22
At
1 January
2012
’000
Granted
’000
Exercised
’000
At
31 December
2012
’000
Expired
’000
8
418
47
92
51
4
–
–
620
355
292
–
647
25
26
54
27
304
3,829
100
100
2,628
3,001
967
1,645
–
–
12,706
–
–
–
–
–
–
68
5
73
–
–
270
270
–
–
–
–
–
–
–
–
–
–
–
–
795
1,322
2,117
(6)
(416)
–
(9)
–
–
–
–
(431)
(325)
(18)
–
(343)
(25)
–
(54)
–
(283)
(3,552)
(100)
(100)
–
–
–
–
–
–
(4,114)
(2)
(2)
–
(4)
(2)
–
–
–
(10)
(30)
(9)
–
(39)
–
–
47
79
49
4
68
5
252
–
265
270
535
–
–
–
–
–
(17)
–
–
(57)
–
(63)
–
(22)
–
–
26
–
27
21
260
–
–
2,571
3,001
904
1,645
773
1,322
(159) 10,550
+ these options were cash-settled shadow executive options granted to one executive on the same basis as the 2009 options (with the same performance
conditions and exercise provisions). these shadow options had not until 2011 been previously disclosed in the table above due to materiality, but were
included in the calculation of the total expenses recognised by the Group related to share based payments. the 2010, 2011 and 2012 options shown above
include approximately 118,000, 66,000 and 58,000 shadow options respectively.
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON
98 notes to the consolIdated fInancIal statements
for the year ended 31 december 2012 continued
24 Share based payments (continued)
the weighted average exercise prices of options disclosed in the previous table were as follows:
at 1 January
Granted
exercised
expired
at 31 december
2012
Average
exercise price
(p)
38.4
87.9
36.7
103.5
48.7
2011
Average
exercise price
(p)
40.3
64.0
65.2
52.1
38.4
the weighted average share price at the date of exercise of share options exercised during the year was 201 pence (2011: 154 pence).
25 Related party transactions
the company is a guarantor to the uK pension scheme under which it guarantees all current and future obligations of uK subsidiaries currently
participating in the pension scheme to make payments to the scheme, up to a specified maximum amount. the maximum amount of the
guarantee is that which is needed (at the time the guarantee is called on) to bring the scheme’s funding level up to 105 per cent of its liabilities,
calculated in accordance with section 179 of the pensions act 2004. this is also sometimes known as a pension protection fund (“ppf”)
guarantee, as having such a guarantee in place reduces the annual ppf levy on the scheme.
26 Movement in net cash/(borrowings)
change in net cash resulting from cash flows:
Increase in cash and cash equivalents
decrease in borrowings repayable within one year
decrease in borrowings repayable after one year
currency translation differences
Increase in net cash
net cash/(borrowings) at beginning of year
Net cash at end of year
2012
$million
2011
$million
13.5
1.4
1.9
16.8
1.0
17.8
26.2
44.0
6.7
0.9
97.0
104.6
0.9
105.5
(79.3)
26.2
27 Dividends
an interim dividend of 2.45 cents per share (2011: 2.34 cents) was paid on 5 october 2012 and the Group is proposing a final dividend of
5.32 cents per share (2011: 4.66 cents) for the year ended 31 december 2012 and a special dividend of 4.79 cents per share (2011: n/a).
the total dividend for the year, excluding the special dividend, is 7.77 cents per share (2011: 7.00 cents) and 12.56 cents per share including
the special dividend.
the amount payable for the final dividend and special dividend, based on the anticipated number of qualifying ordinary shares registered on
the record date, is $46.4 million.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
28 Key management compensation
salaries and short term employee benefits
other long term benefits
share based payments
99
2012
$million
4.0
0.8
2.3
7.1
2011
$million
4.5
1.0
1.4
6.9
the key management compensation given above is for the board and the two business presidents. directors’ remuneration is set out in the
Directors’ Remuneration Report on pages 48 to 60.
29 Acquisition
On 28 September 2012 the Group acquired all the shares of Watercryl Quimica Ltda., a Brazilian coatings additives company, for a cash
consideration of brl 45.6 million. Watercryl was established in 1993 and is a leading supplier of additives to the brazilian coatings industry,
with manufacturing and technical facilities based in palmital, são paulo. transaction costs and expenses totalling $0.9 million have been
charged to the income statement.
the acquisition had the following effect on the Group’s assets and liabilities:
property, plant and equipment
Inventories
trade and other receivables
trade and other payables
cash and cash equivalents
loans and borrowings
corporation tax
deferred tax
Goodwill
Intangible
consideration paid, satisfied in cash
cash acquired
net cash outflow
Book value at
acquisition
$million
0.5
1.5
1.9
(0.5)
0.4
–
–
–
3.8
Provisional fair
value
adjustments
$million
14.5
–
(0.2)
(0.1)
–
–
–
–
14.2
Fair value of
assets
acquired
$million
15.0
1.5
1.7
(0.6)
0.4
–
–
–
18.0
4.4
2.0
24.4
(0.4)
24.0
a full fair value process is currently being performed with the assistance of external experts and will be completed during the first half of 2013, as
allowed by Ifrs 3. this allows for the allocation period to remain open for a period of up to 12 months from the acquisition date. prior to acquisition,
the accounting for Watercryl had been conducted on a basis appropriate for a privately run business operating under local brazilian generally
accepted accounting principles. the initial financial focus post acquisition has been to concentrate on operational issues but the formal valuation
process will allow an accurate assessment to be made of the realisable value of the assets acquired, measured under International financial
reporting standards, as at the date of acquisition.
a provisional fair valuing exercise has been performed for the 2012 annual report using book values at the acquisition date together with a
provisonal assessment of fair value adjustments that may be required. the consideration for the acquisition has been allocated against identified
net assets with the remaining balance recorded as goodwill and intangibles. the goodwill recognised on acquisition reflects both the capabilities
of the Watercryl’s personnel and the synergistic opportunities going forward, neither of which can be allocated to an identifiable intangible asset.
since acquisition Watercryl has contributed $2.5 million to the Group’s revenue and $0.2 million to the Group’s operating profit before intangible
amortisation.
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON
100 notes to the consolIdated fInancIal statements
for the year ended 31 december 2012 continued
29 Acquisition (continued)
the estimated contribution of Watercryl to the results of the Group, had the acquisition been made on 1 January 2012, and assuming that the
fair value adjustments that arose on acquisition would have been the same at the earlier date, are as follows:
revenue
operating profit after intangible amortisation
2012
$million
9.0
2.3
30 Contingent liabilities
as is the case with other chemical companies, the Group occasionally receives notices of litigation relating to regulatory and legal matters.
a provision is recognised when the Group believes it has a present legal or constructive obligation as a result of a past event, and it is probable
that an outflow of economic benefits will be required to settle the obligation. Where it is deemed that an obligation is merely possible and
that the probability of a material outflow is not remote, the Group would disclose a contingent liability.
as previously reported, elementis ltp Inc. (“ltp”) was named as a defendant in chromium-related litigation in the state of missouri (the “missouri
litigation”). the missouri litigation developed into the following types of cases: (1) a class action seeking medical monitoring damages for
putative class members who live in a four county area; (2) approximately 15 cases involving over 180 individual plaintiffs alleging property and/
or personal injury; and (3) a class action seeking property damages for an unspecified number of putative class members. also as previously
reported, (a) in december 2010, the court entered its order of dismissal of the class action seeking damages for medical monitoring (described
in clause (1) above), with no finding of liability or fault against ltp, (b) in december 2011, ltp secured summary judgement in its favour in an
individual plaintiff case (described in clause (2) above), and (c) in January 2012, ltp secured summary judgement in its favour in the class action
seeking property damages (described in clause (3) above).
the last of the individual plaintiff cases (described in clause (2) above) was dismissed in april 2012, with no finding of liability or fault against ltp.
there have been no missouri litigation cases remaining outstanding against ltp since april 2012 and, accordingly, management has concluded
that there is no longer, and has not been since that date, a contingent liability relating to the missouri litigation.
31 Post balance sheet event
on 19 february 2013 the Group purchased the trading assets of hi-mar specialty chemicals, llc (“hi-mar”), a us coatings additives company,
for a cash consideration of $33 million. hi-mar was established in 1973 and is a leading supplier of defoamers to the coatings, construction and
oilfield drilling industries, with manufacturing and technical facilities based in milwaukee, Wisconsin. for the 12 months ended 31 december
2012, the acquired business reported, on an unaudited basis, sales of $14.5 million and earnings before interest, tax, depreciation and
amortisation of $3.5 million. Identification of the fair value of the assets acquired, including an assessment of any separable intangible assets,
and liabilities assumed will be carried out in accordance with Ifrs 3 during the next 12 months.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
parent company statutory accounts
101
the Group is required to present a separate balance sheet for the parent company, elementis plc, which continues to adopt uK generally
accepted accounting principles. Its accounting policies are set out in note 1 and its balance sheet is set out below.
ELEMENTIS PLC
Balance Sheet
at 31 December 2012
Fixed assets
Investments
Current assets
debtors
Creditors: amounts falling due within one year
creditors
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after more than one year
amounts due to subsidiary undertakings
Net assets
Capital and reserves
called up share capital
Share premium account
Capital redemption reserve
Other reserves
Share option reserve
Profit and loss account
Equity shareholders’ funds
Note
2012
£million
2011
£million
3
4
5
7
8
8
8
8
8
761.3
759.1
1.2
1.2
(0.4)
0.8
762.1
(307.2)
454.9
22.7
8.0
83.3
81.5
3.9
255.5
454.9
(0.2)
1.0
760.1
(286.6)
473.5
22.5
6.8
83.3
81.5
2.2
277.2
473.5
the financial statements of elementis plc on pages 101 to 105 were approved by the board on 26 february 2013 and signed on its behalf by:
David Dutro
Group Chief Executive
Brian Taylorson
Finance Director
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON
102 notes to the company fInancIal statements
of elementIs plc for the year ended 31 december 2012
1 Accounting policies
the following accounting policies have been applied consistently in
dealing with items which are considered material in relation to the
financial statements, except as noted below.
Basis of preparation
the company’s financial statements have been prepared in
accordance with uK Gaap and under the historical cost accounting
rules. Under section 408 of the Companies Act 2006 the Company is
exempt from the requirement to present its profit and loss account.
as the company’s voting rights are controlled within the Group
headed by elementis plc, the company has taken advantage
of the exemption contained in FRS 8 and has therefore not disclosed
transactions or balances with wholly owned entities which form part
of the group (or investees of the group qualifying as related parties).
Foreign currencies
transactions in foreign currencies are recorded at the rates of
exchange ruling at the date of the transaction. monetary assets and
liabilities denominated in foreign currencies are translated using the
contracted rate or the rate of exchange ruling at the balance sheet
date and the gains and losses on translation are included in the profit
and loss account.
Investments
Investments in group undertakings are included in the balance sheet
at cost, or if lower, directors’ valuation.
Dividends on shares presented within shareholders’ funds
dividends unpaid at the balance sheet date are only recognised
as a liability at that date to the extent that they are appropriately
authorised and are no longer at the discretion of the company.
unpaid dividends that do not meet these criteria are disclosed in
the notes to the financial statements.
Pensions and other post-retirement benefits
the company participates in the elementis Group defined benefit
pension scheme. the assets of the scheme are held separately from
those of the company. the company is unable to identify its share of
the underlying assets and liabilities in the scheme on a consistent and
reasonable basis and as required by frs 17, it has treated the scheme
as if it were a defined contribution scheme. as a result, the amount
charged to the profit and loss account represents the contributions
payable for the year.
Taxation
deferred taxation is recognised without discounting, in respect of all
timing differences between the treatment of certain items for taxation
and accounting purposes that have originated but not reversed at the
balance sheet date, except as otherwise required by frs 19. advance
corporation tax recoverable by deduction from future corporation tax
is carried forward within deferred taxation or as act recoverable
within debtors as appropriate.
Share based payments
the fair value of share options granted to employees is recognised
as an expense with a corresponding increase in equity. Where the
company grants options over its own shares to the employees of
its subsidiaries it recognises in its individual financial statements an
increase in the cost of investment in its subsidiaries equivalent to
the equity-settled share-based payment charge recognised in its
subsidiaries’ financial statements, with the corresponding credit
being recognised directly in equity. the fair value is measured at
grant date and spread over the period during which the employees
become unconditionally entitled to the options. the fair value of the
options granted is measured using a binomial model, taking into
account the terms and conditions upon which the options were
granted. the amount recognised as an expense is adjusted to reflect
the actual number of share options that vest except where forfeiture
is only due to share prices not achieving the threshold for vesting.
Classification of financial instruments issued by the Company
In accordance with frs 25, financial instruments issued by the
company are treated as equity only to the extent that they meet the
following two conditions:
a) they include no contractual obligations upon the company to
deliver cash or other financial assets or to exchange financial assets
or financial liabilities with another party under conditions that are
potentially unfavourable to the company; and
b) where the instrument will or may be settled in the company’s own
equity instruments, it is either a non-derivative that includes no
obligation to deliver a variable number of the company’s own
equity instruments or is a derivative that will be settled by the
company’s exchanging a fixed amount of cash or other financial
assets for a fixed number of its own equity instruments.
to the extent that the definition is not met, the proceeds of issue are
classified as a financial liability. Where the instrument so classified
takes the legal form of the company’s own shares, the amounts
presented in these financial statements for called up share capital and
share premium account exclude amounts in relation to those shares.
finance payments associated with financial liabilities are dealt with
as part of interest payable and similar charges. finance payments
associated with financial instruments that are classified as part of
shareholders’ funds, are dealt with as appropriations in the
reconciliation of movements in shareholders’ funds.
2 Profit for the financial year attributable to shareholders
As permitted by Section 408 of the Companies Act 2006, the
company has not presented its own profit and loss account. a loss
of £2.4 million (2011: £116.8 million profit) is dealt with in the financial
statements of the company.
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012 3
Investments
cost at 1 January 2012
additions
Net book value 31 December 2012
net book value 31 december 2011
103103
Unlisted
shares at cost Unlisted loans
£million
759.0
–
759.0
759.0
£million
0.1
–
0.1
0.1
Capital
contributions
£million
–
2.2
2.2
–
Total
£million
759.1
2.2
761.3
759.1
the investment in unlisted loans is with elementis holdings limited, an indirect wholly owned subsidiary. the investments in unlisted shares
are in elementis Group bv and elementis us Investments limited, both wholly owned subsidiaries. capital contributions relate to share-based
payment awards made to employees of subsidiary companies.
the principal trading subsidiaries of elementis plc are as follows:
chromium chemicals
Subsidiary undertakings
elementis chromium llp
elementis uK limited trading as:
rheological additives, colourants, waxes, other specialty additives
elementis specialties
chromium chemicals
elementis chromium Inc
chromium chemicals
american chrome & chemicals Inc.
rheological additives, colourants, waxes, other specialty additives
elementis specialties Inc
rheological additives, colourants, waxes, other specialty additives
elementis Gmbh
rheological additives, colourants, waxes, other specialty additives
elementis specialties (changxing) ltd
organoclays
elementis specialties (anji) ltd*
surfactants and coatings additives
elementis specialties netherlands bv
additives and resins
deuchem co., ltd
deuchem (shanghai) chemical co. ltd additives and resins
Watercryl quimica ltda
coatings additives
Country of incorporation and operation
united Kingdom
united Kingdom
united states of america
united states of america
united states of america
Germany
people’s republic of china
people’s republic of china
the netherlands
taiwan
people’s republic of china
brazil
* 80 per cent owned subsidiary
Notes:
none of the undertakings are held directly by the company.
equity capital is in ordinary shares and voting rights equate to equity ownership.
all undertakings listed above have accounting periods ending 31 december.
undertakings operating in the united Kingdom are incorporated in england and Wales. In the case of corporate undertakings other than in the united Kingdom
their country of operation is also their country of incorporation.
all undertakings listed above have been included in the consolidated financial statements of the Group for the year.
4 Debtors
corporation tax
2012
£million
1.2
2011
£million
1.2
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCompany ifc – 03 overviewbusiness 04 – 35reviewCorporate 36 – 61 governanCefinanCial 62 – 105 statementsshareholder 106 – 108information
104 notes to the company fInancIal statements
of elementIs plc for the year ended 31 december 2012 continued
5 Creditors: amount falling due within one year
accruals and deferred income
2012
£million
0.4
2011
£million
0.2
6 Retirement benefit obligations
the company is a member of a multi-employer pension scheme providing benefits based on final pensionable pay. because the company is
unable to identify its share of the scheme assets and liabilities on a consistent and reasonable basis, as permitted by frs 17 “retirement benefits”,
the scheme has been accounted for as if the scheme was a defined contribution scheme. the net deficit in the scheme at 31 december 2012
was £44.9 million (2011: £22.5 million).
the latest full actuarial valuation was carried out at 30 september 2011 and was updated for frs 17 purposes to 31 december 2012 by a qualified
actuary. the contribution for the year was £0.1 million (2011: £0.1 million).
details of a guarantee given by the company in respect of current and future obligations of uK subsidiaries currently participating in the pension
scheme are set out in note 10 in the company’s financial statements.
7 Called up share capital
Called-up allotted and fully paid:
ordinary shares of 5 pence each
at 1 January
Issue of shares
at 31 december
2012
Number
’000
2012
£million
2011
Number
’000
2011
£million
449,950
3,622
453,572
22.5
0.2
22.7
448,663
1,287
449,950
22.4
0.1
22.5
During the year a total of 3,622,430 ordinary shares with an aggregate nominal value of £181,122 were allotted and issued for cash to various
employees at subscription prices between 25 pence and 119 pence on the exercise of options under the Group’s share option schemes.
the total subscription monies received by the company for these shares was £1.4 million. the holders of ordinary shares are entitled to
receive dividends and entitled to one vote per share at meetings of the company.
8 Reserves
At 1 January 2012
retained loss for the year
Issue of shares
share based payments
transfer
Dividend paid
At 31 December 2012
Share
premium
account
£million
6.8
–
1.2
–
–
–
8.0
Capital
redemption
reserve
£million
83.3
–
–
–
–
–
83.3
Other
reserves
£million
81.5
–
–
–
–
–
81.5
Share
option
reserve
£million
2.2
–
–
2.2
(0.5)
–
3.9
Profit
& loss
account
£million
277.2
(2.4)
–
–
0.5
(19.8)
255.5
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
9 Reconciliation of movements in shareholders’ funds
(loss)/profit for the financial year
dividends paid
share based payments
ordinary shares issued
net (decrease)/increase in shareholders’ funds
opening shareholders’ funds
closing shareholders’ funds
105
2012
£million
(2.4)
(19.8)
2.2
1.4
(18.6)
473.5
454.9
2011
£million
116.8
(13.6)
0.3
0.8
104.3
369.2
473.5
10 Related party transactions
the company is a guarantor to the uK pension scheme under which it guarantees all current and future obligations of uK subsidiaries currently
participating in the pension scheme to make payments to the scheme, up to a specified maximum amount. the maximum amount of the
guarantee is that which is needed (at the time the guarantee is called on) to bring the scheme’s funding level up to 105 per cent of its liabilities,
calculated in accordance with section 179 of the pensions act 2004. this is also sometimes known as a pension protection fund (“ppf”)
guarantee, as having such a guarantee in place reduces the annual ppf levy on the scheme.
ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCEfiNANCiAL 62 – 105 STATEmENTSShAREhOLDER 106 – 108iNfORmATiON
106 fIve year record
Turnover
specialty products
surfactants
chromium
Operations profit before exceptional items
specialty products
surfactants
chromium
central costs
exceptional items
Profit/(loss) before interest
net interest payable
Profit/(loss) before tax
tax
Profit/(loss) attributable to equity holders of the parent
Basic
earnings/(loss) per ordinary share (cents)
earnings per ordinary share before exceptional items (cents)
Diluted
earnings/(loss) per ordinary share (cents)
earnings per ordinary share before exceptional items (cents)
Dividend per ordinary share (cents)
Interest cover (times)*
Equity attributable to equity holders of the parent
Net cash/(borrowings)
2012
$million
2011
$million
2010
$million
2009
$million
2008
$million
458.7
72.5
225.8
757.0
90.1
4.8
62.8
(13.8)
143.9
–
143.9
(2.7)
141.2
(34.1)
107.1
449.9
94.3
216.3
760.5
89.7
5.4
56.1
(14.1)
137.1
27.5
164.6
(2.6)
162.0
(37.9)
124.1
410.8
88.1
198.5
697.4
71.8
6.1
35.8
(11.4)
102.3
–
102.3
(6.3)
96.0
(21.9)
74.1
315.2
76.3
172.2
563.7
30.9
0.1
13.9
(8.7)
36.2
(76.7)
(40.5)
(7.9)
(48.4)
(9.0)
(57.4)
343.0
96.6
317.3
756.9
55.0
0.9
52.4
(10.0)
98.3
(38.8)
59.5
(6.6)
52.9
(15.5)
37.4
2012
$million
2011
$million
2010
$million
2009
$million
2008
$million
23.7
23.7
23.3
23.3
12.56
55.3
480.6
44.0
27.8
21.2
27.2
20.8
7.0
41.5
16.7
15.4
16.5
15.2
4.9
31.0
(12.9)
4.3
(12.9)
4.3
4.5
14.5
8.5
17.2
8.5
17.2
5.5
20.0
449.2
26.2
379.7
(79.3)
286.3
(106.3)
385.9
(92.0)
Weighted average number of ordinary shares in issue during the
year (million)
451.8
446.5
443.5
443.3
442.6
* ratio of operating profit before exceptional items to interest on net borrowings
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
shareholder servIces
107
Internet
the Group operates a website which can be found at www.elementisplc.com. this site is frequently updated to provide shareholders with
information about the Group and each of its operating divisions. In particular, the Group’s press releases and announcements can be found
on the site together with copies of the Group’s accounts.
Registrars
enquiries concerning shares or shareholdings, such as the loss of a share certificate, consolidation of share certificates, amalgamation of
holdings or dividend payments, should be made to the company’s registrars:
Equiniti Limited
aspect house
spencer road
lancing
West sussex
bn99 6da
Tel: 0871 384 2379 or +44 (0) 121 415 7043
Fax: 0871 384 2100 or +44 (0) 190 383 3113
Website: www.shareview.co.uk
Calls to the above numbers cost 8 pence per minute plus network extras. Lines are open 8.30 a.m. to 5.30 p.m., Monday to Friday.
In any correspondence with the registrars, please refer to elementis plc and state clearly the registered name and address of the shareholder.
please notify the registrars promptly of any change of address.
Payment of dividends
It is in the best interests of shareholders and the company for dividends to be paid directly into bank or building society accounts. any
shareholder who wishes to receive dividends in this way should contact the company’s registrars to obtain a dividend mandate form.
Registrars’ text phone
for shareholders with hearing difficulties:
Callers inside the UK telephone: 0871 384 2255
Callers outside the UK telephone: +44 (0) 121 415 7028
Web-based enquiry service
equiniti provides a range of shareholders’ services online. the portfolio service provides access to information on share balances, balance
movements, indicative share prices and information on recent dividends and also enables address and dividend mandate details to be
amended online. for further information and practical help on transferring shares or updating your details, please visit: www.shareview.co.uk.
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equiniti also provides a share dealing service that enables shares to be bought or sold by uK shareholders by telephone or over the internet. for
telephone sales please call 0845 603 7037 between 8.30 a.m. and 4.30 p.m. and for internet sales please visit: www.shareview.co.uk/dealing.
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ANNUAL REPORT AND ACCOUNTS 2012 ELEMENTIS PLCCOmPANy ifc – 03 OvERviEwbUSiNESS 04 – 35REviEwCORPORATE 36 – 61 gOvERNANCE
108 corporate InformatIon
Company Secretary
Wai Wong
Registered office
10 albemarle street
london
W1s 4hh
uK
Registered number
3299608
Auditors
KpmG audit plc
Joint Corporate Brokers
ubs Investment bank
n+1 singer
fInancIal calendar
26 february 2013
25 april 2013
1 may 2013
3 may 2013
31 may 2013
30 July 2013
4 september 2013*
6 september 2013*
4 october 2013*
31 october 2013*
* provisional date
preliminary announcement of final results for the year ended 31 december 2012
annual General meeting and first Interim management statement
ex-dividend date for final and special dividends for 2012 payable on ordinary shares
record date for final and special dividends for 2012 payable on ordinary shares
payment of final and special dividends for 2012 on ordinary shares
Interim results announcement for the half year ending 30 June 2013
ex-dividend date for interim dividend for 2013 payable on ordinary shares
record date for interim dividend for 2013 payable on ordinary shares
payment of interim dividend for 2013 on ordinary shares
second Interim management statement
annual General meetInG
the annual General meeting of elementis plc will be held on 25 april 2013 at 11.00 a.m. at the royal Institution of Great britain, 21 albemarle street,
london W1s 4bs. the notice of meeting is included in a separate document. details of the ordinary and special business of the annual General
meeting are contained within the notice.
prIncIpal offIces
Elementis plc
10 albemarle street
london
W1s 4hh
uK
Tel: +44 (0) 20 7408 9300
fax: +44 (0) 20 7493 2194
email: elementis.info@elementis-eu.com
Website: www.elementisplc.com
Elementis Global
Elementis Specialty Products
Elementis Surfactants
Elementis Chromium
469 old trenton road
east Windsor
NJ 08512
usa
tel: +1 609 443 2000
fax: +1 609 443 2422
email:
Website: www.elementis.com
contactsus.web@elementis-na.com
(specialty products and surfactants)
email:
Website: www.elementischromium.com
chromium.usa@elementis.com
(chromium)
ELEMENTIS PLC ANNUAL REPORT AND ACCOUNTS 2012
KeY investment drivers
– solid fi nancial track record, profi table
well run businesses with a proven
and respected management team.
– highly cash generative with a strong
balance sheet and special dividend
programme announced.
– double digit operating margins.
– balanced geographic exposure to
mature and emerging markets.
– Global leader in rheology with a
broad, patent protected product
portfolio with applications in
different markets and sectors.
– Investment in further growth: strong
new product pipeline, multiple
capacity expansion programmes
and selective acquisitions.
What We do
the company comprises three
businesses: specialty products,
chromium and surfactants. both
specialty products and chromium
hold leading market positions in their
chosen sectors. elementis employs
over 1,300 people at more than
30 locations worldwide.
Specialty Products
provides high value functional
additives to the decorative and
industrial coatings, personal care
and oilfi eld drilling markets that
improve the fl ow characteristics
and performance of its customers’
products or production processes.
Chromium
is a leading producer of chromium
chemicals that make its customers’
products more durable.
Surfactants
manufactures a wide range of surface
active ingredients and products that
are used as intermediates in the
production of chemical compositions.
at a Glance
Who We are
elementis plc (the “company”)
is a global specialty chemicals
company with operations
worldwide that serve customers
in north and latin america,
europe and asia pacifi c in a wide
range of markets and sectors.
the company has a premium
listing in the uK on the london
stock exchange and is a
member of the ftse 250 Index,
making it one of the 350 largest
companies in the uK by market
capitalisation, and is also a
member of the ftse4Good
Index – a leading global
responsible investment index.
Where We do it
9 countries
30+ locations
1,300+ employees
executive management headquarters
corporate head offi ce
specialty products
chromium
surfactants
109
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the cover and text sections are printed on hannoart silk, comprising of
fi bres sourced from sustainable forest reserves and bleached without the
use of chlorine. the production mill for this paper operates to emas, Iso
14001 environmental and Iso 9001 quality standards. the accounts section
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sustainable forest reserves and bleached without the use of chlorine.
designed and produced by carnegie orr +(0)20 7610 6140
www.carnegieorr.co.uk
annUal report and accoUnts 2012 ELEMENTIS PLC
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Elementis plc
10 Albemarle Street
London W1S 4HH, UK
Tel: +44 (0) 20 7408 9300
Fax: +44 (0) 20 7493 2194
www.elementisplc.com
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A global specialty
chemicals company
Investing
in growth
2012
Annual report and accounts