Financial Review.

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Exchange Rates

The main impact of exchange rate movements on the group’s results comes from the translation of foreign subsidiaries’ profits into sterling. After last year’s significant devaluation of sterling against most major currencies, this year sterling was more stable but continued to weaken further.

Around a quarter of the group’s profits are made in North America, mainly in the USA. The average rate for the US dollar for the year was $1.595/£ compared with $1.719/£ for 2008/09. Each one cent change in the average rate for the dollar has approximately a £0.4 million effect on underlying operating profit in a full year. The reduction in the average exchange rate for the dollar in 2009/10 increased reported group underlying operating profit for the year by £5.0 million.

Sterling also fell against the euro averaging €1.129/£ compared with €1.205/£ in 2008/09, which increased reported underlying operating profit by £2.8 million. In addition, sterling also weakened against the South African rand, from R15.0/£ to R12.5/£. However, the catalysts manufactured by our South African business are ultimately for export and the impact of a stronger rand on margins offsets the translational effect.

Overall, excluding the rand, exchange translation increased the group’s underlying operating profit by £12.2 million compared with 2008/09.

Return on Sales

We measure return on sales as underlying operating profit divided by sales excluding precious metals. Return on sales for the group fell by 2.2% to 14.4% with the ratio improving in Fine Chemicals Division but declining in the other two divisions. The rise in return on sales in Fine Chemicals Division was primarily as a result of the one-off benefit associated with the launch of the generic version of ADDERALL XR®. If that benefit is excluded, the return on sales of Fine Chemicals Division would have been broadly in line with last year.

Environmental Technologies Division’s return on sales for the year fell by 1.2% to 9.7%. While Emission Control Technologies’ (ECT’s) overall returns fell, the returns of our light duty vehicle catalyst business were ahead of last year as the business benefited from increased activity and lower costs. However, its heavy duty diesel catalyst business made a loss which reduced the returns for ECT as a whole. Process Technologies’ return on sales was slightly lower than last year.

The fall in the return for Precious Metal Products Division from 32.0% to 27.8% reflected the more challenging market conditions for its Refining business. The return on sales for the rest of the division’s businesses was broadly in line with last year.