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ICI » Topics » Special items

These excerpts taken from the ICI 6-K filed Mar 21, 2007.
Special items
After taxation, special items for continuing operations amounted to a loss of £38m (2005 gain of £29m). Special items in continuing operating profit were a charge of £71m primarily related to the transformation programme announced in the second quarter of the year, partially offset by a gain of £9m on the sale of fixed assets. Foreign exchange gains on debt previously hedging goodwill written off to reserves were £15m (2005 £2m).

Special items in operating profit for discontinued operations of £72m included a provision in respect of a fine of €91.4m imposed by the European Commission during the year in relation to alleged cartel activity in the European methacrylates market during a period from 1997 to 2002. The fine related to ICI’s period of ownership of ICI Acrylics, which ended in 1999 when the business was sold. ICI provided for the fine but has filed an appeal before the European Court of First Instance.

Profit on the sale of discontinued operations of £32m primarily reflected the £48m gain on the sale of Uniqema, partly offset by charges for previously divested activities.

Special items
Special items are those items of financial performance that should be separately disclosed to assist in the understanding of the financial performance achieved by the Group and in making projections of future results, as explained in IAS 1 Presentation of Financial Statements. Special items include items relating to both continuing and discontinued businesses. ICI thus believes that the detailed disclosure of special items and of profit measures both before and after special items enables shareholders to obtain greater understanding of the overall and underlying performance of the Group. Profit measures before special items should be considered in addition to, and not as a substitute for or as superior to, measures of financial performance including special items.

Management judgment is required to determine which items of pre-tax expense or income are classified as “special items”, with consideration being given to size, frequency of incidence and nature, particularly in respect of their relation to the underlying trading performance of the Group and/or the reporting segments. Specific items which have been treated in these financial statements as special include the following:

• gains or losses on disposal of businesses and any subsequent revision to divestment provisions, since these are not part of ongoing activities;
   
• gains or losses on disposal of property, plant and equipment where significant;
   
• major Group restructuring programmes;
   
• material one-off past service post-retirement benefit credits;
   
• the fine imposed by the European Commission for alleged cartel activity;
   
• foreign exchange gains or losses arising on the retranslation of debt previously hedging goodwill written off to reserves, which cannot under IAS 21 be taken to reserves; and
   
• income tax relating to the above items.

ICI uses the term “trading profit”, defined as operating profit before special items, as the key measure of profit performance by its businesses at all levels within the Group. Trading profit is also the primary profit measure used in other internal and external performance measures such as trading margin and return on capital employed.

This excerpt taken from the ICI 6-K filed Aug 10, 2006.
Special items after taxation for the first half for discontinued operations amounted to a loss of £70m compared with a profit of £20m in 2005. The loss of £70m mainly comprised the fine of £63m imposed by the European Commission following an investigation into alleged cartel activity in the European methacrylates market. The profit in the prior half year included £9m related to the release of provisions and income of £4m related to prior year divestments.

Total Group

This excerpt taken from the ICI 20-F filed Mar 31, 2006.
Special items
Special items are those items of financial performance that should be separately disclosed to assist in the understanding of the financial performance achieved by the Group and in making projections of future results, as explained in IAS 1 Presentation of Financial Statements. Special items include items relating to both continuing and discontinued businesses.

Business combinations and goodwill
On the acquisition of a business, fair values are attributed to the net assets acquired. The Group has chosen not to restate business combinations prior to the transition date on an IFRS basis. Goodwill arises where the fair value of the consideration given for a business exceeds the fair value of such net assets. Goodwill arising on acquisitions is capitalised and reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed. On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of goodwill is included in the determination of profit or loss on disposal. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amount, subject to being tested for impairment at that date. Goodwill taken to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal.

Non-current assets and disposal groups held for sale
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations was effective for annual periods beginning on or after 1 January 2005. The standard sets out the requirements for the classification, measurement and presentation of non-current assets held for sale and replaces IAS 35 Discontinued Operations. The Group has applied IFRS 5 prospectively from 1 January 2005.

Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Property, plant and equipment
Items of property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses (see accounting policy on depreciation). The Group has not adopted the exemption to restate items of property, plant and equipment to fair value at the transition date. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

Intangible assets other than goodwill
Research and development
Research expenditure is charged to income in the year in which it is incurred.

Development expenditure is charged to income in the year in which it is incurred unless it meets the recognition criteria of IAS 38 Intangible Assets. Regulatory and other uncertainties generally mean that such criteria are not met. Intangible assets, if capitalised, are amortised on a straight-line basis over the period of the expected benefit.

Other intangible assets
Other intangible assets that are acquired by the Group, principally computer software, are stated at cost less accumulated amortisation and impairment losses (see accounting policy on amortisation). Expenditure on internally generated brands is recognised in the income statement as an expense when incurred. Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

Valuation of inventories
Finished goods, raw materials and other inventories are stated at the lower of cost and net realisable value; the first in, first out or an average cost method of valuation is used consistently across inventory classes of a similar nature. In determining cost for inventory valuation purposes, depreciation is included but selling expenses and certain overhead expenses are excluded.

Environmental liabilities
The Group is exposed to environmental liabilities relating primarily to its past operations, principally in respect of soil and groundwater remediation costs. Provisions for these costs are made when expenditure on remedial work is probable and the cost can be estimated within a reasonable range of possible outcomes.

Disposal provisions
The Group is exposed to certain liabilities when businesses are divested and disposal provisions are created as part of the gain or loss on disposal calculation. Typical costs include post-retirement benefit liabilities, environmental costs, transaction costs and separation costs. Provisions are only established when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that a transfer of economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The Group reviews its disposal provisions regularly to determine whether they accurately reflect the present obligations of the Group based on the latest available facts.

Contingent liabilities
Contingent liabilities are possible obligations that arise from past events and whose existence will be confirmed only by the occurrence of one or more uncertain future events not wholly within the Group’s control or are present obligations arising from past events that are not recognised as it is not probable that a transfer of economic benefits will occur or the amount cannot be measured with sufficient certainty. The Group reviews its obligations regularly and provides disclosures of its contingent liabilities in note 32 relating to the Group accounts.

Employee benefits
The Group accounts for pensions and similar benefits (principally healthcare) under IAS 19 (revised) Employee Benefits. The Group’s net obligation in respect of defined benefit plans is calculated by independent, qualified actuaries and updated at least annually. Additional updates are performed when one-time events or market fluctuations, which do not include regular, ongoing changes in actuarial assumptions, indicate that the benefit obligation and pension assets differ significantly from the most recent valuation. These events could occur as the result of a change in benefits, a redundancy exercise or a disposal. Material settlements or curtailments are examples of the one-time events that would trigger such an update. Obligations are measured at discounted present value whilst plan assets are recorded at fair value. The operating and financing costs of such plans are recognised separately in the income statement; service costs are spread systematically over the lives of employees and financing costs are recognised in the periods in which they arise. Actuarial gains and losses are recognised in full in the period in which they occur and presented in the statement of recognised income and expense. Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. All cumulative actuarial gains and losses have been recognised in equity at the transition date.

Employee Share Ownership Plan (ESOP)
The financial statements of the Group include the asset and related liabilities of the Imperial Chemical Industries PLC Employee Benefits Trust and Impkemix Trustees Limited, a subsidiary company of the Group, which acts as trustee for the Group’s employee share ownership plan. The cost of shares held by the ESOP are deducted from equity.

 

Accounts		 ICI Annual Report and Accounts 2005 57

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These excerpts taken from the ICI 6-K filed Mar 14, 2006.
Special items
After taxation special items amounted to a profit of £68m.

Gains on special items in operating profit of £34m related to a £40m benefit associated with changes to the terms of the Noblesse pension and post-retirement healthcare schemes in the Netherlands, and £7m profit on disposal of fixed assets, partly offset by £13m of costs associated with restructuring programmes. Delivery of cost savings from the restructuring initiatives first announced in 2003 remained on track, and at the half year, it was announced that the full benefit delivery was expected with cash expenditure of £11m less than previously indicated. Consequently, the £11m will be used to extend the restructuring programme further to deliver total expected benefits of £140m in 2007, £13m higher than for the original programme. The cumulative charge to the income statement for the programme to the end of 2005 was £222m; further charges of £9m are expected in 2006.

The cumulative cash expenditure on the programme at the end of 2005 was £142m. The remaining cash spend is also expected to be incurred primarily in 2006. The extended programme delivered £106m of cost benefit in 2005; headcount across the Group was around 2,100 lower than at the start of the programme.

The £20m profit on sale of operations for the year included gains arising on the disposal of the Zweihorn wood finish business in Germany and the Vinamul Polymers business and a loss on the disposal of 51% of the Regional and Industrial rubber chemicals business in India. Other items related to divested businesses, including increases in provisions relating to environmental and pension administration costs, the release of provisions following a land transaction in the north of England and changes to post-retirement healthcare plans in the US.

In 2004, the profit on sale of operations (£175m) related mainly to the gain on the sale of the Quest Food Ingredients business.

Special items
Special items are those items of financial performance that should be separately disclosed to assist in the understanding of the financial performance achieved by the Group and in making projections of future results, as explained in IAS 1 Presentation of Financial Statements. Special items include items relating to both continuing and discontinued businesses.

Business combinations and goodwill
On the acquisition of a business, fair values are attributed to the net assets acquired. The Group has chosen not to restate business combinations prior to the transition date on an IFRS basis. Goodwill arises where the fair value of the consideration given for a business exceeds the fair value of such net assets. Goodwill arising on acquisitions is capitalised and reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed. On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of goodwill is included in the determination of profit or loss on disposal. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amount, subject to being tested for impairment at that date. Goodwill taken to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal.

Non-current assets and disposal groups held for sale
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations was effective for annual periods beginning on or after 1 January 2005. The standard sets out the requirements for the classification, measurement and presentation of non-current assets held for sale and replaces IAS 35 Discontinued Operations. The Group has applied IFRS 5 prospectively from 1 January 2005.

Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Property, plant and equipment
Items of property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses (see accounting policy on depreciation). The Group has not adopted the exemption to restate items of property, plant and equipment to fair value at the transition date. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

Intangible assets other than goodwill
Research and development
Research expenditure is charged to income in the year in which it is incurred.

Development expenditure is charged to income in the year in which it is incurred unless it meets the recognition criteria of IAS 38 Intangible Assets. Regulatory and other uncertainties generally mean that such criteria are not met. Intangible assets, if capitalised, are amortised on a straight-line basis over the period of the expected benefit.

Other intangible assets
Other intangible assets that are acquired by the Group, principally computer software, are stated at cost less accumulated amortisation and impairment losses (see accounting policy on amortisation). Expenditure on internally generated brands is recognised in the income statement as an expense when incurred. Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

Valuation of inventories
Finished goods, raw materials and other inventories are stated at the lower of cost and net realisable value; the first in, first out or an average cost method of valuation is used consistently across inventory classes of a similar nature. In determining cost for inventory valuation purposes, depreciation is included but selling expenses and certain overhead expenses are excluded.

Environmental liabilities
The Group is exposed to environmental liabilities relating primarily to its past operations, principally in respect of soil and groundwater remediation costs. Provisions for these costs are made when expenditure on remedial work is probable and the cost can be estimated within a reasonable range of possible outcomes.

Disposal provisions
The Group is exposed to certain liabilities when businesses are divested and disposal provisions are created as part of the gain or loss on disposal calculation. Typical costs include post-retirement benefit liabilities, environmental costs, transaction costs and separation costs. Provisions are only established when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that a transfer of economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The Group reviews its disposal provisions regularly to determine whether they accurately reflect the present obligations of the Group based on the latest available facts.

Contingent liabilities
Contingent liabilities are possible obligations that arise from past events and whose existence will be confirmed only by the occurrence of one or more uncertain future events not wholly within the Group’s control or are present obligations arising from past events that are not recognised as it is not probable that a transfer of economic benefits will occur or the amount cannot be measured with sufficient certainty. The Group reviews its obligations regularly and provides disclosures of its contingent liabilities in note 32 relating to the Group accounts.

Employee benefits
The Group accounts for pensions and similar benefits (principally healthcare) under IAS 19 (revised) Employee Benefits. The Group’s net obligation in respect of defined benefit plans is calculated by independent, qualified actuaries and updated at least annually. Additional updates are performed when one-time events or market fluctuations, which do not include regular, ongoing changes in actuarial assumptions, indicate that the benefit obligation and pension assets differ significantly from the most recent valuation. These events could occur as the result of a change in benefits, a redundancy exercise or a disposal. Material settlements or curtailments are examples of the one-time events that would trigger such an update. Obligations are measured at discounted present value whilst plan assets are recorded at fair value. The operating and financing costs of such plans are recognised separately in the income statement; service costs are spread systematically over the lives of employees and financing costs are recognised in the periods in which they arise. Actuarial gains and losses are recognised in full in the period in which they occur and presented in the statement of recognised income and expense. Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. All cumulative actuarial gains and losses have been recognised in equity at the transition date.

Employee Share Ownership Plan (ESOP)
The financial statements of the Group include the asset and related liabilities of the Imperial Chemical Industries PLC Employee Benefits Trust and Impkemix Trustees Limited, a subsidiary company of the Group, which acts as trustee for the Group’s employee share ownership plan. The cost of shares held by the ESOP are deducted from equity.

 

Accounts		 ICI Annual Report and Accounts 2005 57

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EXCERPTS ON THIS PAGE:

6-K (2 sections)
Mar 21, 2007
6-K
Aug 10, 2006
20-F
Mar 31, 2006
6-K (2 sections)
Mar 14, 2006

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