Report of the Directors
Business Review

Financial Review

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Earnings per Share

Underlying earnings per share fell by 2% to 150.0 pence, despite the reduction in underlying profit before tax of 9%. Earnings per share benefited from the lower tax rate as well as a reduced number of shares following the share consolidation that accompanied the special dividend paid in August 2012. Total earnings per share fell by 9% to 134.6 pence.


If the proposed final dividend of 41.5 pence per share is approved, the group’s ordinary dividend for the full year will be 57.0 pence (2011/12 55.0 pence). At this level, the dividend would be covered 2.6 times by underlying earnings per share.

In 2012, following a review of the group’s balance sheet structure, a special dividend of 100 pence per share was approved by shareholders and paid in August 2012. The special dividend was accompanied by a share consolidation.


Actuarial – Funding Basis

UK Scheme

The latest actuarial valuation of the UK scheme, effective as at 1st April 2012, estimated that the scheme deficit was £214 million (1st April 2009 £173 million). This increase of £41 million is after taking account of deficit funding contributions since 1st April 2009 of approximately £50 million. As a result of the increase in the actuarial deficit, the company has:

US Scheme

The latest actuarial valuations of the two US pension schemes estimated that their deficits had increased from £12 million at 30th June 2011 to £39 million at 30th June 2012. Deficit funding contributions of £4.4 million were made in the year and contributions of £4 million were agreed for 2013/14.

The significant reduction in real US interest rates gave rise to the increase in the schemes’ deficit. The company is currently reviewing its options for future pension provision in the US and, at the same time, reviewing other ways to reduce and manage these net deficits.

For each of its pension schemes worldwide, the group continues to work with their fiduciary committees and trustee boards to ensure an appropriate investment strategy is in place, which includes better matching of the schemes’ assets to their liabilities as funding levels improve. Currently, 55% of the group’s total pension assets are held in government and corporate bonds, up from 52% last year.

IFRS – Accounting Basis

The group’s net liabilities associated with the pension and post-retirement medical benefit schemes are:

  31st March
£ million
31st March
£ million
UK scheme    
Scheme deficit (115.6) (84.8)
SPV assets 49.7
Net deficit1 (65.9) (84.8)
US schemes (55.4) (26.0)
Other pension schemes2 (23.2) (17.9)
  (144.5) (128.7)
Post-retirement medical schemes (49.7) (38.4)
Total1 (194.2) (167.1)
After taking account of the assets held on behalf of the UK pension scheme by the SPV.
Deficits of £25.1 million and surplus of £1.9 million.

The deficits in the group’s principal UK and US defined benefit pension schemes increased by £60.2 million despite deficit funding contributions of approximately £28 million made in the year. This increase was principally caused by a decrease in the discount rate used to value the schemes’ liabilities.

The cost of providing post-employment benefits increased from £25.4 million in 2011/12 to £40.2 million in 2012/13. This charge was included, in full, within operating profit.

IFRS – Revised Accounting Standard

With effect from 1st April 2013, the group will take account of the revised accounting standard, IAS 19 – ‘Employee Benefits’. This change will impact the group by amending disclosure requirements and replacing the expected return on plan assets and interest cost on plan obligations with net interest on the net defined benefit liability based upon the discount rate. The effect on the group for the year ending 31st March 2014 is estimated to be an increase in operating profit of approximately £1.5 million, and an increase in the interest charge of £10.5 million.

The implementation of this new standard will also require a restatement of prior years’ results. Had the new standard been applied in the current and previous years, the effect would have been as follows:

  31st March 2013 31st March 2012
£ million
£ million
£ million
£ million
Charge to operating profit 40.2 38.9 25.4 31.2
Net interest 7.6 6.7
Total charge to income 40.2 46.5 25.4 37.9

Cash Flow

During the year ended 31st March 2013 net cash flow from operating activities was £396.1 million (2011/12 £464.4 million). The group’s total working capital increased by £40.2 million in the year but excluding the element that relates to precious metals, working capital decreased by £43.8 million, from 54 days last year to 49 days; a good performance. Working capital in respect of precious metals, however, grew by £84.0 million as a result of lower levels of customer funded metal.

The group’s free cash flow was £135.6 million (2011/12 £299.4 million). Adjusting for the effect of movements in precious metal working capital balances, the group’s free cash flow was £219.6 million compared with £238.5 million last year, as capital expenditure increased to support future growth opportunities.

The group’s cash flow conversion (adjusting for the effect of movements in precious metal working capital) was 93% (2011/12 78%), reflecting the improvement in working capital management across the group.

Capital Expenditure

Capital expenditure was £192.0 million (of which £183.9 million was cash spent in the year) which equated to 1.5 times depreciation. In the year, £117.4 million, or 61%, was incurred by Environmental Technologies Division. The principal investments were projects to:

There are a number of good opportunities for growth across the group. In order to access these, we anticipate that capital expenditure will be just over £200 million per annum for the next few years. This will be in the range of 1.5 to 1.7 times depreciation.

Depreciation, which was £126.6 million in 2012/13 (2011/12 £126.1 million), will rise as a consequence of this increased investment to around £135 million in 2013/14 and then further, to around £165 million, by 2015/16.

Capital Structure

In the year ended 31st March 2013 net debt increased by £381.0 million to £835.2 million, although when the post tax pension deficits and bonds purchased to fund pensions of £107.8 million are included, net debt rises to £943.0 million. The principal reasons for the substantial increase in net debt in the year were the return of £212.1 million to shareholders by way of a special dividend, the acquisitions of Axeon and Formox, together costing £147.1 million (net of cash acquired), and the increase in working capital of £40.2 million referred to above. To fund the special dividend, we agreed new long term loans amounting to approximately £161 million at an average interest rate of 3.4%.

During the year, the group’s EBITDA (on an underlying basis) fell by 6% to £541.4 million (2011/12 £576.2 million). As a result, net debt (including post tax pension deficits) / EBITDA rose from 1.0 last year to 1.7 times.

We continue to believe that a net debt (including post tax pension deficits) to EBITDA ratio of around 1.5 to 2.0 times is appropriate for the group over the longer term.

Since the year end we have arranged additional 10 to 15 year fixed rate loans of approximately $500 million through the US Private Placement market, with an average interest rate of 3.2%. These new borrowings refinance existing loans which mature during 2013/14 and also give us ample capacity to invest in the business.


  31st March 2013 31st March 2012
  £ million % £ million %
Over five years 352.8 39 83.5 14
Two to five years 99.3 11 218.9 37
One to two years 131.1 14 198.7 33
Within one year 322.0 36 92.2 16
Gross borrowings (net of swaps) 905.2 100 593.3 100
Less: cash and deposits 70.0   139.1  
Net debt 835.2   454.2  
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