This excerpt taken from the ICI 20-F filed Mar 31, 2006.
In the following commentary, the financial results and performance compared to the prior year is described as reported or constant currency. Reported relates to the figures included in the financial statements prepared under IFRS. Constant currency excludes the effect of currency translation differences and is a non-GAAP measure. Constant currency performance is one of the financial measures reported to ICIs Chief Executive for purposes of assessing segment performance and making decisions about allocating resources to the businesses comprising each segment. A more detailed description of constant currency performance, how it is calculated, why it is considered useful for investors and the limitations of non-GAAP measures is set out on pages 13 and 14 of this Annual Report on Form 20-F. Comparisons detailing the amounts excluded from the most directly comparable IFRS measures are presented on pages18 and 19 of this Annual Report on Form 20-F.
Group sales as reported were £5,812m for 2005, 4% higher than 2004 (2004 £5,609m). The higher sales in 2005 were the consequence of higher sales volumes and increased selling prices.
International Businesses sales as reported were £5,393m for 2005 which, despite mixed trading conditions, was 3% higher than 2004 (2004 £5,252m). On an as reported basis sales for Paints were higher than 2004 and sales for National Starch and Uniqema were in line with last year, but Quest sales were lower than for 2004.
Excluding the effects of foreign currency translation, constant currency sales for the International Businesses were 1% above 2004, with growth for Paints (+5%) offset by lower sales for National Starch (-1%), Quest (-5%) and Uniqema (-1%). National Starch sales for 2004 included £144m of sales by the Vinamul Polymers business sold in 2005. National Starch sales for 2005 included Vinamul Polymers sales of £15m.
Group operating profit, as reported, was £584m for 2005, 10% above 2004 (2004 £532m). Group operating profit before special items, as reported, was £550m for 2005, 2% above 2004 (2004 £538m). Good constant currency sales growth and the benefits of restructuring more than offset the impact of generally rising raw material costs.
Operating profit before special items, as reported, for the International Businesses was £541m for 2005, 5% higher than 2004 (2004 £516m). Excluding the effects of foreign currency translation (adverse £9m), operating profit before special items for the International Businesses was 3% higher than 2004 on a constant currency basis, despite a reduction of £20m in operating profit before special items due to divestments, mainly National Starchs Vinamul Polymers business.
Regional and Industrial reported a £48m operating profit for the year, in comparison with a £49m operating profit for 2004. The operating loss of Corporate and other was £39m for the year compared with an operating loss of £27m for 2004.
The Groups share of profits from associates was £3m for 2005 (2004 £2m profit). This comprised the Groups share of operating profits less losses from associates of £3m (2004 £4m) together with associates net finance income of £1m (2004 £nil) less taxation on profits less losses of associates of £1m (2004 £2m).
The net finance expense of £109m for 2005 was £9m lower than last year (2004 £118m), with lower net interest costs of £72m (2004 £85m) partly as a result of lower levels of debt, offset in part by higher post-retirement benefit finance costs of £37m (2004 £33m). Foreign exchange differences on intergroup financing resulted in a £4m gain compared with a £1m gain in 2004.
This excerpt taken from the ICI 20-F filed Apr 1, 2005.
In the following commentary, the financial results and performance compared to the prior year is described as “reported” or “constant currency”. “Reported” relates to the figures included in the financial statements prepared under UK GAAP. “Constant currency” excludes the effect of currency translation differences and is a non-UK GAAP measure. “Constant currency” performance is one of the financial measures reported to ICI’s Chief Executive for purposes of assessing segment performance and making decisions about allocating resources to the businesses comprising each segment. A more detailed description of “constant currency” performance, how it is calculated, why it is considered useful for investors and the limitations of non-UK GAAP measures is set out on page 14 of this Annual Report on Form 20-F. Reconciliations detailing the amounts excluded from the most directly comparable UK GAAP measures are presented on pages 18, 19, 22 and 23 of this Annual Report on Form 20-F.
Group sales as reported were £5,601m for 2004, 4% lower than 2003 (2003 £5,849m; 2002 £6,125m). The lower sales in 2004 were the consequence of business divestments, principally the Food Ingredients business of Quest, which was sold in 2004, and adverse impacts from foreign currency translation.
International Businesses’ sales as reported were £5,244m for 2004 which, despite a favourable external trading environment, was 3% lower than 2003 due to the impact of foreign currency translation and divestments (2003 £5,389m; 2002 £5,543m). On an as reported basis sales for National Starch and Paints were in line with last year but Quest and Uniqema sales were lower than for 2003.
Excluding the effects of foreign currency translation, constant currency sales for the International Businesses were 4% above 2003, with growth for National Starch (+8%) and Paints (+7%) offset by lower sales for Quest (-11%). Quest sales for 2003 included £148m of sales by the Food Ingredients business sold in 2004. Quest sales for 2004 included Food Ingredients sales of £51m. Sales for Uniqema were similar to 2003.
Group operating profit before exceptional items, as reported, was £444m for 2004, 13% above 2003 (2003 £394m; 2002 £496m). Group trading profit was £479m for 2004, 11% above 2003 (2003 £430m; 2002 £533m). Good constant currency sales growth and the benefits of restructuring more than offset the impact of generally rising raw material costs and the adverse impact of currency translation.
Trading profit for the International Businesses was £505m for 2004, 11% higher than 2003 (2003 £455m; 2002 £543m). Excluding the effects of foreign currency translation (adverse £33m), trading profit for the International Businesses was 18% higher than 2003 on a constant currency basis, despite a reduction of £13m in trading profit due to the divestment of Quest’s Food Ingredients business.
Regional and Industrial reported a £26m operating loss before exceptional items for the year, in comparison with a £25m loss for 2003 (2002 £10m loss). This included a £52m charge in 2004 in relation to the deficit for the ICI UK Pension Fund, an increase of £10m compared with 2003.
The Group’s share of profits from associates was £4m for 2004 (2003 £3m profit; 2002 £10m loss). This comprised the Group’s share of operating profit before exceptional items from associates of £4m (2003 £2m; 2002 £18m) together with net interest receivable by associates, which was less than £1m for the year (2003 £1m receivable; 2002 £28m payable).
The net interest charge for the Group was £86m for 2004, compared with £92m in 2003 (2002 £123m). Both 2004 and 2003 benefited from lower average levels of net debt, while the 2003 result also reflected the benefit of lower interest rates than in 2002.
Profit before tax
Profit before tax, but after exceptional items and goodwill amortisation was £359m for 2004, compared with £85m for 2003 (2002 £317m), due mainly to lower charges for exceptional items.
Profit before exceptional items and tax was £362m for 2004 compared with £305m for 2003 (2002 £363m). Profit before exceptional items, tax and goodwill amortisation was £397m for 2004, compared with £341m for 2003 (2002 £400m).
The adverse currency translation effect on the Group’s profit before tax, goodwill amortisation and exceptional items in 2004 compared with 2003 was £34m.
Taxation on profit before exceptional items was £111m, £12m higher than 2003 (2003 £99m; 2002 £115m), reflecting the increase in trading profit.
Exceptional items are material items which derive from events or transactions that fall within the ordinary activities of the Group and which individually, or if of a similar type, in aggregate, need to be disclosed by virtue of their size or incidence if the financial statements are to give a true and fair view.
The Group’s presentation of the “Group profit and loss account” for the three years ended December 31, 2004, which appears on pages 60, 61a and 61b under Item 18 “Financial Statements” of this Annual Report on Form 20-F, separately disclosing exceptional items, has been prepared in accordance with FRS No. 3. This presentation provides a sufficient degree of prominence in respect to the exceptional items necessary, under UK GAAP, to give a true and fair view of the results of the Group in the three years ended December 31, 2004.
Net exceptional items charged against operating profit before exceptional items for the year were £5m (2003 £200m; 2002 nil) and mainly related to the restructuring programme first announced in 2003.
The Group’s restructuring programme announced in 2003 was extended following the divestment of Quest’s Food Ingredients business to deliver further reductions in costs below gross margin for Quest. The total cost for the extended programme is now expected to be £228m, comprising £168m exceptional cash expenditure and non-cash asset write-downs of £60m.
The cumulative profit and loss charge for the programme to the end of 2004 was £209m; a further £19m is expected to be charged in 2005. The cash expenditure on the programme in 2004 was £71m, bringing the cumulative spend to £93m. The remaining cash spend of £75m is expected to be incurred primarily in 2005. The extended programme is expected to deliver £124m of cost benefit in 2006 and reduce headcount across the Group by around 2,300.
During the second quarter of 2004, the Group announced the completion of the sale of Quest’s Food Ingredients business to Kerry Group plc for £249m in cash, resulting in a loss on disposal before tax of £9m. The loss included attribution of goodwill, which was previously written off directly to reserves, of £154m. After tax, the exceptional loss on the transaction was £27m.
Loss on sale or closure of operations also included an increased provision in relation to costs for the divestment of the Polyurethanes, Tioxide and selected Petrochemicals businesses and a loss on closure of the polyethylene business in Argentina. These were offset by profits on the sale of 18.9% of the issued shares of Pakistan PTA Ltd, on the sale of the nitrocellulose and trading businesses in India, and provision releases and income in relation to prior year divestments.
In total, exceptional items before tax and minority interests for 2004 amounted to a loss of £3m (2003 £220m loss; 2002 £46m loss). Exceptional items after tax and minorities were a loss of £14m (2003 £163m loss; 2002 £48m loss).
Exceptional items under UK GAAP do not represent extraordinary items under US GAAP.
Net profit before exceptional items for 2004 was £224m (2003 £183m; 2002 £227m). Net profit before exceptional items and goodwill amortisation was £259m (2003 £219m; 2002 £264m). Net profit after exceptional items and goodwill amortisation was £210m, compared with £20m for 2003 and £179m for 2002.
Earnings per share
Basic earnings per share before exceptional items was 18.9p for 2004, compared to 15.5p for 2003 (2002 20.4p). Diluted earnings per share before exceptional items was 18.8p for 2004, compared with 15.5p for 2003 (2002 20.3p). Basic earnings per share was 17.8p, compared with 1.7p for 2003 (2002 16.1p). Diluted earnings per share was 17.7p, compared with 1.7p for 2003 (2002 16.0p).
Dividend and dividend policy
The Group’s dividend policy, announced in November 2000, is that dividends should represent about one third of net profit before exceptional items and goodwill amortisation. In line with this policy, the Board has recommended a second interim dividend of 3.9p, to bring the total dividend for 2004 to 7.3p (2003 6.25p; 2002 7.5p).
The net profit for the year of £210m was reduced by dividends of £86m and a movement of £8m through reserves due to foreign currency translation but increased by a movement in respect of own shares of £1m and goodwill items of £154m to give an overall net increase in shareholders’ funds in 2004 of £271m. At the end of 2004, shareholders’ funds were in surplus of £721m (2003 surplus £450m; 2002 surplus £463m).
This commentary relates to the “Statement of Group cash flow”, which appears on page 63 under Item 18 “Financial Statements” of this Annual Report on Form 20-F.
Net cash inflow from operating activities for 2004 was £531m, £8m lower than 2003, with higher operating profit before exceptional items and goodwill amortisation for the Group offset by higher cash outflows in support of the restructuring programme. Returns on investments and servicing of finance resulted in a cash outflow of £79m, which was lower than 2003 by £17m, due to reduced interest payments. Capital expenditure and financial investment for 2004, of £150m, was £12m higher than the £138m outflow in 2003, with higher spend on tangible fixed assets. Acquisitions expenditure was £29m, compared with £20m in 2003 and included £25m of loans to Ineos Chlor.
Net proceeds from disposals were £209m in 2004, compared with £104m in 2003, and comprised £291m gross disposal proceeds (2003 £215m) less costs and expenditure against divestment provisions of £82m (2003 £111m). The sale of Quest’s Food Ingredients business, with gross proceeds of £249m received in the second quarter, and the proceeds from the sale of 18.9% of the issued shares of Pakistan PTA Ltd. and from the sale of the nitrocellulose and trading businesses in India, were the major contributors to disposal proceeds.
Dividend payments of £82m (2003 £86m) comprised the 2003 second interim dividend and the 2004 first interim dividend. These payments were consistent with the policy announced in November 2000 whereby annual dividends are equivalent to one third of net profit before exceptional items and goodwill amortisation.
Consequently, the Group’s cash inflow for 2004 before the use of liquid resources and financing was £356m, £90m higher than the cash inflow of £266m in 2003. The improvement in Group cash flow resulted from higher operating profit, improved capital effectiveness, reduced interest payments and higher proceeds from disposals.