Exchange Rates

The main impact of exchange rates on the group’s results comes from the translation of foreign subsidiaries’ profits into sterling.

Around a quarter of the group’s underlying operating profit is made in North America, mainly in the USA. The average rate for the US dollar for the six months to 30th September 2010 was $1.52/£ compared with $1.60/£ for the same period last year. This increased reported underlying operating profit by £1.5 million. A further 15% of the group’s underlying operating profit comes from euro based countries. The euro was slightly weaker in the period averaging €1.19/£ compared with €1.14/£ in the first half of 2009 and this decreased the group’s underlying operating profit by £0.5 million.


The group’s net finance cost for the six months to 30th September 2010 decreased slightly from £10.2 million to £9.7 million as a result of lower average interest rates during the period.


The group’s underlying tax charge increased by £11.6 million to £43.6 million. This is equivalent to an underlying tax rate for the year of 26.5%, down from 28.0% last year. This decrease in tax rate is primarily due to the reduction of 1% in UK corporate tax rates enacted this year and a further increase in the proportion of profits from lower tax countries.

Cash Flow

In the six months to 30th September 2010, the group generated a net cash flow from operating activities of £47.7 million compared with £77.6 million in the first half of last year. This reduction was due to a further increase in working capital as the businesses grew strongly and higher tax payments. We continue to focus upon working capital management and the group’s working capital days, excluding the component that relates to precious metals, reduced from 57 days at the start of the year to 55 days at 30th September 2010. Working capital in respect of precious metal increased by £121.5 million due to increased activity and higher precious metal prices.

The cash outflow on capital expenditure was £56.9 million, which represents 0.9 times depreciation. Capital expenditure in the second half of the year is expected to increase as we invest in our manufacturing and R&D facilities, particularly in China and India. Nevertheless, we still expect that the ratio of capital expenditure to depreciation for the year as a whole will not exceed 1.2 times.

The group’s free cash outflow (i.e. net cash inflow from operating activities less net purchases of non-current assets and investments and net interest paid) was £18.9 million compared with an outflow of £1.0 million in the same period last year. The cost of last year’s final dividend payment was £59.4 million.

After taking account of the impact of exchange translation on foreign currency borrowings, net debt increased since the year end by £52.5 million to £525.9 million. The group’s net debt (including the group’s post tax pension deficit) to EBITDA for the last 12 months at 30th September 2010 was 1.5 times compared to 1.6 times at 31st March 2010.


Despite the closure of the final salary section of the group’s UK defined benefit pension scheme with effect from 1st April 2010, the total pension charge for the period increased by £2.4 million to £15.7 million.

In order to reduce the UK pension scheme’s actuarial deficit, which was estimated to be approximately £173.4 million as at 1st April 2009, the company contributed £11.6 million in the period, the first tranche under the agreed funding plan. This plan requires the company to contribute £23.1 million each year for the next ten years.

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