Elementis plc
10 Albemarle Street
London W1S 4HH, UK
Tel: +44 (0) 20 7408 9300
Fax: +44 (0) 20 7493 2194
www.elementisplc.com
A global specialty chemicals company
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Elementis plc
Annual report and accounts
2013
8069_Elementis_AR12_(cover)_AW_DRf3.indd 1
18/03/2014 10:25
Who we are
Elementis plc is a global specialty
chemicals company with operations
worldwide that serve customers in
North and Latin America, Europe and
Asia 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 and FTSE4Good Indices.
Corporate information
Auditors
KPMG Audit Plc
Joint Corporate Brokers
UBS Investment Bank
N+1 Singer
At a glance
9
countries
30+
locations
1,300+
employees
Our global footprint
Executive management
headquarters
Corporate head offi ce
Specialty Products
Chromium
Surfactants
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.
Why invest in Elementis?
• Clear strategy to grow the Specialty Products business and utilise
a strong balance sheet to reinvest in growth and finance returns to
shareholders (special dividend programme in place).
• Solid financial track record with well managed businesses that
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.
are profitable and cash generative.
• Broad differentiated product portfolio that is underpinned by
proprietary technology, strong customer relationships and
supported by innovation, know how and technical expertise.
• Operating in high margin, segmented markets and emerging
economies, where products have many applications and
diverse end users, and local market presence is supported by
strong global infrastructure.
• Company has strong governance and risk management
controls and maintains a high standard of business conduct,
ethics and corporate responsibility.
Cautionary statement:
The Annual Report and Accounts for the fi nancial year ended 31 December 2013, 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 fi nancial 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 profi t forecast.
Design and production:
CarnegieOrr +44(0)207 610 6140
www.carnegieorr.com
The paper used in this Report is
derived from sustainable sources
Financial calendar
25 February 2014
Preliminary announcement of final results for the year ended 31 December 2013
Annual General Meeting and First Interim Management Statement
Ex-dividend date for final and special dividends for 2013 payable on ordinary shares
Record date for final and special dividends for 2013 payable on ordinary shares
Payment of final and special dividends for 2013 on ordinary shares
Interim results announcement for the half year ending 30 June 2014
Ex-dividend date for interim dividend for 2014 payable on ordinary shares
Record date for interim dividend for 2014 payable on ordinary shares
Payment of interim dividend for 2014 on ordinary shares
Second Interim Management Statement
Annual General Meeting
The Annual General Meeting of Elementis plc will be held on 24 April 2014 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
Company Secretary
Wai Wong
Registered office
10 Albemarle Street
London
W1S 4HH
UK
Registered number
3299608
24 April 2014
30 April 2014
02 May 2014
30 May 2014
29 July 2014*
10 September 2014*
12 September 2014*
03 October 2014*
31 October 2014*
* provisional date
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.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:
contactsus.web@elementis-na.com
www.elementis.com
(Specialty Products and Surfactants)
Email:
Website:
chromium.usa@elementis.com
www.elementischromium.com
(Chromium)
Elementis plc Annual report and accounts 2013
97
Contents
IFC At a glance
Strategic report
02 Chairman’s statement
04 Group Chief Executive’s
overview
06 Our objectives, strategies
and business model
08 Our businesses
12 Finance report
15 Key performance indicators
16 Risk management report
20 Corporate responsibility report
Corporate governance
24 Board of directors and
senior executives
26 Chairman’s letter
on governance
27 Corporate governance report
29 Audit Committee report
32 Nomination Committee report
33 Directors’ remuneration report
49 Directors’ report
51 Directors’ responsibility
statement
52 Independent auditors’ report
Financial statements
54 Consolidated income
statement
54 Consolidated statement
of comprehensive income
55 Consolidated balance sheet
56 Consolidated statement of
changes in equity
57 Consolidated cash flow
statement
58 Notes to the Consolidated
financial statements
89 Parent company statutory
accounts
90 Notes to the company financial
statements of Elementis plc
Shareholder information
94 Glossary
95 Five year record
96 Shareholder services
97 Corporate information
97 Financial calendar
97 Annual General Meeting
97 Principal offices
Highlights
• Group earnings per share increased by
6 per cent to 23.0 cents per share.
• Strong growth in Specialty Products:
− Sales and operating profit* up 10 per cent.
− Double digit sales growth in personal care
and oilfield drilling.
• Another year of excellent cash generation:
− Net cash position increased to $54.1 million.
• Total dividends for the year increased
by 11 per cent to 13.93 cents per share:
− Special dividend increased by 22 per cent.
Financial summary
Sales
Operating profit
Profit before tax
Diluted earnings per share
Operating cash flow
Net cash
2013
$776.8m
$146.6m*
$136.0m*
23.0c
$143.9m
$54.1m
2012
restated**
$757.0m
$143.9m
$133.4m
21.8c
$117.2m
$44.0m
change
+3%
+2%
+2%
+6%
+23%
+23%
Profit for the year
Basic earnings per share
$106.7m
23.3c
$100.3m
22.2c
Dividends to shareholders:
– Interim dividend
– Final proposed
– Special dividend
– Total for the year
2.57c
5.50c
5.86c
13.93c
2.45c
5.32c
4.79c
12.56c
+5%
+3%
+22%
+11%
* before exceptional items
** restated following the adoption of revised IAS 19 Employee Benefits standard
Navigating the Annual Report
Key questions/areas of focus
Where you can find the information
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Who is Elementis, what does it do and why?
How are the businesses structured and what markets do they serve?
What are the objectives and strategies for achieving these?
How is the Board structured and how does it influence the
Company’s strategy and objectives?
What are the key business and financial highlights in 2013?
How did the businesses perform in 2013?
What are the main trends and factors affecting (and those likely in
the future to affect) the development, performance and position
of the Company and its businesses?
How are the Company’s future prospects described?
Where can I find more detailed information about each business?
What are the KPIs and how did the Company perform against them?
What are the most significant risks facing the Company?
Where can I find information about social and
environmental matters?
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01
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013
Chairman’s statement
Ian Brindle
Chairman
$776.8 million
Group revenue
13.93c
Total dividends per share for 2013
02
In 2013 Elementis achieved another year of earnings growth and good
progress. The main focus of our growth strategy remains the Specialty
Products business and so it is gratifying to report that both sales and
operating profit* in that business grew by 10 per cent in the year. This is
all the more impressive when considered against the background of a
challenging economic environment. The nature of this growth provides
further evidence of the diversity and resilience of our business model
and the progress that has been made in implementing our strategy. All
of the main market segments and geographies making up the Specialty
Products business contributed to the growth, driven by market share
gains, new product launches and strategic acquisitions while at the
same time operating margins were maintained, demonstrating the
inherent quality of the business.
Cash flow generation continued to be a strong feature of the Group’s
performance in 2013. The balance sheet net cash position at the end of
the year increased by $10.1 million over the previous year to $54.1 million,
despite paying $33.0 million for the Hi-Mar acquisition and making the
first special dividend payment of $22.0 million.
Group revenues in 2013 were $776.8 million compared to $757.0 million
in the previous year supported by the good growth in Specialty Products.
As previously reported, Chromium sales were impacted by the timing of a
maintenance shutdown in the early part of the year. Operating profit* was
$146.6 million compared to $143.9 million in the previous year and Group
operating margin* was stable across the two years at 19 per cent. Diluted
earnings per share improved by 6 per cent to 23.0 cents per share.
Balance sheet
The Group continues to be in a robust financial position with net cash
on the balance sheet at the year end, providing an appropriate platform
to support future growth. During the year the Group refinanced its main
borrowing facilities, agreeing a new $100 million facility for 5 years
on improved terms with a syndicate of US, European and Asian banks.
The deficit on Group retirement schemes, under IAS 19, also declined
during the year from $137.4 million to $99.3 million, due to a combination
of favourable asset returns, Company contributions and increases in
real bond yields, further improving the balance sheet.
Dividends
The Board is continuing with the dividend strategy announced in 2012,
which is to pay out approximately one third of earnings, before exceptional
items, each year in a combination of interim and final dividends. In addition
a special dividend is paid each year of up to 50 per cent of the net cash
balance at the year end, provided there are no immediate investment
plans for that cash. Consequently, the Board is recommending a final
dividend for 2013 of 5.50 cents per share (2012: 5.32 cents) and a special
dividend of 5.86 cents per share or $27.1 million (2012: 4.79 cents
or $22.0 million). These will be paid on 30 May 2014 in pounds sterling
at an exchange rate of £1 = $1.6674 (equivalent to a sterling amount of
6.8130 pence per share), to shareholders on the register on 2 May 2014.
This brings the total dividends for the year to 13.93 cents per share
(2012: 12.56 cents), representing an increase of 11 per cent over the
previous year.
Elementis plc Annual report and accounts 2013 Health, safety and the environment
Our performance in this important area of our business continues to be of
a high standard relative to the industry and showed an improvement over
the previous year, with fewer incidents. Nevertheless, we remain extremely
vigilant in monitoring and improving our processes and activities that
impact upon the safety of our employees and the environment.
People
Our progress and achievements are only possible through the significant
efforts and dedication of our employees around the world. I would
therefore like to congratulate and thank them on behalf of the Board
for their considerable successes during the year.
Outlook
The positive results and significant progress made by the Group in 2013,
combined with a strong financial position, are further evidence that the
Group is adopting the right strategy and has the appropriate resources to
drive profitable growth and create value for all its stakeholders. The Board
is therefore confident that the Group will continue to make progress.
Ian Brindle
Chairman
25 February 2014
Board changes
We stated this time last year that we would be making changes to the
Board during 2013, as part of our succession planning programme.
Consequently, we welcomed Anne Hyland to the Board in June who
replaced Chris Girling as Chairman of the Audit Committee when he
retired at the end of July. On behalf of the Board, I would like to thank
Chris for his financial guidance, pragmatic approach and excellent
contribution over the years.
Your Chairman Robert Beeston decided to retire at the end of July for
personal reasons. Robert was Chairman for just under seven years
and led the Board through a period in which the Company experienced
significant positive change and the foundations of its growth strategy
were laid. On behalf of the Board, I would like to express my sincere
thanks to Robert for his leadership and wise counsel over the years.
As a consequence of this development, we decided that further
Board appointments would be put on hold until a new Chairman
had been appointed.
In January of this year we were delighted to announce the appointment
of Andrew Duff as Deputy Chairman and Chairman-Designate, effective
from 1 April 2014. The Board succession programme will continue under
Andrew’s chairmanship.
During 2014 Kevin Matthews and I will have served on the Board for more
than nine years but, subject to shareholder support, we intend to continue
in office for another year in the current period of Board transition. Kevin
Matthews’ appointment was renewed in February for another year and
my appointment will also be renewed for another year in June. We will
both retire and stand for re-election at the AGM in April. Whilst Kevin
and I can no longer be considered independent under the UK Corporate
Governance Code once nine years have been served, we will both
continue to exercise the independent judgement which will provide
continuity and stability to the Board during the process of change.
The Board’s process of refreshing its composition will continue this year.
Governance
The Board considers that it has applied all the principles and provisions
of the Corporate Governance Code in 2013. Further information about
this and other aspects of our governance arrangements are set out in
the Corporate governance report on page 26.
* before exceptional items
03
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013
Group Chief Executive’s overview
David Dutro
Group Chief Executive
Dear Shareholders,
2013 has been another excellent year for Elementis with sales, operating
profit, operating cash flow and earnings per share all showing a positive
trend. We were able to leverage our diversified and broadly balanced
portfolio of activities to deliver another year of solid results. In addition to
our strong financial performance, we continued building the foundation for
sustained growth by successfully executing a number of strategic initiatives.
EPS* moved to a record level for the fourth consecutive year, helping to drive
total shareholder return to more than 400 per cent over the same period.
Additionally, we announced total dividends in 2013 of 13.93 cents per share,
which represents an 11 per cent increase over the previous year and a
threefold improvement over the past 4 years.
Throughout the year we continued to strengthen our business both
organically and by acquisition. We introduced new products, built on
existing and new applications and invested to meet our customers’
growing demands. Among the many accomplishments of 2013 were:
• Another record EPS performance.
• Stable operating margins.
• Specialty Products:
− 10 per cent growth in sales and operating profit*.
− Hi-Mar and Watercryl acquisitions fully integrated and
providing the anticipated synergy benefits.
− Double digit growth in personal care and oilfield drilling.
− Strong customer response to new decorative additives
from recently commissioned New Martinsville plant.
• Strong cash flow – 22 per cent increase in special dividend.
Underlying everything we do is a constant focus on achieving increasingly
higher levels of safety, operational and environmental performance. For the third
consecutive year our safety and environmental performance improved around
the globe. Our safety performance in 2013 was one of our best ever and, while
we are encouraged by this positive trend, we know that even one incident is too
many. Our strong safety culture and focussed efforts in improving process
safety will help us progress towards our goal of incident free operations.
Elementis Specialty Products
Specialty Products provides solutions to its customers’ challenges through
superior technical service, application support and technically advanced
products. We are a key supplier of performance critical products to the
coatings, oilfield and personal care markets and our business provides
an ideal growth platform with its well balanced geographic exposure
across mature and emerging economies. Specialty Products continued
to successfully execute its growth strategy, delivering its best year ever
in terms of sales and operating profit. This performance was driven by
market segment share gains, new product introductions, synergistic bolt
on acquisitions, stable margins and operational efficiency. We firmly believe
that making our customers more successful makes us more successful and
it is this customer centric philosophy that remains the cornerstone of our
strategy for new product development and technology investments. It is
also a key component of our acquisition criteria.
Innovation remains the vital platform from which to drive our continued
success. Our R&D pipeline is stronger than ever and, importantly, our
new products are delivering real value to our customers as well as to
our bottom line. Our ability to consistently deliver innovative products
has been a critical part of the Specialty Products growth strategy and
performance improvements and we are confident that it will continue
to be a key component of our future success.
Group operating margin and EPS
cents
24
21
18
15
12
9
6
3
0
18%
15%
15.2
20.8
19%
21.8
19%
23.0
%
24
21
18
15
12
9
6
3
0
2010
2011
2012*
2013
Diluted earnings per share before exceptional items (cents)
Group operating margin before exceptional items (%)
*
restated following the adoption of revised IAS 19 Employee Benefits standard
04
Elementis plc Annual report and accounts 2013 Each of the three Specialty Products segments – coatings, oilfield drilling
and personal care – is strategically positioned to capitalise on one or more
of the powerful global trends of a rapidly growing middle class in developing
economies, the increasing longevity and urbanisation of the world’s
population and deep water and unconventional drilling for oil and natural
gas. With the global middle class expected to nearly double by 2020, and with
85 per cent of this increase projected to come from faster growing emerging
markets, we expect consumer preference to evolve towards Elementis
products that are used in environmentally friendly high performance coatings.
The growing global middle class is also enjoying greater life expectancy and is
increasingly urban, creating significant opportunities for our innovative natural
formulations in personal care. The increasing demand for energy around the
world, and the relative environmental benefits of natural gas compared to
coal, will drive activity in deep water and unconventional drilling. With over
20 years of experience in cutting edge technology and strong customer
relationships in the energy drilling sector, Elementis is ideally positioned to
fully benefit from the anticipated continued robust growth in deep water
and shale gas drilling. While most of the growth thus far has been in the US,
we are participating in exciting opportunities in a number of other regions
as horizontal drilling and fracturing technology start to jump continents.
For the last few years, Elementis has focussed its technical resources
to capitalise on these trends of a growing middle class, the increasing
longevity and urbanisation of societies around the world and increasing
deep water and unconventional oilfield drilling. To that end, our technology
group applied for patents on 70 per cent of new products launched
in 2013 and we expect higher revenue growth and margins on these sales.
I am confident that Elementis is uniquely qualified to develop and supply
innovative products and solutions that will allow our customers to take
full advantage of the opportunities created by these trends. It is this unique
and enviable position that convinces me that we are only beginning to
unlock the earnings and growth potential of this business.
Specialty Products’ global capabilities allow us to develop and leverage
solutions for customers around the world. Already, approximately
40 per cent of its revenue comes from China, ASEAN countries and
Latin America. In addition, our strong local presence in these fast growing
regions allows us to truly understand our customers and to anticipate their
specific needs in coatings, personal care and oilfield drilling applications.
We expect this combination of Specialty Products’ broad global capability
and strong local management to deliver material growth for Elementis.
Elementis Surfactants
The Group has continued to benefit from improvements in the quality of the
product portfolio of the Surfactants business and, as a result, operating
profit* improved 17 per cent versus the previous year, on similar sales.
Net cash/(debt)
$m
60
40
20
0
-20
-40
-60
-80
26.2
44.0
54.1
(79.3)
2010
2011
2012
2013
Net cash/(debt) ($m)
* before exceptional items
The business is located in Delden, the Netherlands, and shares its
production facility with Specialty Products which represents an increasing
proportion of the site’s output. The strategy remains to utilise more of the
facility’s capacity over time to manufacture higher margin products sold
by the Specialty Products business, achieving specialty chemicals
margins. The strategy is succeeding as currently greater than 50 per cent
of the facility’s sales are generated from products manufactured for the
Specialty Products business. The Delden team continues to do an
excellent job of optimising business performance while executing this
capacity transition strategy.
Elementis Chromium
Elementis Chromium is one of the largest suppliers of chromium chemicals
in the world. From its efficient, flexible and scalable operations located in
the US, it delivers a full range of chromium based products globally to a
variety of end markets including timber treatment, metal finishing, refractory,
metal alloy and leather tanning applications. The business is able to provide
its North American customers with a differentiated and highly valued
closed loop delivery model, providing a long term competitive advantage.
Elementis Chromium prides itself on maintaining the highest global
standards for its environmental, health and safety systems.
Elementis Chromium’s strategic focus is to deliver stable earnings and cash
flow. The business has successfully executed this strategy, demonstrating
consistently strong revenues, operating profit, margins and cash flow.
This validates the stability and resilience of the business operating model
over a wide range of economic and market conditions. The business got off
to a slow start due to the impact of a scheduled kiln maintenance shutdown
in the first quarter, but recovered as the year progressed in spite of a weaker
global trading environment outside of North America. The Chromium
team delivered $56.4 million of cash on operating profits* of $55.1 million,
demonstrating once again the strong cash generation capability of this
business. Our intention is to continue to utilise the cash from Elementis
Chromium to preferentially invest in growing the Specialty Products
business and rewarding shareholders with enhanced dividends.
Summary
I am extremely proud of the high performance culture we have built at
Elementis and I would like to take this opportunity to thank all of our
employees for their dedication and tireless commitment.
It is with tremendous gratitude that we bid a fond farewell to Robert Beeston,
who retired from the Elementis Board at the end of July 2013 having served as
Chairman of the Board from 2006 to 2013. He is a true gentleman and his
thoughtful leadership and unwavering support have been truly appreciated.
While we anticipate 2014 to be a period of modest progress in global GDP
growth, our internal performance targets and growth objectives are not
predicated on an improvement in overall market conditions. Based on our
strategic positioning, focus on innovation, strong product portfolio and
healthy product pipeline, we remain confident in our ability to deliver
profitable growth across a broad range of economic scenarios.
In closing, on behalf of the entire Elementis team I would like to sincerely
thank our shareholders and customers for your support. We look towards
the future with confidence and an unrelenting commitment to reward you
for the confidence you have placed in us.
David Dutro
Group Chief Executive
25 February 2014
05
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013
Our objectives, strategies and business model
Our objectives
Group
Deliver annual operating plans and year on year sustainable
earnings growth.
Our strategies
Group
Offer added value, high quality solutions tailored to our customers
with strong technical support.
Outperform the FTSE 250 Index for total shareholder return over
each successive annual and 3 year period.
Maintain a strong balance sheet to provide financial stability and
support investments in growth.
Manage key corporate and business risks and maintain high
standards of business conduct, ethics and corporate responsibility.
Manage businesses to deliver strong financial performance and cash flow.
Maintain well invested facilities, operational excellence, strong HSE
performance and comply with laws and regulations.
Specialty Products
Growth from new products, markets, applications and geographies
and complementary bolt on acquisitions.
Specialty Products
Grow the Specialty Products business profitably.
Offer broad, differentiated and patent protected product portfolio,
innovation and new product development.
Chromium
Manage the Chromium business to deliver stable earnings and cash flow.
Chromium
Optimise capacity utilisation and operating efficiencies, manage cost
base, serve higher margin markets and maintain margin discipline.
Surfactants
Transition the Surfactants product portfolio to higher margin
specialty additives.
Surfactants
Optimise profitability, operating efficiencies and commercial focus.
Our business model
Key inputs
Clear strategies and business priorities, leadership from the top
and robust governance and risk management frameworks, policies
and procedures.
Passionate and committed global workforce and an embedded
culture of performance and customer service.
Long term customer relationships built on trust, strong focus on
technical expertise, product innovation and providing a differentiated
service to diverse markets.
Excellent commercial, procurement and supply chain teams
supported by strong global infrastructure.
Financial and operating discipline, well maintained facilities
and strong functional support teams.
Key sales channels
Specialty Products
Long term customer relationships with global MNEs as well as
sales to regional and local customers.
Global sales platform, solid infrastructure with cross-selling
opportunities.
Manufacturing facilities, R&D centres and technical service labs
in the Americas, Europe and Asia to support all our key markets.
Chromium
Sales to the North American market while selectively supplying
the Latin American, European and Asian markets.
Surfactants
Long term customer relationships with global MNEs as well as
sales to regional and local customers.
06
Key products
Specialty Products
Rheological modifiers, specialty additives, organoclays, defoamers,
adhesion promoters, waxes and resins, flow and levelling additives,
colourants and pigments, dispersing/wetting/slip and coalescing
agents, and lanolin and other natural oil derivatives.
Chromium
Chromic acid, chromic oxide, sodium dichromate and chrome
sulphate, with customised delivery system.
Surfactants
Wide range of surface active ingredients and products used as
intermediates in the production of chemical compositions.
Key markets
Major regions supplied
North and Latin America, Europe and Asia.
Major segments/applications
Specialty Products
Industrial and decorative coatings, personal care and oilfield drilling.
Chromium
Metal finishing, super alloys, timber treatment, leather tanning,
pigments, ceramics and refractory.
Surfactants
Oilfield production chemicals, construction chemicals, textiles and
leather, household, plastics, resins and other niche markets.
Elementis plc Annual report and accounts 2013 Who is Elementis, what does it do…
Elementis is a global specialty chemicals company. Its largest and
most profitable business, Elementis Specialty Products, is the core
of our growth strategy and has the following key characteristics:
• Operating in diverse and highly segmented markets.
• Supplying products that are critical ingredients in its customers’
formulations and essential to their performance, whilst
representing a small proportion of the overall cost.
Common to all three businesses are the following:
• Profitable, strong cash generation and high level of return
on capital.
• Well invested manufacturing facilities, operational excellence
and a broad product offering to a wide range of customers
and markets.
• Provision of a differentiated service to customers, offering
• Having a broad, differentiated and patent protected product
tailored solutions and product innovation.
portfolio, coupled with innovation and new product development.
• Strong leadership, clear business strategies and high
• Long term relationships with customers that are based on
mutual trust and collaboration, supported by strong technical
service and expertise.
• High sustainable operating margins and return on
operating capital.
In addition, Elementis is the owner of the only rheology grade
hectorite mine in the world, which provides a key raw material and
source of competitive advantage. Elementis Chromium supplies
chromium chemicals that make its customers’ products more
durable and Elementis Surfactants supplies a wide range of
surface active ingredients.
performance cross functional business teams, underpinned by
robust governance and risk management frameworks, as well
as a culture of maintaining high standards of business conduct,
ethics and corporate responsibility.
…and why?
Ultimately, the strategy of the Company is to operate its portfolio of
manufacturing assets and exploit its proprietary technologies and
know how to supply products and services to customers, thereby
creating value for shareholders. Key to achieving the above is the
allocation and management of human and capital resources, as
well as accessing and leveraging the appropriate market channels
and supply chains. All of the above elements are an essential part
of the process that forms our overall business activities in terms of
the inputs, processes and outputs.
The things that matter most to our ability to be successful
Clear objectives and business strategies.
The aspects of our business model most important to the
preservation and creation of value can be summarised as follows:
•
• Strong leadership, governance and risk management,
supported by Group policies, processes and controls.
Intellectual property, innovation and new product development.
•
• Relationships with customers, suppliers and other
stakeholders based on trust and collaboration.
Strong financial resources, balance sheet and cash generation.
•
• Well invested manufacturing assets that are managed to
deliver optimal performance.
• The passion, attitude, commitment and work ethic of all our
employees around the world.
• Our global infrastructure and ability to access market channels.
• Culture of compliance with laws and regulations and
maintaining high standards of business conduct, ethics
and corporate responsibility.
How this section links in with other sections of the Annual Report
Areas of focus
Where you can find the information
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Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013
Our businesses
Group performance
Elementis Specialty Products
Revenue
Specialty Products
Chromium
Surfactants
Inter-segment
Operating profit
Specialty Products
Chromium
Surfactants
Central costs
* before exceptional items
Revenue
2012
$million
458.7
240.1
72.5
(14.3)
757.0
Effect of
exchange
rates
$million
Increase/
(decrease)
2013
$million
Revenue
2013
$million
5.7
–
2.1
–
7.8
38.4
(25.3)
(2.4)
1.3
12.0
502.8
214.8
72.2
(13.0)
776.8
Operating
profit
2012
$million
Effect of
exchange
rates
$million
Increase/
(decrease)
2013
$million
Operating
profit
2013*
$million
90.1
62.8
4.8
(13.8)
143.9
2.5
–
0.1
0.5
3.1
6.5
(7.7)
0.7
0.1
(0.4)
99.1
55.1
5.6
(13.2)
146.6
Greg McClatchy
President of Elementis Specialty
Products and Elementis Surfactants
Our performance
Spit of Sales Revenue 2012 (%)
Sales
Operating profit*
Operating margin*
ROCE**
Segment
North America
* before exceptional items
9
Asia Pacific
** before tax and excluding goodwill
Europe
Rest of the world
Split of sales revenue
Segment %
55
22
14
2013
2012
$502.8m $458.7m
$90.1m
20%
40%
$99.1m
20%
38%
Spit of Sales Revenue 2012 (%)
Geographic
Geographic %
Segment
11
15
22
52
Industrial coatings
Decorative coatings
Oilfield drilling
Personal care
10
32
29
29
North America
Asia Pacific
Europe
Rest of the world
9
14
22
55
Industrial coatings
Decorative coatings
Oilfield drilling
Personal care
Geographic
08
Elementis plc Annual report and accounts 2013
Key facts
• We account for 65 per cent of Group sales and 68 per cent of
•
Group operating profit* in 2013.
• We are based in 27 locations around the world, in North and
Latin America, Europe and Asia, and our sales are broadly split
between North America, Europe and Asia.
• We have over 900 employees globally, 12 manufacturing facilities,
3 research centres of excellence (including a process development
facility), 6 technical service centres and 11 dedicated sales offices.
• Our top ten customers account for less than 24 per cent of total sales.
In each key segment, the business has many competitors from
•
multinationals to smaller privately owned businesses.
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.
How and where we do it
For a description of what makes us successful, who and where our
customers are and a list of our products and markets, refer to the
'Business model' section on page 6.
A map of our global locations is in the ‘At a glance’ section on the Inside
Front Cover.
Key product 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.
• 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.
Key sector drivers
• Decorative coatings: regulatory trend towards low VOC,
increasing consumer sophistication in emerging markets.
Industrial coatings: increasing demand from customers for high
performance coatings that enhance their products and exposure
to higher growth emerging markets.
•
• Oilfield drilling: exposure to shale oil and gas.
• Personal care: increasingly sophisticated consumer demand
and emerging market development.
2013 Performance
Specialty Products’ sales in 2013 increased by 10 per cent compared
to the previous year, or 8 per cent on a constant currency basis. The
business continued to benefit from strong, diverse market positions
in high growth areas, new product introductions and complementary
acquisitions. Overall pricing and margins remained stable throughout
the year, demonstrating the resilience of the business and the high value
added nature of the product portfolio.
* before exceptional items
In North America sales of coatings additives improved by 5 per cent,
with acquisitions contributing 9 per cent to the year on year result. The
underlying result was influenced by the fact that the first half of 2013 had
a particularly strong comparative period in 2012. More normal trading
patterns were experienced in the second half of the year and sales in that
period improved by 3 per cent. Sales volumes, excluding acquisitions,
were similarly impacted by these demand patterns and hence, while full
year volumes were similar to the previous year, volumes in the second half
grew by 9 per cent. Another feature of the North American coatings sales
in 2013 was the increasing percentage of additives for decorative coatings
compared to industrial coatings, as a result of new innovative product
launches and the introduction of the new manufacturing plant in New
Martinsville, West Virginia, at the start of the year. Additives for decorative
applications have similar margins to industrial products but often have
lower selling prices, hence the shift towards decorative products naturally
led to the growth in sales volumes being higher than sales dollars.
In Europe sales improved by 1 per cent, with currency contributing
2 per cent to the year on year comparison. The underlying economic
activity in the region was more stable in 2013 but showed no material
growth. Despite this, volumes were 5 per cent higher as the business
was able to introduce new decorative products, improve market share
with key customers and increase sales to Eastern Europe and the
Middle East to deliver a solid performance with stable margins.
Coatings sales in Asia Pacific improved by 8 per cent, with volumes up
11 per cent, as the business continued to deliver growth in excess of the
underlying GDP for the region, with China representing almost 70 per cent
of regional sales. Capital investments to support new products,
exceptional technical service and manufacturing capabilities and an
extensive sales network enabled the business to continue to gain
market share in China and the rest of Asia Pacific.
In Latin America sales improved by 48 per cent, largely due to the positive
impact of the Watercryl acquisition in Brazil towards the end of 2012. The
acquisition was fully integrated during 2013 and sales opportunities inside
and outside of Brazil are providing early synergy benefits. Underlying
sales improved by 4 per cent, with volumes up 5 per cent in the region.
•
In Personal Care sales improved by 26 per cent as the business
benefited from a variety of new hectorite formulations, the launch of
the Rheoluxe range of products, expansion into emerging markets,
particularly Asia and Latin America, and good growth in aerosol
antiperspirants and colour cosmetics.
• Oilfield drilling sales were 14 per cent higher than the previous year,
with volumes up 15 per cent, driven by strong fracturing and cold
climate drilling in the US and Canada and the return of deep water
drilling programmes in the Gulf of Mexico. Drilling activity in North
America returned to more normal levels in 2013, having experienced a
temporary slowdown in the second half of 2012 as inventory levels were
corrected. Sales in the first half of the year were therefore similar to the
previous year, while sales in the second half were 38 per cent higher.
Operating profit* in 2013 was $99.1 million compared to $90.1 million in the
previous year, an increase of 10 per cent, or 7 per cent excluding currency
movements. Operating margin* remained consistent with last year, at
20 per cent, demonstrating the inherent quality of the business in a period
of strong sales growth and changes in sales mix. There were no material
changes in overall raw material and energy costs compared to the previous
year. Fixed costs, excluding acquisitions, increased by only 2 per cent,
despite the introduction of a new manufacturing facility in the US and
resource investments to support growth during the year, as strict cost
management remained a key foundation of the business. Acquisitions
contributed $1.2 million to the year on year increase in operating profit.
09
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013
Our businesses continued
Elementis Chromium
Dennis Valentino
President of Elementis Chromium
Our performance
2013
2012
Sales
Operating profit*
SPLIT OF SALES REVENUE 2012 (%)
Operating margin*
ROCE**
GEOGRAPHIC
SEGMENT
$214.8m $240.1m
$62.8m
26%
65%
$55.1m
SPLIT OF SALES REVENUE 2012 (%)
26%
52%
GEOGRAPHIC
SEGMENT
8
16
18
* before exceptional items
** before tax and excluding goodwill
58
Split of sales revenue
Segment %
North America
Asia Pacific
Europe
Rest of the world
6
13
17
35
29
Metal finishing
Other
Timber treatment
Pigmentary
Leather tanning
00%
00%
00%
Geographic %
00%
7
15
21
57
North America
Asia Pacific
Europe
Rest of the world
9
14
22
55
Industrial coatings
Decorative coatings
Oilfield
Personal care
Key facts
• We account for 26 per cent of Group sales and 38 per cent of
Group operating profit* in 2013.
• We are the only domestic producer of chromium chemicals in the
US and operate from two major facilities in Castle Hayne, North
Carolina, and Corpus Christi, Texas, and three smaller processing
facilities supplying local tanneries.
• We have over 240 employees, most of whom are located in the US.
• Our top ten customers account for less than 52 per cent of total sales.
• The business has many competitors from multinationals to smaller
privately owned businesses.
What we do
• We provide chromium chemicals to 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 that enable us to develop long term,
mutually advantageous relationships with our customers.
10
Elementis plc Annual report and accounts 2013
Elementis Surfactants
Our performance
How and where we do it
For a description of what makes us successful, who and where our
customers are and a list of our products and markets, refer to the
‘Business model’ section on page 6.
A map of our global locations is in the ‘At a glance’ section on the Inside
GEOGRAPHIC
Front Cover.
Sales
SPLIT OF SALES REVENUE 2012 (%)
Operating profit*
Operating margin*
ROCE**
SEGMENT
3
5
13
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
Europe
aeroplane and land based turbines.
Rest of the world
Asia Pacific
North America
• 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.
79
7 4
* before exceptional items
** before tax and excluding goodwill
15
39
Split of sales revenue
Segment %
35
8 4
18
26
45
Oilfield production
chemicals
Other
Textile & Leather
Water Treatment
Feed
2013
2012
$72.2m
SPLIT OF SALES REVENUE 2012 (%)
$5.6m
8%
GEOGRAPHIC
25%
$72.5m
$4.8m
7%
25%
SEGMENT
00%
00%
00%
Geographic %
00%
7 1
10
82
Europe
Rest of the world
Asia Pacific
North America
9
14
22
55
Industrial coatings
Decorative coatings
Oilfield
Personal care
• Chrome sulphate: in tanning to produce high quality leathers for
a wide range of end uses.
• Sodium dichromate: as an intermediate chemical to produce
pigment for industrial coatings and traffic paint.
Key sector drivers
• Chromic oxide: construction, coatings, aircraft engines and
gas turbines.
• Chromic acid: automotive, heavy/light machinery, construction
and infrastructure.
• Chrome sulphate: beef consumption.
• Sodium dichromate: as above.
2013 Performance
Chromium sales in 2013 were 11 per cent lower than the previous year at
$214.8 million. Sales volumes were 5 per cent lower than the previous year
as a planned maintenance shutdown in the early part of the year reduced
manufactured volumes. This was exacerbated by related pre-buying by
customers towards the end of 2012, pulling some sales into that year.
Regional sales continued to be influenced by the strategy of the business:
operating with a fixed manufacturing volume and optimising the
geographic and product sales mix to produce stable margins, earnings
and cash flow. In 2013, sales volumes for leather tanning applications in
North America continued to be soft as tanneries adjusted to lower herd
sizes and sales to chrome sulphate converters outside of the US were
curtailed. This reduction broadly matched the reduction in available
volumes due to the maintenance shutdown. Hence sales volumes for
other applications and for sales outside of North America were relatively
stable compared to the previous year. Average selling prices in 2013 were
6 per cent lower than the previous year although this was partially offset
by lower raw material costs.
Operating profit* for 2013 was $7.7 million lower than the previous year at
$55.1 million, largely due to the reduction in sales volumes, while operating
margin* remained stable at 26 per cent. Raw material and energy costs
trended lower during the year, leading to lower selling prices, while other
fixed costs remained tightly controlled and made a positive contribution
to the year on year comparison. Currency movements had no material
impact on sales or operating profit as the majority of sales and costs
in the business are denominated in US dollars.
* before exceptional items
Key facts
• We account for 9 per cent of Group sales and 4 per cent of
Group operating profit* in 2013.
• We share a manufacturing plant in Delden, the Netherlands,
with Elementis Specialty Products.
• We employ over 140 employees at our Delden site.
• Our top ten customers represent 73 per cent of total sales.
• The business has many competitors from multinationals to
smaller privately owned businesses.
What we do
• We are in the process of transitioning to more higher margin
specialty additives.
• Our facility is equipped with both continuous and multi-purpose
batch reactors for a variety of chemical processes which, together
with our expertise, allow us to produce a wide range of complex
products, customised to meet our customers’ requirements.
How and where we do it
For a description of what makes us successful, who and where our
customers are, and a list of our products and markets, refer to the
‘Business model’ section on page 6.
A map of our global locations is in the ‘At a glance’ section on the Inside
Front Cover.
2013 Performance
Sales in Surfactants in 2013 were broadly the same in dollar terms as the
previous year, at $72.2 million, or 3 per cent lower on a constant currency
basis. The majority of sales are denominated in euros. Sales volumes were
8 per cent lower than the previous year, which is in line with the strategy
to transition the Delden facility over time to produce more higher margin
additives for Specialty Products. Average selling prices increased by
4 per cent in response to higher raw material costs during the year.
Operating profit* increased to $5.6 million compared to $4.8 million in the
previous year, as the business team continued to focus on higher margin
products and disciplined cost management during the transition process.
Consequently operating margin improved from 7 per cent in the previous
year to 8 per cent in 2013.
11
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013 Finance report
Brian Taylorson
Finance Director
Operating profit
Specialty Products
Chromium
Surfactants
Central costs
Group results
Group sales in 2013 were $776.8 million compared to $757.0 million
in the previous year, an increase of 3 per cent or 2 per cent excluding
currency movements. Strong sales growth was experienced in Specialty
Products, helped by exposure to high growth emerging markets, new
product launches, market share gains and two strategic acquisitions, while
Chromium sales were lower due to the impact of a scheduled maintenance
shutdown. Overall sales volumes for the Group improved, while pricing
was relatively stable across Specialty Products and Surfactants, but
lower in Chromium in response to lower raw material and energy costs.
Group operating profit* was $146.6 million in 2013 compared to
$143.9 million in 2012 and Group operating margin* was stable at
19 per cent in each year. Improved earnings in both Specialty Products
and Surfactants more than offset the lower earnings from Chromium
and, overall, the Group benefited from growth in Specialty Products,
stable margins and good cost control.
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, pounds sterling and Chinese renminbi. In order to reduce earnings
volatility from these currency exposures, the Group takes out cash flow
hedges each year where these are readily available. In 2013 overall
currency movements were such that the net impact of these hedge
transactions was not material to Group operating profit, while in 2012
there was a credit of $1.2 million.
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 2013 central costs were lower than the previous year
by $0.6 million, or 4 per cent, due to changes in variable compensation
programmes and other structural cost savings.
12
Revenue
Specialty Products
Chromium
Surfactants
Inter-segment
2013
$million
2012
$million
502.8
214.8
72.2
(13.0)
776.8
458.7
240.1
72.5
(14.3)
757.0
Operating
profit
$million
Exceptional
items
$million
2013
Underlying
operating
profit
$million
Operating
profit
$million
Exceptional
items
$million
99.8
44.6
6.9
(6.4)
144.9
(0.7)
10.5
(1.3)
(6.8)
1.7
99.1
55.1
5.6
(13.2)
90.1
62.8
4.8
(13.8)
146.6
143.9
–
–
–
–
–
2012
Underlying
operating
profit
$million
90.1
62.8
4.8
(13.8)
143.9
Exceptional items
A number of items have been recorded under ‘Exceptional items’ in the
2013 ‘Consolidated income statement’ by virtue of their size and/or one
time nature, in order to provide a better understanding of the Group’s
results. The net impact of these items on the Group profit for the year
is a charge of $1.7 million, with an associated tax credit of $1.8 million.
The items fall into three categories, as summarised below.
(Charge)/credit
Specialty Products
Surfactants
Chromium
Central costs
Total
Post
employment
benefits
Environmental
provisions
1.1
2.2
(3.2)
–
0.1
(0.4)
(0.9)
(6.3)
7.4
(0.2)
Other
–
–
(1.0)
(0.6)
(1.6)
Total
0.7
1.3
(10.5)
6.8
(1.7)
Post employment benefits – net credit of $0.1 million
In 2013 the Group settled a 2005 claim made by a group of its Dutch
pensioners and, as a result, released the balance of a provision made
at the time the claim was lodged. Consequently, a credit of $3.3 million
has been recorded in the current year.
Following the closure of the chromium plant at Eaglescliffe, UK, in
2009 there remain a number of post employment payments to former
employees that will continue for a period of time. The Group has concluded
that it would be appropriate to make a provision for these payments under
IAS 19 and has therefore recorded a charge of $3.2 million in the current year.
Elementis plc Annual report and accounts 2013 Taxation
Tax charge
2013
Effective
rate
per cent
21.6
(1.0)
20.6
2012
restated**
Effective
rate
per cent
24.8
–
24.8
$million
33.1
–
33.1
$million
29.4
(1.8)
27.6
Before exceptional items
Exceptional items
Total
The tax charge of $27.6 million (2012: $33.1 million) represents an effective
tax rate of 20.6 per cent (2012: 24.8 per cent) with the decrease in tax rate
resulting from structural changes within the Group’s financing arrangements,
as well as changes in the geographic mix of profits.
Earnings per share
Note 9 to the ‘Consolidated 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 23.0 cents compared to 21.8 cents
in the previous year**, with the improvement mainly due to an increase
in operating profit* of $2.7 million and a reduction in tax rate from
24.8** per cent to 21.6 per cent. Basic earnings per share was
23.3 cents compared to 22.2** cents in 2012.
Distributions to shareholders
During 2013 the Group paid a final dividend in respect of the year ended
31 December 2012 of 5.32 cents per share (2012: 4.66 cents) and a special
dividend of 4.79 cents per share (2012: nil). An interim dividend of 2.57 cents
per share (2012: 2.45 cents) was paid on 4 October 2013 and the Board is
recommending a final dividend for 2013 of 5.50 cents per share and a
special dividend of 5.86 cents per share, both of which will be paid on
30 May 2014.
Environmental provisions – net charge of $0.2 million
A number of structural changes were made to the Group’s provisions in 2013.
First, a fixed term indemnity given by the Group to a third party in 1998 expired
in 2013. As a result the related balance sheet provision has been released,
creating a credit of $9.8 million. Second, during the year the closure plan for
the Eaglescliffe site was finalised, in consultation with regulatory authorities,
and adjustments were then made to the provision for closure costs. This
resulted in a charge of $5.0 million. Third, the Group’s environmental
provisions are calculated on a discounted basis, reflecting the time period
over which spending is estimated to take place. Due to changes in those time
periods, the Group concluded that it would be appropriate to reduce the
discount rate being used and this resulted in a charge of $5.8 million. Finally,
other adjustments to existing provisions resulted in a credit of $0.8 million.
Other adjustments – net charge of $1.6 million
In 2013 the Group exited a long term office lease, resulting in a charge of
$0.6 million. The Group also increased its provision for a 2002 dispute
relating to the filing of an industry report with the US EPA, resulting in a
charge of $1.0 million.
Other expenses
Other expenses are administration costs incurred and paid by the Group’s
pension schemes, which relate primarily to former employees of legacy
businesses, and were $2.0 million in 2013 compared to $2.5 million in
the previous year. Under the recently revised IAS 19 these costs are now
required to be shown in the ‘Consolidated income statement’, rather than
as part of the scheme deficit. In 2013 the costs were lower due to reduced
spending by both the UK and Dutch schemes.
Net finance costs
Finance income
Finance cost of borrowings
Net pension finance costs
Discount on provisions
2013
$million
2012
restated**
$million
0.2
(2.5)
(2.3)
(4.5)
(1.8)
(8.6)
0.8
(3.4)
(2.6)
(4.1)
(1.3)
(8.0)
Net finance costs increased by $0.6 million in 2013 to $8.6 million, mainly due
to modest increases in the financial cost of pension deficits and an increase
in the discount charge on provisions. Net finance costs on borrowings and
cash balances were lower by $0.3 million, at $2.3 million, as lower borrowing
costs were offset by lower income from cash balances. Borrowing costs,
which largely relate to arrangement and commitment fees on unutilised
borrowing facilities, came down as a result of the refinancing of the Group’s
main borrowing facility in 2013. Income from cash balances was lower than
the previous year because, although the year end cash balance was higher
than the previous year, the average cash balances held during the year
were lower. Net pension finance expense was higher than the previous
year because, under IAS 19, the charge is based on the deficit value at the
beginning of the year and the opening deficit in 2013 was higher than in 2012.
The increase in the discount charge on provisions is related to the changes in
the basis of the discount rate as discussed in the section ‘Exceptional items’.
* before exceptional items
** restated following the adoption of IAS19 Employee Benefits standard
13
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013 Finance report continued
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
Other
Free cash flow
Dividends paid
Acquisitions and disposals
Currency fluctuations
Movement in net cash
Net cash at start of year
Net cash at end of year
2013
$million
2012
restated**
$million
170.5
6.5
(35.0)
1.9
143.9
(26.8)
(14.6)
(1.5)
101.0
(58.3)
(32.8)
0.2
10.1
44.0
54.1
165.2
(12.9)
(37.4)
2.3
117.2
(27.9)
(15.7)
(0.6)
73.0
(32.2)
(24.0)
1.0
17.8
26.2
44.0
1 EBITDA – earnings before interest, tax, exceptional items, depreciation
and amortisation
The Group delivered another positive cash flow performance in 2013 and,
as a result, increased net cash on the balance sheet by $10.1 million to
$54.1 million. Contributing to the increase in operating cash flow in the year,
EBITDA increased from $165.2 million to $170.5 million, in line with the
increase in operating profit for the year. Cash flow relating to working capital
was an inflow of $6.5 million compared to an outflow of $12.9 million in 2012.
This positive change was mainly the result of two things. First, the cash
outflow in 2012 was higher because of a strategic decision taken in 2012 to
increase the level of chrome ore stocks held during that year. Secondly, in
2013 the timing of customer and supplier payments towards the end of the
year was overall more favourable than in 2012. Capital expenditure in 2013
was $2.4 million lower than the previous year, at $35.0 million, although higher
than depreciation for the year ($23.9 million), as the Group continued to invest
in the growth of Specialty Products. Growth investments in the year totalled
$12.6 million and included $9.3 million on the new decorative additives
plant in New Martinsville, US, while spending on plant maintenance and
productivity across the Group was $21.8 million (2012: $18.9 million) and
included additional capital expenditure from acquisitions and the installation
of a new systems platform at the Delden facility in the Netherlands. Pension
deficit payments in 2013 were $1.1 million lower than the previous year at
$26.8 million. The largest component of the payments relates to the UK plan,
where payments under the existing funding agreement were at a similar level
in both years. Interest and tax payments in 2013 were $14.6 million compared
to $15.7 million in the previous year, with the modest reduction coming mostly
from lower tax payments which were influenced by the timing of annual
payments in various jurisdictions. Dividends paid in 2013 were $26.1 million
higher than the previous year, at $58.3 million, largely as a result of the first
payment ($22.0 million) under the special dividend programme. Acquisition
spending in 2013 of $32.8 million relates primarily to the acquisition of Hi-Mar
in the US, while the spending in 2012 relates to the acquisition of Watercryl in
Brazil. Both acquisitions were made by the Specialty Products business.
14
Balance sheet
Intangible fixed assets
Other net assets
Net cash
Equity
2013
$million
2012
restated**
$million
382.1
107.7
54.1
543.9
543.9
356.7
78.5
44.0
479.2
479.2
Group equity increased by $64.7 million in 2013, consistent with the
profit for the year, after dividends paid and changes in pension liabilities.
Intangible fixed assets increased by $25.4 million in the year, largely due
to the acquisition of Hi-Mar in the year. Other net assets increased by
$29.2 million, with the main drivers being a reduction in pension liabilities
of $38.1 million, as discussed below, and an increase in net tax liabilities
of $23.8 million reflecting the impact of tax on profits for the year which
were higher than tax actually paid out, plus the tax effect of a fall in
pension deficits. Net cash increased by $10.1 million as described
in the previous section.
The main dollar exchange rates relevant to the Group are set out below.
Pounds sterling
Euro
Year end
0.60
0.73
2013
Average
0.64
0.75
Year end
0.62
0.76
2012
Average
0.63
0.78
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 2013 the Group held provisions of $38.1 million (2012: $40.5 million)
relating to environmental, site closure and self-insurance, as detailed in the
table below.
At 1 January 2013
Charge to income
statement
Exceptional items
Utilised during the year
Currency translation
differences
At 31 December 2013
Environmental
$million
21.9
1.2
(4.2)
(2.0)
0.2
17.1
Site
closure
$million
15.7
0.8
4.4
(3.2)
0.1
17.8
Self-
insurance
$million
2.9
0.8
–
(0.5)
–
3.2
Total
$million
40.5
2.8
0.2
(5.7)
0.3
38.1
During the year there were a number of significant structural changes to
provisions, the impact of which is shown as ‘Exceptional items’ in the above
table and more details are provided in an earlier section of this report. These
changes reduced environmental provisions by $4.2 million due to the
reversal of a legacy provision of $9.8 million, offset by changes in the basis
of the discount rate used and other smaller adjustments. They also resulted
in an increase in Chromium UK closure provisions of $4.4 million due to net
additional forecasted spending, changes in the basis of the discount rate
used and other smaller adjustments. Other items shown in the table include
‘Charge to income statement’ which mostly represents the accrual of
discount to reflect the time value of money and, in the case of self-insurance,
represents adjustments to estimated future claims. ‘Utilised during the year’
describes cash payments made in the year in each category.
Elementis plc Annual report and accounts 2013 Pensions and other post retirement benefits
Net liabilities:
UK
US
Other
2013
$million
2012
restated**
$million
66.1
23.1
10.1
99.3
72.9
51.3
13.2
137.4
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 $66.1 million at the
end of 2013, compared to $72.9 million at the end of 2012. The UK Scheme
is relatively mature, with approximately 65 per cent (2012: 66 per cent) of its
gross liabilities represented by pensions in payment, and is closed to new
members. The deficit under IAS 19 declined in 2013 due mainly to a positive
return on assets of 7 per cent (2012: 5 per cent) and deficit contributions
from the Company of $21.4 million (2012: $21.1 million), which partly offset
the financial cost of the liabilities of $30.6 million (2012: $33.2 million) and
other liability adjustments of $26.9 million (2012: $57.5 million). Other liability
adjustments included the impact of a decline in real bond yields by 20 basis
points (2012: decline of 30 basis points). Future deficit contributions from the
Company are defined in an agreement with the trustees of the scheme that
was concluded in 2012, based on a valuation as of 30 September 2011.
Under the agreement the Company will make the following future payments
in pounds sterling:
Year payable
2014
2015
2016
2017
2018
Amount
£million
24.8
14.9
11.0
9.8
9.8
US plans
At the end of 2013, post retirement plans in the US consisted of a defined
benefit pension plan with a deficit value of $15.6 million (2012: $42.8 million)
and a post retirement medical plan with a liability value of $7.5 million
(2012: $8.5 million). The US pension plan is smaller than the UK Scheme
and is closed to future accruals. In 2013 the deficit in the plan declined by
$27.2 million (2012: increased by $1.4 million) due to a positive return on
plan assets of 22 per cent (2012: 13 per cent), employer contributions
of $2.4 million (2012: $6.8 million) and other positive liability adjustments
of $10.6 million (2012: negative $12.7 million). The other adjustments were
favourably influenced by an increase in real bond yields of 80 basis points
(2012: decrease of 60 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 2013 the deficit value for this
plan was $3.7 million compared to $9.9 million in the previous year. The
decline was due mostly to the settlement in the year of a 2009 claim made
by a group of pensioners in relation to plan changes dating back to 2005,
further details of which are included under the section ‘Exceptional items’.
Other liabilities amounted to $6.4 million (2012: $3.3 million) and relate to
pension arrangements for a relatively small number of employees in Germany,
as well as additional provision in 2013 for benefits relating to the Eaglescliffe
site as discussed in the ‘Exceptional items’ section.
** restated following the adoption of IAS 19 Employee Benefits standard
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.
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,
before exceptional items, to sales. The Group achieved an operating
profit* of $146.6 million for the year ended 31 December 2013
(2012: $143.9 million before exceptional items). The Group’s operating
margin* was 19 per cent compared to 19 per cent in 2012.
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, 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 2013 was 20 per cent (2012: 19 per cent).
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 41 per cent for the year ended
31 December 2013 (2012: 45 per cent).
ROCE for the Group including goodwill was 21 per cent in 2013
(2012: 23 per cent** ).
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 3 LTAs in
2013 (2012: two).
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 2013 was 37 per cent (2012: 38 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 2013 the operating cash flow was $143.9 million
(2012: $117.2 million).
* before exceptional items
** restated for updated provisional fair value adjustments
15
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013
Finance report continued
Risk management report
The governance framework at Elementis is well defined internally.
The Board is responsible for preserving and generating value for
shareholders, while ensuring that the Group’s business activities are
operated in compliance with applicable laws and regulations, as well
as in a responsible manner as regards business conduct, ethics and
its health, safety and environmental performance.
The Board defines strategic direction in conjunction with the management
team and monitors the performance of the businesses in all material
aspects of their operation, while the management team is responsible for
managing all businesses activities and delivery of the Group’s strategic
objectives and annual operating plans. This requires identifying both
opportunity and risk and leveraging these to the Group’s advantage.
The management of risk is integrated into the general management
function which means all layers of management have a responsibility
for identifying, assessing and communicating risk upwards in the
chain of management. To support this approach, the Group has risk
management policies, procedures and controls in place. The lean
operational management structure operated, as shown in Figure 1
below, ensures this approach is effective.
Figure 1
visers
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Board
d
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Management team
Business Operations Director
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Site management
and employees
S
u
p
p
ort functions, polic i e s a n d
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c
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r
p
d ures
Risks are identified and grouped according to standard classification
systems as shown in the table below which also gives examples of
different threats within each risk category.
Risk category
Examples of threats
Strategic
Loss of competitive focus, M&A, R&D or key supply
chain failure.
Operational
Resource allocation failure, HSE or IT incident.
Financial
Credit, liquidity or fraud.
Compliance
Breach of laws, operating permits or Group policies.
Hazard
Hurricane, typhoon or litigation.
Risk awareness training is an important part of our risk management so
that managers in different roles and functions can recognise, identify and
communicate risks to the business leadership and management teams.
On a monthly basis, the management team reviews business performance
and all material risks to the business and the Group’s ability to deliver its
operating plans are discussed. These risks can be from any of the above
risk categories.
16
Twice a year the management team also carries out a more formal risk review.
The first part of the process requires all sites and functional departments to
complete comprehensive risk assessments that are compiled into risk maps
and registers which are then reviewed by the business leadership and
management teams, together with risk scores to estimate the financial impact
to the business and their likelihood of occurrence, as well as the risk controls
and mitigation action taken. The second part is a review of the Group’s business
continuity plans with scenario testing and training at corporate and site level.
The output from these exercises is shared with the Board. Management
reports are also discussed at monthly Board meetings and HSE
performance is reported to the Board on a regular basis.
The principal risks and uncertainties identified by the management team
and approved by the Board are shown in Figure 2 below (see also table
on pages 18 and 19).
Figure 2 shows the major risks to the Group, illustrates which aspects
of operations they can potentially impact and groups the different risks
together using the FIRM risk scorecard approach1.
The risks disclosed are broadly the same as disclosed in previous years,
with little change in risk profile and no new material risks identified. The Group
monitors a broad Top 20 risk grouping, analysing the risk profile for each
(whether it is increasing, decreasing or stable, by reference to probability
and severity of impact pre and post mitigation). The composition of this broad
grouping is fairly stable. Management understands the businesses well and
the associated risks and opportunities, although benchmarking and use
of survey studies are used to retain a fresh perspective.
The risks shown in Figure 2 and the associated mitigation actions
were discussed by the management team and reviewed by the Board.
To assist shareholders to understand better how these risks can impact
the Group and its businesses, the following commentary is given to
provide further context.
Figure 2
gic
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Fina
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Co m pliance costs
cial m
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T
Pensio
e ts
a rk
Fin
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H S E
Transportation
Supply chain/
raw materials
IT
Reputational
R&D
C o m p e t i t i o n
c i a l
C o m m e
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d i s
r
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e
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M &A
ulatory a
Compliance
C
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Financial
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Reputation
Marketplace
O
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al
1 A structural approach to Enterprise Risk Management (ERM) and the requirements
of ISO 31000, AIRMIC, Alarm, IRM, 2010.
Elementis plc Annual report and accounts 2013
Safety and environmental compliance is a key priority and, as a chemicals
manufacturer, our facilities are subject to many regulations and managed to
an even higher standard. Of our 18 operating facilities, 5 have achieved
ISO 14001 certification, 3 have achieved OSHA’s 18001 certification and
our other sites are managed to similarly high standards. An example of
where we have gone beyond regulatory requirements is at our principal
chromium facility in Castle Hayne, North Carolina, which has achieved the
comprehensive performance based criteria to be accredited in the STAR
programme. This accomplishment is the highest recognition level under
OSHA’s voluntary protection programme, which recognises employees
and employers who have achieved exemplary occupational safety and
health. Our performance in the ‘Corporate responsibility’ report shows
that we manage HSE risks to a high standard and this will continue to
be one of our main priorities.
Supply chain risk is another major focus of the business since the ability
to supply customers can be affected by disruptions due to economic
uncertainties or caused by severe weather patterns. However, we have
developed close relationships with our supply chain partners and taken
action to broaden our supplier base. For example, in recent years we have
broadened the number of chrome ore suppliers to the business. Another
example of risk mitigation concerns our hectorite mine in Southern
California which experienced 2 instances of severe flooding over the
past 15 years, the last being in 2005. 2 years ago we installed drainage
pumps inside the mine which will help to restore operations more quickly
and minimise business disruption. We also maintain strategic holdings of
key raw materials, such as chrome ore and hectorite clay, and carry
business interruption insurance.
The main climate change risks are more frequent and severe hurricanes
on the east coast of the US and typhoons in China and Taiwan. However,
our businesses have procedures in place, including implementing a
planned shutdown, and business continuity plans are maintained and
rehearsed to mitigate the consequences of these events. An example of
a recent event is that our Anji facility in China was impacted by Typhoon
Fitow last year which disrupted operations for 3 to 4 weeks. However, for
incidents like this, the Company carries business interruption insurance.
Marketplace risks, as shown, cover a wide range of risks. The risk having
the highest potential impact on the Group financially is the economic
environment. However, the Group has a broad geographic presence,
mitigating the impact of economic changes in any one country. One of
our principal priorities is staying focussed and delivering our customers
with tailored differentiated solutions, a strategy that has helped us remain
competitive. This has been boosted by our innovation model which has
developed products to enable us to reach new customers, markets and
geographies. Major investments and capital expenditure items are subject
to authority limits and review by management and the Board.
Financial and compliance risks are well defined, understood and managed;
further details are described in the Audit Committee report.
Our approach to taxation is to ensure that profits are earned in the countries
in which economic activities are undertaken and that those profits are
properly subject to tax in accordance with the tax legislation which applies
in each jurisdiction. We aim to comply fully with the requirements and
expectations of each of the relevant tax authorities and to ensure that
we deal with these authorities in an open and transparent manner.
The table below describes risk management responsibilities in the Group.
Areas of focus
t
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g
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s
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B
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d
r
a
o
B
Risk appetite and tolerance
Risk management culture,
resources and organisation
Risk communication and identification
Risk assessment and analysis
Risk mitigation and control
Reporting and monitoring performance
Risk assurance
Reviewing risk management framework
Strategic risk
Operational risk
Financial risk
Compliance risk
Hazard risk
Reputational risk
Our flat management structure and holistic approach allow for a high
degree of communication and control throughout the organisation. This
multi-purpose, multi-focus business review approach to risk by different
layers of management is augmented by external support and compliance
audits where appropriate. For example, our insurance programme
includes an annual programme of rolling property inspections and our
HSE performance is also subject to periodic external audit by HSE third
parties. The Group’s internal audit programme is another key aspect of
our compliance monitoring and assurance process, focussing mainly
on financial, operational and compliance controls.
In terms of keeping the views of our major shareholders under
consideration, Elementis has robust procedures in place to ensure
that the views of shareholders are known. These include regular
management meetings with major shareholders and maintaining a
strong flow of information from the Group’s corporate brokers to the
Board, to ensure that market expectations and the views of major
shareholders and analysts are taken into consideration by the Board
when setting priorities. Two important issues in this regard are executive
remuneration and decisions concerning accounting policies and
disclosures. These are more fully explained in the respective reports
of the Remuneration and Audit Committees.
17
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013
Finance report continued
Risk management report continued
Principal risks and uncertainties
Risk
Impact
Mitigation
1. Global economic
conditions and
competitive
pressure in the
marketplace.
• 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.
• 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.
2. Growth
• As above.
• Organic and acquisitive growth is a priority for the Board and a key area of
opportunities
(including
acquisitions)
and product
innovation may
not materialise.
3. Raw materials/
supply chain.
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.
• Disruption to supply
chain, key raw materials,
infrastructure (eg IT networks
or transportation) and energy
price stability can impact
capacity utilisation and add
to operating costs.
• 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.
4. Major regulatory
• Can lead to higher
• Active compliance and risk management programmes in place
operating costs and
reputational damage.
enforcement action,
litigation and/or
other claims arising
from products and/
or historical and
ongoing operations.
•
(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.
5. UK pension fund.
• Volatile financial markets,
• Pension investment strategy includes significant element of liability matching,
poor investment returns and
increased life expectancy
can all result in higher
funding costs.
including the use of interest rate and inflation hedging instruments.
• Options for pension de-risking periodically reviewed.
• Deficit funding plan agreed with UK pension scheme trustees through to 2018.
18
Elementis plc Annual report and accounts 2013 Risk
Impact
Mitigation
6. Regulation/
technological
advances.
• New technology, methods
of production or processes
can give competitors a
market advantage.
• New regulations restricting
the use or carriage of
chemicals can lead to loss
of applications and sales
and/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.
7. Major event or
catastrophe
(eg IT failure
or operations
incident).
• Such incidents can impact
capacity utilisation and add
to 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.
8. Major disruption to
global or regional
banking systems.
• 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.
• 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 88.
Brian Taylorson
Finance Director
25 February 2014
19
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013 Corporate responsibility report
Introduction
Elementis recognises that corporate responsibility (‘CR’) is a
fundamental part of the Company’s business activities, which is why
the Chief Executive is responsible at Board level for all CR matters.
The Company has since September 2009 been a member of the
FTSE4Good Index, a leading global responsible investment index, which
demonstrates the Company’s commitment to CR and that its activities
and aspirations are aligned with the principles of the UN Global Compact
on human rights, labour, environment and anti-corruption. Below is an
illustration of the Company’s CR framework.
Elementis corporate responsibility framework
Business conduct
and ethics
Health and
safety
Environment and
community
(cid:127) Commitment
(cid:127) Performance
(cid:127) Initiatives
(cid:127) People and
compliance
programme
(cid:127) Equal
opportunity
and diversity
(cid:127) Labour and
fundamental
human rights
(cid:127) Customers,
suppliers and
supply chain
(cid:127) Commitment
(cid:127) Performance
– Impact
– Emissions
– Energy and
water use
– Waste
(cid:127) Initiatives
(cid:127) Product
stewardship
(cid:127) Community
engagement
Business conduct and ethics
People
The long term success of the Group depends on the passion, attitude,
commitment and work ethic of all our employees around the world.
It is our people who remain our most valuable asset and are a key
differentiator between Elementis and its competitors.
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’). The Code is supplemented by policies, processes and
guidelines covering a wide range of compliance matters, such as anti-
bribery and corruption, conflicts of interest and compliance with local
laws and regulations, which are supported by whistleblowing procedures
including an anti-retaliation policy. All employees are required to undertake
training on the Code and certify that they understand and agree to be
bound by its provisions. The Board and management team consider the
Code to be critical to the Group’s continuing success and in how it meets
its corporate responsibilities.
In 2013, our training programme on the Code was translated into a sixth
language, Portuguese, to extend its accessibility to our employees in
Brazil and bi-annual refresher training was provided to nearly 50 per cent
of our global workforce to help employees stay up to date with their
responsibilities under the Code.
20
Policies are updated as necessary and new ones implemented to take
account of the changing business environment with associated training
provided. For 2014, training will focus on a number of updated policies
including the Global anti-corruption policy and a new Group computer
usage and social media policy.
Diversity
Elementis is fully committed to equality of opportunity. We apply a policy
of non-discrimination throughout the Group and to all aspects of our
employment policies, except as it relates to a person’s ability or potential
in relation to the needs of a job. A summary of our employment policies
appears on page 49 of the Directors’ report. We have a total workforce
(including contractors and temporary workers) of over 1,300 in three
regions (44 per cent in the Americas, 25 per cent in Europe and
31 per cent in Asia). In terms of gender diversity, out of our total workforce
(excluding contractors and temporary workers) as at the year end, 963
were male (76 per cent) and 312 were female (24 per cent). Of these female
employees, 50 (16 per cent) held managerial positions and
nearly 40 (13 per cent) held an executive management position (within
the four tiers below Board level). At Board level 5 directors were male
and 1 was female and at senior manager level (as defined under the
prescribed regulations) 19 were male and 1 female. The Group does
not consider targets or quotas to be appropriate for increasing the
percentage of women in management positions. Staff turnover across
the Group, for 2013, was under 1.2 per cent (2012: 0.5 per cent).
Human rights
Elementis supports fundamental human rights, such as the right to
privacy, safety and to be treated fairly, with dignity and respect. These
fundamental principles are supported by Group policies, such as our
anti-harassment policy and grievance procedures. Our employment
policies reflect the UN Global Compact principles concerning the
prohibition of child and forced labour, freedom of association, equality
of treatment and non-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 the Code, the Group’s compliance programme
and human rights at Elementis can be found on our website at:
www.elementisplc.com/governance-responsibility
Customers, suppliers and supply chain
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. Our success is driven by
our close customer relationships, key account business process and
participation in trade shows and industry forums.
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.
Use of natural products within our supply chain grew by $1.3 million
in 2013 and is now up to $17.1 million annually. This represents a rise
of 8 per cent from 2012 ($15.8 million).
Elementis plc Annual report and accounts 2013
Health, safety and environment
Elementis takes active steps to protect the health and safety of its employees,
contractors and visitors, and to preserve the environment. Biodiversity is
protected wherever possible by reducing the potential for significant damage
to sensitive species, habitats and ecosystems. The Group also recognises a
shared responsibility globally for conserving natural resources and reducing
greenhouse gas emissions.
The Group has a well established health, safety and environment (‘HSE’)
management system that is aligned with international standards which
includes: corporate policy, annual objectives, internal and external auditing,
incident reporting and investigation, metrics, management review and
emergency preparedness. See also page 17.
Further information about the Group’s approach to health, safety
and environmental matters can be found on our website at:
www.elementisplc.com/governance-responsibility/
health-safety-and-environment-policy-values/
Health and safety performance
The Company continually strives to eliminate accidents and injuries within
the workplace. This is achieved 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 safety culture.
The Group uses recordable incidents as its principal measure of safety
performance. Recordable incidents (as defined by the US Occupational Safety
and Health Administration) are basically work related injuries and illnesses that
require medical treatment beyond first aid, work restrictions to normal duties
or time away from work. To monitor performance and trends among more
serious injuries and illnesses, the Group also records lost time accidents
(‘LTAs’) that require greater than three days away from work not including the
day of incident. The number of recordable incidents across the Group in 2013
was 12 (2012: 13 – restated). Of the 12 recordable incidents only three
required time away from work greater than three days (2012: two). Of particular
note is our hectorite mine in Newberry Springs, California, which has achieved
22 years without a lost time accident, and the Chromium facility at Corpus
Christi, Texas, which has achieved 10 years without a recordable injury
or illness.
As well as the total number of recordable and lost time incidents, the
Board uses the overall recordable incident rate as a performance indicator.
The total recordable incident rate in 2013 was 0.95 per 200,000 hours
Recordable incident rate
Recordable incidents per 200,000 hours worked
5
4
3
2
1
0
Key
2009
2010
2011
2012
2013
Elementis
American Chemistry Council – Responsible Care®
US chemical industry
(2012 is latest data available for ACC and US chemical)
worked (2012: 1.03 – restated). 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 data for the
American Chemistry Council – Responsible Care® members, 0.75 in 2012),
which is significantly better than the general chemical industry in the US (2.3 in
2012 based on latest data available from the US Bureau of Labor Statistics).
Elementis sites use contractors regularly and their safety is just as important
as the safety of employees and they are required to comply with the same
policy and procedures. In 2013, contractors suffered five recordable injuries
(2012: zero), which equated to an incident rate of 2.35 per 200,000 hours
worked. None of the contractors sustained serious injury.
Health and safety initiatives
During 2013, our health and safety leadership team has continued to work
on a number of improvement initiatives, such as a further roll out of our
‘Basic Safety Process’ programme, process hazard analysis for all our site
operations and focussing on hazard recognition skills at employee level
including the use of visible operational metrics and HSE scorecards.
Environmental performance
Elementis seeks to minimise the impact of its operations on the
environment and contribute to a more sustainable future. 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.
Elementis records and categorises environmental incidents into tiers based
on the severity 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 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.
In 2013, Elementis had no Tier 3 or Tier 2 incidents (2012: zero).
Environmental impact
Elementis monitors key environmental statistics of each facility, such as
emissions, effluent and disposal and reports the significant aspects.
These results are affected by changes in the fuel, processes, product
mix and plant efficiencies, which may change with production volume.
As is standard practice in the chemical industry, emission values may
be calculated from energy use or based on representative sampling,
as well as continuous monitoring. It should be noted that water and
energy consumption, emissions, discharges and waste generated are
all influenced by production output and special events. An increase or
decrease does not necessarily mean performance in these areas has
or has not improved.
Emissions to air
The Group is committed to reducing emissions to air that pollute or
have a global warming potential.
Emissions of the oxides of sulphur and nitrogen and volatile organic
compounds (‘VOCs’) arising from the Group’s operations are controlled
to comply with regulatory permits. As the volumes are not considered
to be significant, they are not reported separately here. Any emissions
to air above regulatory permitted levels would be reported as
environmental incidents.
21
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013 Corporate responsibility report
continued
Greenhouse gas emissions
Elementis now reports greenhouse gas (‘GHG’) emissions for its global
operations in a more comprehensive way than previously. In addition to
emissions arising from fuel combustion and process reactions, emissions
associated with the use of electricity and steam are also reported (Scope
1 and Scope 2 emissions respectively under The Companies Act 2006
(Strategic Report and Directors’ Report) Regulations 2013). In this first
year (2013 being designated as the base year) there is no comparison with
previous years. Future years will show comparisons with the previous year
and the base year.
The principal GHG due to operations at Elementis locations are carbon
dioxide, with a negligible quantity of nitrous oxide. GHG emissions have
been converted into carbon dioxide equivalent (‘CO2e’) using official data
provided by DEFRA. GHG emissions are reported for all 20 manufacturing
sites including principal offices and laboratories. A number of much
smaller sales offices have been excluded because the level of CO2e
emissions were deemed to be too immaterial.
Elementis is providing two intensity ratios. Tonnes CO2e per tonne of
production and tonnes CO2e per kWh of energy consumed. Both will
provide in future years an indication of energy efficiency improvements
including cleaner fuels consumed. These ratios are subject to variations
due to changes in the mix of products manufactured, volumes and
energy efficiency improvements. For example in 2013 the Specialty
Products site at Livingston, Scotland, made energy efficiency
improvements that resulted in site savings in CO2 emissions of 5.7 per cent
on a year on year basis, or a 7.2 per cent reduction on a production
adjusted basis. 100 per cent of the electricity supply to the Livingston
site in 2014 will be from renewable sources.
GHG emissions for 2013 are shown below.
Greenhouse gas emissions
Scope 1:
Combustion of fuel and operation of facilities
Scope 2:
Electricity and steam purchased for own use
TOTAL – Scopes 1 & 2
Intensity ratio:
tonnes CO2e/tonne production (‘t/t’)
Supplementary intensity ratio:
kg CO2e/kWh energy consumed (‘kg/kWh’)
221,076
tonnes CO2e
89,500
tonnes CO2e
310,576
tonnes CO2e
0.773
t/t
0.270
kg/kWh
The Group is committed to reducing its consumption of energy derived
from fossil fuels as a contribution towards reducing GHG emissions and
the consequent 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 2013 natural gas represented 95 per cent of fuel consumption.
There is also the added incentive that energy is an expensive resource
and its efficient use has a significant effect on the cost of production.
Discharges to water
Maintaining the water quality of the areas in which we operate is a regulatory
issue and vital to protect the local ecosystems and communities. The Group’s
production activity generates process effluent that is routinely tested to ensure
that the quality meets strict permit limits prior to discharge. Typical analysis
includes chemical and biological oxygen demand and total suspended solids.
The volumes of these discharges are not considered to be significant and
are not reported here. However, any discharges to water above regulatory
permitted levels would be reported 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 was slightly lower
in 2013 despite an increase in production output.
Water consumption
2013
2012
2011
Absolute
(000s)
Per
tonne of
production
Absolute
(000s)
Per
tonne of
production
Absolute
(000s)
Per
tonne of
production
Water
consumed
(m3)
1,908
7.48
1,928
7.97
1,889
6.97
Energy consumption
The energy requirement per tonne of production remained stable with
consumption increasing slightly, in line with production output.
Energy consumption
2013
2012
2011
Absolute
(000s)
Per
tonne of
production
Absolute
(000s)
Per
tonne of
production
Absolute
(000s)
Per
tonne of
production
Energy
consumed
(GJ)
5,102
13.0
4,910
12.9
4,862
12.1
Examples of energy reduction initiatives
The Specialty Products site at Delden in the Netherlands has an energy
efficiency plan for the period 2013–2016. The facility has identified several
process efficiency measures where it is committing to reduce energy usage by
an estimated 6 per cent over the four years, with an additional 6 per cent over
the same period subject to further study and investment. Areas where such
improvements are anticipated include ventilation, replacement of the nitrogen
supply and through the activities of an ‘Operational Excellence’ initiative.
The Specialty Products site at Livingston, Scotland, has replaced three
steam boilers with two high efficiency boilers. This resulted in a 5.2 per
cent absolute reduction in natural gas usage on a year on year basis, or
a 6.3 per cent reduction on a production adjusted basis. The site has
also made a combination of changes in operating practice including the
installation of variable frequency drives on large electric motors which
resulted in a 6.5 per cent absolute reduction in usage on a year on year
basis, or a 7.5 per cent reduction on a production adjusted basis.
Our executive management headquarters in East Windsor, New Jersey,
is implementing a building optimisation programme in 2014 to monitor
energy use throughout the building. Linking this to an energy management
system will reduce energy costs through rapid response to demand.
Annual savings are projected to be in excess of $100,000.
Solid and liquid waste
As part of our commitment to sustainable development, Elementis
seeks to reduce the quantity of all types of waste. The first concern is to
reduce the amount of waste that is classed as hazardous. Beyond that
non-hazardous waste is minimised and recycled. Non-hazardous waste
is predominantly the inert residue from the chromate kiln operations,
which is deposited in permitted impoundments and licensed landfill
sites adjacent to the manufacturing facilities.
22
Elementis plc Annual report and accounts 2013 Hazardous waste decreased in 2013 (see table below) due partly to changes in
solvent management and recycling initiatives at the Specialty Products site in
Jersey City, New Jersey, and partly due to the intermittent nature of equipment
cleaning and refractory brick disposal at Elementis Chromium sites.
The overburden clay from the hectorite mine provides a good example of
recycling and reducing the impact on the land. Residual clay is recovered
from the discharge water and blended back into the process with the
hectorite ore feedstock. Tailings with minor clay content are sold for use as
liner for recreation ponds, fish rearing lakes and in 2013 a sizeable amount
was sold for a sewage lagoon liner project and recreational fishing ponds.
Brown overburden clay is also being sold for soil improvement in the central
valley of California. Selling overburden and optimising stockpile height has
the additional benefit of reducing the overall area impacted at the mine.
Waste disposal
2013
2012
2011
Absolute
(000s)
Per 1,000
tonnes of
production
Absolute
(000s)
Per 1,000
tonnes of
production
Absolute
(000s)
Per 1,000
tonnes of
production
Hazardous
waste
disposed
(tonnes)
Non-
hazardous
waste
disposed
(tonnes)
0.93
3.64
1.70
7.01
1.54
5.67
105
410
104
430
116
431
R&D and sustainability
Our R&D efforts support and contribute to a more sustainable future
with the global R&D team continuing to drive its research towards:
• Reduction in the use of materials that contribute to greenhouse gases.
• Development of new biodegradable 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.
New rheological additive technology was introduced that facilitated the
development of higher solids, solvent borne coatings for use in high
performance applications. New adhesion technology was developed
that facilitates the adhesion of aqueous coatings to plastic substrates.
Both developments led to reduced use of greenhouse gas precursors.
Our portfolio of zero VOC additives was further enhanced with new
products that address long term industry performance needs, while
earlier product launches continued to expand their geographical reach.
In addition to complying with the REACh regulatory requirements for
our products during 2013, Elementis continued to focus on compliance
with the United Nations GHS (Globally Harmonized System) hazard
communications standard as it is implemented around the world.
In 2013 Elementis made significant investment in its regulatory compliance
software system, Wercs, to more fully automate compliance and prepare
for the implementation of GHS in the US by the end of 2014. Additional
functionality has been added to meet the proliferation of GHS standards
in several South American, Eastern European and Asian countries from
2014 to 2017.
During 2013, in order to meet OSHA’s mandate to provide GHS training
to all US employees, Elementis instituted a more robust internal product
stewardship audit programme at all US plants. This programme was
extended to our European operations in late 2013 and will be further
extended to our Asian operations in 2014.
Finally, in 2013 Elementis brought online an enhanced Export Control
Management System to ensure compliance with the extensive and strict
export regulations of both the US and the EU. Key components of this
system include strong internal written policies and proactive external
auditing of Elementis' freight forwarders and export brokers.
Further information on product stewardship at Elementis
can be found on our website at:
www.elementisplc.com/governance-responsibility/
product-stewardship-social-ethical-matters/
Community
Our community programme remains centred on encouraging and
supporting employees to be active in their communities through volunteer
work or fundraising. The Group understands the need to work with local
communities and be a responsible neighbour, such as continuing 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.
Approval of Strategic report
The Strategic report comprises the following sections: ‘Chairman’s
statement’, ‘Group Chief Executive’s overview’, ‘Our objectives, strategies
and business model’, ‘Our businesses’, ‘Finance report’ (incorporating
Key performance indicators and the Risk management report) and
‘Corporate responsibility report’ (which incorporates information relating
to greenhouse gas emissions required to be included in the Directors’
report). The Strategic report was approved by the Board and has been
signed on its behalf by:
Product stewardship
Our global product stewardship team is responsible for ensuring our
products are safe for intended use, transport and to people and the
environment throughout the products' entire life cycle and that we are
contributing to a more sustainable future.
Brian Taylorson
Finance Director
25 February 2014
During 2013 Elementis continued to be fully engaged in the European REACh
programme and successfully delivered on its 2013 Tier 2 REACh obligations
with the registration of 23 substances key to the Elementis product portfolio. In
2013 our REACh programme was reviewed by a regulatory authority of an EU
member state and found to be in full compliance. As Elementis moves forward
in 2014, we have begun preparations for registrations of those substances that
will cross volume bands due to increased product sales, including work for the
registration of over 100 substances for the 2018 Tier 3 REACh obligations.
23
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013 Board of directors
Non-executive directors
Ian Brindle
Chairman
Committee membership: A, N(c)
Anne Hyland
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 became Chairman of the Board on 1 August 2013. 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. He was non-executive
chairman of Sherborne Investors (Guernsey) A Limited and Sherborne
Investors (Guernsey) B Limited, a non-executive director of 4imprint
Group plc from October 2003 to June 2012, where he was also
the senior independent director, and a non-executive director of
F&C Asset Management plc from February 2011 to May 2013.
Anne Hyland was appointed a non-executive director on 1 June 2013
and Chairman of the Audit Committee on 1 August 2013. Between 2002
and June 2013, she was CFO and company secretary of FTSE-listed
Vectura Group plc. She stood down from that role in June 2013. Prior to
Vectura, she held a number of senior finance positions (including director
of corporate finance) at then FTSE 100 Celltech Group plc, Medeva plc
and KPMG. She is a Chartered Accountant (FCA), a Corporate Tax Adviser
(CTA – AITI) and holds a degree in business studies from Trinity College,
Dublin. She is also a trustee of the charity Sustrans which campaigns for
national cycling networks in the UK.
Andrew Christie
Kevin Matthews
Committee membership: A, N, R(c)
Committee membership: A, N, R
Andrew Christie was appointed a non-executive director in August 2008
and Chairman of the Remuneration Committee on 1 October 2013. He
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, he held the
same position with Barclays de Zoete Wedd. He is a non-executive
director of Helios Underwriting plc and holds an MBA and a Bachelor
of Science degree in engineering.
Kevin Matthews was appointed a non-executive director in February
2005 and served as Chairman of the Remuneration Committee from
April 2008 until the end of September 2013. 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.
Executive directors
David Dutro
Group Chief Executive
Brian Taylorson
Finance Director
David Dutro was appointed Group Chief Executive in January 2007. He
joined Elementis in November 1998 as President of Elementis Pigments
and 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.
Brian Taylorson was appointed Finance Director in April 2002. Before
joining Elementis he was head of the 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 finance positions over a
period of 17 years, living and working in several countries including the
UK, South Africa, Switzerland, Canada and the US. He holds an MA
degree in engineering 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.
Key: A – Audit Committee N – Nomination Committee R – Remuneration Committee
(c) – Chairman of Committee
24
Elementis plc Annual report and accounts 2013 Strategic report 02-23
Corporate governance 24-53
Financial statements 54-93
Shareholder information 94-97
Senior executives
Greg McClatchy
President of Elementis Specialties
(comprising Elementis Specialty
Products and Elementis Surfactants)
Dennis Valentino
President of Elementis Chromium
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.
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
studies in chemical engineering at the University of Missouri – Rolla,
and obtained his MBA from St. Louis University.
Walker Allen
General Counsel and
Chief Compliance Officer
Wai Wong
Company Secretary
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.
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’) and a member and accredited practitioner of the
Chartered Institute of Public Relations. Prior to joining Elementis, he held
a number of senior company secretarial positions including at John
Menzies plc, ICSA and PricewaterhouseCoopers. He 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.
Daniel Hughes
Chief Information Officer
Daniel Hughes was appointed Chief Information Officer in September
2013. He has held various senior leadership roles in Elementis Specialties
since February 2007. Primarily he has served as Vice President, Global
Procurement and Supply Chain and been deeply engaged in our
worldwide end to end business transactions. He also served as
integration manager for our Deuchem, Yuhong, Fancor, Watercryl and
Hi-Mar acquisitions. He holds a BA (Honours) degree from the University
of East London and, prior to joining Elementis, held various senior
procurement and supply chain positions at Engelhard Corporation
and Ford Motor Company.
25
Elementis plc Annual report and accounts 2013 Corporate governance report
Chairman’s letter on governance
Fundamental to the success of any organisation is the way it is governed
and, for Elementis, this means the effectiveness of the Board and our
governance arrangements.
The Board plays a critical role in defining the strategy and priorities of the
Company whilst the management team, led by the Chief Executive, is
responsible for executing strategy in attainment of set objectives and
priorities. The Board is accountable to shareholders, and under law to
other stakeholders, for the stewardship of the Company’s assets and
for the generation and preservation of value over the longer term. This
means being responsible for the decisions that are made about how the
Company is funded and how its financial resources are invested. It also
means being responsible for: (i) reviewing management and financial
performance, (ii) how our business activities affect others (including the
environment), (iii) the level of risk the Board is prepared to take in order
to achieve strategic objectives and (iv) the way we conduct our business,
which is in compliance with all applicable laws and regulations and in
accordance with the expectations of our shareholders, stakeholders
and often the wider societies in which we operate.
In other parts of this Annual Report, we give an account of the financial
performance of the Company and our businesses, as well as the Group’s
performance in relation to health, safety and environmental matters.
Our Corporate responsibility report also describes other areas that
shareholders are increasingly interested in, such as workforce diversity,
wider human rights (including employment rights) and supply chain
matters. Core to all these areas are the values and standards set by the
Board and the policies and structures put in place so that all our activities
are appropriately managed, monitored and reported. Our culture – which
is one of performance, innovation, customer service, accountability and
responsibility, compliance, openness and transparency – is something
that is fostered by the Chief Executive, embedded throughout our
global operations and binds our values, standards, policies and
performance together.
example, in the Company’s Articles of Association. On a more practical level,
the directors also operate under agreed Board protocols and procedures,
such as: (i) the schedule of matters reserved to the Board for decision, (ii) the
role descriptions of the Chairman, Chief Executive and Senior Independent
Director and (iii) service contracts and appointment letters.
The Board is supported in carrying out its duties and responsibilities by
a number of Board Committees, with defined terms of reference and, of
course, an important aspect of effectiveness is the quality of the executive
and senior management team. Skills, knowledge, experience and
qualifications all contribute to the effectiveness of the Board and the
executive management team.
The primary groupwide governance document is our Group Code of Business
Conduct and Ethics which sets out in writing our values and the standards we
expect of our employees and third party contractors. This document, together
with other Group policies, govern how we conduct our business and the
standards and responsibilities expected of all our employees. Group policies
set the standards that drive performance. Compliance training and our culture
help to enforce this. Board oversight, business reviews and compliance audits
form part of the monitoring and supervision process.
Table 1 below provides a high level overview of the Elementis governance
framework and shows how the Corporate Governance Code’s main
principles have been applied.
Statement of compliance
The Board is of the view that it has applied fully throughout 2013 all of the
provisions of the UK Corporate Governance Code (both the 2010 and
2012 versions).
Effective governance starts at the top, with clear roles, responsibilities and
lines of reporting. Directors have to operate within applicable laws and
regulations, which include corporate governance rules. In addition, directors
have to operate within the mandate given to them from shareholders, for
Ian Brindle
Chairman
25 February 2014
Table 1 – Elementis governance framework: application of Corporate Governance Code main principles
Shareholders
Chairman
CEO (supported by
the management
team)
Board
Audit
Committee
Nomination
Committee
Remuneration
Committee
Leads the Board,
is responsible
for all aspects
of governance
arrangements and
provides advice and
support to the CEO
and Finance Director.
Manages the
businesses, develops
and executes
strategy, generates
and preserves
shareholder value,
fosters corporate
culture and monitors
risk and compliance.
Monitors the
integrity of the
financial statements,
disclosures, reporting
and controls, and
oversees the role and
work of the internal
and external auditors.
Provides strategic
oversight of
management,
business
performance and the
values and standards
for the Group, and
retains a formal
schedule of matters
reserved for its
decision.
Monitors Board
composition,
structure and overall
effectiveness and
is responsible for
carrying out annual
performance reviews,
succession planning
and making
recommendations
on new Board
appointments.
Sets the policy
for executive
remuneration,
determines and
monitors overall level
of remuneration and
makes awards under
all incentive plans
including setting
performance targets.
Leadership
Re-elect the
Board annually.
26
Elementis plc Annual report and accounts 2013 Shareholders
Chairman
CEO (supported by
the management
team)
Board
Audit
Committee
Nomination
Committee
Remuneration
Committee
Effectiveness
Hold the Board
to account for its
stewardship of
the Company
and its assets.
Ensures all aspects of
the Board’s operation
(including information
and support) and the
relationship between
executives and
non-executives are
effective, supported
by the Company
Secretary, policies
and procedures.
Operates a
transparent, no
surprises culture and
within a schedule of
delegated authorities;
reports regularly to
the Board to keep all
directors informed on
all key aspects of the
businesses: financial
performance, major
risks, opportunities
and compliance
issues, HSE
performance and
investor relations.
Programme of
meetings, operational
site visits, regular
presentations from
and interaction
with the businesses,
tailored induction with
annual performance
evaluation and
on-going training
and development
activities all help
Board members to
contribute effectively.
Clear terms of reference define roles and responsibilities, programme of
meetings support their work and all directors attend meetings so there is
total transparency and a collective understanding of all major issues.
No directors vote on
matters concerning
themselves.
Executive directors
do not decide/vote
on their own
remuneration or on
performance targets.
Accountability
Approve the Annual
Report & Accounts.
Regular contact with
and reports from CEO
and Finance Director.
Ensures programme
and processes
effective for keeping
the Board fully
informed on all
material aspects
of the Group’s
operations.
Oversight of
financial reports,
trading statements,
other market
communications,
principal risks and
uncertainties, and
compliance and
internal controls.
Report to the Board but Chairmen of Committees are accountable
to shareholders for the work of the Committees.
Remuneration
Give a binding vote
on the Remuneration
policy report and
an advisory vote
on the rest of
the Directors'
remuneration report.
Determines with the
executive directors
the level of fees for
the non-executives
and is consulted by
the Remuneration
Committee
over executive
remuneration.
N/A
N/A
N/A
Determines with
the Chairman the
level of fees for the
non-executives.
Determines the
level of executive
remuneration and
the Chairman’s fee
and consults with
the Chairman,
major shareholders
and shareholder
representative
bodies on executive
remuneration
proposals.
Shareholder engagement
AGM, meetings with
management and,
where necessary,
the Chairman or SID.
Maintains an
appropriate level of
engagement with
shareholders and, in
his absence or where
inappropriate, the
SID is available to
shareholders if they
have any concerns.
Maintains a
programme of
meetings with major
shareholders to stay
informed of investors’
views and ensures
appropriate relations
are kept with the
financial press and
market analysts.
Ensures processes
are in place for the
Board to be kept
informed of investors’
views and market
expectations;
alternative channels
exist for major
shareholders to raise
any issue of concern
with the Board.
Report to shareholders through the medium of the annual report and
also the platform of the AGM.
Consults major
shareholders and
their representative
bodies when
proposing changes
to executive
remuneration.
27
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013 Corporate governance report
continued
Board composition
As identified on page 24, the Board comprises 2 executive directors (Chief
Executive and Finance Director) and 4 non-executive directors (Chairman
and 3 other non-executive directors). The number of non-executives will
increase following the appointment of Andrew Duff on 1 April 2014.
Information about the executive directors’ service contracts with the
Company is set out in the Directors' remuneration report. 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.
Non-executive directors who do not meet independence requirements
under the Corporate Governance Code are appointed to hold office for
1 year at a time.
When Robert Beeston retired as Chairman on 31 July 2013, Ian Brindle was
appointed Chairman on 1 August 2013 until a more permanent replacement
was recruited. During this period, Ian Brindle was both the Chairman and
Senior Independent Director. When Andrew Duff becomes Chairman after
the AGM on 24 April 2014, Ian Brindle will continue in his role as the Senior
Independent Director. Further details about the non-executive directors’
terms of appointment (including fee levels) are set out in the Directors'
remuneration report. 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.
Board diversity
The Board’s policy on gender diversity 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. In respect of the
recommendations of the Davies Review into ‘Women on Boards’ in 2011,
the Board has not set a minimum target for the percentage of the Board
to be female. Since the Board is undergoing a refreshment process,
this position will be kept under review during 2014. Gender diversity
below Board level is discussed in the Corporate responsibility report.
Board independence
The Board considers all the non-executive directors to be independent
in character and judgement throughout 2013. The Board is satisfied
that each director exercises independent judgement and believes
no individual or group dominates decision making.
Board operation
As well as the summary in Table 1 on pages 26 and 27 the Board
maintains a schedule of matters reserved to itself for decision which
includes: approval of 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; and major legal
settlements and litigation. The Board reviews the business, financial and
operational (‘HSE’) performance of the Group at each of its formal meetings,
including major business initiatives, threats and opportunities, as well as
progress on product innovation and new customers.
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. If there are any unresolved matters concerning Board decisions,
of which there were none in 2013, these would be recorded in the minutes of
meetings. A programme exists to ensure new directors receive appropriate
induction tailored to their needs. A tailored programme of induction was
agreed with Anne Hyland on her appointment which included meeting the
internal and external auditors, members of the management and business
leadership teams, as well as the Company’s joint corporate brokers.
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.
Director attendance in 2013
Ian Brindle
David Dutro
Brian Taylorson
Andrew Christie
Anne Hyland
Kevin Matthews
Former directors
Robert Beeston
Chris Girling
Board
Audit
Committee
Nomination
Committee
Remuneration
Committee
8/8
8/8
8/8
8/8
5/5
8/8
3/5
4/5
4/4
–
–
4/4
3/33
4/4
–
2/3
6/61
–
–
6/6
4/4
6/6
2/3
2/3
–
–
–
8/82
5/5
8/8
–
4/5
1
2
3
Ian Brindle became Chairman of the Nomination Committee on 1 August 2013.
Andrew Christie became Chairman of the Remuneration Committee on
1 October 2013, a role previously held by Kevin Matthews until then.
Anne Hyland became Chairman of the Audit Committee on 1 August 2013,
a role previously held by Chris Girling until then.
Communications with shareholders
A formal programme of activities is maintained throughout the year
to ensure there is effective communications with shareholders, analysts
and the financial press that include stock exchange announcements,
investor meetings, the Annual Report and updates on the corporate
website. In addition, the AGM gives institutional and private shareholders
the opportunity to speak with the directors; the Chairmen of the Audit
and Remuneration Committees are available to answer questions.
The Board receives regular feedback reports from shareholders following
meetings with management in results and other investor roadshows.
Analysts’ forecasts and research reports about the Company and
the wider chemicals sector, as well as presentations and reports from
the Company’s joint corporate brokers, are provided to all directors
on 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
25 February 2014
28
Elementis plc Annual report and accounts 2013 Audit Committee report
Chairman’s letter
This is my first report to shareholders and relates principally to the year end
audit for 2013. In this introductory section, I provide a high level overview
of the work of the Audit Committee (the ‘Committee’) in relation to the three
principal areas of focus under the Corporate Governance Code:
• How, if any, significant accounting issues were considered
and addressed.
• Evaluation of the effectiveness of the auditors.
• The reappointment of the auditors and safeguarding their objectivity
and independence, particularly in relation to non-audit services.
A more detailed commentary on these and other areas is set out
elsewhere in this report.
Significant accounting issues
The primary areas of accounting judgement considered by the
Committee in relation to the 2013 financial statements are listed below:
• Provisions
The Committee reviewed a number of structural changes affecting the
calculation of environmental provisions recorded in the ‘Consolidated
balance sheet’. These included the expiration of a legacy indemnity
given to a third party, a gradual change in the duration of project
spending leading to a review of appropriate discount rates and progress
updates on a number of key projects. The Committee concluded that
several changes should be made to the calculation of environmental
provisions in 2013 and these are more fully described in Note 15 to the
‘Consolidated financial statements’.
• Assumptions used to value pension scheme liabilities
The Committee reviewed the assumptions used to value the liabilities of
the UK, US and Dutch defined benefit pension schemes, as well as the
US post retirement medical plan, which the Group’s actuarial advisers
for each plan considered to be appropriate given the characteristics of
each plan.
• Revisions to IAS 19 Accounting for Employee Benefits
The Committee reviewed the impact of the revised accounting
standard on the Group’s financial statements, with particular
emphasis on the new requirement to record pension plan
administration costs in the ‘Consolidated income statement’ at the
time those costs are incurred. The Committee considered the nature
of these costs as well as the main characteristics of the Group’s
relationship and interactions with its pension plans, noting that the
majority of them are legacy schemes. As a result, the Committee
concluded that shareholders and other stakeholders would gain a
clearer understanding of the Group’s performance if, in recording
pension administration costs in the ‘Consolidated income statement’,
these costs were not included in ‘Operating profit’ but rather shown
as a separate item described as ‘Other expenses’.
• Exceptional items
The Committee reviewed a number of items recorded in the
‘Consolidated income statement’ which it considered should be
separately disclosed because of their size, nature and incidence,
thereby providing the reader with a better understanding of the
financial information presented. It concluded that these items should
be shown separately in the ‘Consolidated income statement’ under
a column headed ‘Exceptional items’. Further details of these items
are included in Note 5 to the ‘Consolidated financial statements’.
partner and the senior manager at all four of its formal meetings but it is
the Finance Director and finance teams who have most exposure to the
audit team.
One part of the evaluation process therefore involves the impressions and
perceptions that are made and formed as a result of interactions between
the Committee and senior members of the audit team, as well as the views
and opinions of members of the management team. In addition to the
above, Committee members are able to obtain a better understanding of
the role and performance of the auditor through reviewing the quality of
the work and materials presented by the auditors, as well as its quality
and independence procedures. An important part of our process is the
annual audit evaluation questionnaire which all Group finance managers
are asked to complete and the result of which is then used by the
Committee to assess audit effectiveness. The questionnaire used is
the template produced by KPMG’s Audit Committee Institute which
considers comprehensively different aspects of the audit process.
Another way in which audit effectiveness can be monitored by the
Committee is Audit Quality Inspection reports published by the FRC.
The Committee considers the auditor’s performance to be satisfactory
and that the audit is effective as measured against their letter of
engagement and the scope of services agreed.
Audit reappointment, objectivity and independence
KPMG were appointed as the Group’s auditor in 2004 and its first audit
was in respect of the 2004 financial year, making the 2013 audit the firm’s
tenth consecutive audit. Due to the length of service an audit tender
was considered and it was concluded that a tender process was not
necessary at this time as, during its 10 years in office, KPMG has rotated 3
lead audit partners and one US audit partner, as well as the senior
manager and audit team leaders periodically (every 3 to 4 years). This
includes the appointment of a new lead audit partner in 2013.
Current guidelines suggest that the Committee should undertake an
audit tender process before 2018 (within 5 years of a change of partner).
The Committee will keep this position under annual review and intends
to carry out an audit tender process by 2018.
The comments concerning audit effectiveness also apply to audit
objectivity and independence. The Committee is of the view that the
auditors are objective and independent notwithstanding the level of
non-audit services provided. The Company’s policy on non-audit
services is more fully set out and explained in the next section.
Fair, balanced and understandable
The Board and the Committee have been briefed internally and by the
auditors on governance requirements for the Annual Report, taken
as a whole, to be fair, balanced and understandable. The Board and
Committee understand that ‘fair’ should mean reasonable and impartial,
‘balanced’ should mean even-handed in terms of being positive and
negative and ‘understandable’ should mean simple, clear and free from
jargon or unnecessary clutter.
The Board and Committee consider the Annual Report for 2013, taken
as a whole, to be fair, balanced and understandable, with appropriate
signposting and emphasis being made, throughout the various sections,
to assist shareholders understand the information and disclosures
contained within them.
Audit effectiveness
Judging the effectiveness of an audit can be a subjective matter, although
performance is evaluated according to objective criteria. As Chairman of
the Committee I meet with the audit partner frequently, including for both
audit planning and review meetings. The Committee meets the audit
Anne Hyland
Chairman, Audit Committee
25 February 2014
29
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013 Audit Committee report
continued
Information about the Committee
The composition of the Committee and biographical information about
each member is shown on page 24. Both Anne Hyland and Ian Brindle
are considered to have the necessary financial experience under
governance requirements and all Committee members are considered
to be independent. The table on page 28 shows the number of meetings
that were held in 2013 together with directors’ attendance records.
Figure 1
The Committee’s principal responsibilities are to:
• Monitor the integrity of Group financial statements and financial reporting
and related statements, as well as the clarity and completeness of
disclosures (including in narrative reports and governance statements
accompanying financial statements and related statements).
• Ensure the appropriateness of accounting policies, any changes
to them and any significant estimates and judgements made.
• Review the effectiveness of internal control, compliance and risk
management systems (including whistleblowing arrangements).
• Oversee all aspects of the relationship with the internal and external
auditors, such as their terms of appointment, the scope, manner
and programme of work, resourcing (where appropriate),
performance and effectiveness, independence and objectivity
(where appropriate) and dismissal.
A copy of the Committee’s terms of reference is available on the
Company’s website.
Operation of the Committee
An important aspect of the work of the Committee is the role of its
Chairman who maintains close relationships with the Finance Director,
General Counsel (who is also Chief Compliance officer) and both lead
partners from the internal and external auditors. Thus, as well as formal
meetings and presentations from these individuals to the Committee, the
Chairman of the Committee is able to discuss any matter on an individual
basis outside of formal meetings and report any issue to the Committee
as appropriate. Another relevant feature is that Committee meetings are
attended by all directors, as well as the external auditors, which helps
ensure transparency, share knowledge and improve understanding.
The Committee also meets with the external auditors once a year
without management being present.
While the Committee’s remit includes reviewing the effectiveness of the
internal control, compliance and risk management systems, the Board
retains responsibility for risk management – see 'Risk management
report' for further details. The Committee’s focus therefore is on financial,
operational and compliance risks and the internal audit function, which
is outsourced to PricewaterhouseCoopers (‘PwC’), plays a significant
role in the Group’s internal control process.
The Committee’s priorities are to monitor and keep under review our
internal control and risk management system which is designed for the
purposes of preventing material financial loss and fraud, safeguarding
the value of assets (including reputation) and ensuring compliance with
laws, regulations and Group policies.
The relationship between the Board, Audit Committee and management
is shown in Figure 1.
Internal control and risk management system
The Group’s internal control and risk management system is only
designed to manage, rather than eliminate, the risk of failure to achieve
business objectives and therefore the Board can only provide reasonable,
and not absolute, assurance against material mis-statement or loss.
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. No significant internal control failings
or weaknesses were reported last year so none is disclosed here.
30
Board
Sound internal control
and risk management systems
3
4
2
1
Audit Committee
Internal controls
Management team
Risk management
implementation/control
Key:
1 – Internal audit programme
2 – Oversight of Internal control and risk management system
3 – Risk review process
4 – Oversight of external auditors
Set out below is a summary of the key features of the Group’s internal
control system.
Control environment
The Group has policies and procedures that set out the responsibilities
of business and site management, including authority levels, reporting
disciplines and responsibility for risk management and internal control.
In addition annual compliance statements on internal control are certified
by each operating division.
Risk identification and review
A formal risk review process exists for the identification, evaluation and
monitoring of risks. See separate 'Risk management report'.
Financial reporting
The Group operates a comprehensive financial reporting system including
forecasts, consolidation and monthly reporting. Board reports include full
management accounts, comprising monthly and year to date profit and loss
statements, cash flow statements and balance sheet, with segmental and
individual business performance analyses, as well as relevant performance
indicators. 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.
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.
Elementis plc Annual report and accounts 2013 Programme of work
The table below summarises the Committee’s programme of work in
2013 and gives a descriptive account of how the Committee discharged
its responsibilities.
February
June
July
Reviewed the 2012 Annual Report (and associated press
release accompanying the preliminary results statement),
management representation letter to the auditors, internal
control and going concern statements, litigation and
compliance reports (including on whistleblowing), the
effectiveness, independence and objectivity of the auditors,
considered the year end tax report, approved the description
of the work of Committee in the Annual Report and
recommended the reappointment of the external auditors.
Reviewed half year report from the internal auditors (PwC)
including reporting arrangements, considered a risk
management report from management on business
continuity planning, considered the Committee’s activities
and the resources available to it and also training undertaken
by Committee members and discussed tendering of the
internal and external audit and tax adviser roles.
Reviewed the 2013 interim results announcement
(incorporating the management report and condensed
financial statements and notes), management
representation letter to the auditors and the half year
litigation, compliance and tax reports.
December Reviewed year end report from the internal auditors and the
effectiveness of the internal audit programme, approved the
reappointment of PwC as internal auditors and agreed fees
and a programme of work for 2014, considered the external
audit plan for 2013, reviewed the external auditors’ quality
control procedures, independence and objectivity,
considered their length of tenure, rotation of key partners
and the audit market, reviewed also the Group’s policy on
non-audit services and the level of expenditure incurred on
non-audit services with the external auditors and approved
the level of fees for and the letter of engagement with the
external auditors.
Internal audit programme
An internal audit programme is proposed by PwC in consultation with 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. The
programme covers the monitoring of the effectiveness of internal controls
and the design of processes to test the effectiveness of controls.
Controls assurance
The controls assurance framework at Elementis is threefold:
• Board leadership supported by an open and transparent culture
of ‘no surprises’, good governance and compliance. This means
knowing and understanding the businesses, quality interactions
between the Board, management and business leadership
teams (including a regular programme of presentations and
reports to the Board, as well as operational site visits).
Internal and external audit programme, regular litigation and
compliance reviews with the General Counsel and a programme
of compliance audits, regulatory inspections, environmental
reviews and property surveys by external specialists.
•
• Code of Business Conduct and Ethics in which all employees are
given training on and are required to self-certify compliance with,
supplemented by an online compliance training programme, an
anti-bribery and corruption policy, which contractors are also
required to sign up to, whistleblowing arrangements and an
anti-retaliation policy.
Non-audit services
In 2013, non-audit services of $0.6 million from KPMG were approved
by the Committee (2012: $0.8 million). These services consisted mainly
of tax advisory services in relation to the US, UK, the Netherlands,
Germany, China, Taiwan and Brazil. KPMG’s knowledge of the business
meant it could provide these services cost effectively and the safeguards
explained previously mean the Committee does not consider the
provision of these services to affect the auditor’s independence
and objectivity.
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 and may not be allowed to perform under the policy can
be found on the Company’s website under ‘governance/board
committees/related information’.
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.
31
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013 Nomination Committee report
The Chairman and members of the Nomination Committee (the
‘Committee’) are shown on page 24, together with their biographical
information. Six meetings were held during 2013 and the attendance
records of Committee members are shown on page 28.
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.
• Carried out a questionnaire based evaluation of the performance
of the Board, its Committees and individual directors (including any
training needs). The questionnaire was designed in-house and
feedback from the evaluation was discussed which concerned
mainly the Board refreshment programme and the Group’s strategy,
growth plans and business KPIs. Following this evaluation, the Board
considers that each director continues to perform effectively and
demonstrates appropriate commitment to his/her role. Shareholders
are therefore asked to support the election/re-election of all directors
at the AGM.
• Reviewed and approved a draft Chairman’s letter of appointment
and a list of topics and materials for inclusion in a tailored induction
programme for a new Chairman.
• Keeping succession planning for the Board and senior executive
• Discussed the progress on recruiting a new Chairman and made a
team under review.
recommendation to the Board on the appointment of a new Chairman.
The following is a description of the work of the Committee to show
how it has discharged its responsibilities in 2013:
• Discussed and made a recommendation to the Board on the
candidates for the role of Chairman of the Audit Committee.
• Held a meeting of directors without the executives present to
discuss the performance of the executive directors and the
strategic direction and priorities of the Company.
• Met to consider: (i) Robert Beeston’s retirement as Chairman,
(ii) plans for initiating a search for a new Chairman, including the
appointment of Korn/Ferry Whitehead Mann (‘Korn/Ferry’) to
assist in the process and (iii) approving a Chairman’s role
specification. The process was led by Ian Brindle who was the
Senior Independent Director prior to his appointment as Chairman
on 1 August 2014. Korn/Ferry has no connections with the
Company other than as the retained recruitment adviser.
• Received presentations from Korn/Ferry concerning a long-list
and short-list of potential Chairman candidates, discussed these
lists and selected from the short-list candidates for interview.
Shareholders may find the biographical information provided on page 24
useful to help them understand how a director’s background or
experience shapes or influences the contribution he or she makes to the
operation and effectiveness of the Board. This will also assist shareholders
in assessing the skills and experience of the Board, as a whole, when
determining how to vote on certain resolutions at the AGM.
As explained in my Chairman’s statement, further changes will be made
to the Board during 2014 and Korn/Ferry has been retained to assist the
Board in the process.
Ian Brindle
Chairman
25 February 2014
32
Elementis plc Annual report and accounts 2013
Directors’ remuneration report
Chairman’s annual statement on remuneration
Introduction
I am pleased to introduce the Directors’ remuneration report for 2013
which has been prepared on behalf of the Board by the Remuneration
Committee (the ‘Committee’).
As discussed elsewhere in this Annual Report, the Board is undergoing
a refreshment process that will likely lead to a review of our Group strategy
and how executive remuneration should be aligned with this strategy.
Accordingly, the Committee has decided to make only limited changes
this year, following a 3 yearly review flagged in last year’s remuneration
report and carried out with assistance from New Bridge Street. The
changes that are being implemented in 2014 concern mainly salaries
and pensions, whilst variable remuneration (annual bonus scheme and
long term incentive plan (‘LTIP’)) will be reviewed in 2014 and any change
in policy will be submitted to shareholders for approval at the 2015
AGM, after consultation with major shareholders and shareholder
consultative bodies.
Remuneration policy
The over-riding objective of the Committee in determining the Company’s
remuneration policy is to ensure that the Company can attract and retain
individuals of the highest calibre who individually and collectively
contribute to the long term success of the Group and the creation of
shareholder value. We are very aware that as an international company
with our operational headquarters in the US and operations throughout
the world, we are very often competing for talent in a global market where
remuneration practices may be different from the UK. This is especially
true for our US-based employees. The principles and values that underpin
our remuneration policy are applied on a consistent basis for all Group
employees, whilst recognising geographic differences in such an
international organisation.
There is a strong link between the remuneration policy and our business
strategy. In particular, the performance metrics used for the annual bonus
scheme and long term incentive plan are a subset of the Company’s key
performance indicators.
2013 overview
The Group delivered another year of solid financial performance in
challenging market conditions which will result in the executive directors
receiving bonus payments equal to 55.91 per cent of their basic salaries.
Under the LTIP, performance periods for the awards granted in 2011
ended in 2013 and the EPS and TSR measures were met in full.
Elementis delivered shareholder return over the three year period of
131 per cent, ranking the Company amongst the top 15 per cent of
companies in the FTSE All Share Index (excluding investment trusts).
EPS growth over the same period was 67 per cent. The Committee
believes that this reward outcome is fully justified based on the
Company’s performance over the period.
2014 policy changes
The following summarises the application of our remuneration policy in
the current year:
• A remuneration review was carried out last year to examine whether
our executive remuneration levels remain market competitive. For
our Chief Executive, who is a US national and is based in the US, this
required examining remuneration levels and practices in both the US
and the UK. Since the last review was carried out in 2010, the size of
the Company and the complexity of both the CEO’s and Finance
Director’s roles have increased considerably. Our market
capitalisation has increased by more than threefold from the time
of the last review to the end of 2013 and the performance of the
CEO has been critical to this improvement.
• The Committee has therefore awarded David Dutro a salary increase
of 10.8 per cent with effect from January 2014, to bring his salary
closer to market levels against other US-listed specialty chemicals
companies with a broadly similar level of turnover and market
capitalisation. The increased salary is also within the range for
CEOs of comparable UK companies.
• Based on our review, the Committee also decided to award
Brian Taylorson an increase (also for 2014) of 3 per cent which
is in line with the increase for the workforce as a whole.
• For the Chief Executive, variable pay opportunity is below market
against comparable US companies. However, in the light of the
pending Board changes mentioned, at this time the structure and
operation of the annual bonus scheme and LTIP for 2014 will remain
substantially the same.
• LTIP awards to be made will be subject to the same mix of
challenging EPS and TSR based performance conditions as the
awards made in 2013.
• The annual bonus scheme will also operate on the same basis as in
2013 except that a H1 bonus based on H1 performance will no longer
be included. In addition, the AWC metric (25 per cent weighting,
75 per cent being EPS) will be simplified for 2014, with a single target
figure for 100 per cent vesting under this metric as opposed to the
sliding scale that applied in previous years. The single target figure
will be based on prior year performance. The Committee has set the
target at a level that is consistent with the 2014 operating plan and
to encourage achievement of growth objectives.
• During 2013 Brian Taylorson opted out of future pension accrual under
the UK defined benefit pension scheme and, instead, received a cash
salary supplement. Following a review later in the year, the Committee
decided to simplify his pension provision and from 2014 he receives
an annual single cash supplement equivalent to the value of his
previous pension arrangements (74 per cent of his salary). This
commitment will last until the end of November 2015. Further details
are given on page 42.
• A 3 yearly review of fees for the Chairman and other non-executive
directors was also carried out last year which resulted in an increase
to the total amount of fees payable in 2014. This increase brings fees
up to a level commensurate with market practice, the size of Elementis
and the responsibilities and time commitment of the roles. The last
review was carried out in December 2010.
The Committee consulted with its major shareholders, the ABI and
ISS on changes to remuneration.
Your directors were very pleased to receive a significant level of support
for our Remuneration report from shareholders at last year’s AGM. We
hope you will vote for the two resolutions on the Directors’ remuneration
report (being a binding vote on the remuneration policy and an advisory
vote on the rest of this report) and thank you for your continuing support.
Andrew Christie
Chairman, Remuneration Committee
25 February 2014
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Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013
Directors’ remuneration report
continued
Remuneration policy report
Effective date and duration of remuneration policy
This part of the Directors’ remuneration report (the ‘Remuneration policy report’) sets out the remuneration policy for the directors of the Company that
is being put to a binding shareholder vote at the 2014 AGM. Subject to receiving majority shareholder support, this Remuneration policy report will be
effective from the date of approval at the AGM on 24 April 2014 and apply until shareholders next consider and vote on a new Remuneration policy report
which may be as early as the 2015 AGM as noted above.
Link between policy, strategy and structure
Our remuneration policy is principally designed to attract, motivate and retain the executive directors and business presidents to execute effectively our
corporate and business strategies in order to deliver our annual operating plans and sustainable year on year profitable growth, as well as to generate
and preserve value for our shareholders over the longer term, without encouraging excessive levels of risk taking. The principles and values that underpin
our remuneration strategy are applied on a consistent basis for all our Group employees. It is our policy to reward all employees fairly, responsibly and
by reference to local market practices, by providing an appropriate balance between fixed and variable remuneration.
The Committee’s policy is to adequately reward the directors if they meet or exceed the targets set under the variable components of their
remuneration packages.
The remuneration structure for executive directors is made up of two elements: fixed remuneration (consisting of basic salary, benefits (including for
example non-contributory health insurance and life assurance) and pension provision) and variable remuneration (annual bonus scheme and long
term share incentives).
Policy table
The information in the table below sets out the remuneration policy for the different elements that make up total remuneration applying to directors.
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
Formal salary review normally every three years, with benchmarking analysis utilised for reference
purposes against relevant market comparators as appropriate, taking into account the size of the
Company (revenue and market capitalisation), complexity of the roles (including changes to both
size and roles) and individual performance.
Annual salary increases that are broadly in line with the local workforce (in percentage of salary
terms), subject to Committee approval.
Increases beyond the average of those granted to the local workforce (in percentage of salary
terms) may be awarded in certain circumstances, such as where there is a material change in
responsibility or experience of the individual, to recognise exceptional performance over a
sustained period or a significant increase in the complexity, size or value of the Company.
Where new joiners or recent promotions have been placed on a below market rate of pay initially, a
series of increases above those granted to the local workforce (in percentage of salary terms) may
be given over the following few years subject to individual performance and development in the role.
Salaries are normally reviewed in December and any changes are effective from 1 January in the
following year.
Maximum potential value
There is no prescribed maximum for salary increases. The Committee will be guided by the
general increase for the local workforce and/or broader workforce as a whole, as well as the
circumstances listed above.
Salaries for 2014:
Chief Executive $850,000
Finance Director £328,364
34
Elementis plc Annual report and accounts 2013 Benefits
Purpose and link to Company’s strategy
To aid retention and to remain competitive in the marketplace.
Healthcare benefits in order to minimise business disruption.
Executive directors may also participate along with other employees in the Group’s HMRC
approved SAYE, or other equivalent savings based, share schemes to share in the success
of the Group.
How it operates in practice
Life assurance and private medical health insurance are provided.
Maximum potential value
Annual cash bonus scheme
Purpose and link to Company’s strategy
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.
Participation in all employee/savings based share option schemes as above.
In addition benefits in the US, where it is standard, include cover for dental costs,
accidental death and disablement, long term disability and club membership.
SAYE/savings-based schemes are subject to individual limits. These are $2,000 per month
in the US and in the UK up to the HMRC prescribed limit (currently £250 per month and from
April 2014 £500 per month).
Other benefits: the Committee will determine the level of benefit it considers as appropriate,
taking into consideration local market practice.
To incentivise the senior management team to exceed the annual operating plans approved
by the Board at the start of each financial year.
To ensure that a significant proportion of an executive’s total remuneration is based
on corporate/business financial performance that is linked to the Company’s annual
operating plan.
How it operates in practice
An annual cash bonus is earned based on over-performance against selected performance
measures which are linked to the Company’s key performance indicators.
Bonus payments are paid following the approval of full year results. Payments are based
on salaries at the time of payment.
The Committee may claw back bonuses paid that are later found to have been based on
performance that was mis-stated or incorrectly calculated.
Maximum potential value
1 times basic salary.
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continued
Remuneration policy report (continued)
Annual cash bonus scheme (continued)
Framework used to assess performance
Long term incentives
Purpose and link to Company’s strategy
How it operates in practice
Bonus is based on the achievement of challenging financial targets which are set 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.
The Company’s bonus is determined on performance against key performance indicators.
The bonus measures may include (and are not limited to):
• Earnings per share (‘EPS’) or other measures of profitability.
• Group average trade working capital to sales ratio expressed as a percentage (‘AWC’)
or other cash flow performance measures.
For profit related performance measures, targets are set at threshold, plan and stretch level
with bonus accruing from 0 per cent to 100 per cent (increasing on a straight line basis) for
performance between threshold and stretch.
The Committee keeps performance metrics under review on an annual basis to ensure they
continue to remain appropriate and has the discretion to amend the weighting. The precise
metrics chosen and weighting ascribed to each may vary, as detailed in the policy above, in
line with the Company’s evolving strategy. The profit related element of annual bonus shall
not be less than 50 per cent of total bonus opportunity.
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, business strategy and broader
interests of shareholders.
When granting awards under the LTIP the Committee generally takes into consideration
the need to motivate and retain the executive directors and other participants.
The number of options/conditional shares awarded, up to the maximum limit, is based on
the average mid-market closing price of a share on the date preceding the date of award.
Nil cost options or conditional shares are awarded annually. Options are exercisable 3 years
from, and within 10 years of, the date of award. Share awards vest on the 3rd anniversary of the
date of award.
Awards are subject to the achievement of challenging performance conditions and normally
subject to continued service over the vesting period.
Tax rules mean US participants will generally exercise and sell at least part of any options/
shares that vest on the date of vesting, in order to meet tax liabilities.
Maximum potential value
In the case of the Chief Executive, the maximum award is limited to 150 per cent of his basic
salary at the time of the award.
For other executive directors, the maximum value of any award under the LTIP is 1 times
an individual’s basic salary, plus up to 50 per cent of the Chief Executive’s basic salary
(fixed at its 2010 level but this base level is re-valued annually (on a compound basis) by
the same percentage increase each participant receives on his own basic salary in each
subsequent year).
36
Elementis plc Annual report and accounts 2013 Long term incentives
Framework used to assess performance
Awards are subject to achievement of financial (EPS, ROCE or any other relevant company
financial KPI) and/or relative TSR performance conditions measured over 3 financial
years beginning with the financial year in which the award is made. TSR will be measured
against a broad equity index, or a bespoke group of appropriate comparator companies.
In determining the target range for any financial measures that may apply, the Committee
ensures they are challenging by taking into account current and anticipated trading conditions,
the long term business plan and external market expectations. For any financial performance
condition, threshold vesting will start from 0 per cent and for any relative TSR performance
condition, threshold vesting will start at 3.85 per cent. In both cases this will increase on a
straight line basis with 100 per cent vesting for achieving the stretch targets, which for the
TSR performance condition will require at least upper quartile performance.
Pension
Purpose and link to Company’s strategy
To aid retention and remain competitive in the marketplace.
To provide appropriate retirement benefits commensurate with local market practice,
seniority of the role and tenure with the Company together with giving the executives
an opportunity to contribute to their own retirement.
How it operates in practice
Policy for new recruits is for a pension contribution and/or cash in lieu.
The policy for the current Chief Executive and Finance Director is set out below.
Group Chief Executive
David Dutro receives an annual salary supplement of 20 per cent of his basic salary as part
of his contractual entitlement and as a US employee he also participates in two defined
contribution schemes being: (i) a US 401(k) Plan, which is similar to a money purchase
scheme, and (ii) 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
pensionable remuneration over an annual compensation limit set by the US Internal Revenue
Service (2013: $255,000). 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.
Finance Director
Brian Taylorson receives a single annual salary supplement which broadly matches the
value of his previous pension provision.
Maximum potential value
The policy for new executives is for a company contribution of up to 30 per cent of salary.
Under the policy the maximum for the CEO is 20 per cent of his salary and up to 8 per cent
of pensionable remuneration depending on the amount of personal contributions made
into the Defined Contribution plans.
The maximum for the Finance Director, under the policy, is a salary supplement of
74 per cent of his salary until he reaches his 60th birthday. Thereafter, the Committee
will consider, as appropriate, a new arrangement in line with market practice at the time.
Legacy arrangements exist for existing employees.
37
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013 Directors’ remuneration report
continued
Remuneration policy report (continued)
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 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.
Non-executive Chairman and directors’ fees
Purpose and link to Company’s strategy
How it operates in practice
To attract individuals with the relevant skills, knowledge and experience that the Board
considers necessary in order to maintain an optimal mix that ensures 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 and
the time commitment and responsibilities of the role.
In the case of the Chairman, the fee level is determined by the 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 the board of a company of
a similar size and prestige as Elementis.
Fees are normally reviewed every 3 years with changes taking effect from 1 January
in the following year.
Fees are payable in cash and non-executive directors are not eligible to participate in any
pension, bonus or share incentive schemes. No individual is allowed to vote on his/her
own remuneration.
38
Elementis plc Annual report and accounts 2013 Choice of performance measures and approach to target setting
The performance metrics that are used for annual bonus and
long term incentive plans are a subset of the Company’s key
performance indicators.
In terms of annual performance targets, EPS is a clear measure of the
Company’s earnings growth, AWC encourages the most efficient use
of working capital and cash flow ensures earnings are turned into cash.
These metrics are aligned with the Company’s objectives and strategy.
With regards to long term performance targets, EPS growth or
ROCE targets may be used and these are aligned with the long term
levels of profitability and growth of the Company. A relative TSR
condition ensures that there is clear alignment between shareholders
and executives.
Where appropriate, targets are set based on sliding scales that take
account of internal planning and external market expectations for
the Company. Only modest rewards are available for delivering
performance at threshold levels or above with maximum rewards
requiring substantial out-performance of our challenging plans
approved at the start of each year.
The intended targets for awards to be granted under the Long Term
Incentive Plan in 2014 are consistent with the policy set out in the policy
table and are set out in the ‘Annual report on remuneration’ on page 42.
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.
Reward scenario analysis
Differences in executive remuneration policy compared to
other employees
The Committee is made aware of pay structures across the wider
Company when setting the remuneration policy for executive directors.
The Committee considers the general basic salary increase for the
broader Company and, in particular the UK and US based employees,
when determining salary increases for the executive directors.
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. Overall, the remuneration
policy for executive directors is more heavily weighted towards variable
pay than for other employees. This ensures that there is a clear link
between the value created for shareholders and the remuneration
received by the executive directors given it is the executive directors
who are considered to have the greatest potential to influence
shareholder value creation.
The level of variable pay varies by level of employee within the
Company and is informed by the specific responsibilities of each
role and local market practice as appropriate.
How the views of employees are taken into account
The Company does not actively consult with employees on executive
remuneration. The Group has a diverse workforce operating in nine
different countries, with various local pay practices, which would
make any cost effective consultation impractical. However, as noted
above, when setting the remuneration policy for executive directors,
the Committee takes into account the pay and employment conditions
for other employees in the Group. This process ensures that any annual
increase to the basic pay of executive directors is not out of proportion
with that proposed for other employees.
Chief Executive Officer
Finance Director
£’000
2,500
2,000
1,500
1,000
500
0
1,408
29%
19%
52%
2,089
39%
26%
35%
On-Target
Maximum
726
100%
Fixed
£’000
2,500
2,000
1,500
1,000
500
0
1,039
27%
16%
57%
1,489
38%
22%
40%
On-Target
Maximum
591
100%
Fixed
The tables above illustrate the potential pay opportunities for the executive directors under three different scenarios for 2014. The CEO’s remuneration
has been converted into pounds sterling using the average exchange rate for 2013 ($1.56:£1).
1. Fixed: Comprises fixed pay being the value of salary, benefits and pension (benefits and, for the CEO, the employer’s matching contribution to
Defined Contribution plans are included at their 2013 level).
2. On-Target: The amount receivable assumes performance in which 50 per cent of annual bonus is payable and 50 per cent of long term
incentive awards vest.
3. Maximum: the maximum amount receivable should all stretch targets be met and vesting under both the annual bonus scheme and LTIP is 100 per cent.
When valuing the LTIP options under the On-Target and Maximum scenarios, no account of any share price appreciation is taken into account.
39
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continued
Remuneration policy report (continued)
Recruitment policy
For executive director recruitment and/or promotion situations, the Committee will follow the policy outlined below.
Element
Policy
Basic salary
Basic salary levels will be set in accordance with the Company’s remuneration policy, taking into account the experience
and calibre of the individual (eg typically around market rates prevalent in companies of comparable size and complexity)
or salary levels may be set below this level (eg if the individual was promoted to the Board). Where it is appropriate to offer
a below market rate of pay initially, a series of increases to the desired salary positioning may be given over the following
few years subject to individual performance and development in the role.
Benefits
New directors may be entitled to benefits such as life assurance, private medical health insurance, cover for dental
costs, accidental death and disablement, long term disability, club membership and provision of either a company
car (for business and personal purposes) or a car allowance or any other appropriate benefit.
Where necessary the Committee may approve the payment of reasonable relocation expenses for a maximum period of
12 months to facilitate recruitment.
Pension
A company contribution into a pension plan and/or cash supplement of up to 30 per cent of salary.
Legacy pension arrangements for promotees which may include defined benefit or US style arrangements may
continue to operate on their existing terms.
Annual bonus
The annual bonus would operate as outlined for current executive directors, with the respective maximum opportunity,
albeit pro-rated for the proportion of the year served. Depending on the timing and responsibilities of the appointment
it may be necessary to set different performance measures and targets initially.
Long term incentives
Awards under the LTIP will be granted in line with the policy outlined for the current executive directors on an annual basis.
An award may be made shortly after an appointment (subject to the Company not being in a prohibited period). For an
internal hire, existing awards would continue over their original vesting period and remain subject to their terms as at the
date of grant. In addition, if the grant of awards for that individual precedes his or her appointment as a Board director for
that financial year, the Committee’s policy would include flexibility to top up awards for that year (subject to the overall
individual salary limit) based on the executive’s new salary.
Buy-out awards
In the case of external hire, if it is necessary to buy-out incentive pay or benefit arrangements (which would be forfeited
on leaving the previous employer), this would be provided for taking into account the form (cash or shares) and timing
and expected value (i.e. likelihood of meeting any existing performance criteria) of the remuneration being forfeited.
Replacement share awards may be granted using the Company’s LTIP (up to the individual limit) or outside of the LTIP
if necessary and as permitted under the Listing Rules.
Outside board appointments
The Company’s policy is to support an executive should they wish to take on
an external board appointment, provided that there is no conflict of interest
and any role does not interfere with the executive’s commitment or duties.
If an executive does take on an external appointment they may retain any fees
paid and will be restricted generally to only one such external appointment.
Service contracts
Executive directors’ service contracts contain a termination notice
period not exceeding 12 months.
Policy on payment for loss of office
For the existing executive directors, the terms covering termination were
agreed at the date their contracts were made. The Finance Director is
required, however, to mitigate his loss in the event of loss of office by
making efforts to secure a new position. Payments in lieu of notice to
both the Chief Executive and Finance Director may be reduced or ceased
if they secure a new position. In the case of the Chief Executive, the
payments will only be ceased if his salary in his new position is equal to
or more than his salary on termination; if not his monthly payments will
be reduced by the gross salary earned by the Chief Executive in his
new position each month.
Name
Date of contract
Notice period
David Dutro, CEO
Brian Taylorson, Finance Director
16 January 2007
5 June 2005
12 months
12 months
For any new appointments, it is the Company’s policy to follow current market
practice and preclude the inclusion of any payment (benefits, bonus or
pension) other than basic salary in the calculation of termination payments
40
Elementis plc Annual report and accounts 2013 (being one year’s salary) and a notice period of 12 months. Payments will
be phased on a monthly basis over the remaining notice period and the
Committee’s position is to ensure a director mitigates the loss to the Company.
If an executive director resigns or is dismissed LTIP awards lapse
and the Committee has no discretion under the rules.
Termination payments
Group Chief Executive
The maximum amount payable under David Dutro’s contract is basic
salary during his notice period (12 months) and any bonus he may be
eligible to receive for the period he was employed, subject to performance.
Alternatively the Company may pay compensation in lieu of the notice
period of a lump sum of 50 per cent of his basic salary, with up to a
further 50 per cent payable in six monthly instalments after six months
(in both cases pro-rated for the actual notice period). This would apply
if the Company terminates his contract for any reason other than for
cause or if he invokes a ‘good leaver’ reason for terminating his contract
(ie, upon a change of control in which the successor company is not
bound to honour his service contract).
Finance Director
The maximum amount that would be payable to Brian Taylorson for
payment in lieu of notice by the Company for any reason other than for
cause is an initial lump sum of 50 per cent of his basic salary and other
benefits described below and up to a further 50 per cent payable in a
lump sum after six months, subject to the Committee being satisfied that
reasonable efforts to secure a new position have been made during the
six months following termination. Other benefits comprise: (i) the sums
that would normally be payable to him in respect of his pension benefits
pro-rated according to notice period being given/served, (ii) the cost of
providing private medical insurance for him, his spouse and any children
under 21 for the 12 months following termination and (iii) his monthly car
allowance for a 12 month period.
The above summary only addresses contractual rights to payments in
lieu of notice, or during the relevant director’s notice period, and may not
reflect any settlement or compromise sums which are separately agreed
at the point of termination.
Committee discretion with regard to incentive plans
For any outstanding LTIP awards, these are governed by rules of the plan
and only in limited circumstances is discretion permitted. In such
circumstances, the Committee retains the use of discretion in its
administration of the LTIP as contained in the plan rules.
In the specific event of loss of office any discretion exercised would
depend on the circumstances at that time and the performance achieved
during the performance period. In the event of the death of an executive
director and an award has not yet vested the Committee, acting in its
absolute discretion, may determine vesting from maturity rather than
date of death. If an executive director ceases employment due to injury,
ill health, disability, redundancy, transfer out of the Group/sale of
business or retirement with employer’s consent and an award has not
yet vested the Committee, acting in its absolute discretion, may allow
early vesting at the date of cessation rather than at date of vesting.
All such awards would still be subject to performance conditions, which
the Committee may not waive, as well as pro-rating for time which the
Committee, acting fairly and reasonably, may waive in part or in full if
it considers acting fairly and reasonably it is appropriate to do so.
Similar provisions apply in the event of a change of control, with
performance measured up to the date of the relevant event and
normally scaling back pro rata for time.
It is the Committee’s policy to exercise these discretions in a way that
would be in the best interests of the Company and depending on the
individual circumstances of each case.
The Company operates an annual cash bonus scheme in which
participation and payments are made subject to the discretion of the
Committee. However, under his service contract, the Chief Executive
may be eligible to receive a bonus relating to the Company’s financial
performance during his 12 month notice period, provided all performance
conditions have been met. Where the Committee has any discretion, its
policy is to exercise any discretion in the Company’s best interests and
depending on the individual circumstances of each case.
Legacy matters
Once adopted, this Remuneration policy report will apply from the date
of approval by shareholders at the 2014 AGM. However, legacy awards
or other commitments, including those made prior to 27 June 2012 but
not modified or renewed after that date, to current or former directors
may still be paid notwithstanding that they have only been incorporated
by reference and not been fully described in this Remuneration policy
report. These legacy awards and commitments comprise the LTIP awards
made in 2012 and 2013, as more fully described in the ‘Annual report
on remuneration’.
Non-executive directors’ terms of appointment
Non-executive directors are appointed for a three year term, subject to
annual re-election by shareholders. For non-executive directors who have
served for nine years or more, they may be appointed for a further year at a
time. Each letter of appointment 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
his/her own remuneration.
The table below provides further details of the letters of appointment
that the non-executive directors held with the Company during 2013.
Name
Non-executive directors
I Brindle1
A Christie
A Hyland
K Matthews2
Past directors
R Beeston3
C Girling3
Date of
appointment
Date of last
reappointment
Date of
expiry
06/06/05
11/08/08
01/06/13
16/02/05
06/06/11
11/08/11
N/A
16/02/14
05/06/14
10/08/14
31/05/16
15/02/15
21/09/06
29/04/05
21/09/12
29/04/11
N/A
N/A
1
2
Subject to his re-election at the 2014 AGM, it is intended that Ian Brindle
will be reappointed for another year from 6 June 2014.
Kevin Matthews’ letter of appointment expired on 15 February 2014
and he was reappointed for a further 1 year term.
3 Retired on 31 July 2013.
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.
Shareholder engagement
The Committee encourages dialogue with the Company's shareholders
and would consult with major shareholders ahead of any significant future
changes to remuneration policy. Major shareholders and shareholder
representative bodies were consulted on the changes summarised in
the ‘Chairman’s annual statement on remuneration’.
41
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013 Directors’ remuneration report
continued
Annual report on remuneration
This Annual report on remuneration shows how the Company’s policies
and practices on directors’ remuneration will be applied in 2014 and
how they were applied in relation to payments in respect of the financial
year ended 2013. This report and the Chairman’s annual statement on
remuneration will be put to an advisory shareholder vote at the 2014 AGM.
Annual bonus
For the year to 31 December 2014, the maximum bonus opportunity
for executive directors will remain unchanged at 100 per cent of basic
salary. The following describes how the scheme is applied to the
executive directors.
Implementation of remuneration policy for 2014
This first section of the Annual report on remuneration describes how the
Committee intends to implement the remuneration policy for the financial
year ending 31 December 2014.
Basic salaries
The Committee considered carefully salary increases for 2014 and it
was decided to increase David Dutro’s salary to $850,000. The increase
reflects the significant increase in size and complexity of the business,
the strong performance of our Chief Executive and his criticality to the
success of the Company. Reflecting the global workplace from which we
recruit our top talent, particularly the US influence, the new salary brings
David Dutro closer to market levels. The Committee also decided to award
Brian Taylorson with a salary increase of 3 per cent which is in line with
the levels of increases across the Group as a whole.
David Dutro
Brian Taylorson
Salary as at
1 January 2014
Salary as at
1 January 2013
$850,000
£328,364
$767,112
£318,800
Increase
10.8%
3.0%
Pension and benefits
For the year to 31 December 2014, David Dutro will continue to participate
in the pension arrangements and receive the same benefits as for 2013 as
set out in the ‘Remuneration policy report’.
Brian Taylorson will receive a salary supplement of 74 per cent of his basic
salary in lieu of any other pension benefits. His other benefits for 2014 will
be the same as that for 2013 as set out in the ‘Remuneration policy report’.
Background to changes to Brian Taylorson’s pension provision
During 2013 the Committee agreed to changes in Brian Taylorson’s
pension arrangements. In making the changes, the Committee
considered the commitment that was made to him when he became
Finance Director in 2002 and sought to maintain a benefit that is broadly
comparable, whilst fixing the liability of the Company. From 2014 onwards
his provision was replaced with a single cash salary supplement of
74 per cent of his basic salary which is equivalent to the value of the
previous arrangements.
The new arrangement will run for less than two years, in line with his
previous arrangements, until the end of November 2015 when he
reaches his 60th birthday. Shareholders are asked to support this change
because the new arrangement is more transparent, clearer and simpler
to understand and removes any element of risk or uncertainty as to how
the previous salary supplements were to be calculated.
Relevant to the above is that the Committee had agreed to an interim
adjustment to Brian Taylorson’s pension provision during 2013. From
1 September 2013 he voluntarily opted out of future accrual under the
UK defined benefit pension scheme and instead received a monthly
salary supplement equivalent to the pro-rated annual IAS 19 cost to the
Company of funding his accrued pension (reduced for employer NIC)
had he remained in the pension scheme. This change was cost neutral
to the Company. The change to a single salary supplement for 2014
replaces both this interim adjustment and the previous salary supplement
for earnings above the former HMRC cap that was in place prior
to 2002. These amounts are set out and explained clearly in the
‘Directors’ retirement benefits’ table that follows.
42
Any bonus will be payable dependent on the achievement of EPS
(75 per cent) and AWC targets (25 per cent). 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 above the prior year out-turn.
Bonus accrual (as a percentage of basic salary) is linear between
threshold and stretch.
The AWC condition for 2014 has a single target figure based on prior
year performance which if met results in 100 per cent of the bonus
subject to that condition vesting, except that the AWC condition
would only be operative if the EPS target at plan level has been met.
Bonus payments are based on salaries at the time of payment and will
be determined by reference to performance against the full year targets.
The Committee considers that the targets themselves are commercially
sensitive and therefore plans to disclose them only on a retrospective
basis. Full details of the targets and actual out-turn will be disclosed in
next year’s Directors’ remuneration report.
All employee share plans
Executive directors will be entitled to participate in any all employee share
plans on the same terms as any other eligible employee.
LTIP
For the year to 31 December 2014, the CEO’s award will be 150 per cent
of basic salary. The Finance Director’s award will be 100 per cent of
salary plus 50 per cent of the CEO’s 2010 salary uplifted for any annual
salary increases that he has received since then (which in total for his
2014 awards will be approximately 174 per cent of his salary).
The performance targets that are intended to apply to the awards to be
granted in the current year are the same as for 2013 as set out below.
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).
Vesting schedule: EPS performance condition
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.
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
Average EPS growth above RPI (% p.a.)
Elementis plc Annual report and accounts 2013 Vesting schedule: TSR performance condition
Percentage of award subject to TSR performance vesting
110
100
90
80
70
60
50
40
30
20
10
0
100% vesting at Upper quartile or better
No vesting below Median
3.85% vesting at Median
Median
Upper quartile
Elementis’ position relative to the FTSE All Share Index (excluding investment trusts)
Remuneration payable to directors for 2013
Non-executive directors’ remuneration
Following a 3 yearly review of fees, increases were awarded from 2014
to bring these to a level commensurate with the size of the Company, the
responsibilities and time commitment of the roles involved and in line with
market practice.
For the year to 31 December 2014, the fees payable to the Chairman
and non-executive directors will be as follows:
Chairman
Non-executive director
Additional fees:
Senior Independent Director
Chairman of Audit or Remuneration Committee
2014
£
175,000
46,000
8,000
8,000
2013
£
137,150
40,000
5,000
5,000
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.
A breakdown of the directors’ emoluments for the year ended 31 December 2013 is set out in the table below:
£'000
Executive directors
David Dutro1
Brian Taylorson2
Non-executive directors
Ian Brindle3 (Chairman)
Andrew Christie4
Anne Hyland5
Kevin Matthews4
Past directors
Robert Beeston6
Chris Girling7
Total
Total
Year
Fixed
Sub-total
Performance related
Sub-total
Total
Salary/fees
Benefits
Pension
Bonus
LTIP
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
492
468
319
310
83
45
41
40
25
–
44
45
80
137
26
45
1,110
1,090
23
22
19
18
–
–
–
–
–
–
–
–
–
–
–
–
146
148
251
248
–
–
–
–
–
–
–
–
–
–
–
–
42
40
397
396
661
638
589
576
83
45
41
40
25
–
44
45
80
137
26
45
1,549
1,526
305
388
184
257
1,142
2,534
870
1,969
1,447
2,922
1,054
2,226
2,108
3,560
1,643
2,802
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
489
645
2,012
4,503
2,501
5,148
83
45
41
40
25
–
44
45
80
137
26
45
4,050
6,674
Notes
1
David Dutro as Group Chief Executive, who is based in the US and receives his salary in US dollars, received a salary of $767,112 (2012: $744,769). His pension comprises
20 per cent of his salary and employer contributions to defined contribution pension schemes.
Brian Taylorson’s pension comprises salary supplements paid as compensation for the limitation of pension rights to the former HM Revenue and Customs’ earnings cap and a
pro-rated amount in lieu of future accrual under the UK defined benefit scheme (‘DB scheme’), as well as the pro-rated amount of accrued pension in the year valued using the
HMRC method (accrued benefit net of inflation times a factor of 20 less member’s contributions).
Ian Brindle, who was appointed Chairman on 1 August 2013, received seven months of his non-executive director fee (£40,000 p.a.) and Senior Independent Director fee (£5,000
p.a.) and five months of the Chairman’s fee (£137,150 p.a.).
Andrew Christie replaced Kevin Matthews as Chairman of the Remuneration Committee on 1 October 2013 and their fees reflect their non-executive director fee and the additional
Committee Chairman fee on a pro-rated basis.
Anne Hyland joined the Board on 1 June 2013 and was appointed Chairman of the Audit Committee on 1 August 2013. Her fees reflect her non-executive director fee and
additional fee as Chairman of the Audit Committee on a pro-rated basis.
2
3
4
5
6 Robert Beeston, who retired from the Board on 31 July 2013, received seven months of the Chairman’s fee (£137,150 p.a.).
7
Chris Girling retired from the Board on 31 July 2013 and his fee reflects his non-executive director fee and additional fee as Chairman of the Audit Committee on a pro-rated basis.
43
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013 Directors’ remuneration report
continued
Annual report on remuneration (continued)
Determination of annual bonus outcome for performance in 2013
This section shows the performance targets set in respect of the 2013 annual bonus scheme, the level of performance achieved and the resultant
payments to directors. In 2013, as in prior years, the bonus targets were tested against the half year and full year results. The H1 bonus payment
would ordinarily be paid in August and the full year bonus payment, which takes into consideration any H1 bonus already paid, will be paid in
March 2014. The maximum full year bonus opportunity is 100 per cent of basic salary and the maximum H1 bonus is restricted to 35 per cent of
the full year amount. As explained earlier, from 2014, the bonus will be determined on the basis of the full year results only.
Full year bonus
EPS (cents)
AWC (%)
Total full year payment
H1 bonus
EPS (cents)
AWC (%)
Total H1 payment
FY 2013 bonus
plan targets
Bonus received as % of
basic salary
Threshold
23.3
20.00
–
Plan
23.6
19.50
–
Stretch
26.1
19.00
–
Actual
result
25.4*
20.40
Chief
Executive
55.91%
nil%
Finance
Director
55.91%
nil%
–
55.91%
55.91%
H1 2013 bonus
plan targets
Bonus received as % of
basic salary
Threshold
12.2
19.8
–
Plan
12.2
19.3
–
Stretch
13.7
18.8
–
Actual
result
12.5*
20.20
–
Chief
Executive
Finance
Director
nil%
nil%
nil%
nil%
nil%
nil%
Relative
weighting of
performance
conditions
75%
25%
100%
Relative
weighting of
performance
conditions
75%
25%
100%
* The 2013 threshold, plan and stretch targets for H1 and the full year disclosed are as originally set and have not been restated for the impact of revised IAS 19. However,
in order that the performance measurement can be made on a consistent basis, following the adoption of revised IAS 19, the actual result for 2013 has been adjusted
from 23.0 cents to 25.4 cents. No payment was made for H1 performance and the result shown has also been restated from the H1 reported number of 11.3 cents.
See page 13 in the Finance report under ‘Other expenses’ and page 29 in the Audit Committee report under ‘Significant accounting issues’.
Bonus payments under both performance conditions increase on a linear basis with 0 per cent payable for threshold performance and 100 per cent
for stretch performance. No discretion other than to adjust for revised IAS 19 (which was agreed at the time the targets were set last year) was exercised
in respect of the above payments and there are no deferral requirements under the bonus scheme rules.
44
Elementis plc Annual report and accounts 2013 Directors’ share based awards
Determination of 2011 LTIP awards
The awards made in 2011, shown in the table on page 46 headed ‘Directors’ share and scheme interests’, have a vesting date of 4 April 2014.
The performance conditions (EPS and TSR, split 50:50) relate to performance over the three financial years ended 31 December 2013. Under
the EPS condition, all of the awards subject to that condition would have vested in full if EPS grew during the three financial years ended 2013 by
RPI + 10 per cent p.a. or more. Under the TSR condition, all of the awards subject to that condition would have vested 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 2013 was at or above
upper quartile. Over the performance period, the Company’s EPS grew by 67 per cent and its TSR performance was 131 per cent which placed it
in the top 15 per cent of companies in the FTSE All Share Index. Accordingly, all of the 2011 awards have achieved the maximum performance
threshold and, subject to continued employment, will vest in full on 4 April 2014. For the purpose of the calculation of the LTIP component of the
total remuneration figure in the table on page 43, the awards have been valued using the average mid-market closing share price for the three months
period from 1 October 2013 to 31 December 2013.
LTIP awards granted in the year
LTIP awards made in 2013 are set out in the table below and are subject to EPS and TSR performance conditions (split 50:50) over the three years
to 31 December 2015. The vesting schedule and the performance conditions are the same as for the awards to be made in 2014 as shown on
pages 42 and 43.
Type
of share
award
Nil cost
option
Nil cost
option
David Dutro
Brian Taylorson
Number
of awards
Face value of
award at grant
£’000s1
Grant date
Percentage that would vest
at threshold performance
The end date of
the performance
period
A summary of
performance targets
and measures
02.04.13
289,750
755
02.04.13
214,398
559
0% of the award subject to the EPS
condition and 3.85% of the award
subject to the TSR condition
0% of the award subject to the EPS
condition and 3.85% of the award
subject to the TSR condition
31.12.15
As above
31.12.15
As above
1
For David Dutro this equates to 150 per cent of basic salary and for Brian Taylorson this equates to 100 per cent of his basic salary plus 50 per cent of the CEO’s 2010
basic salary (re-valued for annual increases to his own salary). For further details, see page 36 of the Remuneration policy report. The share price used to determine the
number of awards granted was 260.70p being the average mid-market closing share price on the dealing day preceding the date of grant.
Details of awards in savings-based share schemes are shown in the table overleaf.
Sourcing shares for our share plans
Employee share plans comply with ABI guidelines on dilution which provide that overall issuance of shares under all plans should not exceed an amount
equivalent to 10 per cent of the Company’s issued share capital over any ten year period, 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, the Company’s headroom for all plans is 5.2 per cent
and for discretionary plans 4.2 per cent of issued share capital.
45
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013 Directors’ remuneration report
continued
Annual report on remuneration (continued)
Directors’ share and scheme interests
The interests of the persons who were directors during the year in the issued shares of the Company were:
Executive directors
David Dutro
Total scheme interests
Brian Taylorson
Total scheme interests
Executive directors
David Dutro
Brian Taylorson
Non-executive directors
Ian Brindle
Andrew Christie
Anne Hyland
Kevin Matthews
Past directors
Robert Beeston3
Chris Girling3
Interest
type
Grant date
A
A
A
B
B
B
B
A
B
B
B
B
26.08.2011
30.08.2012
23.08.2013
22.04.2010
04.04.2011
26.06.2012
02.04.2013
01.10.2009
22.04.2010
04.04.2011
26.06.2012
02.04.2013
Option
price
(p)
119.34
184.62
227.55
–
–
–
–
35.52
–
–
–
–
Scheme interests
Granted
during
2013
Exercised
during
2013
Lapsed
during
2013
–
–
2,722
–
–
–
289,750
4,9291
–
–
988,1491
–
–
–
–
–
–
–
–
–
–
01.01.13
4,929
13,144
–
988,149
451,350
359,846
–
31.12.13
–
13,144
2,722
–
451,350
359,846
289,750
1,817,418
292,472
993,078
– 1,116,812
43,778
768,103
343,951
273,693
–
–
–
–
–
214,398
–
768,1032
–
–
–
1,429,525
214,398
768,103
Share interests
Interest
type
C
C
C
C
C
C
C
C
01.01.13
294,912
331,096
31,172
10,000
Nil
11,633
50,000
5,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Vested but
unexercised
share
options
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Guideline
holding4
met as at
31.12.13
Yes
Yes
N/A
N/A
N/A
N/A
N/A
N/A
–
–
–
–
–
–
–
–
–
–
–
–
–
–
43,778
–
343,951
273,693
214,398
875,820
31.12.13
299,841
400,000
31,172
10,000
10,000
11,633
50,000
5,000
A. Savings based share options schemes are not subject to performance conditions. David Dutro’s options are held under the US sharesave scheme and would ordinarily
vest on the second anniversary of the grant date and expire three months thereafter. During 2013 he was granted 2,722 savings based options. The option price shown is
based on the mid-market closing share price on the date of grant, giving a face value of £6.2k. The options granted to Brian Taylorson in 2009 are five year options held
under the UK SAYE scheme and would ordinarily vest on the fifth anniversary of the grant date and expire six months thereafter. Further details on these schemes are
show in Note 24 to the ‘Consolidated financial statements’ on page 85.
B. LTIP awards are subject to performance conditions. The same EPS growth and relative TSR performance conditions apply in respect of the awards made in 2011, 2012 and
2013, as described in the Remuneration policy report. These options ordinarily vest on the third anniversary of the grant date and would expire on the tenth anniversary.
C. Interest in shares, including of connected persons.
1
David Dutro retained 4,929 shares (2012: 30,688) following the exercise of savings based share options in 2013. The price on the date of exercise was 252.10 pence
per share with a notional gain of c. £6.5k. In addition, he exercised and sold 988,149 shares granted under the LTIP in 2010 which vested in full at a price of 252.23 pence
per share, with a pre-tax gain of c. £2.5m.
Brian Taylorson retained 68,904 shares (2012: nil) following the exercise and partial sale of 768,103 shares also granted under the LTIP in 2010 which vested in full.
The price on the date of exercise was 252.23 pence per share with a pre-tax gain on the shares sold of c. £1.76m and a notional gain on the shares retained of c. £0.17m.
2
3 Shares shown are held from the beginning of the year up until the date of their retirement on 31 July 2013.
4 Guideline holding is one times salary.
The market price of ordinary shares at 31 December 2013 was 268.9 pence (2012: 232.5 pence) and the range during 2013 was 210.2 pence to
275.0 pence (2012: 135.1 pence to 240.3 pence).
As at 25 February 2014, the Trustee of the Company’s Employee Share Ownership Trust (‘ESOT’) held nil shares (2012: nil). 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.
46
Elementis plc Annual report and accounts 2013 As at 25 February 2014, 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 2013 and 25 February 2014 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.
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.
The amount shown for David Dutro under defined contribution plans reflects total employer contributions in 2013. The amounts paid under these plans
were £47,460 (2012: £53,848) equivalent to 6.0 per cent (2012: 6.3 per cent) of his total pensionable remuneration in 2013. The payment of a salary
supplement is explained in the ‘Remuneration policy report’ on page 37. In addition, as a US salaried executive director, David Dutro participated in the
Elementis Career Reward Retirement Plan (‘ECRRP’) for US employees. On 1 May 2006, the plan was frozen (closed to future accruals). The ECRRP
is a cash balance retirement plan 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. David Dutro’s accrued benefits under this plan are also shown in the table. David Dutro’s normal retirement date under all his pension
arrangements is 65. The normal pensionable retirement age under the DB scheme for Brian Taylorson is 60.
Directors’ retirement benefits
Defined
contribution plans
Salary supplements
Defined benefit schemes
Contractual
HMRC notional
earnings cap
2013
£’000
2012
£’000
2013
£’000
2012
£’000
David Dutro
Brian Taylorson
47
–
54
–
99
291
94
–
2013
£’000
–
1522
2012
£’000
–
160
Accrued
benefits
31.12.13
£’000
Accrued
benefits
31.12.12
£’000
9
55
9
50
Increase in
accrued
benefits (net
of inflation)
2013
£’000
–
4
Pension
related
benefits to
be included
in total
remuneration
2013
£’000
–
703
Pension
benefit if
director
retires early
2013
£’000
9
43
1
This salary supplement is in lieu of future accrual under the UK DB scheme from 1 September 2013 and is equivalent to the IAS 19 cost (adjusted for employers’ NIC) to
the Company of funding his accrued pension in the year had he not opted-out of future accrual and the amount shown is pro-rated for the four month period (£29,280).
2 This amount relates to the limitation of pension rights due to the former HMRC’s notional earnings cap equating to the pre-tax value of 44 per cent of basic salary.
3
The accrued benefit under the DB scheme in the year is valued using the HMRC method (accrued benefit net of inflation times 20, less member contributions) to
give £69,530 and added to the salary supplements (£152,276 and £29,280) to arrive at the total pension benefit (£251,086) for Brian Taylorson in the ‘Directors’
remuneration table’ on page 43. The same methodology has been used to provide the comparative pension figure for 2012 in that table.
Total shareholder return performance and change in CEO’s pay
The graph below illustrates the Company’s total shareholder return for the five years ended 31 December 2013, relative to the FTSE 250 Index, along with a table
illustrating the change in CEO pay over the same period. The table also details the varying award vesting rates year on year for the annual bonus scheme and LTIP.
As the Company’s shares are denominated and listed in pence, the graph below looks at the total return to the end of 2013 of £100 invested in Elementis on
31 December 2008 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.
TSR performance (rebased to 100)
(£)
1000
900
800
700
600
500
400
300
200
100
0
Key
2008
2009
2010
2011
2012
2013
Elementis plc
FTSE 250 Index
CEO pay (total
remuneration – £'000)
Annual bonus award against
maximum opportunity
LTIP vesting against
maximum opportunity
2009
2010
2011
2012
2013
5761
1,031
2,964
3,560
2,108
0% 100% 100% 81.25% 55.91%
88%1
0%2
100% 100% 100%
1
2
Prior to being appointed CEO in 2007 David Dutro as COO was awarded ESOS
options in 2006 which vested in part in 2009 (as shown). However, these options
were underwater on the vesting date so have been valued at nil in line with FRC
Lab guidelines.
This also relates to ESOS options that were awarded to David Dutro in 2007
which all lapsed due to performance conditions not being met.
47
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013 Directors’ remuneration report
continued
Annual report on remuneration (continued)
Relative importance of the spend on pay
The table below shows the total remuneration paid across the Group
together with the total dividends paid in respect of 2013 and the preceding
financial year.
Remuneration against distributions
Remuneration paid to all employees
(see Note 8 to the ‘Consolidated
financial statements’)1
Total dividends paid in the year
2013
£million
2012
£million
change
67.1
38.02
62.1
20.5
8%
85%
Other information about the Committee’s membership
and operation
Committee composition
The Chairman and members of the Committee are shown on page 24,
together with their biographical information. Eight meetings were held
during 2013 and the attendance records of Committee members are
shown on page 28. 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.
1
The amounts for 2013 and 2012 have been converted from dollar into
pounds sterling using the average $:£ exchange rate for those years.
2 2013 includes a special dividend payment of $22 million (£14.4 million).
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.
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.
During 2013 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. This was reviewed again last year
and as a result they were retained as advisers. 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
2013 amounted to c.£40,000 for advisory services mainly in connection with
the review of executive remuneration, non-executive directors’ fees and the
Director’s remuneration report for compliance with the new regulations.
Auditable sections of the Directors’ remuneration report
The sections of the ‘Annual report on remuneration’ that are required to
be audited by law are as follows: ‘Remuneration payable to directors for
2013’ and ‘Retirement benefits’; and tables headed ‘LTIP awards granted
in the year’, ‘Directors’ share and scheme interests’ and ‘Directors’
retirement benefits’.
Percentage change in CEO’s pay
The following table shows the change from 2012 to 2013 of the CEO’s pay
with regard to the three elements set out below and the corresponding
change in these elements across all employees within the Group.
% Change from 2012 to 2013
Salaries
Benefits
Bonus*
CEO pay (total remuneration)
All employees
3
8
5
8
(21)
8
* change in bonus relates to payments in respect of the relevant financial years
Statement of shareholder voting
The resolution to approve the 2012 Directors’ remuneration report was
passed on a show of hands at the Company’s last AGM held on 25 April
2013. Set out in the table below is the votes cast by proxy in respect of
that resolution.
Approval of Directors’ remuneration report for 2012
Votes for
% For
Votes against
% Against
Votes withheld
346,299,708
99.73%
938,723
0.27%
2,357,277
48
Elementis plc Annual report and accounts 2013 Directors’ report
Report and financial statements
The directors submit their report and the audited financial statements
for the year ended 31 December 2013.
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 responsibility report.
This Directors’ report includes the Corporate governance reports from
page 26 to 48.
Strategic report, future development, GHG emissions and R&D
The ‘Strategic report’ which the Company is required under law to prepare
can be found on pages 2 to 23. That report also includes information
required in this Directors’ report about: (a) future developments in the
business of the Group and (b) greenhouse gas emissions.
The Group undertakes, on a continuing basis, R&D activities for new
products and to improve existing products.
Takeover directive disclosures
The management report, for the purposes of the UK Listing Authority’s
Disclosure and Transparency Rules, comprises the following sections:
the ‘Strategic report’, this Directors’ report, the ‘Directors’ responsibility
statement’ and the biographical information on the directors on page 24.
Dividend
Details about the final dividend for the year, as well as a special
dividend, are disclosed in the Chairman’s statement on page 2.
Directors and their share interests
The directors of the Company who served during 2013 were Robert
Beeston, Ian Brindle, Andrew Christie, David Dutro, Chris Girling, Anne
Hyland, Kevin Matthews and Brian Taylorson. Anne Hyland joined the
Board on 1 June 2013 and Robert Beeston and Chris Girling retired from
the Board on 31 July 2013. Otherwise, all of the directors served on the
Board throughout the financial year. Biographical information about each
director as at the year end is shown on page 24.
The interests of directors in the share capital of the Company are set
out in the ‘Directors' remuneration 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.
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 85.
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 $54.1 million and also
had access to a syndicated revolving credit facility of $100 million, which
expires in October 2018. There is a mechanism in the agreement for the
facility to be increased by a further $100 million subject to other terms.
Under the borrowing facility, the Group has to perform covenant tests for
net debt:EBITDA ratio, interest cover and net worth. No breaches in the
required 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.
After evaluating the covenant compliance modelling and the trading of the
businesses, the directors are satisfied that the Group and the Company
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 92.
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 2013 the Trust held no shares in the Company (2012: nil).
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.
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.
49
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013 Political donations
The Group made no political donations during the year (2012: 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’ conflicts of interest
Since 2008, Brian Taylorson, who is Finance Director and a trustee of
the DB 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 2013
for another year. The terms of the conflict authorisation have remained
unchanged since 2008 and details can be found in the 2012 Annual Report.
Other information
Information about financial risk management and exposure to financial
market risks are set out in Note 21 to the ‘Consolidated financial
statements’ on page 74.
Annual General Meeting
The seventeenth AGM of the Company will be held on Thursday
24 April 2014. The Notice of Meeting is included in a separate
document sent to shareholders.
By order of the Board
Wai Wong
Company Secretary
25 February 2014
Directors’ report
continued
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 four with commitments ranging from $20 million
to $30 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 41 of the Directors’
remuneration report 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.
Substantial shareholders
As at 25 February 2014 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:
AXA Investment Managers SA
BlackRock, Inc.
Ameriprise Financial, Inc. and its group
Schroders plc
Norges Bank
Ordinary
shares
28,739,014
23,211,191
22,734,503
22,517,387
18,117,062
Percentage
of issued
ordinary
share capital
6.26
5.06
4.95
4.91
3.95
Auditor
A resolution to appoint KPMG LLP as auditors of the Company will
be proposed at the forthcoming AGM to be held on 24 April 2014.
Details about this proposal are set out in the Notice of Meeting
accompanying the Annual Report.
Each director in office at the date of this Directors’ report confirms
that (a) so far as he/she is aware, there is no relevant audit information
of which the Company’s auditors are unaware and (b) he/she has
taken all the steps that he/she ought to have taken as a director to
make himself/herself aware of any relevant audit information and to
establish that the Company’s auditors are aware of that information.
50
Elementis plc Annual report and accounts 2013 Directors’ responsibility statement
The directors are responsible for preparing the Annual Report and
consolidated and parent company financial statements in accordance
with applicable law and regulations.
Company law requires the directors to prepare consolidated and parent
company financial statements for each financial year. Under that law
they are required to prepare the ‘Consolidated 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.
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 consolidated and
parent company financial statements, the directors are required to:
Under applicable law and regulations, the directors are also responsible
for preparing a Strategic report, Directors’ report, Directors’ remuneration
report and Corporate governance report that complies with that law and
those regulations.
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 24, 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.
• Select suitable accounting policies and then apply them consistently.
• Make judgements and estimates that are reasonable and prudent.
• For the ‘Consolidated financial statements’, state whether they have
been prepared in accordance with IFRSs as adopted by the EU.
• The management 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.
• 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’.
By order of the Board
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.
Brian Taylorson
Finance Director
25 February 2014
51
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013
Independent auditor’s report to
the members of Elementis plc only
Opinions and conclusions arising from our audit
1. Our opinion on the financial statements is unmodified
We have audited the financial statements of Elementis plc for the year
ended 31 December 2013 set out on pages 54 to 93. 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 2013
and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union;
the parent company financial statements have been properly
prepared in accordance with UK Accounting Standards; 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.
2. Our assessment of risks of material mis-statement
In arriving at our audit opinion above on the financial statements,
the risks of material mis-statement that had the greatest effect on
our audit were as follows:
Provisions ($38.1 million)
Refer to page 29 (Audit Committee report), page 58
(accounting policy) and page 71 (financial disclosures).
• The risk – As a chemicals company, the possibility of legal
proceedings and environmental issues are inherent within the
business. Elementis has numerous operating and legacy sites
worldwide with provisions recognised for the future cost of the
environmental issues. The amounts involved are potentially significant
and future cash flows are uncertain whilst the application of
accounting standards to determine the amount of liability to recognise
or release, if any, for individual issues is inherently subjective.
• Our response – Our audit procedures included, among others,
correspondence with the Group’s external consultants on the current
situation and risks regarding all identified significant environmental
issues. We inspected the consultants’ reports documenting the
forecast future cash flows with regard to these issues. We challenged
the Company’s discount rate against external market data and
assessed the unwinding of the provision recognised in finance costs
through analytical procedures. A sample, selected using statistical
sampling methodology, of the cash flows incurred in the year relating
to the provisions were agreed to the underlying documentation.
We considered the consistency of forecast cash flows with previous
estimates by comparing the most recent estimates with the prior year
external report. In addition, we inspected the group litigation and
compliance reports and held discussions with the Group’s internal
counsel for all significant issues. We also assessed whether the
Group’s disclosures detailing significant provisions and contingent
liabilities adequately disclose the potential liabilities of the Group.
Post retirement benefits ($99.3 million)
Refer to page 29 (Audit Committee report), page 58
(accounting policy) and pages 80 to 85 (financial disclosures).
• The risk – Significant estimates are made in valuing the Group’s
post retirement defined benefit schemes and small changes in
assumptions and estimates used to value the Group’s net pension
deficit would have a significant effect on the results and financial
position of the Group.
• Our response – In this area our audit procedures included, among
others, testing a sample of the UK and US schemes’ membership
data to the source documentation. With the support of our own
actuarial specialists, we then challenged the key assumptions applied
to those data to determine the Group’s net deficit, being the discount
rate, inflation rate and mortality/life expectancy. This included a
comparison of these key assumptions against externally derived data.
Cash flows and funding arrangements have been agreed to the
underlying documentation, whilst asset values have been agreed
to external confirmations. We also considered the adequacy of
the Group’s disclosures in respect of IAS 19.
3. Our application of materiality and an overview of the scope
of our audit
The materiality for the Group financial statements as a whole was set
at $6.5 million. This has been determined with reference to a benchmark
of Group profit before taxation of $136.0 million before exceptionals (of
which it represents 4.8%) which we consider to be one of the principal
considerations for members of the company in assessing the financial
performance of the Group.
We agreed with the audit committee to report to it all corrected and
uncorrected misstatements we identified through our audit with a value in
excess of $0.325 million, in addition to other audit mis-statements below
that threshold that we believe warranted reporting on qualitative grounds.
Audits for group reporting purposes were performed by component
auditors at the key reporting components in the following countries:
US, the Netherlands, Taiwan and China, and by the group audit team
in the following countries: UK. In addition, specified audit procedures
were performed by component auditors in Germany at the shared
service centre.
These group procedures covered 98% of total group revenue;
95% of group profit before taxation1; and 94% of total group assets.
The audits undertaken for group reporting purposes at the key
reporting components of the Group were all performed to materiality
levels set by, or agreed with, the group audit team. These materiality
levels were set individually for each component and ranged from
$1.2 million to $4.0 million.
Detailed audit instructions were sent to all the auditors in these locations.
These instructions covered the significant audit areas that should be
covered by these audits (which included the relevant risks of material
mis-statement detailed above) and set out the information required to be
reported back to the group audit team. Members of the group audit team
visited the following locations: US and Taiwan. Telephone meetings were
also held with the auditors at this location and the other locations that
were not physically visited.
52
Elementis plc Annual report and accounts 2013 Scope and responsibilities
As explained more fully in the Directors’ responsibility statement
set out on page 51, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give a
true and fair view. A description of the scope of an audit of financial
statements is provided on the Financial Reporting Council’s website
at www.frc.org.uk/auditscopeukprivate. This report is made solely
to the Company’s members as a body and is subject to important
explanations and disclaimers regarding our responsibilities, published
on our website at www.kpmg.com/uk/auditscopeukco2013a, which
are incorporated into this report as if set out in full and should be read
to provide an understanding of the purpose of this report, the work
we have undertaken and the basis of our opinions.
Lynton Richmond
(Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
25 February 2014
4. Our opinion on other matters prescribed by the Companies Act
2006 is unmodified
In our opinion:
•
•
the part of the Directors’ remuneration report to be audited has been
properly prepared in accordance with the Companies Act 2006; and
the information given in the Strategic report and the Directors’ report
for the financial year for which the financial statements are prepared is
consistent with the financial statements.
5. We have nothing to report in respect of the matters on which we
are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based
on the knowledge we acquired during our audit, we have identified other
information in the annual report that contains a material inconsistency
with either that knowledge or the financial statements, a material
mis-statement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
• we have identified material inconsistencies between the knowledge
we acquired during our audit and the directors’ statement that they
consider that the annual report and financial statements taken as
a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s
performance, business model and strategy; or
the Audit Committee report does not appropriately address matters
communicated by us to the Audit and Risk Committee.
•
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.
Under the Listing Rules we are required to review:
•
•
the directors’ statement, set out on page 49, in relation to
going concern;
the part of the Corporate governance report on page 26
relating to the Company’s compliance with the nine provisions of
the 2010 UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above responsibilities.
1
using an absolute measure due to some head office cost components
recognising losses
53
Strategic report 02-23Corporate governance 24-53Financial statements 54-93Shareholder information 94-97Elementis plc Annual report and accounts 2013 Consolidated income statement
for the year ended 31 December 2013
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit
Other expenses
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)
*
restated following the adoption of revised IAS 19 Employee Benefits standard
Before
exceptional
items
2013
Exceptional
items
(note 5)
After
exceptional
items
Note
2
2
3
4
6
9
9
$million
776.8
(487.7)
289.1
(83.6)
(58.9)
146.6
(2.0)
0.2
(8.8)
136.0
(29.4)
106.6
106.6
–
106.6
$million
–
–
–
–
(1.7)
(1.7)
–
–
–
(1.7)
1.8
0.1
0.1
–
0.1
$million
776.8
(487.7)
289.1
(83.6)
(60.6)
144.9
(2.0)
0.2
(8.8)
134.3
(27.6)
106.7
106.7
–
106.7
23.3
23.0
Before
exceptional
items
restated*
$million
757.0
(465.6)
291.4
(80.6)
(66.9)
143.9
(2.5)
0.8
(8.8)
133.4
(33.1)
100.3
100.3
–
100.3
2012
Exceptional
items
(note 5)
$million
–
–
–
–
–
–
–
–
–
–
–
–
–
–
After
exceptional
items
restated*
$million
757.0
(465.6)
291.4
(80.6)
(66.9)
143.9
(2.5)
0.8
(8.8)
133.4
(33.1)
100.3
100.3
–
100.3
22.2
21.8
Consolidated statement of
comprehensive income
for the year ended 31 December 2013
Profit for the year
Other comprehensive income:
Items that will not be reclassified subsequently to profit and loss:
Remeasurements of retirement benefit obligations
Deferred tax associated with retirement benefit obligations
Items that may be reclassified subsequently to profit and loss:
Exchange differences on translation of foreign operations
Effective portion of changes in fair value of cash flow hedges
Fair value of cash flow hedges transferred to income statement
Tax benefit associated with exercise of share options
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
*
restated following the adoption of revised IAS 19 Employee Benefits standard
2013
$million
106.7
2012
restated*
$million
100.3
19.3
(10.3)
(60.3)
4.1
(1.2)
0.3
0.5
4.4
13.0
119.7
119.7
–
119.7
1.4
(0.5)
0.8
–
(54.5)
45.8
45.8
–
45.8
54
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Financial statements 54-93
Shareholder information 94-97
Consolidated balance sheet
at 31 December 2013
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
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
*
restated following the adoption of revised IAS 19 Employee Benefits standard and for updated provisional fair value adjustment
2013
31 December
Note
$million
2012
31 December
restated*
$million
10
11
16
12
13
20
19
14
15
19
23
16
15
17
18
382.1
202.6
8.6
593.3
128.3
126.2
0.4
64.5
319.4
912.7
(8.7)
(111.1)
(0.1)
(14.4)
(6.0)
(140.3)
(1.7)
(99.3)
(93.5)
(32.1)
(0.3)
(226.9)
(367.2)
545.5
44.1
16.7
129.9
353.2
543.9
1.6
545.5
356.7
186.8
12.4
555.9
128.6
119.1
–
63.1
310.8
866.7
(5.6)
(100.0)
(0.4)
(9.0)
(6.6)
(121.6)
(13.5)
(137.4)
(78.9)
(33.9)
(0.6)
(264.3)
(385.9)
480.8
43.7
14.7
130.3
290.5
479.2
1.6
480.8
The financial statements on pages 54 to 88 were approved by the Board on 25 February 2014 and signed on its behalf by:
David Dutro
Group Chief Executive
Brian Taylorson
Finance Director
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55
Consolidated statement of changes in equity
for the year ended 31 December 2013
Share
capital
Share
premium
Translation
reserve
Hedging
reserve
Other
reserves
$million
43.4
$million
12.7
$million
(29.0)
$million
(7.8)
$million
162.6
Retained
earnings
restated*
$million
266.7
Total
restated*
$million
448.6
Non-
controlling
interest
$million
1.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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)
–
–
–
–
–
100.3
100.3
–
–
–
1.4
0.8
(0.5)
(60.3)
(60.3)
–
(0.8)
(0.8)
(0.8)
–
3.6
–
–
3.6
165.4
4.1
0.8
(55.4)
44.9
0.5
–
10.6
(32.2)
(21.1)
290.5
4.1
–
(54.5)
45.8
2.8
3.6
10.6
(32.2)
(15.2)
479.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.6
Total
equity
restated*
$million
450.2
100.3
1.4
0.8
(0.5)
(60.3)
4.1
–
(54.5)
45.8
2.8
3.6
10.6
(32.2)
(15.2)
480.8
43.7
14.7
(27.6)
(7.5)
165.4
290.5
479.2
1.6
480.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.4
–
–
–
0.4
44.1
2.0
–
–
–
2.0
16.7
–
(1.2)
–
–
–
–
–
–
(1.2)
(1.2)
–
–
–
–
–
(28.8)
–
–
0.5
0.3
–
–
–
–
0.8
0.8
–
–
–
–
–
(6.7)
–
–
–
–
–
–
106.7
106.7
–
–
–
(1.2)
0.5
0.3
19.3
19.3
4.4
4.4
–
(3.2)
(3.2)
(3.2)
(0.2)
3.4
–
–
3.2
165.4
(10.3)
3.2
16.6
123.3
–
–
(2.5)
(58.1)
(60.6)
353.2
(10.3)
–
13.0
119.7
2.2
3.4
(2.5)
(58.1)
(55.0)
543.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.6
106.7
(1.2)
0.5
0.3
19.3
4.4
(10.3)
–
13.0
119.7
2.2
3.4
(2.5)
(58.1)
(55.0)
545.5
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
Remeasurements of retirement
benefit obligations
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
Balance at 1 January 2013
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
Remeasurements of retirement
benefit obligations
Tax benefit associated with exercise
of share options
Deferred tax adjustment on pension
scheme deficit
Transfer
Total other comprehensive income
Total comprehensive income
Transactions with owners
Issue of shares by the Company
Share based payments
Deferred tax on share based payments
recognised within equity
Dividends paid
Total transactions with owners
Balance at 31 December 2013
*
restated following the adoption of revised IAS 19 Employee Benefits standard
56
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Financial statements 54-93
Shareholder information 94-97
Consolidated cash flow statement
for the year ended 31 December 2013
Operating activities:
Profit for the year
Adjustments for:
Other expenses
Finance income
Finance costs
Tax charge
Depreciation and amortisation
Decrease in provisions
Pension payments net of current service cost
Share based payments
Exceptional items
Cash flow in respect of exceptional items excluding pensions
Operating cash flow before movement in working capital
Decrease/(increase) in inventories
Increase in trade and other receivables
Increase 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
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
*
restated following the adoption of revised IAS 19 Employee Benefits standard
2013
Note
$million
2012
restated*
$million
106.7
100.3
2.0
(0.2)
8.8
27.6
23.9
(1.5)
(26.8)
3.4
1.7
(3.9)
141.7
2.8
(4.3)
8.0
148.2
(12.3)
(2.8)
133.1
0.5
0.6
(34.1)
(32.8)
(1.5)
(67.3)
2.2
(58.3)
0.2
(8.7)
(64.6)
1.2
63.1
0.2
64.5
2.5
(0.8)
8.8
33.1
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
20
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57
Notes to the Consolidated financial statements
for the year ended 31 December 2013
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 UK GAAP.
These are presented on pages 89 to 93.
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 49.
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.
(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. Following the introduction of the revised IAS19
Employee Benefits standard, the net interest on the defined benefit
liability now consists of the interest cost on the defined benefit
obligation and the interest income on plan assets, both calculated by
reference to the discount rate used to measure the defined benefit
obligation at the start of the period. Previously the Group determined
interest income on plan assets using an expected long term rate of
return.
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 remeasurements 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.
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 acquired. 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.
58
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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.
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.
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.
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.
Intangible assets
(a) 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.
(b) 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.
(c) Other intangible assets Other intangible assets are stated at cost
or when arising in a business combination, estimated fair value, less
accumulated amortisation.
(d) 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.
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.
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59
Notes to the Consolidated financial statements
for the year ended 31 December 2013 continued
1 Accounting policies (continued)
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.
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.
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.
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.
Investments Investments comprising loans and receivables are stated
at amortised cost.
Trade payables Trade payables are non-interest bearing borrowings
and are initially measured at fair value and subsequently carried 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.
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.
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.
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.
60
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Financial statements 54-93
Shareholder information 94-97
(a) 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.
(b) 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).
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.
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.
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 degree of judgement.
Other expenses Other expenses are administration costs incurred and
paid by the Group's pension schemes, which relate primarily to former
employees of legacy businesses.
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.
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.
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.
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61
Notes to the Consolidated financial statements
for the year ended 31 December 2013 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.
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 2013, and have not been applied in
preparing these consolidated financial statements, but that become
mandatory for the Group’s 2014 financial statements are as follows:
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in Other Entities
These standards relate to consolidation and the accounting for
subsidiaries, joint arrangements and associates.
IAS 28 Investments in Associates and Joint Ventures (2011)
This standard amends IAS 28 (2008) in respect of the treatment of
associates and joint ventures when held for sale and for when changes in
interests occur.
Offsetting Financial Assets and Liabilities – Amendments to IAS 32
The amendments clarify the offsetting criteria when an entity has a legal
right of set-off and when gross settlement is equivalent to net settlement.
The Group has not yet determined the potential impact of these new
standards and interpretations on the 2014 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
Surfactants
Chromium
– Production of rheological additives,
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 the 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.
62
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Financial statements 54-93
Shareholder information 94-97
Segmental analysis for the year ended 31 December 2013
Revenue
Internal revenue
Revenue from external customers
Operating profit before exceptionals
Head office cost allocations
Exceptionals
Profit/(loss) before interest
Other expenses
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
2013
Specialty
Products
$million
502.8
–
502.8
100.9
(1.8)
0.7
99.8
–
–
–
–
–
99.8
506.5
70.2
69.7
–
–
–
646.4
(61.8)
–
–
–
–
–
–
–
–
(61.8)
584.6
22.4
(13.8)
Surfactants
$million
72.2
–
72.2
5.9
(0.3)
1.3
6.9
–
–
–
–
–
6.9
22.0
7.6
12.1
–
–
–
41.7
(14.1)
–
–
–
–
–
–
–
–
(14.1)
27.6
4.9
(2.1)
Chromium
$million
214.8
(13.0)
201.8
56.0
(0.9)
(10.5)
44.6
–
–
–
–
–
44.6
66.9
50.5
34.4
–
–
–
151.8
(21.7)
–
(11.8)
–
–
–
–
–
–
(33.5)
118.3
7.2
(7.4)
Segment
totals
$million
789.8
(13.0)
776.8
162.8
(3.0)
(8.5)
151.3
–
–
–
–
–
151.3
595.4
128.3
116.2
–
–
–
839.9
(97.6)
–
(11.8)
–
–
–
–
–
–
(109.4)
730.5
34.5
(23.3)
Central
costs
$million
–
–
–
(16.2)
3.0
6.8
(6.4)
(2.0)
0.2
(8.8)
(29.4)
1.8
(44.6)
(10.7)
–
10.0
8.6
0.4
64.5
72.8
(13.5)
(26.3)
–
(10.4)
(0.1)
(14.4)
(99.3)
(93.5)
(0.3)
(257.8)
(185.0)
1.2
(0.6)
North
America
$million
273.9
434.0
24.4
(15.8)
United
Kingdom
$million
33.6
44.1
1.1
(1.2)
Rest of
Europe
$million
201.1
39.0
7.1
(3.1)
Rest of the
World
$million
268.2
67.6
3.1
(3.8)
Total
$million
789.8
(13.0)
776.8
146.6
–
(1.7)
144.9
(2.0)
0.2
(8.8)
(29.4)
1.8
106.7
584.7
128.3
126.2
8.6
0.4
64.5
912.7
(111.1)
(26.3)
(11.8)
(10.4)
(0.1)
(14.4)
(99.3)
(93.5)
(0.3)
(367.2)
545.5
35.7
(23.9)
Total
$million
776.8
584.7
35.7
(23.9)
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63
Notes to the Consolidated financial statements
for the year ended 31 December 2013 continued
2 Operating segments (continued)
Segmental analysis for the year ended 31 December 2012
2012
Surfactants
Chromium
Segment
totals
Revenue
Internal revenue
Revenue from external customers
Operating profit
Head office cost allocations
Profit before interest
Other expenses
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
*
** restated following the adoption of revised IAS 19 Employee Benefits standard and for updated provisional fair value adjustment
$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)
$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)
Specialty
Products
restated*
$million
458.7
–
458.7
90.4
(0.3)
90.1
–
–
–
–
90.1
469.3
67.5
62.8
–
–
599.6
(46.1)
–
–
–
–
–
–
–
–
(46.1)
553.5
26.3
(11.9)
restated for updated provisional fair value adjustment
Central
costs
restated**
$million
–
–
–
(15.3)
1.5
(13.8)
(2.5)
0.8
(8.8)
(33.1)
(57.4)
(11.2)
–
6.7
12.4
63.1
71.0
(11.7)
(28.6)
–
(19.1)
(0.4)
(9.0)
(137.4)
(78.9)
(0.6)
(285.7)
(214.7)
1.5
(0.5)
Total
restated**
$million
771.3
(14.3)
757.0
143.9
–
143.9
(2.5)
0.8
(8.8)
(33.1)
100.3
543.5
128.6
119.1
12.4
63.1
866.7
(100.0)
(28.6)
(11.9)
(19.1)
(0.4)
(9.0)
(137.4)
(78.9)
(0.6)
(385.9)
480.8
39.0
(21.3)
$million
771.3
(14.3)
757.0
159.2
(1.5)
157.7
–
–
–
–
157.7
554.7
128.6
112.4
–
–
795.7
(88.3)
–
(11.9)
–
–
–
–
–
–
(100.2)
695.5
37.5
(20.8)
Information by geographic area
Revenue from external customers
Non-current assets
Capital additions
Depreciation and amortisation
3 Finance income
Interest on bank deposits
North
America
$million
274.5
394.4
30.3
(13.5)
United
Kingdom
$million
31.7
43.7
2.3
(1.0)
Rest of
Europe
$million
196.3
33.6
4.9
(3.3)
Rest of the
World
$million
254.5
71.8
1.5
(3.5)
Total
$million
757.0
543.5
39.0
(21.3)
2013
$million
0.2
2012
$million
0.8
64
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Strategic report 02-23
Corporate governance 24-53
Financial statements 54-93
Shareholder information 94-97
4 Finance costs
Interest on bank loans
Pension and other post retirement liabilities
Unwind of discount on provisions
*
restated following the adoption of revised IAS 19 Employee Benefits standard
5 Exceptional items
Post employment benefits
Environmental provisions
Other
Deferred tax credit
2013
$million
2.5
4.5
1.8
8.8
2012
restated*
$million
3.4
4.1
1.3
8.8
2013
$million
0.1
(0.2)
(1.6)
(1.7)
1.8
0.1
2012
$million
–
–
–
–
–
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.
Post employment benefits
In 2013 the Group settled a 2009 claim made by a group of its Dutch pensioners and released the balance of a provision made at the time the claim was
lodged, resulting in a credit of $3.3 million being recorded. Following the closure of the Eaglescliffe site there remain a number of post employment
payments to former employees that will continue for a period of time. The Group has concluded that it would be appropriate to make a provision for
these payments under IAS 19 and has therefore recorded an exceptional charge of $3.2 million.
Environmental provisions
A number of structural changes were made to the Group’s provisions in 2013. A fixed term indemnity given by the Group to a third party in 1998 expired
and, as a result, the related balance sheet provision of $9.8 million was released.
During the year the closure plan for the Eaglescliffe chromium plant was finalised in consultation with regulatory authorities and an additional $5.0 million
provision for closure costs was made.
Following a review of the provisioning methodology and timing of the Group’s anticipated spend on environmental matters the Group concluded that it
would be appropriate to reduce the discount rate being used to calculate the current liability and this resulted in a charge of $5.8 million.
Other adjustments to existing environmental provisions resulted in a credit of $0.8 million. There was a deferred tax credit of $1.8 million relating to the
adjustments to environmental provisions. Details of the Group’s environmental provisions are included in Note 15.
Other adjustments
In 2013 the Group exited a long term office lease, resulting in a charge of $0.6 million. The Group also increased its provision for a 2002 dispute relating
to the filing of an industry report with the US Environmental Protection Agency, resulting in a charge of $1.0 million.
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65
Notes to the Consolidated financial statements
for the year ended 31 December 2013 continued
6
Income tax expense
Current tax:
Overseas corporation tax
Adjustments in respect of prior years:
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**
2013
$million
2012
restated*
$million
21.3
15.6
(0.5)
20.8
0.9
0.4
4.1
1.4
6.8
27.6
29.4
(1.8)
27.6
(1.1)
14.5
3.7
–
14.1
0.8
18.6
33.1
33.1
–
33.1
restated following the adoption of revised IAS 19 Employee Benefits standard
*
** see Note 5
The tax charge on profit represents an effective tax rate on profit before exceptional items for the year ended 31 December 2013 of 21.6 per cent (2012:
24.8 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.
The total charge for the year can be reconciled to the accounting profit as follows:
Profit before tax
Tax on ordinary activities at 23.25 per cent (2012: 24.5 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
*
** tax rate reflects reduction in UK corporation tax rate from 24 per cent to 23 per cent with effect from April 2013
restated following the adoption of revised IAS 19 Employee Benefits standard
2013
2013
$million
134.3
31.2
10.9
(9.8)
0.5
(6.1)
–
0.9
–
27.6
per cent
–
23.3
8.1
(7.3)
0.4
(4.5)
–
0.6
–
20.6
2012
restated*
$million
133.4
32.7
15.2
(5.8)
0.2
(8.7)
1.8
(0.3)
(2.0)
33.1
2012
restated*
per cent
–
24.5
11.4
(4.3)
0.1
(6.5)
1.3
(0.2)
(1.5)
24.8
66
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Strategic report 02-23
Corporate governance 24-53
Financial statements 54-93
Shareholder information 94-97
7 Profit for the year
Profit for the year has been arrived at after charging/(crediting):
Employee costs
Net foreign exchange gains
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)
Tax compliance services
Other tax advisory services
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
2013
$million
104.7
(1.8)
7.6
(0.4)
20.8
3.5
24.3
385.6
0.2
0.5
0.1
0.3
0.3
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
2013
$million
2012
$million
92.6
7.6
4.5
104.7
87.0
7.6
4.2
98.8
Number
Number
946
152
254
13
1,365
883
161
266
13
1,323
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67
Notes to the Consolidated financial statements
for the year ended 31 December 2013 continued
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
Earnings per share:
Basic
Diluted
Basic before exceptional items
Diluted before exceptional items
*
restated following the adoption of revised IAS 19 Employee Benefits standard
2013
$million
2012
restated*
$million
106.6
0.1
106.7
100.3
–
100.3
2013
million
2012
million
456.9
6.8
463.7
451.8
8.6
460.4
2013
cents
2012
restated*
cents
23.3
23.0
23.3
23.0
22.2
21.8
22.2
21.8
68
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Corporate governance 24-53
Financial statements 54-93
Shareholder information 94-97
10 Goodwill and other intangible assets
Cost:
At 1 January 2012
Exchange differences
Acquisition of subsidiary
Additions
At 1 January 2013
Exchange differences
Acquisition of subsidiary
Additions
At 31 December 2013
Amortisation:
At 1 January 2012
Charge for the year
At 1 January 2013
Charge for the year
At 31 December 2013
Carrying amount:
At 31 December 2013
At 31 December 2012
At 1 January 2012
*
restated for updated provisional fair value adjustment
Goodwill
restated*
$million
Brand
restated*
$million
Other
intangible
assets
restated*
$million
Total
restated*
$million
304.8
1.5
14.8
–
321.1
(0.1)
14.1
–
335.1
–
–
–
–
–
17.4
0.5
2.0
–
19.9
(0.4)
4.9
–
24.4
–
–
–
–
–
335.1
321.1
304.8
24.4
19.9
17.4
20.0
0.5
3.7
0.7
24.9
(0.8)
9.7
1.5
35.3
7.1
2.1
9.2
3.5
12.7
22.6
15.7
12.9
342.2
2.5
20.5
0.7
365.9
(1.3)
28.7
1.5
394.8
7.1
2.1
9.2
3.5
12.7
382.1
356.7
335.1
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 $331.5 million, including $14.1 million and $14.8 million
from the Hi-Mar and Watercryl acquisitions respectively (see Note 29), and Elementis Surfactants $3.6 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
10.2 per cent to 16.0 per cent (2012: 9.0 per cent to 13.8 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 intangibles represent the value ascribed to the trading name and reputation of the Deuchem, Fancor, Watercryl and Hi-Mar 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. Brand intangibles are tested annually for impairment using similar assumptions to the goodwill testing.
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.
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69
Notes to the Consolidated financial statements
for the year ended 31 December 2013 continued
11 Property, plant and equipment
Land and
buildings
restated*
$million
Plant and
machinery
restated*
$million
Fixtures,
fittings and
equipment
restated*
$million
Under
construction
$million
Total
restated*
$million
Cost:
At 1 January 2012
Additions
Exchange differences
Acquisitions
Disposals
Reclassifications
At 31 December 2012
Additions
Exchange differences
Acquisitions
Disposals
Reclassifications
At 31 December 2013
Accumulated depreciation:
At 1 January 2012
Charge for the year
Exchange differences
Disposals
Reclassifications
At 31 December 2012
Charge for the year
Exchange differences
Disposals
Reclassifications
At 31 December 2013
Net book value:
At 31 December 2013
At 31 December 2012
At 1 January 2012
*
restated for updated provisional fair value adjustment
146.2
0.1
2.6
2.6
(9.3)
6.1
148.3
0.3
1.2
–
(0.3)
2.8
152.3
100.2
3.5
1.9
(9.0)
–
96.6
3.4
1.4
(0.1)
–
101.3
51.0
51.7
46.0
487.0
0.3
10.3
1.8
(5.0)
17.1
511.5
3.1
8.8
2.3
(1.5)
18.7
542.9
386.4
14.9
9.9
(4.1)
–
407.1
16.2
8.0
(1.2)
(0.1)
430.0
112.9
104.4
100.6
47.3
–
0.2
–
(7.2)
3.1
43.4
–
0.6
–
(0.3)
1.9
45.6
42.2
1.3
0.2
(7.0)
–
36.7
1.2
0.5
(0.3)
0.1
38.2
7.4
6.7
5.1
Group capital expenditure contracted but not provided for in these financial statements amounted to $nil (2012: $nil ).
Land and buildings comprised the following:
Freehold property
Short leasehold properties
12.1
37.9
0.3
–
–
(26.3)
24.0
30.6
0.1
–
–
(23.4)
31.3
–
–
–
–
–
–
–
–
–
–
–
31.3
24.0
12.1
692.6
38.3
13.4
4.4
(21.5)
–
727.2
34.0
10.7
2.3
(2.1)
–
772.1
528.8
19.7
12.0
(20.1)
–
540.4
20.8
9.9
(1.6)
–
569.5
202.6
186.8
163.8
2013
$million
152.0
0.3
152.3
2012
$million
153.0
0.3
153.3
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Strategic report 02-23
Corporate governance 24-53
Financial statements 54-93
Shareholder information 94-97
12 Inventories
Raw materials and consumables
Work in progress
Finished goods and goods purchased for resale
*
restated for updated provisional fair value adjustment
Inventories are disclosed net of provisions for obsolescence of $6.4 million (2012: $7.8 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
*
restated for updated provisional fair value adjustment
15 Provisions
At 1 January 2013
Charged/(credited) to the income statement:
Exceptional items – additional provisions
Exceptional items – unused amounts reversed
Additional provisions
Unwinding of discount
Utilised during the year
Currency translation differences
At 31 December 2013
Due within one year
Due after one year
2013
$million
63.0
11.6
53.7
128.3
2012
restated*
$million
61.9
9.7
57.0
128.6
2013
$million
115.8
4.8
5.6
126.2
2013
$million
67.9
1.2
6.6
35.4
111.1
2012
$million
108.9
4.8
5.4
119.1
2012
restated*
$million
47.6
1.4
5.2
45.8
100.0
Environmental
$million
21.9
Chromium UK
closure
$million
15.7
Self-
insurance
$million
2.9
Total
$million
40.5
5.6
(9.8)
0.2
1.0
(2.0)
0.2
17.1
4.0
13.1
4.4
–
–
0.8
(3.2)
0.1
17.8
1.8
16.0
–
–
0.8
–
(0.5)
–
3.2
0.2
3.0
10.0
(9.8)
1.0
1.8
(5.7)
0.3
38.1
6.0
32.1
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 2013 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.
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71
Notes to the Consolidated financial statements
for the year ended 31 December 2013 continued
16 Deferred tax
At 1 January 2012
(Charge)/credit to the income statement
Credit to other comprehensive income
Credit to retained earnings
Acquisition
Currency translation differences
At 1 January 2013
(Charge)/credit to the income statement
Credit to other comprehensive income
Credit to retained earnings
Currency translation differences
At 31 December 2013
Retirement
benefit
plans
restated*
$million
19.6
(0.3)
4.1
–
–
–
23.4
(3.2)
(10.3)
–
(0.7)
9.2
Accelerated
tax
depreciation
Amortisation
of US
goodwill
$million
(22.7)
4.6
–
–
–
(0.1)
(18.2)
(5.4)
–
–
–
(23.6)
$million
(85.9)
(7.0)
–
–
–
–
(92.9)
(0.1)
–
–
(93.0)
Deferred tax assets
Deferred tax liabilities
*
** restated for updated provisional fair value adjustment
*** restated following the adoption of revised IAS 19 Employee Benefits standard and for updated provisional fair value adjustment
restated following the adoption of revised IAS 19 Employee Benefits standard
0.1
(23.7)
1.9
7.3
–
(93.0)
Temporary
differences
restated**
$million
1.2
(5.0)
–
10.6
(3.5)
1.3
4.6
4.0
–
(2.5)
1.9
8.0
5.9
2.1
Unrelieved
tax losses
$million
27.5
(10.9)
–
–
–
–
16.6
(2.1)
–
–
14.5
0.7
13.8
Total
restated***
$million
(60.3)
(18.6)
4.1
10.6
(3.5)
1.2
(66.5)
(6.8)
(10.3)
(2.5)
1.2
(84.9)
8.6
(93.5)
At 31 December 2013 the full amount of ACT previously written-off, available for offset against future UK profits, was $41.4 million (2012: $41.1 million).
Additional tax losses for which no deferred tax asset has been recognised and for which there is no expiry date were $2.5 million (2012: $2.4 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.
2013
$million
43.7
0.4
44.1
2012
$million
43.4
0.3
43.7
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Corporate governance 24-53
Financial statements 54-93
Shareholder information 94-97
18 Other reserves
At 1 January 2012
Share based payments
Exchange differences
Decrease in fair value of derivatives
Transfer
At 1 January 2013
Share based payments
Exchange differences
Decrease in fair value of derivatives
Transfer
Balance at 31 December 2013
Capital
redemption
reserve
$million
158.8
–
–
–
–
158.8
–
–
–
–
158.8
Translation
reserve
$million
(29.0)
–
1.4
–
–
(27.6)
–
(1.2)
–
–
(28.8)
Hedging
reserve
$million
(7.8)
–
–
0.3
–
(7.5)
–
–
0.8
–
(6.7)
Share
options
reserve
$million
3.8
3.6
–
–
(0.8)
6.6
3.2
–
–
(3.2)
6.6
Total
$million
125.8
3.6
1.4
0.3
(0.8)
130.3
3.2
(1.2)
0.8
(3.2)
129.9
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.
19 Borrowings
Bank loans
The borrowings are repayable as follows:
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
2013
$million
10.4
2012
$million
19.1
8.7
1.5
0.2
–
–
10.4
5.6
12.3
1.0
0.2
–
19.1
2013
per cent
1.7
2012
per cent
2.0
Of the US dollar borrowings, $1.9 million was unsecured (2012: $11.0 million), 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 2012
31 December 2013
US Dollar
Taiwan
Dollar
13.0
3.9
6.1
6.5
Total
19.1
10.4
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73
Notes to the Consolidated financial statements
for the year ended 31 December 2013 continued
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.
• Market risk.
2013
$million
64.5
2012
$million
63.1
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.
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.
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 $121.0 million
(2012: $203.5 million) of undrawn committed facilities, of which $102.6 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.
74
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Financial statements 54-93
Shareholder information 94-97
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.
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 15. 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 (2012: 0.3 per cent) of ordinary shares, or 2.0 per cent (2012: 2.7 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
Financial income
Net change in fair value of cash flow hedges transferred from equity
Interest on bank loan
Net pension interest
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
2013
$million
2012
$million
0.2
0.2
–
(2.5)
(4.5)
(7.0)
(6.8)
0.3
0.5
(1.1)
(0.1)
0.8
(1.2)
0.8
0.8
1.2
(3.4)
(4.1)
(6.3)
(5.5)
(0.5)
0.8
0.4
1.0
0.3
1.4
Derivatives used for hedging included within current assets amounted to $0.4 million at 31 December 2013 (2012: $nil) and $0.1 million within current
liabilities (2012: $0.4 million).
Elementis plc Annual report and accounts 2013
75
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Notes to the Consolidated financial statements
for the year ended 31 December 2013 continued
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
2013
$million
2012
$million
1.9
6.8
–
1.7
1.0
4.6
10.0
3.5
Year of
maturity
Currency
2018
Multi
USD
2014
USD 2014–2017
TWD 2014–2016
Face value
$million
–
1.9
2.1
6.4
10.4
2013
Carrying
amount
$million
–
1.9
2.1
6.4
10.4
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
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 1.8 per cent and 2.4 per cent. The secured bank loans are secured against land and buildings in Taiwan with a carrying value of $9.9 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
Other 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
2013
$million
115.8
4.8
64.5
185.1
2012
$million
108.9
4.8
63.1
176.8
Carrying amount
2013
$million
34.1
35.3
46.4
115.8
2012
$million
29.7
34.9
44.3
108.9
76
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Financial statements 54-93
Shareholder information 94-97
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
2013
$million
105.5
10.1
0.7
0.2
116.5
Impairment
2013
$million
(0.5)
–
–
(0.2)
(0.7)
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
2013
$million
1.7
(1.0)
–
0.7
2012
$million
1.3
0.2
0.2
1.7
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.
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 2013
Carrying
amount
$million
Contractual
cash flows
$million
6 months
or less
$million
6–12
months
$million
1 year
or more
$million
1.9
8.5
75.7
86.1
(1.9)
(8.5)
(75.7)
(86.1)
(1.0)
(6.8)
(75.7)
(83.5)
(0.9)
–
–
(0.9)
–
(1.7)
–
(1.7)
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)
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.
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77
Notes to the Consolidated financial statements
for the year ended 31 December 2013 continued
21 Financial risk management (continued)
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
65.1
(32.0)
33.1
–
–
2013
Euro
$million
31.4
(19.8)
11.6
(24.9)
(13.3)
Other
$million
19.3
(16.1)
3.2
–
3.2
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
(10.3)
5.8
–
5.8
The main exchange rates relevant to the Group are set out in the Strategic report on page 14.
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 2013
GBP
Euro
RMB
TWD
31 December 2012
GBP
Euro
RMB
TWD
Equity
$million
Profit or loss
$million
7.9
(3.2)
(3.2)
(2.4)
2.0
(1.7)
(3.0)
(3.0)
2.7
(2.4)
(1.0)
0.2
2.9
(4.0)
(1.1)
0.3
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
2013
$million
2012
$million
(0.6)
(0.6)
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
2013
Profit or
loss
100bp
decrease
$million
–
100bp
increase
$million
–
2012
Profit or
loss
100bp
decrease
$million
–
100bp
increase
$million
–
78
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Financial statements 54-93
Shareholder information 94-97
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 2013
Carrying
amount
$million
120.6
64.5
Fair value
$million
120.6
64.5
31 December 2012
Carrying
amount
$million
113.7
63.1
Fair value
$million
113.7
63.1
0.4
(0.1)
(1.9)
(8.5)
(111.1)
63.9
–
0.4
(0.1)
(1.9)
(8.5)
(111.1)
63.9
–
–
(0.4)
(11.0)
(8.1)
(100.0)
57.3
–
–
(0.4)
(11.0)
(8.1)
(100.0)
57.3
–
Basis for determining fair values
The Group measures fair values in respect of financial instruments in accordance with IFRS 13, 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.
The following summarises the significant methods and assumptions used in estimating the fair values of financial instruments.
Derivatives (level 2)
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, Trade and other payables (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
2013
per cent
4.1–8.2
1.8–2.4
2012
per cent
4.1–7.8
2.6–2.9
The Group categorises its trade and other receivables and payables, excluding derivatives, within level 3 and all other financial instruments, including
cash, loans and derivatives within level 2. At both 31 December 2012 and 31 December 2013 there was no difference between the carrying value and
fair value of financial instruments.
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79
Notes to the Consolidated financial statements
for the year ended 31 December 2013 continued
22 Operating leases
Minimum lease payments under operating leases recognised as an expense in the year
2013
$million
3.9
2012
$million
4.0
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
2013
$million
0.4
1.5
22.1
24.0
2012
$million
0.7
1.8
23.3
25.8
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.
Other employee benefit schemes included in the table below relate to two unfunded pension schemes and a long term service award scheme in
Germany and a special benefits programme for a small number of former employees of the Eaglescliffe plant.
Restatement of comparatives
The revised IAS 19 Employee Benefits standard became effective from 1 January 2013 and has been implemented from that date. The standard makes
substantial changes to the recognition, measurement and disclosure of retirement benefit obligations. The impact of the changes on the Group’s income
statement, earnings per share and balance sheet for the year ended and as at 31 December 2012 is shown in the table below:
Income Statement
Other expenses
Finance income
Finance costs
Decrease in profit before tax
Reduction in tax charge
Decrease in profit for the period
Consolidated Statement of Comprehensive Income
Deferred tax associated with pension and other post retirement schemes
Balance Sheet
Increase in retirement benefit obligations
Decrease in retained earnings
Earnings per share
Basic
Diluted
Year ended
31 December
2012
$million
(2.5)
(1.2)
(4.1)
(7.8)
1.0
(6.8)
(1.0)
(1.4)
(1.4)
cents
(1.5)
(1.5)
80
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Corporate governance 24-53
Financial statements 54-93
Shareholder information 94-97
Net defined benefit liability
The net liability was as follows:
2013
Total market value of assets
Present value of scheme liabilities
Net liability recognised in the balance sheet
2012
Total market value of assets
Present value of scheme liabilities
Net liability recognised in the balance sheet
UK pension
scheme
$million
US pension
schemes
$million
US PRMB
scheme
$million
Netherlands
pension
scheme
$million
Other
$million
Total
$million
765.9
(832.0)
(66.1)
107.9
(123.5)
(15.6)
–
(7.5)
(7.5)
63.7
(67.4)
(3.7)
–
(6.4)
(6.4)
937.5
(1,036.8)
(99.3)
UK pension
scheme
$million
US pension
schemes
$million
US PRMB
scheme
$million
Netherlands
pension
scheme
$million
Other
$million
Total
$million
724.7
(797.6)
(72.9)
93.4
(136.2)
(42.8)
–
(8.5)
(8.5)
60.5
(70.4)
(9.9)
–
(3.3)
(3.3)
878.6
(1,016.0)
(137.4)
Employer contributions in 2013 were $21.4 million (2012: $21.1 million) to the UK scheme; $2.9 million (2012: $7.6 million) to US schemes and
$1.9 million (2012: $1.8 million) in respect of the Netherlands scheme. Contributions in 2014 are expected to be approximately $49 million. Further
details on agreed future payments to the UK pension scheme are included in the Finance report.
Movement in net defined benefit liability
The following table shows a reconciliation from the opening balances to the closing balances for the net defined benefit liability and its components.
2013
Balance at 1 January
Included in profit or loss
Current service cost
Past service costs
Running costs
Settlement
Net interest expense
Included in other comprehensive income
Remeasurements:
Return on plan assets excluding interest income
Actuarial gains/losses arising from demographic assumptions
Actuarial gains/losses arising from financial assumptions
Actuarial gains/losses arising from experience adjustment
Exchange differences
Contributions:
Employers
Deficit in schemes at 31 December
UK pension
scheme
$million
US pension
schemes
$million
US PRMB
scheme
$million
Netherlands
pension
scheme
$million
Other
$million
Total
$million
(72.9)
(42.8)
(8.5)
(9.9)
(3.3)
(137.4)
(0.8)
–
(1.5)
–
(2.4)
(4.7)
18.0
–
(9.0)
(17.9)
(1.0)
(9.9)
21.4
(66.1)
(0.5)
–
(0.4)
–
(1.5)
(2.4)
16.6
(0.3)
10.8
0.1
–
27.2
2.4
(15.6)
(0.1)
–
–
–
(0.3)
(0.4)
–
–
0.4
0.5
–
0.9
0.5
(7.5)
(1.6)
0.6
(0.1)
3.2
(0.1)
2.0
(3.5)
–
2.9
0.5
(0.3)
(0.4)
4.6
(3.7)
(0.1)
(3.2)
–
–
(0.1)
(3.4)
–
–
0.2
–
(0.1)
0.1
0.2
(6.4)
(3.1)
(2.6)
(2.0)
3.2
(4.4)
(8.9)
31.1
(0.3)
5.3
(16.8)
(1.4)
17.9
29.1
(99.3)
In 2013 the Netherlands pension scheme recognised a past service gain due to the change in state pension retirement age from 65 to 67. Both the
settlement credit within the Netherlands pension scheme, relating to the resolution of a 2009 claim relating to changes made to the scheme in 2005, and
past service charge associated with the recognition of additional Eaglescliffe post employment benefits, have been reflected within exceptional items.
Further details can be found in Note 5.
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81
Notes to the Consolidated financial statements
for the year ended 31 December 2013 continued
23 Retirement benefit obligations (continued)
2012
Balance at 1 January
Included in profit or loss
Current service cost
Running costs
Net interest expense
Included in other comprehensive income
Remeasurements:
Return on plan assets excluding interest income
Actuarial gains/losses arising from demographic assumptions
Actuarial gains/losses arising from financial assumptions
Actuarial gains/losses arising from experience adjustment
Exchange differences
Contributions:
– Employers
Deficit in schemes at 31 December
Plan assets
Plan assets comprise:
2013
Equities
Bonds
Cash/liquidity funds
Other
2012
Equities
Bonds
Cash/liquidity funds
Other
UK pension
scheme
$million
US pension
schemes
$million
US PRMB
scheme
$million
Netherlands
pension
scheme
$million
Other
$million
Total
$million
(35.0)
(41.4)
(8.2)
(9.1)
(2.7)
(96.4)
(0.8)
(1.7)
(1.3)
(3.8)
4.7
(7.2)
(39.2)
(11.0)
(2.5)
(55.2)
21.1
(72.9)
(0.4)
(0.4)
(1.9)
(2.7)
7.2
(0.3)
(11.7)
(0.7)
–
(5.5)
6.8
(42.8)
(0.1)
–
(0.4)
(0.5)
–
–
–
(0.5)
–
(0.5)
0.7
(8.5)
(0.8)
(0.4)
(0.1)
(1.3)
10.9
–
(12.3)
0.2
(0.1)
(1.3)
1.8
(9.9)
(0.1)
–
(0.1)
(0.2)
–
–
(0.4)
–
(0.1)
(0.5)
0.1
(3.3)
UK pension
scheme
$million
US pension
schemes
$million
US PRMB
scheme
$million
Netherlands
pension
scheme
$million
330.0
201.8
171.8
62.3
765.9
80.5
26.7
0.7
–
107.9
–
–
–
–
–
–
63.7
–
–
63.7
UK pension
scheme
$million
US pension
schemes
$million
US PRMB
scheme
$million
Netherlands
pension
scheme
$million
336.9
219.2
162.5
6.1
724.7
68.0
23.6
1.8
–
93.4
–
–
–
–
–
–
60.5
–
–
60.5
(2.2)
(2.5)
(3.8)
(8.5)
22.8
(7.5)
(63.6)
(12.0)
(2.7)
(63.0)
30.5
(137.4)
Total
$million
410.5
292.2
172.5
62.3
937.5
Total
$million
404.9
303.3
164.3
6.1
878.6
All equities, bonds and liquidity funds have quoted prices in active markets. Other assets include insured annuities, an insurance fund and various swap
products.
Within the UK pension scheme, the current asset allocation is approximately 55 per cent in a liability matching fund consisting of gilts (fixed interest and
index linked), bonds, cash and swaps and 45 per cent in an investment fund that includes various equity and equity like funds. The aim of the trustees
is to manage the risk relative to the liabilities associated with the scheme’s investments through a combination of diversification, inflation protection and
hedging of risk (currency, interest rate and inflation risk). The US scheme currently has over 70 per cent of its asset value invested in a range of equity
funds designed to target higher returns and thus reduce the pension deficit, with the balance invested in fixed income bonds and cash. The strategy
is that as the deficit reduces, a greater proportion of investments will be made into liability matching funds. The Dutch scheme is fully insured with two
registered insurance companies who guarantee the accrued nominal benefits, thus removing the downside risks to the Group, and who also decide the
investment strategy. The assets in the plan currently consist mainly of government bonds.
82
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Corporate governance 24-53
Financial statements 54-93
Shareholder information 94-97
Changes in the fair value of plan assets for the major schemes are as follows:
UK pension
scheme
$million
US pension
schemes
$million
US PRMB
scheme
$million
Netherlands
pension
scheme
$million
Total
$million
2013
Opening fair value of plan assets
Expected return
Running costs
Past service costs
Actuarial gain/(loss)
Contributions by employer
Contributions by employees
Benefits paid
Exchange differences
Closing fair value of plan assets
2012
Opening fair value of plan assets
Expected return
Running costs
Actuarial gain/(loss)
Contributions by employer
Contributions by employees
Benefits paid
Exchange differences
Closing fair value of plan assets
724.7
28.2
(1.5)
–
18.0
21.4
0.1
(40.2)
15.2
765.9
93.4
3.3
(0.4)
–
16.6
2.4
–
(7.4)
–
107.9
–
–
–
–
–
–
–
–
–
–
60.5
2.2
(0.1)
0.5
(3.4)
2.0
0.9
(1.6)
2.7
63.7
UK pension
scheme
$million
US pension
schemes
$million
US PRMB
scheme
$million
Netherlands
pension
scheme
$million
677.1
31.9
(1.7)
4.7
21.1
0.1
(40.2)
31.7
724.7
82.9
3.8
(0.4)
7.2
6.9
–
(7.0)
–
93.4
–
–
–
–
–
–
–
–
–
45.8
2.2
(0.4)
10.9
1.8
0.8
(1.5)
0.9
60.5
Defined benefit obligation
Changes in the present value of the defined benefit obligation for the major schemes are as follows:
2013
Opening defined benefit obligation
Service cost
Past service cost
Interest cost
Contributions by employees
Actuarial losses
Benefits paid
Curtailments and settlements
Exchange differences
Closing defined benefit obligation
UK pension
scheme
$million
US pension
schemes
$million
US PRMB
scheme
$million
Netherlands
pension
scheme
$million
(797.6)
(0.8)
–
(30.6)
(0.1)
(26.9)
40.2
–
(16.2)
(832.0)
(136.2)
(0.5)
–
(4.8)
10.6
7.4
–
–
(123.5)
(8.5)
(0.1)
–
(0.3)
0.9
0.5
–
–
(7.5)
(70.4)
(1.6)
0.1
(2.3)
(0.9)
3.3
4.2
3.2
(3.0)
(67.4)
878.6
33.7
(2.0)
0.5
31.2
25.8
1.0
(49.2)
17.9
937.5
Total
$million
805.8
37.9
(2.5)
22.8
29.8
0.9
(48.7)
32.6
878.6
Total
$million
(1,012.7)
(3.0)
0.1
(38.0)
(1.0)
(12.1)
52.3
3.2
(19.2)
(1,030.4)
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83
Notes to the Consolidated financial statements
for the year ended 31 December 2013 continued
23 Retirement benefit obligations (continued)
2012
Opening defined benefit obligation
Service cost
Interest cost
Contributions by employees
Actuarial losses
Benefits paid
Exchange differences
Closing defined benefit obligation
UK pension
scheme
$million
US pension
schemes
$million
US PRMB
scheme
$million
Netherlands
pension
scheme
$million
(712.1)
(0.8)
(33.2)
(0.1)
(57.4)
40.2
(34.2)
(797.6)
(124.3)
(0.4)
(5.8)
–
(12.7)
7.0
–
(136.2)
(8.2)
(0.1)
(0.4)
–
(0.5)
0.7
–
(8.5)
(54.9)
(0.8)
(2.3)
(0.8)
(12.1)
1.5
(1.0)
(70.4)
Total
$million
(899.5)
(2.1)
(41.7)
(0.9)
(82.7)
49.4
(35.2)
(1,012.7)
Actuarial assumptions
A full actuarial valuation was carried out on 30 September 2011 for the UK scheme and at 31 December 2013 for the US and Netherlands schemes.
The principal assumptions used by the actuaries for the major schemes were as follows:
2013
Rate of increase in salaries
Rate of increase in pensions in payment
Discount rate
Inflation
2012
Rate of increase in salaries
Rate of increase in pensions in payment
Discount rate
Inflation
The assumed life expectancies on retirement are:
Retiring at 31 December 2013
Males
Females
Retiring in 20 years
Males
Females
UK
per cent
US
per cent
Netherlands
per cent
4.40
3.30
4.40
3.40
3.90
2.80
4.10
2.90
3.45
N/A
4.45
2.50
3.45
N/A
3.65
2.50
2.00
N/A
3.75
2.00
2.00
N/A
3.50
2.00
2013
years
UK
2012
years
2013
years
US
2012
years
Netherlands
2012
years
2013
years
22
24
25
26
22
24
25
26
19
21
19
21
19
21
19
21
22
23
23
24
22
23
23
24
The main assumptions for the PRMB scheme are a discount rate of 4.45 per cent (2012: 3.65 per cent) per annum and a health care cost trend of
6.5 per cent (2012: 6.5 per cent) per annum for claims pre age 65 reducing to 4.5 per cent per annum by 2020 (2012: 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.
At 31 December 2013, the weighted average duration of the defined benefit obligations for the major schemes was as follows:
UK: 13 years
US: 11 years
The Netherlands: 17 years
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Financial statements 54-93
Shareholder information 94-97
Sensitivity analysis
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 4 per cent
Increased/decreased by 1 per cent
Increased by 4 per cent
These sensitivities have been calculated to show the movement of the defined obligation following a change in a particular assumption in isolation,
assuming no other changes in market conditions.
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 including the executive directors,
business presidents and general counsel. 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 replaced the previous approved and unapproved executive share option scheme (‘2003 ESOS’) which expired in 2013. The last awards made
under the 2003 scheme were in 2012. Under the 2003 and 2013 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 currently 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. The savings limit will increase in 2014 for new grants made after April following the
Government’s announcement to raise the maximum savings limit to £500 per month. 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 granted under the two savings based schemes are held subject to the rules of
the schemes.
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)
2013
144.3
39.3
0.5
2.0
2012
114.3
46.4
0.5
2.3
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 $3.4 million (2012: $4.0 million) related to share based payment transactions during the year.
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Elementis plc Annual report and accounts 2013
85
Notes to the Consolidated financial statements
for the year ended 31 December 2013 continued
24 Share based payments (continued)
At 31 December 2013 the following options/awards to subscribe for ordinary shares were outstanding:
Exercisable
From
To
At
1 January
2013
’000
Granted
’000
Exercised
’000
Expired
’000
At
31 December
2013
’000
Year of grant
UK savings related share option scheme
2009
2010
2011
2011
2012
2012
2013
2013
Exercise
price (p)
35.52
69.28
121.66
121.66
168.06
168.06
206.14
206.14
01/10/14
01/10/13
01/10/14
01/10/16
01/10/15
01/10/17
01/10/16
01/10/18
01/04/15
01/04/14
01/04/15
01/04/17
01/04/16
01/04/18
01/04/17
01/04/19
US savings related share option scheme
2011
2012
2013
119.34
184.62
227.55
26/08/13
30/08/14
23/08/15
26/11/13
30/11/14
23/11/15
Executive share option schemes/awards
granted under the Long term incentive plan*
2004
2006
2008
2009
2010+
2010*
2011+
2011*
2012+
2012*
2013+
2013*
35.00
85.50
71.25
29.50
57.00
Nil
149.90
Nil
194.30
Nil
260.70
Nil
23/04/07
04/04/09
28/04/11
25/03/12
06/04/13
22/04/13
04/04/14
04/04/14
27/06/15
27/06/15
02/04/16
02/04/16
23/04/14
04/04/16
28/04/18
25/03/19
06/04/20
22/04/20
04/04/21
04/04/21
27/06/22
27/06/22
02/04/23
02/04/23
47
79
49
4
68
5
–
–
252
265
270
–
535
26
27
21
260
2,571
3,001
904
1,645
773
1,322
–
–
10,550
–
–
–
–
–
–
50
3
53
–
–
259
259
–
–
–
–
–
–
–
–
–
–
674
1,058
1,732
–
(74)
–
–
–
–
–
–
(74)
(250)
(10)
–
(260)
(14)
–
(21)
(247)
(1,642)
(3,001)
–
–
–
–
–
–
(4,925)
–
(5)
–
–
(7)
–
(6)
–
(18)
(15)
(35)
–
(50)
–
–
–
–
–
–
(6)
–
(5)
–
(4)
–
(15)
47
–
49
4
61
5
44
3
213
–
225
259
484
12
27
–
13
929
–
898
1,645
768
1,322
670
1,058
7,342
+ These options include cash settled shadow executive options granted to a number of executives on the same basis as the standard options (with the same performance
conditions and exercise provisions). These shadow options are included in the calculation of the total expenses recognised by the Group related to share based payments.
The 2010, 2011, 2012 and 2013 options shown above include approximately 118,000, 66,000, 58,000 and 68,000 shadow options respectively.
86
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Corporate governance 24-53
Financial statements 54-93
Shareholder information 94-97
The weighted average exercise prices of options disclosed in the previous table were as follows:
At 1 January
Granted
Exercised
Expired
At 31 December
2013
Average
exercise
price (p)
48.7
120.1
26.6
163.3
80.3
2012
Average
exercise
price (p)
38.4
87.9
36.7
103.5
48.7
The weighted average share price at the date of exercise of share options exercised during the year was 256 pence (2012: 201 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
(Increase)/decrease in borrowings repayable within one year
Decrease in borrowings repayable after one year
Currency translation differences
Increase in net cash
Net cash at beginning of year
Net cash at end of year
2013
$million
2012
$million
1.4
(3.1)
11.8
10.1
–
10.1
44.0
54.1
13.5
1.4
1.9
16.8
1.0
17.8
26.2
44.0
27 Dividends
An interim dividend of 2.57 cents per share (2012: 2.45 cents) was paid on 4 October 2013 and the Group is proposing a final dividend of 5.50 cents
per share (2012: 5.32 cents) for the year ended 31 December 2013 and a special dividend of 5.86 cents per share (2012: 4.79 cents). The total dividend
for the year, excluding the special dividend, is 8.07 cents per share (2012: 7.77 cents) and 13.93 cents per share (2012: 12.56 cents) 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 $52.4 million.
28 Key management compensation
Salaries and short term employee benefits
Other long term benefits
Share based payments
2013
$million
3.6
0.7
1.9
6.2
2012
$million
4.0
0.8
2.3
7.1
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 33 to 48.
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87
Notes to the Consolidated financial statements
for the year ended 31 December 2013 continued
29 Acquisitions
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.
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Goodwill
Intangible – Customer lists
Intangible – Brand
Consideration paid, satisfied in cash
Cash acquired
Net cash outflow
Book value
at acquisition
$million
0.6
1.2
1.7
(0.9)
2.6
Fair value
adjustments
$million
1.7
–
–
–
1.7
Fair value of
assets
acquired
$million
2.3
1.2
1.7
(0.9)
4.3
14.1
9.7
4.9
33.0
–
33.0
A purchase price allocation and fair value exercise was performed in order to identify the fair values of assets acquired to the Group. This resulted in the
recognition of intangible assets, relating to both customer lists and brand, of $14.6 million and goodwill of $14.1 million, being the difference between
the consideration paid and the fair value of separable assets acquired. The goodwill recognised on acquisition reflects the capabilities of the Hi-Mar
personnel and the synergistic opportunities going forward, neither of which can be allocated to another identifiable intangible asset.
Since acquisition Hi-Mar has contributed $10.5 million to the Group’s revenue and $2.1 million to the Group’s operating profit before intangible
asset amortisation.
Following the acquisition of Watercryl Quimica Ltda in September 2012, the provisional fair value exercise has now been completed with the assistance
of external experts. The table below shows changes in the assessment of the fair value of assets acquired, from the provisional figures included in the
2012 Annual report and accounts. Prior year balances have been restated to take account of the additional fair value adjustments that have been
recognised.
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Cash and cash equivalents
Corporation tax
Deferred tax
Goodwill
Intangible – Customer lists
Intangible – Brand
Consideration paid, satisfied in cash
Cash acquired
Net cash outflow
Provisional
fair value of
assets
acquired
$million
15.0
1.5
1.7
(0.6)
0.4
–
–
18.0
4.4
Further fair
value
adjustments
$million
(10.4)
(0.2)
–
0.3
–
(0.3)
(3.5)
(14.1)
10.4
2.0
24.4
(0.4)
24.0
3.7
–
–
–
Fair value of
assets
acquired
$million
4.6
1.3
1.7
(0.3)
0.4
(0.3)
(3.5)
3.9
14.8
3.7
2.0
24.4
(0.4)
24.0
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. No contingent liability was considered to be reportable at 31 December 2013.
88
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Financial statements 54-93
Shareholder information 94-97
Parent company statutory accounts
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 2013
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
2013
£million
2012
£million
763.3
761.3
1.2
1.2
(0.5)
0.7
764.0
(0.4)
0.8
762.1
(345.1)
418.9
(307.2)
454.9
22.9
9.3
83.3
81.5
4.0
217.9
418.9
22.7
8.0
83.3
81.5
3.9
255.5
454.9
4
5
7
8
8
8
8
8
The financial statements of Elementis plc on pages 89 to 93 were approved by the Board on 25 February 2014 and signed on its behalf by:
David Dutro
Group Chief Executive
Brian Taylorson
Finance Director
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89
Notes to the company financial statements
of Elementis Plc for the year ended 31 December 2013
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 less impairment.
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.
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 £2.3 million
(2012: £2.4 million loss) is dealt with in the financial statements of the
Company.
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Financial statements 54-93
Shareholder information 94-97
3
Investments
Cost at 1 January 2013
Additions
Net book value 31 December 2013
Net book value 31 December 2012
Unlisted
shares at
cost
£million
0.1
–
0.1
0.1
Unlisted
loans
£million
759.0
–
759.0
759.0
Capital
contributions
£million
2.2
2.0
4.2
2.2
Total
£million
761.3
2.0
763.3
761.3
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:
Elementis Specialties
Elementis Chromium Inc
American Chrome & Chemicals Inc
.
Elementis Specialties Inc
Elementis GmbH
Elementis Deuchem (Shanghai)
Chemical Co Ltd
Elementis Specialties (Changxing) Ltd
Elementis Specialties (Anji) Ltd*
Elementis Specialties Netherlands BV
Deuchem Co Ltd
Deuchem (Shanghai) Chemical Co Ltd
Elementis Specialties do Brasil
Quimica Ltda
* 80 per cent owned subsidiary as at 31 December 2013
Rheological additives, colourants, waxes, other specialty additives
Chromium chemicals
Chromium chemicals
Rheological additives, colourants, waxes, other specialty additives
Rheological additives, colourants, waxes, other specialty additives
Additives and resins
Rheological additives, colourants, waxes, other specialty additives
Organoclays
Surfactants and coatings additives
Additives and resins
Additives and resins
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
People’s Republic of China
The Netherlands
Taiwan
People’s Republic of China
Brazil
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
Group relief receivable
2013
£ million
1.2
2012
£million
1.2
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91
Notes to the company financial statements
of Elementis Plc for the year ended 31 December 2013 continued
5 Creditors: amount falling due within one year
Accruals and deferred income
2013
£million
0.5
2012
£million
0.4
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 2013 was £39.9 million
(2012: £44.9 million).
The latest full actuarial valuation was carried out at 30 September 2011 and was updated for FRS 17 purposes to 31 December 2013 by a qualified
actuary. The contribution for the year was £0.1 million (2012: £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
2013
Number
’000
2013
£million
2012
Number
’000
2012
£million
453,572
5,259
458,831
22.7
0.2
22.9
449,950
3,622
453,572
22.5
0.2
22.7
During the year a total of 5,258,914 ordinary shares with an aggregate nominal value of £262,946 were allotted and issued for cash to various
employees at subscription prices between 30 pence and 185 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 £1.5 million. The holders of ordinary shares are entitled to receive dividends and
one vote per share at meetings of the Company.
8 Reserves
At 1 January 2013
Retained loss for the year
Issue of shares
Share based payments
Transfer
Dividend paid
At 31 December 2013
Share
premium
account
£million
8.0
–
1.3
–
–
–
9.3
Capital
redemption
reserve
£million
83.3
–
–
–
–
–
83.3
Other
reserves
£million
81.5
–
–
–
–
–
81.5
Share
option
reserve
£million
3.9
–
–
2.0
(1.9)
–
4.0
Profit
& loss
account
£million
255.5
(2.3)
–
–
1.9
(37.2)
217.9
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Corporate governance 24-53
Financial statements 54-93
Shareholder information 94-97
9 Reconciliation of movements in shareholders’ funds
Loss for the financial year
Dividends paid
Share based payments
Ordinary shares issued
Net decrease in shareholders’ funds
Opening shareholders’ funds
Closing shareholders’ funds
2013
£million
(2.3)
(37.2)
2.0
1.5
(36.0)
454.9
418.9
2012
£million
(2.4)
(19.8)
2.2
1.4
(18.6)
473.5
454.9
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.
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93
Glossary
ABI
ACC
ACT
AGM
Association of British Insurers
American Chemistry Council
Advance Corporation Tax
Annual General Meeting
ASEAN
Association of Southeast Asian Nations
AWC
Board
CEO
COO
CO2
Average working capital
Board of directors of Elementis plc
Chief Executive Officer
Chief Operating Officer
Carbon dioxide
Company
Elementis plc
CR
Corporate responsibility
DB Scheme
Defined benefit scheme
DEFRA
EBITDA
Department for Environment and Rural Affairs
Earnings before interest, tax, depreciation
EPA
EPS
ESOS
ESOT
EU
FRC
GAAP
GDP
GHG
GJ
and amortisation
Environmental Protection Agency
Earnings per share
Executive share option scheme
Employee share ownership trust
European Union
Financial Reporting Council
Generally Accepted Accounting Principles
Gross domestic product
Greenhouse gases
Gigajoule
Group
HMRC
HSE
IFC
IFRS
ISS
KPI
kWh
LTA
LTIP
MNE
NIC
OSHA
P.A.
Elementis plc and its subsidiaries
HM Revenue and Customs
Health, safety and environment
Inside Front Cover
International Financial Reporting Standards
Institutional Shareholder Services
Key performance indicator
Kilowatt hour
Lost time accident
Long term incentive plan
Multinational enterprise
National Insurance Contributions
Occupational Safety and Health Administration
Per Annum
REACh
Registration, Evaluation, Authorisation and restriction
ROCE
RPI
SAYE
SID
TSR
UK
UN
US
VOC
of Chemicals
Return on capital employed
Retail Price Index
Save as you earn
Senior Independent Director
Total shareholder return
United Kingdom
United Nations
United States
Volatile organic compounds
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Strategic report 02-23
Corporate governance 24-53
Financial statements 54-93
Shareholder information 94-97
Five year record
Turnover
Specialty Products
Surfactants
Chromium
Operating profit before exceptional items
Specialty Products
Surfactants
Chromium
Central costs
Exceptional items
Profit/(loss) before interest
Other Expenses
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)
Weighted average number of ordinary shares in issue during the year (million)
*
ratio of operating profit before exceptional items to interest on net borrowings
** restated following the adoption of revised IAS 19 Employee Benefits standard
2013
$million
2012
restated**
$million
2011
2010
2009
$million
$million
$million
502.8
72.2
201.8
776.8
99.1
5.6
55.1
(13.2)
146.6
(1.7)
144.9
(2.0)
(8.6)
134.3
(27.6)
106.7
458.7
72.5
225.8
757.0
90.1
4.8
62.8
(13.8)
143.9
–
143.9
(2.5)
(8.0)
133.4
(33.1)
100.3
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)
2013
$million
2012
restated**
$million
2011
2010
2009
$million
$million
$million
23.3
23.3
22.2
22.2
23.0
23.0
13.93
63.7
543.9
54.1
21.8
21.8
12.56
55.3
479.2
44.0
27.8
21.2
27.2
20.8
7.0
41.5
16.7
15.4
(12.9)
4.3
16.5
15.2
4.9
31.0
(12.9)
4.3
4.5
14.5
449.2
26.2
379.7
(79.3)
286.3
(106.3)
456.9
451.8
446.5
443.5
443.3
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95
Shareholder services
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.
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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At a glance
9
countries
30+
locations
1,300+
employees
Our global footprint
Executive management
headquarters
Corporate head office
Specialty Products
Chromium
Surfactants
Who we are
Elementis plc is a global specialty
chemicals company with operations
worldwide that serve customers in
North and Latin America, Europe and
Asia 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 and FTSE4Good Indices.
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
25 February 2014
24 April 2014
30 April 2014
02 May 2014
30 May 2014
29 July 2014*
10 September 2014*
12 September 2014*
03 October 2014*
31 October 2014*
* provisional date
Preliminary announcement of final results for the year ended 31 December 2013
Annual General Meeting and First Interim Management Statement
Ex-dividend date for final and special dividends for 2013 payable on ordinary shares
Record date for final and special dividends for 2013 payable on ordinary shares
Payment of final and special dividends for 2013 on ordinary shares
Interim results announcement for the half year ending 30 June 2014
Ex-dividend date for interim dividend for 2014 payable on ordinary shares
Record date for interim dividend for 2014 payable on ordinary shares
Payment of interim dividend for 2014 on ordinary shares
Second Interim Management Statement
Annual General Meeting
The Annual General Meeting of Elementis plc will be held on 24 April 2014 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.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:
Email:
Website:
contactsus.web@elementis-na.com
www.elementis.com
(Specialty Products and Surfactants)
chromium.usa@elementis.com
www.elementischromium.com
(Chromium)
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.
Why invest in Elementis?
• Clear strategy to grow the Specialty Products business and utilise
a strong balance sheet to reinvest in growth and finance returns to
shareholders (special dividend programme in place).
• Solid financial track record with well managed businesses that
Specialty Products provides high value functional additives to the
decorative and industrial coatings, personal care and oilfield drilling
markets that improve the flow 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.
are profitable and cash generative.
• Broad differentiated product portfolio that is underpinned by
proprietary technology, strong customer relationships and
supported by innovation, know how and technical expertise.
• Operating in high margin, segmented markets and emerging
economies, where products have many applications and
diverse end users, and local market presence is supported by
strong global infrastructure.
• Company has strong governance and risk management
controls and maintains a high standard of business conduct,
ethics and corporate responsibility.
Cautionary statement:
The Annual Report and Accounts for the financial year ended 31 December 2013, 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.
Design and production:
CarnegieOrr +44(0)207 610 6140
www.carnegieorr.com
The paper used in this Report is
derived from sustainable sources
8069_Elementis_AR12_(cover)_AW_DRf3.indd 2
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Elementis plc Annual report and accounts 2013
97
Elementis plc
10 Albemarle Street
London W1S 4HH, UK
Tel: +44 (0) 20 7408 9300
Fax: +44 (0) 20 7493 2194
www.elementisplc.com
A global specialty chemicals company
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Elementis plc
Annual report and accounts
2013