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Capital expenditure
Capital expenditure in the year was £21.0 million (2002: £16.2 million) which represented 134 per cent of depreciation (2002: 89 per cent) as the Group invested in the ERP project and commenced construction of a new Pigments plant in Taicang, China.
Total spend in the year included £7.7 million (2002: £3.8 million) in relation to the ERP project and £1.9 million (2002: £nil) for the Pigments plant in China. These projects are expected to be completed during 2004, incurring further planned expenditure of approximately £10.0 million.
Balance Sheet
 |
2003 |
|
2002 |
|
| |
£million |
|
£million |
|
 |
| Intangible
fixed assets |
159.3 |
|
187.9 |
|
|
| Other
net assets |
139.9 |
|
126.7 |
|
|
| |
299.2 |
|
314.6 |
|
|
| Shareholders'
funds |
252.3 |
|
277.2 |
|
|
| Net
borrowings |
46.9 |
|
37.4 |
|
|
| |
299.2 |
|
314.6 |
|
|
| Gearing1 |
16% |
|
12% |
|
|
1 the ratio of net borrowings to shareholders'
funds plus net borrowings
During the year the Group re-negotiated its main sources of finance
and entered into new facilities totalling £175 million. The
main financing source for the Group is a £160 million syndicated
bank facility, signed in November 2003, which falls due for repayment
in January 2007.
Currency fluctuations had a significant impact on shareholders'
funds. The main sterling currency exchange rates relevant to Elementis
are set out below:
The majority of the Group's assets are
stated in US dollars and the weakening of the US dollar in 2003
reduced shareholders' funds by £21.5 million.
Pensions and other post retirement benefits
The Group provides retirement benefits for the majority of its employees mainly through defined benefit schemes. A small number of defined contribution schemes are also provided and an unfunded post-retirement medical benefit scheme is provided in the US.
In 2002, the Group fully adopted FRS17 and the net pension liability reflected on the balance sheet was £63.6 million. The net pension liability, which is calculated by the Group's actuaries and based upon market values of the schemes' assets and liabilities, reduced in the year by £10.8 million to £52.8 million. The general upturn in global equity markets, which increased the value of the assets, was partly offset by an increase in the present value of liabilities as a result of lower corporate bond rates.
The total cost of pensions and post-retirement health care in the year was £8.5 million (2002: £5.3 million). This included a credit in respect of past service of £1.3 million (2002: £nil) and finance charges of £4.2 million (2002: credit of £0.1 million). Pension contributions in the year amounted to £14.4 million (2002: £7.7 million). The estimated contribution in 2004 is approximately £8.4 million.
Treasury
Treasury activities are governed by policies and procedures approved and monitored by the Board. The Group operates a central treasury service centre, the principal function of which is to manage and monitor the Group's external and internal funding requirements and treasury risks, including interest rate and currency management.
The Group's financial instruments, other than derivatives, comprise borrowings, cash and liquid resources. Certain derivative financial instruments (principally interest rate swaps and forward foreign currency contracts) are entered into in order to manage interest rate and currency risks efficiently.
The Group does not hold or issue derivative financial instruments for speculative trading purposes.
Interest rate risk
The Group borrows at both fixed and floating interest rates and then uses interest rate swaps to generate the required interest rate profile.The Group has no specific proportion of its borrowings that should be at fixed rates of interest. Due to the current low interest rate environment and the Group's low level of gearing, all borrowings are currently at floating interest rates, with no borrowings at fixed rates (2002: £nil).
Currency risk
Businesses use forward foreign currency contracts to hedge transaction exposures where deemed appropriate in consultation with Group Treasury. Elementis manages its global businesses on a US dollar basis and does not seek to fully mitigate the effect of US dollar translation exposure to its sterling reported asset base through dollar borrowings.
Liquidity risk
Group funding policy is to have committed borrowings in place to cover at least 125 per cent of peak forecast net borrowings for at least a 12 month forward period. At the year end, the Group had £109.2 million (2002: £174.5 million) of undrawn committed facilities.
Counterparty credit risk
The Group controls counterparty credit risk by entering into cash deposits and financial instruments with authorised counterparties. Credit risk is managed by limiting the aggregate amount and duration of exposure to any one counterparty depending upon their credit rating and by regular review of these ratings. Counterparty positions are monitored on a regular basis.
International Accounting Standards
All listed companies are required to present consolidated financial information that fully complies with International Financing Reporting Standards (IFRS) for accounting periods starting on or after 1 January 2005. During 2003, Elementis prepared a detailed project plan and made an initial assessment of the main areas of difference between its financial statements currently prepared under UK GAAP and the financial statements prepared under IFRS.
The main differences between IFRS GAAP and UK GAAP that are expected to affect Elementis are in the areas of deferred taxation, employee benefits, pension schemes, business combinations, financial instruments and hedging.
Brian Taylorson
Finance Director
26 February 2004
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