Annual Report • Dec 31, 2014
Annual Report
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Alent will leverage its competitive advantage, its global market leadership and its financial strength to consistently outperform its core markets.
Alent is a global supplier of specialty chemicals and engineered materials with #1 and #2 global market share positions.
Our competitive advantage is our OEM-focused strategy backed up by our R&D capabilities and our global manufacturing footprint.
We build long-term, collaborative relationships with our customers, working with them to gain a deep understanding of their manufacturing processes and future material needs.
We add quantifiable value to their businesses by providing specialty chemicals and engineered materials which allow them to increase the efficiency and quality of their operations and products – both existing and next generation.
Our leading technologies are supported by "copy exact" production, "just in time" supply, outstanding technical service and global R&D resources.
GOVERNANCE CORPORATE
STATEMENTS FINANCIAL
Alent is an asset light, strong free cash generative business that is delivering continuous improvement.
Our position as a global market leader, our competitive advantage and our financial strength will result in our outperformance of our core markets through the cycle.
INFORMATION ADDITIONAL
Good performance in improving markets; continued outperformance.
WWW.ALENT.COM ANNUAL REPORT & ACCOUNTS 2014 ALENT PLC 03
2014 has been a year of excellent progress. Alent has delivered a robust set of results, with good growth in sales, profits and margins together with strong cash generation. Our key end-markets of electronics and automotive showed return to growth during the year and we continued to outperform those markets. Our position as a global market leader, our competitive advantage and our financial strength enables us to outperform those markets that are core to Alent.
The strategy for Alent remains unchanged, and we set out in this Report how we will continue to further develop and deliver on that strategy. The key elements are to:
Further detail on our strategy, and on its execution during 2014, is set out within the Strategic Report on pages 22 - 23.
Alent delivered a robust set of results in 2014, with good progress in all key financial metrics. Net Sales Value showed a very creditable organic growth at constant currency of 4.6%; adjusted operating profit grew 7.6% and adjusted EPS by 11.1%, both on the same basis. NSV was £413.0m (2013: £420.1m), adjusted operating profit was £95.1m (2013: £94.1m) and adjusted EPS was 25.0 pence (2013: 24.1 pence). NSV margin increased to 23.0% (2013: 22.4%). Cash generation from operations was again extremely strong, and net debt at year end was £108.3m (2013: £96.5m) despite the payment of a special dividend of £42m during the year.
STATEMENTS FINANCIAL
"2014 has been a year of excellent progress. Alent has delivered a robust set of results, with good growth in sales, profits and margins together with strong cash generation."
The Board is recommending a final dividend for 2014 of 6.0 pence with a total dividend per share for 2014 of 9.0 pence. This is an increase of 4.7% on the prior year and in line with the Group's progressive dividend policy of full year dividend growth expected to be at least in line with earnings growth, and targeting a dividend cover in the near term within a range of 3.0 to 2.8 times. The final dividend, if approved at the Annual General Meeting, will be paid on 19 June 2015 to shareholders on the register at 15 May 2015.
The Board is committed to maintaining a capital structure that is both efficient and balanced between investment for growth, both organically and through acquisitions, and returns to shareholders. In October 2014 we assessed our expected future cash generation and the capital required to support our ongoing growth plans, normal dividend payment and potential bolt-on acquisitions and announced a special dividend to shareholders of 15.0 pence per share, representing a return of £42m.
The Group remains committed to the continuous improvement of its performance in respect of health, safety, environment and sustainability. Our performance in this area of our business continues to be of a high industry standard. Nevertheless, we remain vigilant in monitoring and improving our processes and activities which impact upon the safety of our people and the environment.
Strong governance is integral to the long-term success of Alent and the Board is committed to ensuring that the business continues to be governed and managed with openness, honesty and transparency. Our Governance Report on pages 44 - 62 sets out the approach we take and highlights the key focus areas of the Board during 2014.
In September 2014, Steve Corbett stood down as Chief Executive. Steve played an important role in developing the underlying business and overseeing Alent's transition into becoming a publicly traded, specialty chemicals Company. We wish him success in his future endeavours.
Andrew Heath was appointed Chief Executive, joining Alent on 21 February 2015. Andrew's knowledge of and successful track record in delivering innovation and new technology to demanding global customers in the US, Europe and Asia will be of enormous benefit to Alent. His operational and corporate development expertise will bring valuable experience to our Board. Andrew will provide strong leadership to our well established senior management team and we look forward to working with him to take the Company forward.
I would also like to thank Rick Ertmann, President of our Assembly Materials business unit, who has been an extremely effective Interim Chief Executive.
Jan Oosterveld, Non-executive Director will be retiring following the Annual General Meeting on 7 May 2015. Jan joined the Board of Cookson Group plc in 2004 and was an inaugural Director of Alent. The Board thanks Jan for his very strong contribution and wishes him all future success.
Our progress in delivering against our strategy is only possible through the significant efforts and dedication of our people, while their calibre and commitment continues to impress. On behalf of the Board, I would like to thank all of our people for their continued efforts as together we focus on executing our strategy and taking Alent forward.
PETER HILL, CBE Chairman 2 March 2015
I am delighted to be presenting this, my first update as Chief Executive of Alent plc. Alent presents a great opportunity. The Company has strong products, with leading positions in global markets where demand will only continue to grow in the long-term. The fundamentals of our principal endmarkets, electronics, automotive and industrial, remain robust. The Company delivered good growth on a constant currency basis in 2014, with profitability increasing ahead of NSV, and cash generation remaining strong; all of which are very attractive and a credit to the management team.
Since my appointment was announced in November 2014, I have taken the opportunity to visit a number of our facilities, in Asia, Germany and the US, prior to me joining officially. This has meant that I have already met and spoken with many people, which has greatly helped in gaining an understanding of the fundamentals of the business. I have also spent time with the Board and senior management team to understand the strategy.
My first impressions of the business have reinforced my view that Alent is a strong business with good prospects for the future. The 2014 results are testament to that. While the principal end-markets showed modest improvement, supported by signs of better consumer confidence, Alent continued its track record of outperforming these markets. Strong relationships with OEMs, alongside a comprehensive global technical service presence and fast-cycle R&D driving ongoing product innovation, have enabled Alent to grow its market share.
During my site visits. I had the opportunity to see the strategy in action and I can tell you that what I have seen as I travel around the business matched what I read and was told before I joined. Here are just a few examples:
for high voltage, high temperature applications, and development in the leading technology nodes for copper damascene were particular highlights.
Alent clearly has some leading technology – I've been impressed with the technical capability within the business, from both a fundamental chemistry and material science perspective. This is vital in developing higher margin products and accessing the high unit growth end-markets.
Last, but by no means least, I have been impressed with the people I have met. They have been knowledgeable and passionate about the business, enthusiastic about what they do and focused on delivering on behalf of our customers.
Alent has demonstrated that its competitive advantages enable it to outperform its end-markets. It is clear to me, and the Board, that Alent's strengths will enable it to continue to do so in the future, but also that there is more that can be achieved here.
So my focus is on growth, and in determining where and how Alent will grow in the long-term, and where capital will be allocated to deliver enhanced shareholder value. Opportunities exist to leverage our strong cash generation and balance sheet, to grow organically and through M&A.
My first priority, then, is to fully understand Alent. To evaluate the strengths of the business model and strategy, and the opportunities facing the business. Over the next few months I will visit the remainder of the Company's operations to fully appreciate how we operate, and continue to meet the rest of the team. I will also be visiting customers to see our products in action and talking to them to understand the performance of the business from their perspective. I will also prioritise meeting investors, to intently listen to their respective views of Alent. I will take all these views on board in determining where to drive the growth.
As I've said, there is momentum in our business and in our end-markets. Industry experts are forecasting both the electronics and automotive markets to grow between 3 - 4% CAAGR from 2014 - 2018. Within those markets, there are attractive higher growth areas that present specific
"I am excited to have been asked to lead Alent. It is a strong Company with great prospects and I am eager to start working with the senior team in driving Alent through its next phase of growth and development".
REPORT STRATEGIC
STATEMENTS FINANCIAL
INFORMATION ADDITIONAL
opportunities for Alent such as tablets and automotive semiconductors, which are expected to grow around 7% and 9% respectively.
The improving end-market trends and the business performance in 2014 has reinforced our confidence in our strategic direction. Consequently, the Board and I feel the time is right to invest now, to extend our competitive advantage and accelerate future organic growth. Consequently, during the course of 2015 and 2016, we are embarking on a targeted investment programme; strengthening routes to market, product development, manufacturing and R&D.
Our customer-led, "fast-cycle R&D", and technical service model is key to our outperformance. We will, therefore, invest up to £7m during 2015, increasing headcount by around 100 people in these areas. The focus is on accelerating share gains, developing new products and new markets. We have a winning formula in this area and we will continue to build on this, ensuring we have the right people, in the right place, to take advantage of the opportunities we can see ahead with customers.
We will increase OEM sales headcount, particularly in Asia, to achieve key approvals and build customer intimacy. Headcount will be added to supplement our R&D teams, in support of both new and existing customers. Scientists and engineers will be recruited to increase product development, primarily in India and the US. We will also expand our global technical services capability to enhance support to customers.
Additionally we will increase capital expenditure during 2015 to 1.5 – 1.8x depreciation, focusing on upgrades to our manufacturing and R&D facilities, to support new processes, entry to new higher growth markets and the development of our high margin products. Specifically, we will be upgrading the copper damascene and wafer level packaging process lines in the US, and the powder manufacturing capability in Asia. Investment in R&D
equipment will be focused on high-margin products such as die-attach, LED, nano silver and performance coatings in our research centre in India. In the US, equipment will be added for advanced wafer fabrication research, and coating development equipment will be added for both decorative and performance coating applications in Europe.
We expect to see benefits starting to come through next year, with the full NSV growth benefit being delivered in 2017. Alent is a technology Company and it is essential that we innovate for the future if we are to remain ahead of the game. We will be mindful of end-market performance and will maintain discipline through the structured investment programme.
As ever, while visibility remains limited, we expect to make continued progress over the course of the year, with our normal seasonal improvement in the second half. As things stand, we anticipate that our core markets will continue to grow at a similar rate to 2014, on a global basis, during the course of this year and that Alent will continue to outperform its key markets.
We are confident our targeted investment programme will accelerate growth and margin improvement and that we are well placed to take advantage of improving market conditions.
I am excited to have been asked to lead Alent. It is a strong Company with great prospects. I am eager to start working with the senior team in driving Alent through its next phase of growth and development. I look forward to updating you on progress in next year's Annual Report.
ANDREW HEATH Chief Executive 2 March 2015
RICK REAGAN President, Enthone
ANDREW HEATH Chief Executive
Finance Director
RICK ERTMANN President, Alpha
Alent is a global supplier of specialty chemicals and engineered materials with #1 and #2 market share positions.
Our Assembly Materials business is the global leader in the development, manufacturing and sales of interconnect materials, primarily into the electronics market.
• water treatment, reclaim business
Strategically positioned close to industry-defining customers
Manufacturing
• Shanghai, China • Shenzhen, China • Chennai, India • Sihung City, Korea • Singapore • Taoyuan, Taiwan
• Langenfeld, Germany • Budapest, Hungary • s-Hertogenbosch, Netherlands • Naarden, Netherlands
Europe
Asia
Our Surface Chemistries business is a global supplier of high performance specialty chemistry, coatings and materials to the electronics, automotive and surface finishing industries as well as other industrial end-markets.
Adjusted operating profit
£44.6m
Asia
R&D Europe
• Shanghai, China • Bangalore, India
• Langenfeld, Germany • s-Hertogenbosch, Netherlands
Personal Computers 10-15% of Group NSV
Mobile & Infrastructure 10-15% of Group NSV
Microelectronics & Semiconductors 10-15% of Group NSV
Automotive Electronics 10-15% of Group NSV
Other Electronics 10-15% of Group NSV
Automotive Electroplating 10-15% of Group NSV
Water Treatment 5-10% of Group NSV
Other Electroplating 10-15% of Group NSV
• We focus on high unit, long-term growth markets.
GOVERNANCE CORPORATE
STATEMENTS FINANCIAL
Brake calipers each year +5million
Investment in our state of the art manufacturing plant, laboratories and customer research centre in Shanghai £20m
We will be the industry's preferred supplier of specialty chemicals and engineered materials, delivering leading technology represented by our innovative products, processes and people.
• We will exceed our customers' expectations by providing specialty chemicals and engineered materials, delivering leading technology, supported by superior applications expertise to our target markets.
For Alent, it's all about growth and delivering outperformance. We continue to target high unit volume applications such as tablets, flat screen televisions and automobiles, which in turn drives demand for our products.
We have continued to resource and deliver on our OEM marketing and selling strategy and have secured OEM specifications in both the consumer electronics and automotive markets.
3. Continue to develop higher-margin products
The shift from lower-margin commodity products such as bar solder to the higher-margin solder paste products continues.
4. Improve mix and operational efficiencies
We continue to streamline and right-size the business for the long-term. With our Shanghai facility fully commissioned, the shift of some of our manufacturing processes from the Netherlands to Hungary nearing completion, and our Chennai site in the commissioning stage, our global footprint is largely complete.
R&D is critical to the continued success of Alent to meet the demand for smaller, lighter and faster electronics and to take advantage of the opportunities presented by tightening environmental regulations as well as new and high-growth markets. Our R&D spend continues at a level of just under 4% of NSV. The majority of our R&D spend is customer-driven product improvements with a new product launched every week.
We have continued to invest in the business to support organic growth and will pursue appropriately sized acquisitions.
For more information on our strategy See PAGES 22-23
Our position as Global Market Leader, Our Competitive Advantage and Our Financial Strength will result in our Outperformance of our core markets through the cycle.
Global market leadership Our business units have #1 and #2 global market share positions.
Our strong financial position enables us to invest in the future growth of the business, both organic and inorganic.
Our OEM strategy, R&D capabilities and global manufacturing footprint sets us apart from the competition.
| $\overline{\phantom{a}}$ | |
|---|---|
Our global market leadership, our competitive advantage and our financial strength, will allow us to outperform our core markets through the cycle.
INFORMATION ADDITIONAL
GOVERNANCE CORPORATE
STATEMENTS FINANCIAL
REPORT STRATEGIC
Alent is a global market leader operating in an industry with high barriers to entry, comprising two focused specialty chemicals and engineered materials business units with #1 and #2 global market share positions.
The principal end-market for Alent is global electronics which accounts for approximately 70% of Group NSV.
Alent has a very broad exposure to the electronics industry and our products end up in electronic systems across a very wide range of applications, and are used in essentially everything with an on-off switch.
We operate within the electronics materials segment of the electronics value chain, where we supply specialty chemicals and engineered materials to our customers.
We supply electronic component manufacturers and OEMs, who, in turn, supply the electronic equipment manufacturers and suppliers.
In the electronics market, the trend towards increased interconnect density and portability in consumer electronics continues. Consumer demand is for faster, smaller and lighter products, which is leading to increasing miniaturisation and complexity, and the use of multi-layer circuit boards. Alent is at the forefront of this trend and a leading player in the development and supply of specialty materials that enable the design and manufacture of today's leading-edge electronic devices.
According to Prismark Partners, the electronics market is expected to grow 3.7% CAAGR from 2013-2018. It is the volume of electronic devices which is a key growth driver for our business. The electronics industry has historically been a "price down" industry, with reduced prices for each generation of product. This means that forecasts of market growth by value tend to understate the market growth by volume, and volume is the key driver of demand for our products.
Our view of our performance vs our key markets in 2014
| Alent's exposure to end-market |
Alent's Growth (2014) |
Alent vs Market (2014) |
|---|---|---|
| Surface Chemistries (50% automotive/ industrial focused) |
4.7% | |
| Performance Coatings |
3% | |
| Plating on Plastics | 4% |
| Alent's | Alent's | Alent vs |
|---|---|---|
| exposure | Growth | Market |
| to end-market | (2014) | (2014) |
| Assembly Materials (100% electronics focused) |
4.4% | |
| Surface Mount Assembly |
13% | |
| Paste | 10% | |
| Wire | 7% |
| Alent's exposure to end-market |
Alent's Growth (2014) |
Alent vs Market (2014) |
|---|---|---|
| Surface Chemistries (50% electronics focused) |
4.7% | |
| Electronics Chemistries | 7% | |
| Printed Circuit Board Chemistry |
6% | |
| Copper Damascene | 8% | |
| Microelectronics Plating Chemistry |
9% |
GOVERNANCE CORPORATE
The automotive and industrial endmarkets account for the remaining 30% of Group NSV.
Alent's products are used to manufacture the various electronic systems in an automobile. In addition, our electroplating chemistries are used to provide corrosion and wear protection to vital systems. Our decorative electroplating chemistries are used in external and internal applications.
Whilst our non-electronics performance coatings business is primarily focused on the automotive end-market, there are many micro markets that require decorative, wearand corrosion-resistant coatings.
The electronics content within a vehicle is growing at a rate that significantly exceeds the underlying automotive unit growth rate. Electronics content as a percentage of the total vehicle cost is expected to rise significantly as market penetration of hybrid and electric vehicles increase.
The need for improved corrosion-resistant and wearresistant coatings, driven by the need to provide longer warranty protection to customers, is driving demand for our products. The improved quality of automobiles and the requirement to reduce weight is also driving higher demand for increasingly sophisticated decorative finishes, which both enhance customer perception of the vehicle and enables lower weight materials (e.g. plastics) to be used in their production.
According to Prismark Partners, vehicle volumes are expected to grow approximately 4% CAAGR from 2013- 2018. On top of this, there is a strong trend for increased electronic content in vehicles and increasing demand for functional and decorative coatings, which benefits both of our business units. This dynamic will enable us to benefit from a twofold increase, both in the number of units as well as the increased product content.
Our strong global presence gives us close proximity to our customers and high-growth end-markets. This allows us to deliver high-quality customer sales and post-sales service, "just in time" global low-cost manufacturing, efficient supply chains and "fast cycle" R&D. Our local presence and knowledge helps us to constantly evolve and extend our collaboration and relationships with our customers.
Assembly Materials is the global leader in the development, manufacturing and sales of innovative specialty and engineered materials, used to assemble printed circuit boards and advanced semiconductor packaging. This business unit accounts for c50% of Group NSV, and consists of four product lines: Wave Solder Assembly, Surface Mount Assembly, Microelectronics Products and Other.
Assembly Materials NSV for the full year increased 4.4% on a constant currency basis, outperforming the underlying end-markets. NSV improved in the second half of 2014 compared to H1 2014 by 8.2% and was up 4.5% compared to H2 2013. This was supported by a modest pickup in electronics markets through the year, with industry analysts, Henderson Ventures, forecasting 3.3% growth in the world production of electronic equipment for full year 2014 versus a decline of 2.6% in 2013.
Global automotive production is expected to grow above historic rates with electronics content within vehicles also growing. During the year we saw signs of improvement across our markets in Europe, Asia and the Americas although Brazil in particular, saw negative growth due to difficult economic conditions. Europe became more unpredictable during the second half of 2014 as both economic conditions and exports became less certain.
Adjusted operating profit increased 5.3% on a constant currency basis whilst NSV margin increased by 0.2pts. We have increased NSV and margin contribution from our Surface Mount Assembly product line through market share gain, disciplined pricing and our ongoing focus on cost control. This was partially offset by the performance of our reclaim business which was further impacted by tighter supplies of scrap feed stocks coupled with lower metal prices, particularly silver. The average price per ounce of silver has declined approximately 20% year-on-year.
Cost control, pricing discipline, improved mix and manufacturing efficiencies combined to ensure that margin contribution increased across most product lines during the year.
We continue to optimise our manufacturing footprint throughout the world. In Europe we have moved some of our manufacturing from the Netherlands to an enlarged facility in Hungary. This is now largely complete with the plant in Hungary now being commissioned. Meanwhile, our replacement manufacturing plant in Chennai, India is complete and will be commissioned in Q1 2015. In addition, during the year we also relocated manufacturing capacity from Sao Paulo to Manaus, Brazil. We are confident that these changes will deliver improved customer service, consistent high quality products and lower cost of manufacturing.
In our more mature Wave Solder Assembly product line, NSV declined 1.0% on a constant currency basis. The ongoing mix shift from Wave Solder to Surface Mount Assembly continued, leading to a year-on-year volume decline of just under 7% in bar solder although our wave solder flux product volume increased 3.5% offsetting most of the bar volume decline.
In our higher performance and higher margin Surface Mount Assembly product line, NSV increased 13.2% on a constant currency basis due to a strong performance across all product lines, with the exception of Stencils, where we have exited our American Stencil businesses during the course of the year. Solder paste in particular was very strong with volume up 10% and further progress in margins. We continue to leverage our OEM sales and marketing strategy in this area and have product specifications at many global Tier 1 and Tier 2 smartphone, tablet, personal computer and automotive electronics systems' OEMs. Sales of tape-and-reel packaged preforms, which are manufactured shapes of solder used in smartphones and automotive electronics, also delivered strong growth in volume and margin with many new design wins with targeted European automotive suppliers. There was further contribution from wire with volume up 7%, driven by increased demand in Asia.
Microelectronics Products includes a range of products that are sold into the semiconductor packaging and LED endmarkets, including electronic polymers, solder spheres, and die-attach materials. NSV increased 4.6% on a constant currency basis. We are seeing strong interest in our die-attach technology, however customer acceptance lead times are long. The growth prospects in this product line over the medium term remain very strong.
The "Other" product line includes our water treatment chemicals business, recycling and reclaim operations, and our consumer products. NSV decreased 6.0% on a constant currency basis. NSV in our water treatment business increased 1.0% on a constant currency basis on the back of new product launches and continued efforts to globalise sales, having seen double digit growth in both North America and Asia, while economic conditions in Europe subdued revenues in some areas. Our reclaim business NSV and contribution margin were further impacted by lower volumes of scrap material, higher raw feed stock costs coupled with lower metal prices, particularly silver.
STATEMENTS FINANCIAL
REPORT STRATEGIC
Surface Chemistries is one of the world's leading specialty chemicals manufacturers serving the electronics and the automotive/industrial markets, with NSV split predominantly between these two end-markets. This business unit accounts for c50% of Group NSV, and consists of three product lines: Performance Coatings, Electronics Chemistries and Other.
Surface Chemistries NSV for the full year increased 4.7% on a constant currency basis due to solid growth from both our Performance Coatings and Electronics Chemistries product lines, leading to an outperformance versus underlying markets, as a result of market share capture, product development, customer service and consistent quality products. NSV improved in the second half of 2014 compared to H1 2014 by 3.2% and was up 6.3% compared to H2 2013.
The strong demand in Americas and Asia markets continued whilst Europe had started to show signs of recovery during the first half of the year before slowing a little and becoming more unpredictable during the second half of the year.
Adjusted operating profit increased 10.4% on a constant currency basis with NSV margin increasing 1.1pts to 21.4%. We have increased NSV and margin contribution from both our Performance Coatings and Electronics Chemistries product lines through market share gain, customer service, disciplined pricing and continued focus on cost control.
We have continued to invest in the future growth of the business. Our position in the Asia market was enhanced during the year with the commissioning of our state of the art plant, laboratories and customer research centre in Shanghai which is now providing us with the foundation to grow our presence and position in China.
Our replacement plant in Chennai, India is currently being commissioned, whilst we have closed our Tianjin manufacturing facility in China and transferred activity to Shanghai. In addition, we have continued to upgrade our existing facilities, particularly in West Haven, USA, and our research and development facilities worldwide, to ensure we have state of the art facilities to meet the ever increasing needs and requirements of our customers.
Automotive and industrial markets saw a modest pick-up in demand during the year, with IHS Automotive reporting 2014 worldwide unit growth of 3% in light vehicle production. We made solid progress in our Performance Coatings product line with NSV up 3.3% on a constant currency basis. Our functional and decorative coatings business delivered a strong performance on a global basis, particularly in Asia.
In our Electronics Chemistries product line, NSV increased 7.1% on a constant currency basis. Within this product line, our printed circuit board chemistry volumes were up 6% as we continued to gain market share in through-hole metallisation and final finishes.
In copper damascene, NSV increased by 7.8%. This strong growth was driven by the continued ramp up in production of the 28nm and 20nm advanced nodes. We continue to make progress at the 14nm and 10nm nodes with ongoing product evaluations at a number of key customers. Our market share position at the outer edge nodes remains unchanged.
In addition, in late 2014 we announced that we settled our litigation with Moses Lake Industries, Inc. (MLI) regarding Enthone's patented copper damascene applications. This resolves all pending legal disputes between the companies. Under the terms of the settlement, MLI entered into a license agreement with Enthone for monetary consideration. Under the license agreement, Enthone has granted MLI a non-exclusive worldwide license to key patents relating to advanced copper damascene processes.
The smaller product line, "Other" includes equipment sales, where we sell electroplating equipment to our customers typically alongside a multi-year contract for Alent to provide the associated electroplating chemicals and small amounts of non-proprietary resale products sourced from third parties and resold to customers. We continue to reduce NSV from this product line due to minimal margin contribution.
18 ALENT PLC ANNUAL REPORT & ACCOUNTS 2014 WWW.ALENT.COM
• A world-leading power semiconductor manufacturer wanted a solution to package their new high performance semiconductor chips to achieve new standards in electrical efficiency and reliability.
• Alpha developed a solder paste with its newly patented low temperature alloy for enhanced mechanical strength. In addition a paste flux chemistry was formulated to eliminate solder drip phenomena during the reflow process.
Electrical efficiency >35%
REPORT STRATEGIC
GOVERNANCE CORPORATE
Our business model is centred around our customers – OEMs in the electronics, automotive and industrial high growth markets.
For Alent, it's all about growth and delivering outperformance. We focus on high unit, long-term growth markets and our objective is to outperform those end-markets.
Our position as global market leader, our competitive advantage and our financial strength has enabled us to outperform our end-markets through the cycle.
We have a differentiated customer model in our OEM marketing and selling initiative. We couple our long-term customer relationships with our "fast cycle" R&D and global technical services to provide lower cost of ownership solutions to our customers and the OEMs that specify our products.
With strong cash conversion, we will continue to invest for the future and ensure our R&D facilities are equipped with the most advanced leading edge equipment to maintain our competitive advantage.
STATEMENTS FINANCIAL
We add value for our customers by supplying high-performance, value-adding, consumable products and services that allow them to:
We deliver value to customers across the world through our manufacturing plants and R&D centres strategically located close to industrydefining customers:
• Long-standing collaborative customer relationships.
• Technology and "fast cycle" R&D providing innovation driven growth.
We continually enhance and develop our skills and capabilities to ensure we are able to innovate and deliver for our customers in the short- and long-term with:
We create value for all our stakeholders:
• Develop strong relationships with our customer base and have a deep understanding of end-customers' manufacturing processes and future material needs.
• Committed to operating a sustainable, responsible organisation that protects the environment and the health and safety of those with whom we have relationships.
Throughout this report, we will set out the progress we have made against our strategy. The key elements of our strategy and progress are outlined below.
Unit volumes are the underlying driver of NSV growth for Alent. Demand for our products is directly linked to demand for our customers' end-products. We specifically focus our sales, marketing and product development efforts on those high-demand end-products which in turn drive high unit count applications and demand for our products.
The electronics market is forecast to experience growth in terms of value, and unit volumes over the medium- to long-term. Our leading positions across a very broad range of the electronics value chain, including the personal computer, smartphone, tablet, automotive electronics, microelectronics, semiconductor and general electronics end-markets, means that we have significant exposure to this underlying growth trend.
Similarly, the global automotive market is expected to experience continued unit growth. This is enhanced by a growing trend in the automotive industry for increased electronic content in cars, and increased use of functional coatings for decorative, wear- and corrosion-resistant applications, which is benefiting both of our strategic businesses.
Alent has strong collaborative relationships with many Original Equipment Manufacturers (OEMs) who specify which specialty materials, chemistries and technologies are used in their products. We leverage these relationships to increase OEM qualification of our products. Our longstanding relationships provide a formidable barrier to entry for competition.
Alongside this important differentiator, we continue to focus on the value-add sales competencies across all our people so as to realise the full margin potential of the products and technologies we offer our customers. Equally important is the service element we provide through our technical process support and customer training academies. The knowledge and expertise of our technical service organisation is highly valued by OEMs and subcontractors, and this further strengthens our customer relationships.
STATEMENTS FINANCIAL
We continue to migrate away from lower-margin commoditised products to focus on higher-margin, higher-value, innovative products. The constant evolution through product innovation means that we expect further gradual mix improvement across our portfolio.
We continue to develop operational excellence programmes to increase productivity and reduce costs and have been incorporating Six Sigma practices into our operations since 2001. We have continued to right-size and streamline the business structure to optimise further our manufacturing footprint, customer service and administrative processes.
Continued investment in R&D ensures that Alent remains ahead of emerging trends, delivering solutions to strengthen our leadership position in terms of innovation and product development in our market niches.
We continue to strengthen our market leading positions. With a global presence, close proximity to customers and leading technologies, we are constantly identifying new opportunities in high unit growth complementary end-markets.
Alent is an asset light, strong free cash flow generative business. We continue to invest in the business to support organic growth and will pursue appropriately sized acquisitions focusing on technology or bolt-on market share-led consolidations. We maintain a progressive dividend policy.
We monitor progress against our strategic objectives via a series of financial and non-financial KPIs.
GOVERNANCE CORPORATE
STATEMENTS FINANCIAL
| Customer complaints Link to strategic point 4 |
Our customers are at the heart of our strategy and vital to our success. Therefore "right first time" is our key measure for dealing with our customers. |
0.22% 2014 0.24% 2013 2012 0.31% 2011 0.35% |
|---|---|---|
| On-time deliveries Link to strategic point 4 |
Our customers are dependent on us for delivery of products and services on time, to cost and to specification. |
96.0% 2014 96.8% 2013 2012 97.2% 2011 95.9% |
| Energy consumption Link to strategic point 4 |
The Group's aim is to reduce energy usage and associated greenhouse gas emissions. Over the past number of years, we have reduced our overall consumption of energy through the implementation of energy and greenhouse gas reduction projects. We do not have very energy intensive processes and expect similar emission numbers going forward. Note: In calculating energy consumption, we use the US national average to convert KWh to MMBtu. |
MMBtu 300,000 280,000 260,000 240,000 2011 2012 2013 2014 |
| Greenhouse gas (GHG) emissions Link to strategic point 4 |
As with energy consumption, measuring GHG emissions is part of the Group's programme to reduce energy usage and associated emissions. We expect similar GHG emission numbers going forward. |
MTCO2E 24,000 23,000 22,000 21,000 20,000 2011 2012 2013 2014 |
| Total recordable injury rate (TRIR) Link to strategic point 4 KEY 1. Focus on high unit growth end-markets 2. Leverage our differentiated value-add customer strategy 3. Continue to develop higher-margin products 4. Improve mix and operational efficiencies 5. Further invest in R&D to expand our market, technology and innovation leadership |
Rate of injuries and illnesses is used to monitor progress towards the Group's goal of zero work-related injuries and illness. Note: Industry benchmark data for 2014 is yet to be released. The number in the chart opposite is an estimate. |
4 3 2 1 0 2011 2012 2013 2014 Alent Industry benchmark |
| 6. Leverage our financial strength to support organic growth and acquisitions For more information on our strategy See PAGES 22-23 WWW.ALENT.COM |
ANNUAL REPORT & ACCOUNTS 2014 ALENT PLC 25 |
Sustainability is a key part of our business model and we recognise its importance in delivering shareholder value.
Alent has a global base of manufacturing facilities and is serving customers in more than 100 countries worldwide. Our facilities are close to our customers to allow us to operate in "just in time" supply chains. We therefore have a relatively large number of small- and medium-sized facilities located close to our customers throughout the world's major economic regions, rather than large, centralised factories supplying customers worldwide. Our manufacturing processes are not energy intensive (total energy costs are approximately 1% of revenue) and do not produce large quantities of hazardous or other wastes and emissions.
We recognise that appropriate attention to the fulfilment of our corporate responsibilities can enhance our overall performance. In structuring our approach to the various aspects of corporate social responsibility, we take account of guidelines and statements issued by stakeholder representatives and other regulatory bodies from around the world. Social, environmental, health, safety and ethical matters are reviewed by the Board, including the impact such matters may have on our management of risk.
Our sustainability approach is embedded in our business through four key areas:
requiring all of our businesses and our people to comply with the highest standards of legal and ethical behaviour;
investing in and developing our most valued asset: our people;
developing innovative products and services which help our customers lower their environmental impact; and
protecting the health and safety of our people, contractors, customers and the general public, and reducing energy consumption, water use and waste in our operations.
The Group has a Code of Conduct (the "Alent Code"), which is obligatory and sets out the standards expected of everyone, without exception, who works for Alent in any of its worldwide operations. The Alent Code emphasises our commitment to ethics and compliance with the law, and sets out required standards of legal and ethical behaviour. Everyone within the Group is accountable for upholding its requirements.
The Alent Code sets out clear and simple principles covering: customers; products and services; employees; investors; society and local communities; health, safety and the environment; conflicts of interest; and competitors.
Long-term customer satisfaction is recognised as being essential to the attainment of Group goals, as is maintaining a reputation for integrity in all business and other dealings, both with customers and suppliers. The Alent Code defines how we must compete vigorously and honestly.
We believe we can only achieve our goals through the efforts of our people. Job satisfaction requires working environments that motivate our people, together with opportunities for training and development to maximise personal potential. All of our companies must ensure that recruitment, training, promotion, career development, termination and similar employment-related issues are based on individual ability, achievement, experience and conduct without regard to race, colour, nationality, culture, ethnic origin, religion, gender, sexual orientation, age, disability or any other reason not related to job performance or prohibited by applicable law.
We are committed to the highest standards of corporate governance and transparent investor communication, as discussed in more detail in the "Governance" section of this report.
We seek to be a good corporate citizen wherever we conduct business, to observe all national and local laws and take into account regional and local concerns, customs and traditions.
The Alent Code requires all of its people, officers and Directors to have a duty of loyalty to the Group. Personal interests that do, may or might appear to conflict with Group interests must be avoided at all times.
The Alent Code and its policies on anti-bribery and corruption require that employees and others working on behalf of the Company do not engage in any form of bribery or corruption.
Our anti-bribery and corruption compliance programme has been implemented globally via an e-learning training module. New employees, as relevant, are required to complete the e-learning training as part of their induction process.
We have a 24-hour employee business concern helpline (telephone and email) facility. This is an independent and confidential service through which our people worldwide may register any concerns about any incorrect or irregular practices they perceive in our workplace or business environments.
The Alent Code is reproduced in full on the Group's website.
We believe in the importance of investing in and developing our most valued asset: our people. We utilise a variety of programmes tailored to help our people enhance their performance, set and achieve objectives, and develop their leadership skills. In addition, we recognise and reward their high performance and achievements.
We believe our people are key to our competitive advantage and we have created comprehensive development opportunities to introduce, reinforce and further strengthen their special talents. These opportunities include:
In support of our commitment to our people and their development, we launched "Alent University", a multilanguage online learning management system to enhance our various employee development opportunities and further define our suite of blended learning programmes. Currently we are looking to expand our e-learning opportunities as well as our compliance outreach with a suite of multi-language core compliance training to further develop our corporate social responsibilities.
In addition to our development opportunities, we are committed to providing competitive pay and a comprehensive benefits package to attract and retain the best people. Our plans and initiatives include health and welfare plans, incentive plans, wellness opportunities, work/life benefits, and market benchmark compensation plans.
We believe that these initiatives are an important reason for our ability to consistently help create added value for our customers, allowing us to outperform many other competitors in our industry segments.
We are committed to being a responsible corporate citizen through support for appropriate charitable projects, organisations and charities. The needs of the communities in which we operate are varied and diverse and although there are no global initiatives, there are numerous "grassroots" charitable efforts carried out within the regions.
Furthermore, employees are encouraged to act as responsible and responsive citizens and to support projects, organisations and services that work towards the common good and improvement of their community and society. Additionally, as part of our Celebrating Achievement Programme, we award employees for their extraordinary demonstration of Alent values in society under the 'Social Responsibility' award category.
Total headcount
We recognise our responsibility to respect and support human rights. Therefore the working conditions of our people are in compliance with the internationally recognised standards and laws of the countries in which we operate. Furthermore we acknowledge and support the principles of the eight core conventions that the International Labour Organisation has identified as being fundamental to the rights of people in the workplace.
The Alent Human Rights policy is reproduced in full on the Group's website.
STATEMENTS FINANCIAL
CORPORATE
REPORT STRATEGIC
We are committed to diversity and inclusion, not only in response to compliance requirements, but also because we believe it is the right thing to do. We embrace the cultures of countries where we do business by:
Over the past year, we have further defined our global diversity initiatives through a more formalised Diversity Outreach Initiative which includes:
• the creation of a Global Diversity Council, comprising senior and middle management members, to study gender diversity issues and propose initiatives to increase gender diversity throughout Alent; and
• increased development of "Talent Pipeline" programmes focusing on recruitment and succession management as a process for identifying potential candidates for key positions including specific actions related to increasing the number of women candidates.
The Board strongly supports the spirit of the Davies Report "Women on Boards". The importance of gender diversity is recognised in our commitment to recruit, develop and promote people on merit at all levels across the Group.
We are committed to gender-balanced leadership and want to ensure that we attract and retain the best people for our business. 17% of our senior managers and 33% of our supervisors are women. Additionally, 25% of our Board is female. Our senior management and Board support our diversity and inclusion strategy and are focused on ways to improve the number of women at both the executive and management level in the future, to ensure that we generate innovative and creative thinking for our business.
The Alent Diversity policy is reproduced in full on the Group's website.
Alent has long been committed to developing products and services that help its customers lower their environmental impact. Our product technology focus is to develop environmentally-friendly products, many that are lead-free, halogen-free and hexavalent-free. We collaborate with our customers, technology partners, and the world's leading manufacturers, to ensure that our green technologies create value by meeting current and future performance, productivity, design, profitability, safety and regulatory requirements.
We continue to invest in and expand our capabilities to take back metal waste streams and responsibly recycle that waste into high purity raw materials for reuse in our manufacturing processes.
Alent understands the seriousness of the possibility that tin mined in conflict areas of the Democratic Republic of Congo (DRC) may become part of the electronics supply chain. Moreover, we understand that profits from such tin mining in conflict areas may be encouraging certain unfair labour practices or other human rights violations in the DRC. We are committed to ensuring that minerals from conflict mines do not enter our supply chain.
Alent's policy is to operate in a manner which preserves health, safety and a sound environment. For our businesses worldwide, the minimum acceptable standard is to meet their legal HS&E obligations. The aim is continuous improvement.
We believe that good HS&E performance is an integral part of efficient and profitable business management. We recognise that these matters rank equally in importance with operational responsibilities and that success in these areas depends on the involvement and commitment of everyone in the organisation.
The Board has overall responsibility for our HS&E policy and for monitoring its implementation. Executives and line managers at all levels are directly responsible for HS&E matters in the operations under their control.
Particular emphasis is focused on the following areas:
All of our manufacturing locations are certified to ISO 14001, the international standard for environmental management systems. In addition, 20 of our operations are certified to OHSAS 18001, the international occupational health and safety management system. Certification to these international standards is not appropriate for all facilities, particularly smaller ones and those with very limited environmental, health and safety impact. All products are reviewed for correct labelling, packaging, transport documentation, and supporting safety data documents including Globally Harmonised Safety Sheets to support global market and commerce requirements.
Regulatory actions against Alent companies have been at a low level for several years. We monitor all EHS regulatory activities globally and focus on correcting any deficiencies. None of these issues have been significant, but all matters are taken seriously and corrective actions put in place to prevent reoccurrence.
Like many manufacturers, some of our operations have potential environmental liabilities because of past operations at their current or former sites. Where remediation is required, we work with external specialists and with government authorities to ensure that remediation is conducted effectively and efficiently.
Alent ensures worldwide compliance with REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals) by a central coordination of all REACH related obligations.
We continue to effectively address RoHS (Restriction of Hazardous Substances) and any customer-required restricted substance management through proactive contact with our suppliers and continued sampling of materials deemed "high risk".
Our operations are impacted by the health and safety risks associated with manufacturing and other activities within the countries in which we operate. Our HS&E management programmes are designed to be forwardlooking in the identification, management and mitigation of HS&E risks.
We utilise audits, inspections and risk analysis to assess and continually improve our safety programmes. Both management systems and compliance audits are performed and results are shared across the organisation.
Safety/best practise bulletins serve as a concise platform to convey critical safety information and programmes that can be deployed throughout the Group in a timely manner. Bulletins released in 2014 covered topics such as storage and handling of flammable and combustible liquids, chemical compatibility, electrical system maintenance, static electricity and equipment critical parts.
We use a number of metrics to evaluate health and safety performance globally. All of our facilities report injuries in accordance with United States Department of Labor Occupational Safety and Health Administration (OSHA) record-keeping rules. Our incident rates are compared to a NAICS 325 benchmark for chemical manufacturing tracked by the United States Department of Labor – Bureau of Labor & Statistics.
4
Total Recordable Injury Rate (TRIR) measures the number of recordable injuries/illnesses per 100 workers. In 2014, we achieved a TRIR of 0.60. Lost Work Incident Rate (LWIR) tracks the number of injuries/illnesses per 100 workers with one day or more away from work. Our 2014 LWIR was 0.46. These areas continue to be a focus for the business, with both rates below the industry benchmark of 2.00 for TRIR and 0.50 for LWIR.
Our manufacturing processes are not energy intensive and do not produce large quantities of air emissions. We operate a programme aimed at reducing energy use and its associated emissions of greenhouse gases (GHG). We also leverage our extensive Six Sigma programme to identify and execute projects for the reduction of energy consumption at our facilities around the world.
In 2014, our manufacturing operations consumed 280,368 million British thermal units (MM Btu) of energy. Of this 117,060 MM Btu was electricity and steam use (indirect energy). The remainder of our energy use consisted of natural gas, and fuel oil (direct energy). Note: In calculating energy consumption, we use the US national average to convert KWh to MM Btu.
FINANCIAL
REPORT STRATEGIC
Our methodology for measuring GHG emissions follows the Greenhouse Gas Protocols of the World Business Council for Sustainable Development and the World Resource Institute and makes use of emission factors in accordance with UK Department for Environment Food & Rural Affairs (Defra) and Department of Energy and Climate Change (DECC) guidelines. Previous years calculated (2010-2013) have been updated, in accordance with accepted methodologies, using the Defra emission factors to provide a consistent comparison with the 2014 calculated values. We report direct and indirect GHG emissions in terms of CO2-equivalents (CO2-e). Direct GHG emissions are those that occur from stationary and mobile sources that we own or control. These emissions are also referred to as "Scope 1" emissions. Indirect emissions, or "Scope 2" emissions, are related to the use or purchase of electricity and steam.
We have added an intensity/normalisation ratio to further measure our performance in this area. We report on Margin over Material (MOM) as it effectively removes fluctuations in material cost from the calculations and is the best gauge for our business. MOM for 2014 was £306,339.
We have collected fuel and electrical usage data from all of our major manufacturing locations and major sites to generate GHG emission data since 2010. This year we expanded the GHG emission review to also include all offices and warehouses under our control to calculate a more complete GHG impact for Alent consistent with GHG reporting methodologies. This is not an easy calculation, since in most cases we do not have direct readings of energy used at these locations. We are using methods of estimating typically Scope 2 (electricity consumption) GHG emission on square footage basis for the additional space to obtain the GHG impact. These methods are generated by approved agencies and are generally accepted.
This year we also completed a refrigerant inventory review to highlight the use of refrigerant type materials and to determine potential GHG emission sources due to its high global warming potential (GWP). This review found that GHG emission from this source were insignificant (approximately 259 MT CO2e) in normal operation of these refrigerant systems. This small number is in part due to the usage of R-22 at many facilities, which is an HCFC (Hydrochlorofluorocarbon), regulated as an ozone depleting substance and not included in GHG inventories even though it has a high GWP. Usage of R-22 continues to be phased out worldwide, in accordance with the Montreal Protocol, and replaced with other GHG regulated refrigerants. We will review this inventory on an annual basis to monitor this changeover.
In 2014, we had a total of 22,862 metric tons of GHG emissions, made up of 9,574 metric tons of direct (scope 1) and 13,288 metric tons of indirect (scope 2) GHG emissions
based on direct data. The additional space of offices and warehouses combined to an additional 4,588 MTCO2 emission to the above Scope 2 total. We will be reviewing this estimated data in the upcoming year to work this into the total data to get a total picture of GHG emissions.
This is the first year we have reviewed our water usage in more detail. Our major operations used 175,574 cubic metres of water for process and domestic use in 2014. Most of our operations are not very water dependant, but one of our businesses uses water as a raw material in its products and process operations. In the upcoming year, we will develop a programme to break down this usage more specifically and review opportunities to conserve this valuable resource.
The Alent HS&E policy is reproduced in full on the Group's website.
Alent's fully integrated system of risk management and internal controls provides visibility and accountability for risks throughout the Group.
Alent faces a wide range of risks across its global business. Efficient and effective management of these risks is at the centre of the way the Group operates.
The risk assessment approach is designed to identify, categorise and assess in terms of impact and likelihood of occurrence, both before and after control mitigation, the key risks facing the business.
As illustrated in the diagram below, Alent plc lies at the very centre of the Group's risk assessment process, and utilises various different controls and risk mitigation factors to protect itself from both the existing and potential risks it has identified that could impact the business.
Alent's risk management framework provides a consistent approach to dealing with risk throughout the Group. Risks are identified and mitigated at every level within the Group. Where applicable, risks are aggregated and all Group risks and mitigation actions are shared with the operating companies to ensure consistency of mitigation and localisation where possible.
Not all risks are within the control of the Group. However, the Group's approach to risk management ensures it has controls in place to reduce the impact of any such risks wherever possible, should they occur.
Ultimately the Board is responsible for the Group's risk management and internal control frameworks and it regularly reviews insurance and other measures adopted to manage risks within the Group. Additionally, the Audit Committee regularly monitors, reviews and evaluates the effectiveness of the risk management system and internal controls of the Group.
The Board delegates a level of risk management to the Executive Management team through a series of Group policies and delegated authority matrices. Executive Management discharges this responsibility through its Executive Risk Committee, which reviews, evaluates, mitigates and reports on risks within the Group. These risks include economic, financial, operational and regulatory.
The Executive Risk Committee meets regularly and provides the Board with updates on any risks that could have a material impact on the Group, assessing the impact and likelihood of occurrence before, and after, mitigating controls.
REPORT STRATEGIC
Throughout its global operations, the Group faces various risks, both internal and external, which could have a material impact on the Group's long-term performance.
The Group manages the risk inherent in its operations in order to mitigate exposure to all forms of risk, where practical, and to transfer risk to insurers, where cost-effective. The risks below are not the only risks the Group will face. Some risks are not yet known and some could change their level of materiality and impact on the Group in the future. All of these risks could materially affect the Group, its business units, and results of future operations or financial condition.
| KEY ACTIONS | TREND* |
|---|---|
| • A review of intelligence related to our end-markets to ensure that any deterioration in those markets is identified early, communicated appropriately and acted upon. • The Board regularly reviews Group strategy, which determines the markets in which the Group operates. The current spread of the Group's business, both geographically and by end-market served, provides some protection to the Group should conditions in particular |
|
| • Cost-reduction initiative and the cost base remains tightly controlled. | |
| • Counter-parties are chosen carefully so that those with poor credit During an economic/financial downturn, there ratings and reputations are avoided by the Group wherever possible. • Surplus cash positions and bank balances held at subsidiary level are reviewed on a regular basis by the Group's treasury department and actions taken where appropriate. • Group companies must hold adequate and specific reserves against possible bad debts. |
|
| • The Group's treasury policies and procedures require operating companies to hedge material exposures arising from foreign currency transactions, utilising forward foreign exchange contracts. • The Group does not attempt to hedge the translational impact of exchange rate movements on reported earnings. • For key operating currencies, the Group manages the translational impact of exchange rate movements on its assets by broadly matching the currency profile of its borrowings with the currencies of its asset base. |
|
| • Significant investments in research and development are made to sustain competitive advantage and to ensure that the Group remains able to front-run emerging trends and maintain its leadership position in terms of innovation and product development in its market niches. new or alternative technologies if its businesses • The Group applies for patents over its products, technologies and processes in a number of jurisdictions, encompassing all geographic regions. • New product and service offerings by competitors are regularly monitored and any perceived breach of Group registered patents, know-how or designs is vigorously challenged. • The Group avoids holding key intellectual property in countries which do not afford an acceptable degree of legal protection to Alent. |
|
| markets deteriorate. |
| RISK | KEY ACTIONS | TREND* | |
|---|---|---|---|
| Personnel The loss of key personnel or the failure to attract, develop or retain skilled or qualified employees could negatively impact the Group. |
• The Group has created comprehensive development opportunities to introduce, reinforce and further strengthen employee talents. • The Group utilises a variety of programmes tailored to help its employees enhance their performance, set and achieve objectives, develop their leadership skills and recognise and reward their achievements. |
GO CO VE RP OR RN AN AT E CE |
|
| • A succession planning programme with an identified succession plan is in place for senior members of staff. • The Remuneration Committee approves fit-for-purpose employee compensation and incentive programmes. |
|||
| Raw material prices The Group's future prospects, financial position and results of operations could be adversely |
• The Group has processes in place to ensure that any increase or decrease in the cost of commodity metal prices are passed on to its customers. |
STA FIN AN |
|
| affected if it is unable to pass on to its customers fluctuations in the prices of the raw materials which it purchases. |
• Group systems are automatically uploaded with LME (London Metal Exchange) prices or equivalent on a daily basis. These prices are then agreed and passed on to the customer at the time of placing an order. |
TEM CIA EN L TS |
|
| Exposure to loss of key manufacturing assets The loss of key manufacturing assets as a result of a major catastrophe could cause significant |
• The Group delivers its products on a "just in time" basis from a manufacturing base located around the world. Its "copy exact" manufacturing structure allows the Group to produce products to the same specification across all of its global manufacturing sites. |
||
| disruption and lead to temporary plant closures or suspension of operations and production which could negatively impact the Group's business and financial position. |
• The Group's procurement strategy ensures that it has agreements in place with regional suppliers across the globe and can increase its supply of raw materials in each region as necessary. |
||
| • Business continuity plans are established and are regularly reviewed and updated as necessary to ensure they remain relevant. |
AD INF DIT OR |
||
| REGULATORY RISK Environmental, health and safety |
• Executives and line managers at all levels are directly responsible through the normal management structure for HS&E matters in the operations under their control. |
IO MA NA TIO L N |
|
| The changing regulatory environment, particularly in emerging markets, and future expenditure on compliance with environmental and health and safety laws and |
• Group facilities are certified as being ISO compliant to quality, environmental and health and safety standards, by a third party registrar. |
||
| regulations may adversely affect the Group's future prospects, financial position and results of operations. |
• The Group has in place an insurance programme covering all of its businesses which provides an acceptable level of coverage for the operational risks which they face. |
||
| Failure to comply with laws, regulations and restrictions/ethics and governance Should the Group's businesses fail to comply |
• As part of its planning process before entering a new market or territory, or expanding in an existing market or territory, the Group undertakes a rigorous assessment of the risks involved. |
||
| with applicable legal and regulatory requirements, this may result in a financial loss or restriction on their ability to operate. |
• The spread of the Group's major businesses, both geographically and by end-market served, provides some protection to the Group should any of its businesses be adversely impacted by legal, regulatory or other changes in an individual market or territory. |
||
| • The Group has in place an insurance programme covering all of its businesses which provides an acceptable level of coverage for the key risks which they face. |
|||
| * Trend indicates perception of how risk has moved year-on-year. | |||
A year of good progress with continued outperformance of key markets.
DAVID EGAN Group Finance Director
I am pleased to be reporting on a year of good financial progress for Alent. On a constant currency basis, Alent has delivered growth in NSV, adjusted operating profit, NSV margin and adjusted EPS together with strong cash generation. Foreign exchange translation has been a major headwind on our reported results in 2014. Using 2014 average exchange rates would have decreased 2013 NSV and adjusted operating profit by 6%. Our principal markets, electronics, automotive and industrial, have all shown modest improvements as we progressed through the year. Global economies, on the whole, have shown growth although Europe and Brazil, in particular, have been subdued, whilst global consumer confidence has improved slightly year over year.
Alent has continued to consistently outperform its principal end-markets. We have either held, or grown, market share in the majority of our end-markets, maintained price discipline and continued to exert tight cost control.
As a result of our competitive advantages and financial discipline, Group NSV increased 4.6% on a constant currency basis, adjusted operating profit increased 7.6% on a constant currency basis and adjusted earnings per share increased 11.1% on a constant currency basis. In addition, robust financial balance sheet discipline was maintained.
Cash generation was strong during the year resulting in a significant strengthening of the balance sheet leading to a net debt to EBITDA ratio of 1.0x following the payment of the £42m special dividend in October 2014.
"Cash generation was strong during the year resulting in a significant strengthening of the balance sheet."
GOVERNANCE CORPORATE
STATEMENTS FINANCIAL
ADDITIONAL
A summary of the Group's results is set out below. Further detail on the performance of each business unit is included on pages 16 to 17.
| At reported rates | % change at | |||
|---|---|---|---|---|
| 2014 | 2013 | Reported | Constant | |
| Revenue (£m) | 644.8 | 684.7 | (5.8) | (0.2) |
| NSV (£m) | 413.0 | 420.1 | (1.7) | 4.6 |
| Adjusted operating profit (£m) | 95.1 | 94.1 | 1.1 | 7.6 |
| NSV margin (%) | 23.0 | 22.4 | 0.6pts | 0.6pts |
| Adjusted profit before tax (£m) | 91.5 | 88.0 | 4.0 | 11.3 |
| Adjusted earnings per share (p) | 25.0 | 24.1 | 3.7 | 11.1 |
| Adjusted cash generated from operations (£m) | 94.0 | 102.8 | (8.6) | |
| Net debt (£m) | 108.3 | 96.5 | (12.2) | |
| Leverage (x EBITDA) | 1.0 | 1.0 | – | |
| Full year dividends per share (p) | 9.00 | 8.60 | 4.7 | |
| Statutory profit before tax (£m) | 73.4 | 77.7 | (5.5) | |
| Statutory earnings per share (p) | 17.0 | 22.1 | (23.1) |
A full definition of non-GAAP measures is outlined in note 4 on pages 93 to 94.
| INF | ||||||
|---|---|---|---|---|---|---|
| Statutory results 2014 £m |
Adjustments 2014 £m |
Adjusted results 2014 £m |
Statutory results 2013 £m |
Adjustments 2013 £m |
OR Adjusted results MA 2013 £m TIO |
|
| Revenue | 644.8 | – | 644.8 | 684.7 | – | N 684.7 |
| Operating profit before exceptional items | 95.1 | – | 95.1 | 94.1 | – | 94.1 |
| Exceptional items | (18.1) | 18.1 | – | (10.3) | 10.3 | – |
| Operating profit | 77.0 | 18.1 | 95.1 | 83.8 | 10.3 | 94.1 |
| Share of post-tax profit of JVs | 1.6 | – | 1.6 | 0.8 | – | 0.8 |
| Net finance costs | (5.2) | – | (5.2) | (6.9) | – | (6.9) |
| Profit before tax | 73.4 | 18.1 | 91.5 | 77.7 | 10.3 | 88.0 |
| Income tax costs – ordinary activities | (28.5) | 5.8 | (22.7) | (20.9) | – | (20.9) |
| Income tax costs – exceptional items | 1.9 | (1.9) | – | 4.8 | (4.8) | – |
| Profit for the year | 46.8 | 22.0 | 68.8 | 61.6 | 5.5 | 67.1 |
| Earnings per share (pence) | 17.0 | 25.0 | 22.1 | 24.1 | ||
A full definition of adjustments is outlined in note 4 on pages 93 to 94.
| At reported rates | % change at | |||
|---|---|---|---|---|
| NSV (£m) | 2014 | 2013 | Reported | Constant |
| Assembly Materials | 204.9 | 209.5 | (2.2) | 4.4 |
| Surface Chemistries | 208.1 | 210.6 | (1.2) | 4.7 |
| Alent Group | 413.0 | 420.1 | (1.7) | 4.6 |
| Adjusted operating profit (£m) | ||||
| Assembly Materials | 57.6 | 58.2 | (1.0) | 5.3 |
| Surface Chemistries | 44.6 | 42.7 | 4.4 | 10.4 |
| Corporate | (7.1) | (6.8) | (4.4) | (6.0) |
| Alent Group | 95.1 | 94.1 | 1.1 | 7.6 |
| NSV margin (%) | ||||
| Assembly Materials | 28.1 | 27.8 | 0.3pts | 0.2pts |
| Surface Chemistries | 21.4 | 20.3 | 1.1pts | 1.1pts |
| Alent Group | 23.0 | 22.4 | 0.6pts | 0.6pts |
Group revenue decreased by £39.9m to £644.8m (2013: £684.7m). On a constant currency basis the decline was 0.2%. The revenue decrease was impacted by foreign exchange headwinds and the "pass through" to customers of lower silver prices for consumption in the Assembly Materials business, and lower gold prices and consumption in the Surface Chemistries business. For the full year 2014, the average prices of tin, gold and silver were, respectively, 2%, 10% and 20% lower than the prior year, such that approximately £15.2m of the Group's revenue decrease was as a result of these lower metal prices.
Group NSV increased 4.6% at constant currency rates, a decrease of 1.7% on a reported basis to £413.0m (2013: £420.1m), outperforming our key end-markets. NSV in our Assembly Materials business unit increased 4.4% at constant currency rates, declining 2.2% on a reported basis to £204.9m (2013: £209.5m), with strong growth in our Surface Mount Assembly product line. NSV in our Surface Chemistries business unit increased 4.7% at constant currency rates, down 1.2% on a reported basis to £208.1m (2013: £210.6m), with solid growth in both our Performance Coatings and Electronics Chemistries product lines.
Group adjusted operating profit increased 7.6% at constant currency rates, an increase of 1.1% on a reported basis to £95.1m (2013: £94.1m). Group NSV margin increased 60pts to 23.0% (2013: 22.4%) through product mix, operational leverage and disciplined pricing and cost control.
During the year, we have continued to resource and deliver on our OEM marketing and selling strategy and have either held or improved our market share position in most market segments. Our fast cycle R&D is driven exclusively by the voice of our customers who are supported by our global network of highly skilled technical service engineers. This has enabled Alent to outperform its competition by taking full advantage of its position in its core markets, driving market share gain.
The restructuring self-help activities throughout the Group have delivered to our expectations during the year with the majority of these activities now nearing completion.
Assembly Materials adjusted operating profit increased 5.3% at constant currency rates, a decrease of 1.0% on a reported basis to £57.6m (2013: £58.2m). NSV margin increased 0.2pts to 28.1% (2013: 27.8%). Strong margin progression across our Surface Mount Assembly product line, particularly solder paste, was in part offset by lower volumes in our Wave Solder Assembly product line and lower contribution from our reclaim business due to the impact of lower metal prices, particularly silver, and tighter supplies of scrap feed stocks.
Surface Chemistries adjusted operating profit increased 10.4% at constant currency rates, an increase of 4.4% on a reported basis to £44.6m (2013: £42.7m). NSV margin increased 1.1pts to 21.4% (2013: 20.3%). Solid market share growth in both Performance Coatings and Electronics Chemistries, and the recovery in part, of our copper damascene volumes, were the drivers for the strong year-on-year performance.
Corporate costs of £7.1m (2013: £6.8m) are broadly in line with the prior year.
The statutory operating profit before exceptional items increased 1.1% to £95.1m at reported rates (2013: £94.1m).
The Group's share of post-tax profit from joint ventures of £1.6m (2013: £0.8m) included a one-off pension settlement gain of £1.4m (2013: £nil).
CORPORATE
FINANCIAL
| £m | 2014 £m |
GO 2013 VE £m |
|---|---|---|
| Exceptional charges | RN AN |
|
| Restructuring charges | 8.2 | CE 10.3 |
| Litigation settlement charges | 7.3 | – |
| Disposal and closure costs | 3.0 | – |
| Impairment charges | 2.1 | – |
| Total exceptional charges | 20.6 | 10.3 |
| Exceptional income | ||
| Litigation settlement income | (2.3) | STA – |
| Profit on disposal of continuing operations | (0.2) | TEM – |
| Total exceptional income | (2.5) | – EN |
| Total net exceptional charges | 18.1 | TS 10.3 |
Total net exceptional charges before tax for the Group were £18.1m (2013: £10.3m), comprising £20.6m (2013: £10.3m) of exceptional charges and exceptional income of £2.5m (2013: £nil).
The exceptional charges include £8.2m (2013: £10.3m) of restructuring charges, arising in connection with operational restructuring initiatives that included redundancy programmes, the downsizing or closure of facilities, the streamlining of manufacturing processes and the rationalisation of product lines; and corporate management restructuring initiatives comprising termination payments and other costs related to the replacement of the Chief Executive and other senior management positions. The net tax credit attributable to these restructuring charges was £0.7m (2013: £1.9m). Restructuring cash costs of £9.3m (2013: £4.0m) were incurred in the year, in respect of restructuring initiatives commenced both in 2014 and in prior years.
During 2014, the Group recognised litigation charges of £7.3m (2013: £nil) arising on settlement of legacy issues that pre-dated the demerger from Cookson Group plc in 2012. Of these charges, £6.4m (2013: £nil) relates to corporate activity involving MacDermid (incorporated in the United States) and dates back to 2006. The £6.4m charge represents Alent's share of the full and final settlement that was reached in February 2015. This matter had been noted as a contingent liability in Alent's 2013 annual report.
Costs of £3.0m (2013: £nil) were recognised in connection with the demolition, environmental clean-up and monitoring of sites of former Group businesses that were either closed or disposed of in prior years.
In addition, £2.1m (2013: £nil) of cost was recognised on the impairment of plant and equipment associated with an uneconomic product line in the Assembly Materials business unit.
During 2014 the Group recognised exceptional income of £2.3m (2013: £nil) following the settlement of patent litigation.
The profit on disposal of continuing operations of £0.2m (2013: £nil) arose on disposal of the US stencils business of the Assembly Materials business unit. The disposal generated cash proceeds of £0.5m (2013: £nil).
We are currently not expecting any exceptional costs to be incurred in 2015. We would expect a cash outflow of c£12m-£14m for full year 2015.
Net finance costs in the year were £5.2m, a decrease of £1.7m or 24.6% on the net finance cost for 2013. Interest on net borrowings of £4.3m (2013: £5.7m) was lower than 2013 due to lower gross debt levels on the back of stronger cash generation and lower interest rates. The net interest cost associated with the net liabilities of the Group's defined benefit pension and other post-retirement benefit plans was £0.8m (2013: £1.1m).
Adjusted profit before tax increased 4.0% to £91.5m (2013: £88.0m) whilst on a constant currency basis, the increase was 11.3%.
The statutory profit before tax decreased by £4.3m to £73.4m (2013: £77.7m) primarily due to higher exceptional items.
The adjusted tax charge on ordinary activities was £22.7m (2013: £20.9m). The effective tax rate (ETR) (before share of post-tax profit of joint ventures) was 25.2% (2013: 24.0%). The 2014 ETR is higher than the prior year due to the change in the geographic split of profit before tax and higher withholding tax on the repatriation of dividends from overseas territories.
The exceptional tax credit was £1.9m (2013: £4.8m). Included within the 2014 tax credit is the recognition of a deferred tax asset of £4.0m (2013: £6.1m) in respect of a portion of the accumulated US tax losses. Prior to 2013, the accumulated tax losses in the US were not recognised as a deferred tax asset due to uncertainty in the future
profitability from our US operations. As at 31 December 2014, there were approximately US\$250m of gross US tax losses available to Alent.
We expect the ETR for the full year 2015 to be between 25% and 26%. This assumes no change in the ETR from utilisation of our deferred tax asset associated with our US tax losses.
The statutory tax charge was £26.6m (2013: £16.1m) on profit before tax of £73.4m (2013: £77.7m). This represents a statutory tax rate (before share of post-tax profit from joint-ventures) of 37.0% (2013: 20.9%). The increase in the statutory tax charge compared to 2013 is principally due to the recognition and utilisation of US deferred tax assets, which contributed a credit to the tax charge in 2013 of £6.1m and a net charge in 2014 of £1.8m, as illustrated in note 11.2 of the financial statements. The table below reconciles the statutory tax charge for the year of £26.6m (2013: £16.1m) to the adjusted tax charge for the year of £22.7m (2013: £20.9m).
| 2014 £m |
2013 £m |
|
|---|---|---|
| Statutory tax charge Adjustments to exclude: |
26.6 | 16.1 |
| Recognition of US deferred tax assets | 4.0 | 6.1 |
| Other exceptional items | (2.1) | (1.3) |
| Exceptional tax items | 1.9 | 4.8 |
| Utilisation of US deferred tax assets | (5.8) | – |
| Adjusted tax charge | 22.7 | 20.9 |
Adjusted profit for the year increased by 2.5% to £68.8m (2013: £67.1m), whilst on a constant currency basis, the increase was 9.9%. The statutory profit for the year was £46.8m (2013: £61.6m).
Adjusted earnings per share increased 11.1% at constant currency rates, an increase of 3.7% on a reported basis to 25.0 pence per share (2013: 24.1 pence per share). This constant currency increase was driven by strong adjusted operating profit and lower net finance costs as a result of stronger cash generation and lower interest rates.
The weighted average number of shares was 275.3m (2013: 278.4m).
R&D is critical to the continued success of Alent to meet the demand for leading-edge products for smaller, lighter and faster electronics and to take advantage of the opportunities presented by new and fast-growing markets. In addition, tightening environmental regulations mean that improvements to existing products are required in order to ensure continued compliance.
Alent invests significant amounts in R&D and endeavours to sustain its competitive advantage. In 2014, total R&D spend was £15.2m, (2013: £16.0m) equivalent to 3.7% (2013: 3.8%) of NSV. Of this expenditure, £7.8m (2013: £7.9m) or 3.8% (2013: 3.8%) of NSV was in the Assembly Materials business whilst £7.4m (2013: £8.1m) or 3.6% (2013: 3.8%) of NSV was in the Surface Chemistries business. All R&D costs have been expensed through the Group income statement. Going forward, we would expect R&D spend to broadly track NSV growth.
The Group's Consolidated Balance Sheet is summarised as follows:
| 2014 | ||||||
|---|---|---|---|---|---|---|
| Assets £m |
Liabilities £m |
Net assets £m |
Assets £m |
Liabilities £m |
Net assets £m |
|
| Property, plant and equipment | 85.9 | – | 85.9 | 85.2 | – | 85.2 |
| Intangible assets | 294.3 | – | 294.3 | 288.5 | – | 288.5 |
| Investment in joint ventures | 6.3 | – | 6.3 | 5.5 | – | 5.5 |
| Other non-current assets and liabilities | 15.7 | (52.2) | (36.5) | 13.7 | (44.7) | (31.0) |
| Current assets and liabilities | 182.1 | (113.8) | 68.3 | 183.7 | (104.2) | 79.5 |
| Employee benefits | – | (24.1) | (24.1) | – | (18.8) | (18.8) |
| Capital employed | 584.3 | (190.1) | 394.2 | 576.6 | (167.7) | 408.9 |
| Net cash/(debt) | 49.5 | (157.8) | (108.3) | 63.1 | (159.6) | (96.5) |
| Total at 31 December | 633.8 | (347.9) | 285.9 | 639.7 | (327.3) | 312.4 |
Net assets at the end of 2014 were £285.9m, a decrease of £26.5m on the 2013 level of £312.4m.
Return on capital employed was 20.9% for 2014, an increase of 0.7pts on the 2013 level of 20.2%.
CORPORATE
FINANCIAL
| 2014 £m |
2013 £m |
GO VE RN |
|
|---|---|---|---|
| EBITDA | 104.2 | 103.1 | AN |
| Net (increase)/decrease in trade and other working capital | (0.2) | 5.6 | CE |
| Outflow related to restructuring charges | (9.3) | (4.0) | |
| Litigation settlements | 1.7 | – | |
| Additional funding contributions into Group pension plans | (2.4) | (1.9) | |
| Adjusted cash generated from operations | 94.0 | 102.8 | |
| Net interest paid | (3.3) | (4.1) | |
| Income taxes paid | (17.5) | (19.3) | STA |
| Adjusted net cash inflow from operating activities | 73.2 | 79.4 | TEM |
| Capital expenditure | (11.7) | (13.7) | EN TS |
| Add back additional funding contributions into Group pension plans | 2.4 | 1.9 | |
| Proceeds from sale of property, plant, equipment and dividend from JV | 0.4 | 5.6 | |
| Adjusted free cash flow | 64.3 | 73.2 | |
| Payment of demerger costs (not included above) | (0.2) | (4.8) | |
EBITDA for 2014 was £104.2m (2013: £103.1m). Working capital outflow in 2014 was £0.2m (2013: £5.6m inflow). Working capital as a percentage of sales was 19.2% (2013: 18.3%), on a constant currency basis. Going forward, assuming stable raw material costs, we would expect some working capital build in the first half of 2015 in advance of the traditional stronger demand in the second half of the year. We remain focused on reducing the working capital needs of the business although this is to some extent influenced by raw material costs.
Restructuring cash costs of £9.3m (2013: £4.0m) were incurred in the year in respect of restructuring initiatives leaving provisions made but unspent of £7.0m (2013: £9.7m). We would expect a restructuring cash outflow of c£5.0m in 2015.
Adjusted cash generated from operations was £94.0m (2013: £102.8m) and represented a cash conversion of 90.2% of EBITDA, down 9.5pts from our 2013 cash conversion of 99.7% due primarily to inventory build to support plant rationalisations and commissioning. We would anticipate some modest working capital improvement during the course of 2015.
Net interest paid of £3.3m (2013: £4.1m) was in respect of interest on borrowings, whilst income taxes paid amounted to £17.5m (2013: £19.3m). The tax cash flow in 2014 benefited from a small number of one-off items, without which the tax cash would have been similar to 2013. We would expect income taxes paid in 2015 to be similar to our effective tax rate of between 25% and 26%.
Capital expenditure in 2014 was £11.7m (2013: £13.7m). This represents 1.3 times (2013: 1.5 times) depreciation. The total capital spend in 2014 was lower than we had expected due to a small number of project delays. This will result in some carry over capital expenditure into 2015.
The main expenditure during 2014 was incurred at our manufacturing facilities in West Haven, Chennai, Budapest and Shanghai plus continuing upgrade of our R&D equipment and facilities. Our Shanghai facility is fully commissioned, whilst Chennai and Budapest are in the commissioning stage. Once commissioned, our manufacturing footprint is largely complete.
In line with our plans to invest for future growth, we have a number of plant upgrades and process efficiency projects earmarked for capital expenditure whilst continuing to invest in the latest technology at our state of the art research and development facilities. As such, we expect capital expenditure to be running at 1.5 – 1.8 times depreciation in 2015. Adjusted free cash flow for the year was £64.3m (2013: £73.2m).
Net debt at 31 December 2014 was £108.3m (2013: £96.5m). Gross borrowings were £157.8m whilst cash on hand was £49.5m. At 31 December 2014, the Group's gross borrowings were denominated in US Dollars (67%), Euros (16%) and Pounds Sterling (17%).
£155.3m (2013: £154.5m) of the Group's gross borrowings comprise drawings under a £300m committed bank facility. Loans made under this facility bear interest at a floating rate per annum based on the London Interbank Offer Rate (LIBOR) as applicable plus a margin ranging from 0.80% per annum to 1.50% per annum depending on the ratio of consolidated net borrowings to adjusted EBITDA. The facility expires in September 2019.
Financial covenants applicable to the facility include adjusted EBITDA to net interest (minimum 4.0 times) and net debt to adjusted EBITDA (maximum 3.0 times). As at
31 December 2014, Alent was operating well within these covenants as the ratio of net debt to EBITDA was 1.0 times and the ratio of EBITDA to net interest was 30.7 times.
| 2014 | 2013 | |||||
|---|---|---|---|---|---|---|
| US | ROW | Total | US | ROW | Total | |
| £m | £m | £m | £m | £m | £m | |
| Fair value of plan assets | 43.6 | 2.2 | 45.8 | 37.9 | 2.0 | 39.9 |
| Funded defined benefit obligations | (54.8) | (3.1) | (57.9) | (45.4) | (2.5) | (47.9) |
| Status of funded plans | (11.2) | (0.9) | (12.1) | (7.5) | (0.5) | (8.0) |
| Unfunded plans | (6.7) | (5.3) | (12.0) | (5.6) | (5.2) | (10.8) |
| Total net liabilities | (17.9) | (6.2) | (24.1) | (13.1) | (5.7) | (18.8) |
The Group operates defined contribution and defined benefit pensions plans, principally in the US and Germany. The Group's largest defined benefit plan in the US is closed to new members and to further accruals for existing members. As at 31 December 2014, the net deficit in Alent's post-retirement defined benefit plans was £24.1m (2013: £18.8m) with assets of £45.8m (2013: £39.9m) and liabilities of £69.9m (2013: £58.7m).
Alent's balance sheet continued to strengthen during the year with the business delivering strong cash flows since demerger. The Board is committed to maintaining a capital structure that is both efficient and balanced between investment for growth, both organically and through acquisitions, and returns to shareholders.
Having assessed our expected future cash generation and the capital required to support ongoing growth plans, ordinary dividends and potential bolt-on acquisitions, the Board approved and paid on 17 October 2014, a special dividend to shareholders of 15.0 pence per share, which represents a total payment of £42m. The special dividend was accompanied by a share consolidation.
The Board is recommending a 4.7% increase in the full year dividend, with a final dividend for 2014 of 6.0 pence per share making a total of 9.0 pence per share for the year (2013: 8.6 pence per share). This is equivalent to 2.8 times dividend cover from adjusted EPS. The final dividend, if approved at the Annual General Meeting on 7 May 2015, is to be paid on 19 June 2015 to shareholders on the register on 15 May 2015. Any shareholder wishing to participate in the Alent Dividend Reinvestment Plan ("DRIP") needs to have submitted their election to do so by 29 May 2015.
We maintain our progressive dividend policy with full year dividend growth expected to be at least in line with earnings growth, and targeting a dividend cover in the near term within a range of 3.0 to 2.8 times. In the normal course, the interim dividend will be equivalent to 35% of the full year dividend for the previous year.
In order to maintain our financial flexibility, we successfully completed the re-financing of our existing syndicated bank facility with a group of eight relationship banks. The size of the facility remains unchanged at £300m, with the term of the facility being extended by a further two years to 21 September 2019.
The Group maintains a centralised Treasury function which is responsible for setting treasury policy throughout the Alent Group, and for much of the Group's treasury activity (particularly funding, risk management and cash management). Operating companies are responsible for those activities best controlled locally (e.g. payments and collections, local bank relationships and transactional foreign exchange management). The Group's Treasury Policies and Procedures, which provide the framework for this activity, are approved by the Alent plc Board and reviewed on a regular basis.
The majority of the Group's funding requirements are met by means of its £300m committed bank facility, with limited use of local overdraft facilities where appropriate. Operating companies are required to remit surplus cash to Group Treasury, as soon as practical, through participation in the Group's cash management systems or, where such participation is not possible, by payment of dividends or repayment of intercompany loans.
The Group's interest rate risk arises principally on its core borrowings. This risk is managed, when appropriate, by the use of interest rate swaps. At 31 December 2014, 69% of the Group's gross borrowings were hedged by means of interest rate swaps which had the effect of fixing the interest rate on these borrowings until July 2016.
GOVERNANCE CORPORATE
STATEMENTS FINANCIAL
Alent's tax strategy is to manage tax risks and tax costs in a manner consistent with shareholders' best long-term interest, taking into account both economic and reputational factors. The Group's tax strategy aims to ensure compliance with all relevant statutory obligations and to mitigate the tax charge to a level that is consistent with the Group's legal obligations in all relevant jurisdictions. The Group seeks to build constructive, open working relationships with tax authorities through transparency, and actively considers the implications of tax planning on the Group's corporate reputation. Arm's length principles are applied in the pricing of all intra-group transactions in accordance with OECD guidelines.
The Group has strong controls and clear policies and procedures covering tax which the Group follows. We approach tax planning with the aim of paying the right amount of tax at the right time in each tax jurisdiction.
The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and, accordingly, they have adopted the going concern basis in preparing the financial statements for the year ended 31 December 2014.
The financial statements have been prepared in accordance with IFRS and the material accounting policies are set out in the notes to the financial statements of this report. The Group has adopted new and revised IFRS as detailed in note 2.
Applying accounting policies requires the use of certain judgements, assumptions and estimates. The following accounting policies have been identified as being the most significant and where there is most risk of material adjustment to the carrying value of the Group's assets and liabilities within the financial statements:
See note 3 to the Group financial statements for more detail.
During 2014, the Group's related party transactions were between the Company and its subsidiaries and have been eliminated on consolidation.
It is the Group's policy to manage the currency risk on its net assets by matching the currency profile of its core borrowings with the currency profile of its earnings and net assets. At 31 December 2014, 17% of the Group's gross borrowings were denominated in Pounds Sterling, 67% in US Dollars, and 16% in Euros.
The Group does not hedge the translation exposure on the income statements of its overseas subsidiaries. Foreign currency transaction exposures that are material at an individual operating unit level are hedged using forward foreign exchange contracts.
The Group reports its results in Pounds Sterling but conducts its business in multiple foreign currencies. The revenue mix in its major currencies in 2014 was as follows:
| 2014 | 2013 | |
|---|---|---|
| US Dollars | 29% | 26% |
| Chinese Renminbi | 22% | 21% |
| Euros | 23% | 22% |
| Taiwanese Dollars | 8% | 9% |
| Brazilian Reals | 4% | 5% |
Based on the 2014 mix of non-Pound Sterling denominated revenue and adjusted operating profit, a 1% movement in US Dollars (relative to Pounds Sterling) changes revenue by £1.9m and adjusted operating profit by £0.2m. A 1% movement in Chinese Renminbi (relative to Pounds Sterling) changes revenue by £1.4m and adjusted operating profit by £0.4m. A 1% movement in Euros (relative to Pounds Sterling) changes revenue by £1.5m and adjusted operating profit by £0.2m.
The Group has a policy of broadly matching the currency of borrowings to the currency of its operating activities for its major trading currencies. At the end of 2014, 83% of the Group's gross borrowings were denominated into non-Sterling currencies, principally US Dollars and Euros.
DAVID EGAN Group Finance Director 2 March 2015
A strong and diverse Board: The primary focus of the Board is on strategic and policy issues. Biographies are set out below:
Skills and experience Peter served as Chief Executive of Laird plc from 2002 until he stepped down from the Board in November 2011. He previously held senior management positions with BTR plc (subsequently Invensys plc) and was an executive Director of Costain Group plc. He was previously a Nonexecutive Director of Cookson Group plc, Meggitt plc and Oxford Instruments plc, and was a non-executive board member of UK Trade and Investment. Peter is a Nonexecutive Director of Essentra plc, a Non-executive Director of the Royal Air Force and Non-executive Chairman of Volution Group plc.
Peter Hill is a British citizen. Appointment date
31 October 2012
Skills and experience Andrew was previously at Rolls-Royce plc where he was a member of the Executive Leadership Team and President of Rolls-Royce Energy. Andrew is a Non-executive Director of Imagination Technologies plc where he is Chairman of the remuneration committee and a member of the audit and nomination committees. He was previously a Non-executive Director of Oxford BioSignals and LG Fuel Systems.
Nationality Andrew Heath is a British citizen.
Appointment date 21 February 2015
2 3 4 DAVID EGAN Group Finance Director
Skills and experience David was previously the Chief Financial Officer at ESAB, which was the largest division of Charter International plc which was itself acquired by Colfax Corporation in 2012. Prior to joining ESAB in 2008, David was Group Financial Controller of Hanson plc based in London, and prior to that Chief Financial Officer, Hanson Asia Pacific based in Singapore. He has extensive international experience of businesses in Europe, including the Russian Federation, Asia, Australasia, and the Americas. David is Non-executive Director, Chairman of the audit committee and a member of the remuneration and nomination committees of Tribal Group plc. David is a qualified Certified Practicing Accountant (CPA), Australia.
David Egan holds dual British and Australian citizenship.
Appointment date 1 January 2013
Distribution for National Grid plc. Prior to joining National Grid, she pursued a 20 year career with Royal Dutch Shell where she held a variety of technical, strategic and general management positions based in Asia and Europe including Vice President Global Retail Network, and as Managing Director of Shell China/Hong Kong Lubricants based in Beijing. Emma was previously a Non-executive Director of Cookson Group plc and has also served on subsidiary boards in both Korea and China. Emma holds a DPhil in Solid State Physics and Surface Chemistry, is a Trustee of The Windsor Leadership Trust, and sits on the leadership development advisory panel for the Prime Minister's Office of the Singapore Government.
Emma FitzGerald is a British citizen.
Appointment date 31 October 2012
GOVERNANCE CORPORATE
STATEMENTS FINANCIAL
Skills and experience Lars is a managing partner of Cevian Capital, which holds just under 22% of Alent's issued share capital. Lars co-founded Cevian Capital in 2002. In 1997, he joined AB Custos, the Swedish investment company, ultimately becoming Chief Investment Officer. Prior to AB Custos, he had been an investment manager of Nordic Capital. Lars is a Non-executive Director of Danske Bank. He also sits on the nominations committee of AB Volvo, the Swedish truck and construction equipment manufacturer.
Lars Förberg is a Swedish citizen. Appointment date
31 October 2012
Noël spent 15 years with Citicorp, latterly as Chief Operating Officer of Citibank International, having previously been with Dun and Bradstreet and Kennecott Copper Corporation. She is currently a Non-executive Director and member of the audit committee of the London Metal Exchange, and a Non-executive Director of Standard Life plc and the British Horseracing Authority. Noël will step down from the position of Chairman and Non-executive Director of Sumitomo Mitsui Banking Corporation Europe at the end of Q1 2015. Previously, she was a Non-executive Director and Chairman of the remuneration committee of Logica plc, Non-executive Director of Impellam Group plc, Corus Group plc, TFL Group, Avocet Mining plc, RSA Insurance Group plc and Dominion Diamond Corporation Inc.
Noël Harwerth holds dual British and US citizenship.
Appointment date 31 October 2012
5 6 7 8
Skills and experience Jan spent 32 years with Royal Philips Electronics, where he was a member of the group management committee with responsibility for corporate strategy, the Chief Executive of Philips Asia Pacific and the Chairman of LG Philips LCD. He is a Non-executive Director and Chairman of the remuneration committee of Candover Investments plc and a Non-executive Corporate Director of Barco N.V. He served as Chairman of the supervisory board of Crucell N.V. until December 2011 and was previously a Non-executive Director of Cookson Group plc. Jan is also a professor at IESE Business School in Barcelona.
Jan Oosterveld has announced his intention to retire at the 2015 Annual General Meeting.
Appointment date 31 October 2012
Senior Independent Director and Chairman of the Audit Committee
Chief Financial Officer of International Power plc. He joined International Power in 2000 as Group Financial Controller and was appointed to the Board as Chief Financial Officer in 2003, stepping down in 2012. Previously, he was Group Financial Controller and Group Chief Accountant at Simon Group plc, the engineering and bulk chemicals group. He is Chairman of Imperial Tobacco Group plc, having previously served as Chairman of the audit committee, and is a Non-executive Director, Senior Independent Director (SID) and Chairman of the audit committee of National Grid plc. Mark qualified as a Chartered Accountant in South Africa.
Nationality Mark Williamson is a British citizen.
Appointment date 31 October 2012
INFORMATION ADDITIONAL
I am presenting here the Company's Corporate Governance Report for 2014 on behalf of the Board. Alent plc is subject to the UK Corporate Governance Code (the "Code"). The Code encourages me to report personally on how its principles relating to the role and effectiveness of the Board have been applied. I am happy to do so.
We continue to develop both as a Board and as individual directors. The Board is committed to maintaining high standards of corporate governance and ensuring values and behaviours are embedded and consistent across the business. We continue to ensure that the Directors provide suitable leadership and direction to the Company in three ways; performance evaluation, succession planning and annual re-election by shareholders. Each of these are considered in turn within the Governance Report.
We have again undertaken an externally facilitated review of the performance of the Board, its committees and individual directors. A fuller description is set out on page 53 of this report. I am encouraged by its findings.
The results of the Board evaluation were taken into account in respect of the Board changes that have taken place. The areas that show the most marked improvement include the conduct of meetings, the dynamics between Non-executive Directors and the executives, specifically the levels of challenge and support; the adequacy of strategic Board discussions; the placing of more emphasis on operational and Group risk, and Board decision-making.
The Board now has a greater sense of clarity in, and visibility of, our business.
I have set out in my Chairman's Statement the development of the Board. The Chief Executive succession was undertaken with "military" precision. It was successfully accomplished, and the appointment of Andrew Heath was achieved with unanimous Board approval.
The Board will focus on future developmental actions during 2015.
The remainder of this report contains the narrative reporting required by the Code, the Listing Rules and the Disclosure and Transparency Rules including the role and work of the Nomination Committee.
I would like to encourage all shareholders to attend our AGM on 7 May 2015. It is an excellent opportunity to meet the Board and senior executives.
Chairman 2 March 2015
Alent plc is subject to the UK Corporate Governance Code, published by the Financial Reporting Council (The "Code") and available on their website, www.frc.org.uk. This report addresses the requirements of the Code and explains how Alent plc has applied its main principles. During the year ended 31 December 2014 the Company has in all respects complied with the provisions of the Code.
The Board of Alent is committed to ensuring that the highest standards of corporate governance are maintained. This section of the Annual Report & Accounts describes the Company's corporate governance structures and processes and how they have been applied throughout the year ended 31 December 2014.
At each of its meetings, the Board has received regular updates from both myself, the Company Secretary, and the Company's advisers as appropriate, enabling it to consider all governance developments as well as receiving appropriate training and education on relevant issues.
The Company is led and controlled by the Board of Directors, who have ultimate responsibility for the management of the Group. The Board focuses primarily upon strategic, policy and governance issues and is responsible for the Company's long-term success. It sets the Company's strategy, oversees the allocation of resources, approves the Company's operating budgets which are normally proposed by the Chief Executive and monitors the performance of the Company against them. The Board is also responsible for identifying, evaluating and managing the key risks faced by the Company, and for establishing the effectiveness of the Company's systems of internal controls. It has a formal schedule of matters reserved to it and delegates certain matters to Committees as set out in the Report. In addition, the Non-executive Directors constructively challenge the Executive Directors and review their performance. The Board reviews, at least annually, the performance of the Chairman.
Schedule of matters reserved to the Board for formal consideration, and which are reviewed annually, include:
approval to enter into contracts which are deemed to be material either strategically or by reason of size, duration or liability;
approval of key policies, including the Company's financing and treasury policies, and others such as those relating to Health, Safety, Environment and our Code of Conduct (the "Alent Code"), as well as key areas of commitment such as Diversity and Inclusion;
REPORT STRATEGIC
GOVERNANCE CORPORATE
STATEMENTS FINANCIAL
As at the date of this report, the Board has eight Directors, comprising the Chairman, five Non-executive Directors and the Executive Directors. The names of the Directors serving at the end of the full year 2014 and their biographical details are set out on pages 42 & 43. All Directors served throughout the year, save for Steve Corbett who stepped down as Chief Executive and a Director with effect from 3 September 2014. The Board determines whether Non-executive Directors are independent. With the exception of Lars Förberg, all of the Non-executive Directors are considered to be independent. Simon O'Hara served as Company Secretary during the year.
| Name | Position | Independent | Nationality |
|---|---|---|---|
| Peter Hill CBE | Chairman | yes and at time of appointment | British |
| Mark Williamson | Senior Independent Director/ Non-executive Director |
yes | British |
| Steve Corbett* | Chief Executive | no | American |
| David Egan | Finance Director | no | British, Australian |
| Emma FitzGerald | Non-executive Director | yes | British |
| Lars Förberg | Non-executive Director | no | Swedish |
| Noël Harwerth | Non-executive Director | yes | British, American |
| Jan Oosterveld | Non-executive Director | yes | Dutch |
*Mr Corbett resigned as Chief Executive on 3 September 2014.
The division of responsibilities between the Chairman and the Chief Executive has been agreed by the Board and is set out in writing.
The Chairman leads and manages the Board, promoting the highest standards of corporate governance together with a culture of openness, challenge and debate and ensuring its effectiveness to safeguard the interests of shareholders. The Chairman facilitates and encourages open communication and constructive working relationships between the Executive and Non-executive Directors and provides overall guidance to the Executive Directors and senior management. The Chairman ensures effective communication with shareholders.
The Chairman, in conjunction with the Nomination Committee, is also responsible for Board succession planning and has ultimate responsibility for communication and dialogue with shareholders, together with ensuring that the Board acts in the best interest of shareholders taken as a whole.
The Chairman, in conjunction with the Company Secretary and Executive Directors, sets the agenda for Board meetings and ensures that all Board and Committee members receive accurate, timely and clear information prior to meetings. A clear structure for the operation of the Board and its Committees is in place. The Chairman meets routinely with the Chief Executive, the Finance Director and the Company Secretary to discuss relevant matters. The Board considers that the Chairman is able to, and does, devote sufficient time to his duties at Alent.
The biographical details of the Chairman and details of his relevant experience are set out on page 42.
The Chief Executive provides leadership to the executive team in running the business. He has overall responsibility for the day-to-day management of the business, the performance for which he is accountable and upon which he reports to the Board. He has the lead role in developing the Company's strategic direction for consideration and approval by the Board, and for the implementation of the agreed strategy. The Chief Executive is responsible on a day-to-day basis for, and oversees, the Company's performance in health, safety and environmental matters.
The Chief Executive is supported by the Finance Director in the provision to the Board of high-quality financial information on the Company's performance.
The Executive Directors have specific executive responsibilities, of which the Chief Executive's are set out above. The Chief Executive provides leadership to the management team, sets the culture, standards, ethics and values of the Company, and is responsible for management development and succession planning within the Company. The Finance Director has particular responsibility for the accuracy and completeness of the Company's financial reporting, for treasury, tax and risk management, and for internal financial controls.
Executive Directors are not members of the Board Committees, although they may be invited to attend. Both the Chief Executive, and following his resignation the Interim Chief Executive, and Mr Egan attended all Audit Committee meetings as requested during the year. The Chief Executive and Interim Chief Executive were also regular attendees at the Remuneration Committee whilst in office.
The biographical details of the Executive Directors and details of their relevant experience are set out on page 42.
The Non-executive Directors bring a wide range of skills and international experience to the Board. Their role is to understand the business and its markets, to help shape, develop and review proposals for and then approve strategy, and to challenge constructively and support the management. Additionally, they scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance. Further, their role is also to satisfy themselves with regard to the integrity of the Company's financial information and to ensure that the Company's financial controls and risk management systems are robust and defensible, determine appropriate levels of remuneration of Executive Directors, be involved in the appointment, and where necessary the removal of Executive Directors and monitor succession planning. Collectively they hold or have held senior positions in their chosen fields, including finance and mergers & acquisitions, and contribute a wide range of international experience and objective perspective to the Board. They represent a strong, independent element on the Board. As Chairmen of the Board Committees, the independent Non-executive Directors also fulfil important leadership roles. As members of the Board Committees, the independent Non-executive Directors bring focus on governance and succession planning, internal controls, risk management and remuneration policies.
The biographical details of the Non-executive Directors and details of their relevant experience are set out on pages 42 to 43.
Mark Williamson is our Senior Independent Director.
The Board nominates one of the Non-executive Directors to act as Senior Independent Director and provide an alternative contact at Board level, other than the Chairman, to whom shareholder matters can be addressed. The Senior Independent Director, when necessary, supports the Chairman and the other Non-executive Directors on Company related matters. He will act as a sounding board for the Chairman and, should it be required, can act as an intermediary for any concerns of other Non-executive Directors. There is a written job specification for the role which is reviewed annually by the Nomination Committee. The Senior Independent Director is responsible for undertaking the annual evaluation of the Chairman's performance, leading the recruitment process for a new Chairman while ensuring an orderly succession process.
During the period, Simon O'Hara was the Company Secretary and acted as Secretary to all Committees during the year. The Secretary supports the Chairman on corporate governance matters. Together with the Chairman, he is responsible to the Board in respect of compliance with Board procedures, ensuring a timely flow of information and for the setting of the annual programme of Board and Committee meetings and their agendas. Furthermore, he has responsibility, via the Chairman, for ensuring that the Board is kept up to date on legislative, regulatory and governance matters and developments and that all induction and professional development needs are met.
The Company Secretary ensures that there is an appropriate level of communication between the Board and its Committees and between senior management and the Non-executive Directors.
All Directors have access to the advice and services of the Company Secretary.
The Board convened formally on eight occasions during 2014 and held a number of ad-hoc committee meetings, either face to face or telephonically, in which it considered non-routine business. In addition, the Chairman and the other Non-executive Directors met routinely on their own without the Executive Directors present, and, at least once during the year the Non-executive Directors met without the Chairman being present to discuss matters such as the Chairman's performance. Attendance at formal Board and Committee meetings is set out on page 51.
The Board used one of its meetings in 2014 specifically to consider and review the Company's strategy and its implementation, and its future prospects and has used subsequent meetings to review additional areas of the Group's strategy.
The Board is assisted by three principal Committees: Audit, Remuneration and Nomination Committees, as set out in the diagram below. Each Committee is responsible for reviewing and overseeing activities within its particular terms of reference; copies of which are available on the Company's website: www.alent.com. At each scheduled Board meeting the Chairman of each Committee provides a summary of any Committee meeting held since the previous Board meeting, and the minutes of all Committee meetings are circulated to the Board. Individual reports from each Committee Chairman for 2014 are provided on pages 56 to 79.
Membership of the Audit and Remuneration Committees is composed of the independent Non-executive Directors. The Board also delegates specific responsibilities to its Finance and Share Schemes Committees.
To monitor the integrity of financial reporting and to assist the Board in its review of the effectiveness of the Company's internal controls and risk management systems.
Mark Williamson
Independent Non-executive Directors, excluding the Chairman of the Company.
Company Chairman; Lars Förberg (non-independent Non-executive Director); the Chief Executive; the Finance Director; and the external auditor are invited to attend on a regular basis. The Head of Internal Audit and the Group Financial Controller are invited as and when appropriate.
The Chairman of the Committee may request the attendance of others at meetings, including external advisers.
Minimum number of meetings per year: Four
Committee Report: Page 56.
Audit (incl Internal control review)
Risk Management
STATEMENTS FINANCIAL
INFORMATION ADDITIONAL
REPORT STRATEGIC
GOVERNANCE CORPORATE
To determine the appropriate remuneration packages for the Company's Chairman, Executive Directors, and Company Secretary and to recommend and monitor the level and structure of remuneration for other senior management.
Noël Harwerth
Independent Non-executive Directors, excluding the Chairman of the Company.
Company Chairman; Lars Förberg (non-independent Non-executive Director); the Chief Executive; and the Vice-President, Human Resources are invited to attend as required.
The Chairman of the Committee may request the attendance of others at meetings including external advisers.
As necessary (it is anticipated that at least three meetings will be held each year).
Committee Report: Page 63.
To advise the Board on appointments, retirements and resignations from the Board and its Committees and review succession planning for the Board.
Peter Hill, the Chairman (except where considering his own succession or replacement, in which case the Committee is chaired by Mark Williamson, the Senior Independent Director).
The Chairman and the Non-executive Directors.
Chief Executive. The Chairman of the Committee may request the attendance of others at meetings, including external advisers.
Committee Report: Page 62.
In addition, the Board delegates certain responsibilities on an ad-hoc basis to a Finance Committee and Shares Scheme Committee. Each Committee has written terms of reference agreed by the Board. These are available to view on the Company's website www.alent.com.
The Group also operates a Group Executive Committee which is convened and chaired by the Chief Executive, and assists him in discharging his responsibilities. Under the direction of the Chief Executive, the Executive Committee is responsible for the operational management of the Group. Members of the Executive Committee are regularly invited to attend Board meetings to report on their areas of responsibility, including key data for the core businesses, financial information, existing and potential risks, and updates on developments in important markets.
| Responsibilities: | To approve specific funding and treasury-related matters as set out in the Company's delegated authorities or as delegated from time to time by the Board. |
|---|---|
| Chair of Committee: | The Chairman. |
| Membership: | The Chairman, the Chief Executive, the Finance Director and the Company Treasurer. |
| Attending by invitation: | Others whom the Chairman shall so require. |
| Minimum number of meetings per year: | As necessary. |
| Responsibilities: | To facilitate the administration of the Company's share schemes. |
|---|---|
| Chair of Committee: | Any member. |
| Membership: | Any two Directors. |
| Attending by invitation: | Others whom the Chairman shall so require. |
| Minimum number of meetings per year: | As necessary. |
| Board Attendance | Board | Audit | Remuneration | Nomination | |
|---|---|---|---|---|---|
| Attendance | |||||
| Total meetings | 8 | 4 | 6 | 8 | |
| Peter Hill | 8 | – | – | 8 | |
| Mark Williamson | 8 | 4 | 6 | 8 | |
| Steve Corbett | 5 | – | – | – | |
| Rick Ertmann* | 3 | – | – | – | |
| David Egan | 8 | – | – | – | |
| Emma FitzGerald | 8 | 4 | 6 | 8 | |
| Lars Förberg | 8 | – | – | 8 | |
| Noël Harwerth | 8 | 4 | 6 | 8 | |
| Jan Oosterveld | 8 | 4 | 6 | 8 |
*Mr Ertmann is not a Director of the Company but was invited to attend all Board meetings whilst Interim Chief Executive. The table does not include attendance by invitation of the Chairman, the Executive Directors and Mr Förberg to Committee meetings.
The Board seeks to ensure that both it and its Committees have the appropriate range of skills, experience, knowledge and independence to enable them to discharge their respective duties and responsibilities effectively. Alent is privileged to have a Board of Directors with such international business backgrounds and a range of diverse skills, experience and nationalities. This diversity has been invaluable in developing the Company's business strategy and enables such a global manufacturing business to be effectively governed.
The Board considers its size to be appropriate for the requirements of the business. No one other than the respective Committee Chairmen and members of the Committees are entitled to be present at meetings of the Audit, Nomination and Remuneration Committees, but others may attend by invitation.
Appointments are made on personal merit and against objective criteria. In case of candidates for Non-executive Directorship, care is taken to ascertain that they have sufficient time to fulfil their Board, and where relevant, Committee responsibilities. Non-executive Directors undertake to inform the Board of any changes to their commitments.
The Board considers the majority of the Non-executive Directors to be independent of management and free from any business or other relationship which could affect the exercise of their independent judgement.
The Chairman satisfied the independence criteria on his appointment to the Board. Dr Emma FitzGerald, Noël Harwerth, Jan Oosterveld and Mark Williamson have been determined by the Board to be independent in character and judgement. Lars Förberg is not considered to be independent as he is managing partner of Cevian Capital which holds just under 22% of Alent's issued ordinary share capital. No one party has the legal right to nominate Directors to the Board.
The Nomination Committee leads the process for Board appointments and makes recommendations to the Board. The Board through the Nomination Committee follows a formal, rigorous and transparent procedure based on objective criteria for the appointment of new Directors to the Board. The Committee considers any proposed recruitment in the context of the Company's strategic priorities. Board appointments are made on merit. Non-executive appointees are required to demonstrate that they have sufficient time to devote to the role. The Nomination Committee is also responsible for reviewing the Board succession recognising the importance of recruiting Non-executive Directors with the necessary technical skills and knowledge relevant to the work of its Committees. Further information on the Nomination Committee is set out in the Nomination Committee Report on page 62.
The Chairman and Non-executive Directors each have a letter of appointment which sets out the terms and conditions of their directorship. An indication of the anticipated time commitment is provided in the recruitment role specification, and their letters of appointment provide details of the meetings that they are expected to attend, along with indicating the need to accommodate travelling time (particularly for overseas trips) and to set aside sufficient time to prepare for meetings and regularly to refresh and update their skills and knowledge. All Directors agree to commit sufficient time for the proper performance of their responsibilities and understand that this will vary from year to year depending on the Company's activities. Directors are expected to attend all Board meetings and any additional meetings (including Committee meetings) as required. Directors' other significant commitments are disclosed to the Board at the time of their appointment and they are required to notify the Board of any subsequent changes. The Company has reviewed the availability of the Nonexecutive Directors and considers that each of them is able to, and in practice does, devote the necessary amount of time to the Company's business.
REPORT STRATEGIC
GOVERNANCE CORPORATE
The Company Secretary is tasked with ensuring that a comprehensive induction programme is provided to each Director upon appointment. This includes visits to manufacturing and other Company facilities, one to one meetings with key Company executives and wider management and introductions to the Company's principal external advisers, as appropriate. For example, at its Board meetings in September, held in Asia (Hong Kong) the Non-executive Directors were given the opportunity to meet Alent's wider leadership group at both formal presentations and informal lunch and dinner events. Subsequently, after each site visit the Board or appropriate Committee has been briefed on the impressions gained by Directors attending the visit.
New Directors are advised of their legal and other duties and obligations as Directors of a listed company. Reference materials are provided, including information about the Board, its committees, Directors' duties, procedures for dealing in the Company's shares and other regulatory and governance matters. The Company supports this by organising site visits and working sessions with a wide range of operational managers and external experts throughout the year. Each Director is expected to develop and refresh their knowledge and skills on an ongoing basis. The Board's learning is continued through Board and Committee briefings.
The Chairman agrees with each Director their training and development needs as and when required. Where a general training need is identified, in-house training will be provided to the entire Board. Each year, the Chairman will hold one-to-one meetings with each of the Directors, both to discuss their own development needs if any, and the Board Evaluation Exercise.
For example, before the start of the Board's May meeting, the Company's legal advisers led a bespoke training session addressing the duties and responsibilities of Directors of listed companies. Similarly, during the year, the Company's external auditors presented advice to the Non-executive Directors on regulatory developments and statutory changes impacting their responsibilities and obligations.
The Board has in place processes to ensure that it is supplied in a timely manner with information of an appropriate quality to enable it to adequately discharge its duties. Papers are provided to the Directors in advance of the relevant Board or Committee meeting to enable them to make further enquiries about any matters prior to the meeting should they so wish. This also allows Directors who are unable to attend to submit views in advance of the meeting.
The Company Secretary oversees the distribution of these papers and ensures that there is an appropriate level of communication between the Board and its Committees and between senior management and the Non-executive Directors. The Company Secretary also keeps the Board informed of relevant developments in corporate governance. The Chief Executive provides, as a matter of routine, a written update on important business issues between meetings and invites the views of the Directors on these.
There is an agreed procedure in place to support Directors in the furtherance of their duties, to take independent legal advice if necessary, at the Company's expense.
STATEMENTS FINANCIAL
The Board believes that annual evaluations are not only essential but provide a valuable opportunity for continuous improvement. The Chairman, assisted by the Company Secretary, leads the evaluation process. A formal and rigorous externally facilitated review covering the Board, its committees and individual Directors, including the Chairman and Company Secretary was undertaken.
In 2014 the facilitator was, for a second year, David Mensley, an independent practitioner with no other connection to the Company. The Chairman held one on one meetings with each of the Directors as part of the evaluation process.
The feedback from the evaluation was reviewed by the Chairman and the principal findings and recommendations presented to the Board.
The Senior Independent Director was responsible for the performance evaluation of the Chairman.
Following the outcome of the Board review, general feedback showed considerable progress had been made during the course of 2014.
The Board successfully:
The results of the Board evaluation were taken into account in respect of the Board changes that have taken place. The Board will focus on future developmental actions during 2015.
Once appointed, all Directors are required to submit themselves for re-election by shareholders on an annual basis. All the Directors will therefore be offering themselves for re-election at this year's AGM, with the biographical details of each of the Directors, including details of their other directorships and relevant skills and experience, set out on pages 42 to 43. The Board believes that each of the Directors standing for re-election is effective and demonstrates commitment to their respective roles. Accordingly, the Board recommends that shareholders approve the resolutions to be proposed at the 2015 AGM relating to the re-election of the Directors.
To the extent permitted by section 236 of the Companies Act 2006, the Directors have been granted Qualifying Third-Party Indemnity Provisions by the Company. The indemnities for Directors of Alent plc have been in force throughout the year.
The Board has a formal system in place for Directors to review regularly their interests and to deal with situations where a Director reports any conflicts of interest. Any conflict situation reported to the Chairman and the Company Secretary is considered by the Board based on its particular facts. Any authorisations given to a Director who has a conflict situation are recorded in the Board minutes and in a register of Directors' conflicts which is reviewed annually by the Board. The Board believes that the systems it has in place for reporting situational conflicts operates effectively.
The membership of the Audit Committee is set out on page 56. The Audit Committee Report, which summarises the terms of reference of the Audit Committee and describes its work in discharging its responsibilities, is set out on pages 56 to 61.
In its reporting to shareholders the Board recognises its responsibility to present a fair, balanced and understandable assessment of the Company's position and prospects. The Strategic Report on pages 2 to 41 sets out explanations for the basis on which the Company generates or preserves value over the longer term and the strategy for delivering the objectives of the Company.
A statement of the Directors' responsibility for preparing the Annual Report & Accounts is included on page 83.
A statement by the Auditor, KPMG LLP, setting out its reporting responsibilities, is included on pages 84 to 85.
The Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future and accordingly, they have adopted a going concern basis in preparing the financial statements of the Group and the Company.
The Board has overall responsibility for the establishment and maintenance of the Company's system of risk management and internal control, and for reviewing its effectiveness.
The Board's process for identifying and evaluating Alent's significant risks, its risk management and assessment system and its internal control system form part of the Audit Committee Report on pages 56 to 61 The Audit Committee assists the Board in reviewing the effectiveness of the Company's system of internal control, including financial, operational and compliance controls, and risk management systems.
The Company's systems and controls are designed to provide the Directors with reasonable assurance that any problems are identified on a timely basis and are dealt with appropriately.
In accordance with the provisions of the Code, the Directors confirm that they have reviewed the effectiveness of the Company's system of internal control and that the necessary actions have been taken to remedy and control any control weaknesses identified during the year.
Since the date of this review there have been no significant changes in internal controls or other matters which could significantly affect them. The key risks facing the Company are set out on pages 32 to 33.
During 2014, the Board further developed its procedures and embedded processes in respect of its Ethics, Health, Safety, Environmental and Sustainability activities. Current activities are described in the "Our Approach to Corporate Responsibility" section, on pages 26 to 30. At Board level, the Chief Executive takes the lead on these matters.
The Board reviews the role of insurance and other measures used in managing risks across the Company, receives regular reports on any major issues that have arisen during the year and makes an annual assessment of how the risks have changed over the period under review.
The Board considers significant financing and investment decisions concerning the Company, including the giving of guarantees and indemnities, and monitors policy and control mechanisms for managing treasury risk. At the year-end, following the review by the Audit Committee of internal financial controls and of the processes covering other controls, the Board evaluates the results of the internal control and risk management procedures conducted by senior management. This includes a self-certification exercise by which senior financial and operational management throughout the Company certify the effectiveness of the system of internal controls within the businesses for which they are responsible, together with their compliance throughout the year with the Company's policies and procedures.
All the independent Non-executive Directors serve on both the Audit and Remuneration Committees. They are therefore able to bring their experience and knowledge of the activities of each Committee to bear when considering the critical judgements of the other. This means that the Directors are in a position to consider carefully the impact of incentive arrangements on the Company's risk profile and to ensure the Company's remuneration policy and programme is structured so as to accord with the long-term objectives and risk appetite of the Company.
In addition, the Chairman of the Remuneration Committee will have meetings with key institutional shareholders and their representative bodies to discuss the Company's remuneration policy.
The Board believes that it is a priority to communicate with shareholders and uses various methods to reach as many shareholders as possible. There are programmes for the Chief Executive, Finance Director and the Investor Relations Manager to meet with the Company's major institutional investors in the UK, the US and Continental Europe. The Board also seeks to ensure effective engagement with shareholders through the Company's regular communications, the AGM, as well as through Capital Markets Days to provide the Company's stakeholders with more detailed insight into the Company's future strategy and investment proposition and other investor relations activities.
The Company's investor relations programme is managed by the Chief Executive and Finance Director, together with the Investor Relations Manager. The majority of meetings with investors are led by them, but the Chairman, Senior Independent Director and other Directors are also available to meet with shareholders as appropriate. At these meetings, investors are offered the opportunity to meet with the Chairman or the Senior Independent Director, and indeed the Chairman and the Senior Independent Director held joint and separate meetings with several shareholders during the course of the year.
The Company reports its financial results to shareholders twice a year, with the publication of its Annual and Interim Financial Reports and will issue two further ad-hoc trading updates. In conjunction with these announcements, presentations or teleconference calls will be held with institutional investors and stock market analysts. Recordings of these will be made available on the Company's website www.alent.com along with copies of any presentation materials issued.
Regular updates on shareholder issues and discussions are provided to the Board. Board members continue to receive copies of significant analysts' notes issued on the Company. All Directors are expected to attend the Company's AGM, providing shareholders with the opportunity to question them about issues relating to the Company, either during the meeting or informally.
Communication with private shareholders is largely through the AGM, which is held at a central London location.
Shareholders are given the opportunity to ask questions of the Board and the Chairman of each Board Committee during the AGM and to meet the Directors informally. Separate resolutions are proposed at the AGM on a poll for each item of business and shareholders are asked to vote "for", "against" or "vote withheld" on each resolution. Votes are counted and an announcement confirming whether each resolution was passed at the AGM is made through the London Stock Exchange and can be viewed on the Alent website, together with a summary of the number of votes cast in respect of each resolution. The majority of shareholders have elected to access the Annual Report and other shareholder documents online via the Alent website rather than receiving a copy by post.
By Order of the Board
Company Secretary 2 March 2015
| Resolutions | % of votes for | % of votes against | Votes withheld | |
|---|---|---|---|---|
| 1 | Report and Accounts | 99.94 | 0.06 | 263,372 |
| 2 | Final Dividend | 100.00 | 0.00 | 1,616 |
| 3-10 | Directors (average) | 99.55 | 0.45 | 9,138 |
| 11 | Re-appointment of Auditor | 99.03 | 0.97 | 48,381 |
| 12 | Remuneration of Auditor | 100.00 | 0.00 | 47,364 |
| 13 | Remuneration Report | 99.42 | 0.58 | 6,482 |
| 14 | Remuneration Policy | 96.81 | 3.19 | 250,482 |
| 15 | Incur Political Expenditure | 99.85 | 0.15 | 6,943 |
| 16 | Authority to allot equity securities | 98.95 | 1.05 | 3,959 |
| 17 | Disapply Pre-emption Rights | 99.09 | 0.91 | 2,187 |
| 18 | Purchase Own Shares | 100.00 | 0.00 | 53 |
| 19 | Notice of General Meeting | 95.41 | 4.59 | 1,083 |
REPORT
GOVERNANCE CORPORATE
STATEMENTS FINANCIAL
| Mark Williamson (Committee Chairman) | |
|---|---|
| Dr Emma FitzGerald | |
| Noël Harwerth | |
| Jan Oosterveld | |
I am pleased to present the Audit Committee Report of Alent plc. The role of the Audit Committee is to provide effective governance over the appropriateness of the Group's financial reporting, the performance of both the internal audit function and the external auditor, and the management of the Group's systems of internal control, business risks and related compliance activities. It is also to monitor the integrity of financial reporting and to assist the Board in its review of the effectiveness of the Company's internal controls and risk management systems. Whilst the Board as a whole is responsible for approving the financial results, we undertake the detailed work to support that decision.
The Committee comprises independent Non-executive Directors under my Chairmanship and meets at least four times during the year. The Board also considers that the Audit Committee members together possess the necessary commercial, financial and audit expertise to help them assess effectively the complex accounting, audit and risk issues they have to address. The Board considers that I have recent and relevant financial experience, as required by the Code.
Appointment on the Audit Committee is for a period of three years, extendable by no more than two additional three-year periods.
At my invitation, the non-independent Non-executive Director, the Chairman of the Company, the Chief Executive, the Finance Director and the Company's Auditor, KPMG LLP (the "Auditor"), regularly attend meetings. Other executives, including in particular the Group Financial Controller and the Head of Internal Audit, are invited to attend as and when appropriate. The Committee regularly meets separately with each of KPMG, the Finance Director and the Head of Internal Audit without others being present.
The Committee assists the Board in carrying out its responsibilities in relation to financial reporting requirements, risk management and the assessment of internal controls. It also reviews the effectiveness of the Company's internal audit function and manages the Company's relationship with the external Auditor.
As part of this process of working with the Board and to maximise effectiveness, meetings of the Committee generally take place just prior to a Company Board meeting. I report to the Board as part of a separate agenda item, on the activity of the Committee and matters of particular relevance to the Board in the conduct of their work. All members of the Board receive the agenda, papers and minutes of Audit Committee meetings.
The Audit Committee operates under formal terms of reference that are reviewed on a regular basis. These terms of reference, which are available on the Company's website, www.alent.com, authorise the Committee to obtain outside legal or other independent professional advice at the cost of the Company and to secure the attendance at Audit Committee meetings of other parties with relevant experience and expertise should it be considered necessary.
As a Committee, we are responsible for:
advising the Board on whether the Committee believes that the processes underlying the compilation of the Annual Report & Accounts are robust and support the assertion reached by the Board that the document, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy;
reviewing reports from management which address the appropriateness of the production of the Group's financial statements on a going concern basis;
The Committee met four times during the year. The key areas of business covered at the meetings included:
reviewed internal audit reports;
reviewed the results of an assessment undertaken of the performance of the Auditor, based upon feedback received from the Company's corporate and divisional finance management;
The primary role of the Committee in relation to financial reporting is to review with both management and the external auditor the appropriateness of the half-year and annual financial statements concentrating on, amongst other matters:
To aid our review, the Committee considers reports from the Group Finance Director, Group Financial Controller and also reports from the external auditor on the outcomes of its half-year review and annual audit. As a Committee we support KPMG LLP in displaying the necessary professional scepticism their role requires.
REPORT STRATEGIC
GOVERNANCE CORPORATE
The primary areas of judgement considered by the Committee in relation to the 2014 accounts, and how these were addressed, were:
The international nature of the Group's operations exposes it to various different legal and regulatory regimes and consequently, from time to time, it faces claims that might relate to its products, to taxation liabilities, to environmental liabilities, or to other issues.
In considering these matters, and how best to present them in the financial statements, the Committee has to decide whether provisions need to be established in the Group's financial statements, and if so the size of the provisions required. Alternatively, if the Committee decides that there is insufficient information available to support making a provision, then it needs to determine whether it is appropriate instead to disclose the matter by way of note as a contingent liability.
During 2014, the Committee:
After due consideration, the Committee concluded that it was satisfied with both the level and the disclosure of provisions, as shown in note 30 of the financial statements. Additionally, for those items disclosed as contingent liabilities, the Committee was satisfied that it was not appropriate to make a provision and that the disclosures in note 32 of the financial statements provided sufficient information about the nature of the item and the uncertainties relating to the amount or timing of any potential outflow required to settle the liability.
The level of tax provisioning and the recognition of deferred tax assets in relation to the future value that might be derived from the Group's unutilised tax losses, require assumptions and judgements to be made by management.
The Committee satisfied itself with both the level of tax provisions and the deferred tax assets recognised in the financial statements. The Committee was also satisfied with the presentation of the recognition of the US deferred tax asset as an exceptional tax item in the Group income statement as described in note 11 of the financial statements.
As detailed in note 2.6 of the financial statements, in order to present the Group's results in a way that assists the user of the accounts in understanding the financial performance of the Group and trends in its profitability, items of an exceptional nature are disclosed separately on the face of the Group's income statement. During the year, the Committee considered the accounting treatment of various different matters presented to it by management, to determine whether they should be excluded from the Group's operating profit and instead treated as exceptional items.
In making the determination of which of these matters, if any, should be treated as exceptional, the Committee:
STATEMENTS FINANCIAL
INFORMATION ADDITIONAL
The Committee satisfied itself that the presentation of exceptional items in the accounts was in accordance with the Group's exceptional items policy, and assisted the user of the accounts in understanding the Group's financial performance in the year and trends in its profitability.
The Audit Committee assists the Board in reviewing the effectiveness of the Group's system of internal controls, including financial, operational and compliance controls, and risk management systems.
The Board has overall responsibility for the establishment and maintenance of the Group's system of risk management and internal control, and for reviewing its effectiveness. This system is designed to manage, rather than eliminate, the risks facing the Group and safeguard assets. No system of internal control can provide absolute assurance against material misstatement or loss. The Group's system is designed to provide the Directors with reasonable assurance that any problems are identified on a timely basis and are dealt with appropriately. In accordance with the provisions of the Code, the Directors confirm that they have reviewed the effectiveness of the Group's system of internal control and that the necessary actions have been taken to remedy and control any control weaknesses identified during the year. Since the date of this review there have been no significant changes in internal controls or other matters which could significantly affect them. The key risks facing the Group are set out on pages 31 to 33.
There is a continuous process for identifying, evaluating and managing any significant risks faced by Alent. Group management operates a risk management process designed to identify the key risks facing each business and reports to the Board on how those risks are being managed. As a basis for this report, each of the Company's major business units produces a "risk map" which identifies their key risks and assesses the likelihood of those risks occurring, their impact if they do occur and the actions being taken to manage those risks to a desired level. The Board has enhanced its risk management structure and processes during 2014 as well as its procedures, and embedded processes in respect of its Ethics, Health, Safety, Environmental and Sustainability activities. Current activities are described in the Corporate Responsibility Review, on pages 26 to 30. At Board level, the Chief Executive currently takes the lead on these matters.
The Board reviews the role of insurance and other measures used in managing risks across the Group and receives regular reports on any major issues that have arisen during the year and makes an annual assessment of how the risks have changed over the period under review.
The key features of the Group's system of internal controls include:
The Group operates a comprehensive strategic planning and forecasting process, with an annual budget approved by the Board. Monthly operating financial information is reported against this budget and key trends and variances analysed. Action is then taken as appropriate.
Group accounting policies and procedures are formulated and disseminated to all Group operations, covering the application of accounting standards and the maintenance of accounting records and key financial control procedures.
Each operating company, including the Divisional and Corporate offices, maintains internal controls and procedures appropriate to its structure and business environment, whilst complying with Group policies on items such as the authorisation of capital expenditure, treasury transactions and the management of intellectual property.
In addition, the Group's financial reporting process, including the preparation of the Group's consolidated financial statements, incorporates the dissemination and use of common accounting policies and procedures and financial reporting software.
The Board considers significant financing and investment decisions concerning the Group, including the giving of guarantees and indemnities, and monitors policy and control mechanisms for managing treasury risk.
The internal control system is monitored and supported by the Company's internal audit function. This function assists management and the Board in the effective discharge of their responsibility for internal control by conducting reviews of Alent's businesses and reporting objectively both on the adequacy and effectiveness of the system of internal control in place and as to whether those businesses are in compliance with applicable Group policies and procedures. The Audit Committee receives reports from the Head of Internal Audit on a regular basis and reports to the Board on the results of its review.
As part of the Board's process for reviewing the effectiveness of the system of internal control, it delegates the following matters to the Audit Committee to be carried out during the year:
The Group's internal audit function operates on a global basis. The Head of Internal Audit is responsible for developing the function, within the framework of common Group policies and standards, and for carrying out assignments in accordance with an annual audit plan approved by the Audit Committee. In 2014, 27 internal audit assignments were undertaken covering approximately 33%, of the applicable businesses as required by the Audit Charter. The Head of Internal Audit reports directly to the Audit Committee Chairman with functional responsibility to the Group Finance Director. The Audit Committee receives reports from the Head of Internal Audit and reports to the Board on the results of its review.
During the year, a survey was conducted reviewing the quality of our internal audit function. Participants of the survey included Audit Committee members as well as executives within all major regions and functions of the Group. The team scored highly on their professional approach, experience, control and process improvement and overall value to the Group.
The Audit Committee is responsible for making recommendations to the Board in relation to the appointment, reappointment and removal of the Auditor. In undertaking this duty, the Committee takes into consideration a number of factors concerning the Auditor and the Group's current activity.
KPMG LLP has been the Group's Auditor since Alent plc was listed on 19 December 2012. We formally reviewed the effectiveness of the external audit process and the quality of the audit. The review covered the following:
the skills and experience of the audit team;
the planning and scope of the audit and identification of areas of audit risk;
In addition, the Audit Committee considers external reviews of the performance and quality of the Auditor, including:
We conducted this review as part of our 2014 year end process. In addition a survey was completed to capture the views of each member of the Audit Committee, Group Finance Director, Group Financial Controller and various members of both regional and functional management teams. We considered the results from the survey as well as various inspection reports and shared this with our external auditor and with management. We also reviewed the fees of the external auditor and benchmarked these against a group of comparable size and complexity Groups. Our conclusions were that the external audit was carried out effectively and efficiently with the necessary objectivity and independence for an appropriate fee.
KPMG LLP has been the Group's Auditor since Alent plc was listed on 19 December 2012. The Group is following the EU legislation as well as the current Code requirement regarding external audit tenure. The Audit Committee is recommending the Auditor for reappointment at the AGM in 2015.
The terms on which the Auditor is engaged do not include any contractual obligations which would prevent the Directors appointing a different audit firm should this be considered appropriate.
The Audit Committee is cognisant of the need to ensure that the independence and objectivity of the Auditor is continually maintained. It has put in place safeguards to ensure that the independence of the external Auditor is not compromised. These safeguards include:
In addition, recruitment to the Group of any new employee who had been employed by the Auditor in the past five years requires the approval of the Audit Committee.
The Audit Committee monitors the other services being provided to the Group by the Auditor. The Group has a policy governing the Group-wide conduct of non-audit work by the Auditor to ensure that this does not impair its independence or objectivity. The Auditor is prohibited from performing services where it:
The policy sets out the categories of work that the Auditor is prohibited from undertaking. Other than these, the Group does not impose an automatic prohibition on the Auditor undertaking non-audit work. The Auditor is eligible for selection to provide non-audit services that are not, or are not perceived to be, in conflict with Auditor independence, provided it has the skill, competence and integrity to carry out the work in the best interests of the Group.
Proposals for any non-audit related fees which the Group is intending to pay to the Auditor are presented to the Audit Committee. Any individual assignment where the fee is likely to be in excess of £30,000 must be preapproved by the Audit Committee. Where appropriate, services are tendered prior to awarding work to the Auditor. Details of the amounts paid to the Auditor during the year for audit and other services are set out in note 7 on page 97.
The Committee conducts a formal review of its effectiveness annually and the results of the review carried out in 2014 concluded that its performance was effective. Details of the Board and Committee evaluation process can be found on page 53.
This is an independent and confidential service through which employees worldwide may register any concerns about any incorrect or irregular practices they perceive in Alent's workplaces. The helpline is operated 24 hours a day, seven days a week, by an organisation that specialises in the provision of such services. It can be contacted by phone, email or via a designated website. Translation facilities are available for those for whom English is not their first or preferred language. All incidences received by the helpline are reviewed and reported to the audit committee and where applicable changes implemented.
The Alent Code and its policies on anti-bribery and corruption require that employees and others working on behalf of the Group do not engage in any form of bribery or corruption.
Our anti-bribery and corruption compliance programme has been implemented globally via an e-learning training module. New employees, where relevant, are required to complete the e-learning training as part of their induction process.
The compliance programme includes undertaking risk assessments and engaging with others working on behalf of the Group to ensure that their standards comply with the Group's policies.
The Alent Code is reproduced in full on the Group's website
On behalf of the Audit Committee
Chairman of the Audit Committee 2 March 2015
REPORT STRATEGIC
GOVERNANCE CORPORATE
Peter Hill (Committee Chairman) and the Non-executive Directors.
The Nomination Committee has delegated authority from the Board set out in its written terms of reference, available on the Company's website, which were last reviewed in December 2012.
The Nomination Committee advises the Board on appointments to, and retirements and resignations from, the Board, and reviews the Company's succession plans. The Committee reports its material findings and recommendations at the next Board meeting and copies of the minutes of its meetings are circulated to all Directors.
The members of the Nomination Committee are the Chairman and the Non-executive Directors. The Committee meets as and when required and is chaired by the Chairman or a Non-executive Director. The Chairman acts as Chairman of the Nomination Committee except where the matter under consideration relates to him or succession to his role. No individual participates in discussion or decision making where the matter under consideration relates to them. Formal meetings are held to consider standing items of business; there is also a significant level of ad-hoc discussion between members of the Nomination Committee, particularly when a recruitment exercise is taking place.
When considering the appointment of new Directors, the Nomination Committee draws up a specification, taking into consideration the diversity of the Board, the balance of skills, knowledge and experience, the independence of Board members and the ongoing requirements of the Company. The Nomination Committee's foremost priority is to ensure that the Company has the best possible leadership. Its prime responsibility is to ensure the strength of the Board. Board appointments will be made on merit against objective criteria, selecting the best candidate for the post.
The Nomination Committee is empowered to appoint search consultants, legal, tax and other professional advisers as it sees fit to assist with its work. Wherever possible, the Nomination Committee will arrange for all Directors to meet with the preferred candidate. The Nomination Committee makes recommendations for each appointment to the full Board. Care is taken to ensure that all proposed appointees have sufficient time available to devote to the role and do not have any conflicts of interest.
During the year Egon Zender was engaged to identify appropriate candidates for Chief Executive. A long list of potential appointees was considered and candidates were shortlisted for interview based on objective criteria. The Committee then recommended its preferred candidate, Andrew Heath, to the Board for appointment, with unanimous approval.
The Nomination Committee met eight times during the year and attendance at those meetings is shown on page 51 of this report. This frequency of meetings was unusual, and was directly linked to the Chief Executive succession.
Matters considered by the Committee in 2014 included the following:
The Board as a whole also considers succession plans for members of the Board. Jan Oosterveld announced his decision to retire at the 2015 AGM; a candidate specification was agreed by the Committee of the Board, a search firm appointed, and a recruitment process, led by the Chairman is underway. Both of Alent's divisions submit detailed succession plans in respect of senior divisional executives to the Board for review each year. The Board also considers succession planning for senior corporate executives.
The Nomination Committee also considers diversity generally across the Company. It is the Company's aim to maintain an appropriate level of diversity on the Board to reflect the diverse nature of the Company's operations, and to increase the level of diversity in executive management below Board level.
The Board actively seeks to meet with key executives throughout the Company so as to gain a greater understanding of the breadth and depth of management talent. This enables members of the Committee to adopt a more informed approach to succession planning.
On behalf of the Nomination Committee
Chairman of the Nomination Committee 2 March 2015
I am pleased to present the Remuneration Committee's report on Directors' remuneration for 2014. This year we are not submitting the Remuneration Policy to a shareholder vote and are continuing to operate under the Remuneration Policy which was approved by shareholders at the 2014 AGM. In this Annual Statement, which precedes our Policy Report and Annual Report on Remuneration, I have set out the context for variable remuneration outcomes paid in relation to 2014 performance and the key changes regarding the implementation of remuneration in 2015.
The key decisions on Executive Director Remuneration proposed in 2014 related to salary increases for 2015 and payments of variable remuneration. With regard to the former, the Committee decided to increase salaries for the Directors by 3% which was in line with the 3% increase to base salary for the general workforce. As for variable remuneration for the Executive Directors, payments have been made based on performance in 2014. This is a result of overall performance for 2014 meeting our expectations due to Alent outperforming its end-markets, new product introductions and improved operating efficiencies, which resulted in Alent exceeding its budgeted profit targets.
The Committee also approved awards to be made to the Executive Directors under the Alent Share Plan. These awards will vest in 2017 subject to the satisfaction of EPS growth targets and a relative TSR performance condition.
In 2014 Alent operated two elements of variable remuneration which had performance periods ending during the year, namely, the Annual Incentive and the Alent Share Plan. The Annual Incentive for 2014 delivered a payment between target and stretch which was largely driven off the back of improved EPS, NSV performance and delivery on personal objectives. As a result, the Annual Incentive payments to the Executive Directors for 2014 performance were as follows:
The performance period for the Alent Share Plan awards granted on 5 April 2012 had a performance period which ended on 31 December 2014. None of these awards met the performance condition and all awards have lapsed.
For the 2014 Annual Incentive payment, 50% of the incentive earned over Target performance will be deferred into awards over Alent Shares that have a three year holding period. Given that Steve Corbett has left the organisation, there will be no requirement for him to defer his incentive into shares.
In 2015 the Committee intends to implement the remuneration policy largely in the same manner as in 2014 with only three changes.
The first change is to increase base salary for the Finance Director, David Egan, and the Non-executive Directors' fees, by 3%, which is the same percentage increase as has been applied to the general workforce.
The second change is to the weighting of performance measures in the Annual Incentive so that financial performance is a more significant factor in determining the annual bonus outcome. The Committee believes that this change to the operation of the Annual Incentive is appropriate as it will help increase the focus of our executives on key financial measures and therefore increase the alignment of interests between our executives and shareholders. The change in weightings is set out in the table below:
| 2014 bonus (previous weightings) (% of annual bonus opportunity) |
2015 bonus (new weightings) (% of annual bonus opportunity) |
|
|---|---|---|
| Adjusted EPS | 50% | 55% |
| Return on NSV | 30% | 30% |
| Personal performance | 20% | 15% |
Finally, the Committee is considering the clawback arrangements applying to awards made under the Alent Share Plan. The existing clawback arrangements are set out in the Remuneration Policy Report on page 65.
Steve Corbett stepped down as Chief Executive, and ceased to be a Director, on 3 September 2014. The Committee determined the termination payments to be made to Steve Corbett, in line with his contract. In summary, Steve Corbett received a payment in lieu of notice equal to his salary and benefits, half of which was paid in instalments for six months starting in October 2014, which reduced to the extent he found alternative employment. In addition, all of his outstanding incentive awards were pro-rated to reflect time served and will vest approximately six months after his notice date but subject to the relevant performance conditions. Further detail is set out on page 72 and on the Company's website http:// www.alent.com/corporate-responsibility/corporategovernance/ in adherence with Section 430 (2B) of the Companies Act 2006.
GOVERNANCE CORPORATE
REPORT STRATEGIC
Andrew Heath became Chief Executive and was appointed a Director of the Company on 21 February 2015. All elements of his ongoing remuneration are in line with our remuneration policy and the structure is the same as for the previous Chief Executive:
In order to secure the services of Andrew Heath, the Committee has provided him with Alent performance and restricted share awards under the Alent Share Plan to compensate him for share awards which he lost when he resigned from his former employer. These additional awards have been structured so that their value, time horizons and performance requirements all reflect as far as practicable the remuneration foregone in order to join Alent. Full detail of these awards will be disclosed at the time of grant and in the 2015 Annual Report on Remuneration.
The Company is committed to open and transparent dialogue with its shareholders on remuneration as well as other governance matters. As a matter of course the Remuneration Committee will continue to consult with key institutional shareholders and various representative bodies about the pay and incentive arrangements of the Company's Executive Directors. We look forward to a continuing dialogue on both the Alent business, and what we need to do in respect of overall remuneration practices for our Executive Directors and the Company as a whole.
I hope you have found this Annual Statement helpful, and will be able to support the Annual Report on Remuneration at this year's Annual General Meeting.
Yours sincerely,
Chairman, Remuneration Committee 2 March 2015
The following Remuneration Policy Report summarises the Remuneration Committee's policy for the remuneration of Executive Directors which has operated since 1 January 2014 and which became formally effective following the approval of shareholders at the 2014 Annual General Meeting.
All the elements of Executive Directors' remuneration (both fixed and variable), which comprises of base salary, annual bonus, deferred awards, long-term share incentives and retirement benefits (pension) are outlined in the following table:
| Element of Remuneration |
Link to strategy | Operation | Opportunity | Performance metrics | |
|---|---|---|---|---|---|
| Base salary | Helps to recruit and retain. Reflects the individual's experience, role and contribution within the Company. |
Paid in cash. Normally reviewed by the Remuneration Committee annually and any increases effective from 1 January. |
No prescribed maximum annual increase. However, merit increases align to Group increases and those for the wider workforce except in exceptional circumstances. |
n/a | GO VE RN AN CE |
| Benefits | Helps to recruit and retain. |
Executive Directors are eligible to receive certain benefits in kind. |
These principally comprise company car allowances, life assurance and medical insurance. Provision of relocation assistance upon appointment if/when |
n/a | STA |
| Annual Incentive | Incentivises Executive Directors to achieve specific, pre-defined annual targets. |
Half of any bonus above target is deferred in shares for three years. The remainder is paid in cash. Subject to clawback. |
applicable. 150% of base salary (70% at Target) for the Chief Executive. 125% of base salary (55% at Target) for the Finance Director. |
At least 70% of the award is based on financial measures such as EPS. The remainder is based on personal/strategic measures of performance. For each individual bonus element, achievement of the threshold performance target delivers no payment for that |
TEM EN TS INF OR |
| Alent Share Plan | Flexible "umbrella plan" designed to align Executive Directors' interests with those of shareholders and aid retention of Executive Directors over a three-year performance period. |
Awards are generally made annually. Awards can be made as performance shares, market-priced options, or a combination of both. Awards vest at least three years after their award date subject to the achievement of specified performance conditions. For performance shares, the Remuneration Committee has the discretion to award participants' cash or additional shares equal in value to the dividends accrued on any shares that vest. Subject to clawback. |
Maximum face value of an award is: – 200% of base salary for performance shares; or – 300% of base salary for market-priced options. If a combination of performance shares and market-price options is awarded then the commercial value of the mixed grant cannot be higher than the commercial value that could have been awarded under a single grant. |
element. Vesting of awards is based on: (i) the Company's TSR performance versus a peer group selected by the Committee. (ii) internal financial measures as selected by the Committee, such as EPS. At least 50% of any award will always be based on internal financial measures. Prior to any vesting the Remuneration Committee has also stipulated that, as an additional hurdle, it needs to be satisfied that vesting has been justified by the underlying financial performance of the Company over the performance period. |
MA TIO N |
| Retirement benefits | Helps to recruit and retain key employees. Ensures income in retirement. |
Retirement benefits are provided by way of an allowance which can be delivered in cash or as a payment to a defined contribution arrangement. |
30% of base salary. | n/a |
CORPORATE
FINANCIAL
ADDITIONAL
The Remuneration Committee encourages Executive Directors to build and hold a shareholding in the Company equivalent in value to at least one times gross base salary. For new Executive Directors, the target is to achieve this within a four-year period. Further details are set out on page 76.
The Remuneration Committee considers remuneration across Alent when setting remuneration policy for Executive Directors and the same principles apply to all employees when determining salary increases. In addition, the Annual Incentive and Alent Share Plan are operated for employees who are not Executive Directors. The key difference in policy is that variable remuneration represents a greater proportion of Executive Directors' total package than it does for other employees.
For the Annual Incentive and Alent Share Plan, our policy is to choose performance measures which help drive and reward the achievement of the Alent strategy, and also provide alignment between employees and shareholders. Further detail on performance measures and targets is disclosed in the Annual Report on Remuneration.
The following table outlines the remuneration policy for Non-executive Directors of Alent:
| Element of Remuneration |
Link to strategy | Operation | Opportunity | Performance metrics |
|---|---|---|---|---|
| Base fees | Reflects the individual's experience, role and contribution within the Company. |
The Board sets the remuneration of the Non-executive Directors after considering the role and responsibilities of each Director and the practice of other companies. The Non-executive Directors do not participate in Board discussions on their own remuneration. |
No prescribed maximum annual increase. Increases are only made if justified by UK market benchmarks. Fees are set at a maximum of £500,000 in aggregate. |
n/a |
| Additional fees | Reflects additional time commitment and responsibility. |
Additional fees paid to the Audit and Remuneration Committee Chairman and the Senior Independent Director. |
No prescribed maximum annual increase. Increases are only made if justified by UK market benchmarks. |
n/a |
Variable remuneration paid to Executive Directors is subject to clawback arrangements in the event that a misstatement is identified in the Company's consolidated financial statements. When a misstatement is identified by the Remuneration Committee which requires the restatement of a prior year's accounts in order to ensure compliance with the requirements of International Financial Reporting Standards or any applicable law, then such portion as the Remuneration Committee deems appropriate of any variable remuneration paid to Executive Directors (including from both the Annual Incentive and the Alent Share Plan and on an after-tax basis) resulting from a measure of financial performance affected by the misstatement will be subject to clawback provisions.
Executive Directors are permitted to hold positions as Non-executive Directors of other companies provided that these do not lead to conflicts of interest. The Board sanctions each such request on a case-by-case basis. Fees received are retained by the Executive Director concerned.
Andrew Heath is a Non-executive Director of the FTSE listed Imagination Technologies Group plc, where he is Chairman of the Remuneration Committee and a member of the Audit and Nomination Committees.
David Egan is a Non-executive Director of the FTSE listed Tribal Group plc, where he is Chairman of the Audit Committee and a member of the Remuneration and Nomination Committees. In 2014, Mr Egan received £32,631 for his services to Tribal Group whilst also a Director of Alent plc.
STATEMENTS FINANCIAL
Our policy is to offer service contracts for Executive Directors with notice periods of between six to 12 months. Service contracts do not contain any change of control provisions. In the event of termination upon notice by either the Company or an Executive Director, the Company has the option of making a payment in lieu of any notice due, a significant part of which is subject to offset against subsequent income earned by the Executive Director.
For the Chairman, appointment is terminable on six months' notice. All Non-executive Directors are subject to retirement, and election or re-election, in accordance with the Company's Articles of Association and now stand for re-election annually.
This Exit Payment Policy sets out the framework on how termination payments will be calculated for each element of Directors' remuneration together with the policy on the setting of notice periods.
An Executive Director's appointment is terminable by the Company on not less than 12 months' written notice, and by the Executive on not less than six months' written notice. In the case of termination, the Company can choose to make a payment in lieu of notice for part or all of the notice period. Any such payment in lieu will be no greater than base salary, pension contributions and the value of benefits to which the Director would have been entitled for the duration of the remaining notice period, net of statutory deductions in each case. Half of this payment will be made in a lump sum, the remainder in six equal monthly instalments. If the Director finds a role paying equivalent or better base salary or fees, no further instalments shall be payable, and the value of any lesser new base salary or fees shall be deducted from any further instalments.
Executives have no contractual right to an annual bonus award. However, if the Committee determines that an annual bonus should be payable after an executive has served or received notice, then annual bonus payments will be pro-rated for time served during the year and paid after the completion of the termination year's performance period as aligned to plan guidelines.
Under the rules of the Alent Share Plan, awards will lapse in full unless specified "good leaver" circumstances apply. These circumstances include:
• employment with a company which ceases to be a Group member or relating to a business or part of a business which is transferred to a person who is not a Group member; and
• any other reason as the Committee decides.
Where the Committee exercises its discretion to treat an Executive Director as a good leaver it will take into account the individual's performance and the reasons for their departure.
Good leavers' awards of performance shares or marketpriced options made under the Alent Share Plan normally vest at the usual time unless the Committee determines that they should vest earlier. However, they are always subject to the achievement of any performance criteria. Good leavers' awards of deferred shares relating to the Annual Incentive will vest on the date of termination since there are no performance conditions needed to be met. In addition, awards normally will be pro-rated to reflect the time employed from the award date unless, under normal circumstances, the Committee determines otherwise.
In addition, no contractual arrangements have been made prior to the coming into effect of the regulations that could impact on the quantum of Directors' termination payments.
The Non-executive Directors are not entitled to receive compensation for loss of office at any time. The Chairman is entitled to six months' notice.
The Company will follow the principle that the remuneration package for a new Director would be set in accordance with the terms of the approved remuneration policy in force at the time of appointment. This means that the maximum level of variable remuneration (such as bonus and long-term incentive awards) would be in line with the maximums set out in the policy table in force at the time of appointment. Currently these maximums are:
However, the Committee may offer additional cash and/or share-based elements to "buy out" remuneration lost when leaving a former employer. These elements of remuneration, including awards made under Listing Rule 9.4.2 R, will only be offered when the Committee considers them to be in the best interests of the Company and, therefore, shareholders. Any such "buy out" payments would be based solely on remuneration lost when leaving the former employer and would reflect (as far as practicable) the delivery mechanism (i.e. cash, shares, options), time horizons and performance requirements attaching to that remuneration. Shareholders will be informed of any such payments at the time of appointment.
In the case of an internal appointment, any variable pay element awarded in respect of the prior role may be allowed to pay out according to its terms on grant, adjusted as relevant to take into account the appointment. In addition, any other ongoing remuneration obligations existing prior to appointment may continue, provided that they are put to shareholders for approval at the first AGM following their appointment.
Other aspects of our recruitment policy include:
(based on Steve Corbett's salary when the policy was approved):
(based on David Egan's salary when the policy was approved): Alent incentive – Shares Pension
• a new Director may receive relocation assistance as stated in the Executive Directors remuneration policy table.
STATEMENTS FINANCIAL
The charts on the previous page show an illustration of remuneration under different performance scenarios. The first two charts show remuneration based on the salaries at the time that the policy was approved. The second two charts show remuneration based on the latest known salaries for the Executive Directors. The potential value of the Alent Share Plan payout does not take into account share price movement or the value of additional shares which may be added to the number of shares released on vesting to reflect dividends paid during the performance period.
Assumptions made for each scenario are as follows:
Although there is no formal consultation with employees in the Company in drawing up Directors' remuneration policy, the policy is aligned to the overall compensation guideline of driving high performance which is applicable to all Alent employees. There are no specified comparison metrics taken into account when determining Directors' remuneration policy.
Alent is committed to open and transparent dialogue with its shareholders on remuneration as well as other governance matters. All views expressed by Alent's shareholders at the Annual General Meeting or during the reported financial year are taken into account by the Committee when making decisions relating to the Directors' remuneration policy. In relation to any changes to the Directors' remuneration policy, the Committee will typically consult with shareholders before such changes are submitted for shareholder approval so that shareholder views can be taken into account.
In normal circumstances, we expect to submit the Directors' remuneration policy once every three years. However, Alent will include the policy section on an annual basis to provide consistency and make cross-referencing easier for the reader.
Key areas of discretion in the application of our remuneration policy include, but are not limited to:
This section of the Directors' remuneration report explains how the Directors' remuneration policy as set out in the Remuneration Policy Report will be implemented in 2015, and how it has been implemented in 2014.
Remuneration in 2015 will be broadly the same as in 2014, but with minor changes to the Annual Incentive arrangements.
The Committee has reviewed base salaries in line with policy and has decided that base salary for David Egan will be increased by 3% in line with 3% increase to the general workforce. This means that effective January 2015, the base salary for David Egan will be £327,283. Andrew Heath's base salary will be £475,000.
In 2014, the base Non-executive Director fee was £45,000 and £165,000 for the Chairman. Additional fees to Committee Chairmen were £15,000, and for the Senior Independent Director were £5,000.
Effective 1 January 2015, Non-executive Director fees and Chairman fees were increased by 3% to £46,350 and £169,950, respectively. The increases are aligned to the average Alent increase of 3%. The SID and Committee Chairs' fees remain unchanged.
The Annual Incentive performance measures will continue to be aligned to Alent's strategy. Accordingly, there will be continued focus on EPS and NSV margin targets for 2015. However, in order to increase the focus of the Executive Directors on the financial performance of the Company, the annual bonus opportunity related to personal objectives will be:
As set out in the Annual Statement and Policy Report, the maximum opportunity for the Chief Executive and Finance Director will be 150% and 125% of base salary, respectively. In addition, half of any bonus paid above target will be deferred into awards over shares that have a three year holding period to increase alignment between the long-term interests of executives and shareholders.
The Committee intends to make grants of 200% of salary to each of the Executive Directors in 2015. The performance condition relating to these awards will be disclosed in next year's annual report on remuneration and will continue to be based on EPS and relative TSR.
In this section we have provided information on what was paid to our Directors in 2014, and the reasons why those payments were made.
| Executive Directors: "Single Figure" for 2014 Total Remuneration | £1,947,847 |
|---|---|
| ------------------------------------------------------------------ | ------------ |
| Elements of Remuneration | Salary | Benefits1 | Bonus2,6 | Alent Share Plan3 |
Pension | Other4,5 | Total |
|---|---|---|---|---|---|---|---|
| Steve Corbett 20148 | £316,500 | £17,429 | £344,560 | £0 | 9 £94,357 |
£442,155 | £1,215,001 |
| Steve Corbett 20137 | £453,008 | £28,976 | £0 | £0 | £135,902 | £0 | £617,886 |
| David Egan 2014 | £317,750 | £16,660 | £303,111 | £0 | £95,325 | £0 | £732,846 |
| David Egan 2013 | £310,000 | £16,498 | £0 | £0 | £93,000 | £90,280 | £509,778 |
Taxable benefits for 2014 includes: company car allowances, life assurance and medical insurance.
The 2014 bonus relates to Annual Incentive payments for performance in the 2014 financial year. The calculation for 2014 amount is set out on page 71.
The 2014 value for Steve Corbett relates to his Cookson awards converted into Alent shares upon demerger which were originally granted on 1 April 2012. The performance period for these awards was 1 January 2012 to 31 December 2014. As shown on page 72, the performance conditions were not met and all of the awards lapsed. David Egan had no performance-based Alent Share Plan awards vesting during the year.
The 2014 value for Steve Corbett relates to (i) the vesting of 21,898 shares under the Alent Share Plan which have been pro-rated and will vest on 3 April 2015 that are valued on the average share price of 335p over the last quarter of 2014, (ii) payments in lieu of notice paid on 3 October 2014 together with the monthly instalments relating to 2014, (iii) payments related to healthcare benefits, and (iv) legal and other expenses. Further detail of these payments is set out in the section of loss of office payments.
The 2013 value for David Egan relates to the recruitment award of 23,909 shares granted on 28 March 2013 under the Alent Share Plan. Half of these shares vested on 1 January 2014 whilst the remaining half vested on 1 January 2015. These awards were made to "buy out" awards of variable remuneration at his previous employer and were disclosed in the 2012 remuneration report. These awards have been valued using the grant date share price of 377.6p.
50% of the annual bonus above target is deferred into shares for a period of three years. David Egan will be awarded shares equivalent to £64,174.
Converted Steve Corbett's 2013 remuneration from USD to GDP utilising an exchange rate of 1.6556.
Converted Steve Corbett's 2014 remuneration from USD to GDP utilising an exchange rate of 1.6473. Steve Corbett stepped down
as Chief Executive on 3 September 2014. Numbers above reflect period from 1 January 2014 to 3 September 2014.
| Chairman and Non-executive Directors: "Single Figure" for 2014 Total Remuneration | £425,000 | |||
|---|---|---|---|---|
| Elements of Remuneration | Salary and fees1 | |||
| 2014 | 2013 | |||
| Peter Hill | £165,000 | £165,000 | ||
| Emma FitzGerald | £45,000 | £45,000 | ||
| Lars Förberg | £45,000 | £45,000 | ||
| Noël Harwerth | £60,000 | £60,000 | ||
| Jan Oosterveld | £45,000 | £45,000 | ||
| Mark Williamson | £65,000 | £65,000 |
Note
The information below sets out how amounts disclosed in the single figure table regarding the Annual Incentive and Alent Share Plan were determined.
In 2014 Annual Incentive payments for the Chief Executive and Finance Director were based on the achievement of an adjusted EPS target, return on NSV margin and personal objectives. EPS targets for 2014 were set on the basis of considerable stretch on the 2013 results and the NSV targets were also set to show further growth over 2013. Directors were also set measurable performance objectives in order to ensure delivery of operational and strategic goals. For both EPS and NSV, the 2014 outturn showed improvement over 2013 as can be seen in the 2014 Group results.
For the adjusted EPS, the Group achieved above target but below maximum and for the return on NSV, the Group achieved below target performance. For the Personal Objectives, the Committee assessed performance of both the Chief Executive and Finance Director in alignment with the 2014 objectives for the Group that determined achievement, respectively, at just below Stretch and at Superior performance levels.
The maximum bonus opportunities for the Chief Executive and Finance Director in 2014 were 150% of salary and 125% of salary respectively. As a result, the bonus outcome for 2014 performance is noted below:
• Chief Executive, Steve Corbett – 110.8% of salary pro-rated to 73.8% as a result of loss of office on 3 September 2014; and
• Finance Director, David Egan – 95.4% of salary.
Awards shown in the 2014 single figure represent the grants made to Executive Directors in 2012 under the Cookson Group plc (Cookson) LTIP for which the performance period ended on 31 December 2014. These awards were rolled over to become awards over Alent shares of equivalent value after the demerger and were due to vest in April 2015.
The performance condition for these awards was measured over a three-year period, but by reference to Cookson performance up to the demerger effective time and by reference to Alent performance thereafter to the end of the period. The awards continued to be subject to the terms and conditions of the existing Cookson LTIP, save that the relevant company (and relevant remuneration committee) was Alent instead of Cookson.
Vesting of 50% of awards was based on adjusted EPS growth, whilst the remaining 50% was based on TSR growth relative to a comparator group. As shown in the tables overleaf, the performance targets for the 2012 Cookson LTIP awards were not met and the awards did not vest:
REPORT STRATEGIC
GOVERNANCE CORPORATE
| 2014 adjusted EPS | % of Total award vesting | |||
|---|---|---|---|---|
| Performance targets for 2014 adjusted EPS |
Less than 34.6 pence | 0% | ||
| 34.6 pence | 12.5% | |||
| 42.7 pence | 50% | |||
| Between 34.6 pence and 42.7 pence | Pro rata between 12.5% and 50% | |||
| Outcome | 25.0p | 0% |
| Alent 3-year TSR rank vs. FTSE250, excluding Investment Trusts at 31 Dec 2014 |
% of Total award vesting |
|---|---|
| Below Median | 0% |
| Median | 12.5% |
| Upper Quintile | 50% |
| Between Median and Upper Quintile | Pro rata between 12.5% and 50% |
| Below Median | 0% |
Note
The performance condition for these awards was measured over a three-year period, but by reference to Cookson performance up to the demerger effective time and by reference to Alent performance thereafter to the end of the period.
Steve Corbett had awards over 340,665 shares subject to these performance conditions. All of his awards lapsed.
In accordance with their contracts, Steve Corbett and David Egan receive pension allowances of 30% of their base salaries to enable them to make their own pension provision as they may choose or take as a salary supplement.
Steve Corbett ceased to be a Director and the Chief Executive Officer of Alent plc on 3 September 2014 (the "Notice Date"). He was given the 12 months' notice provided for in his employment contract on this date, and was placed on garden leave until his employment terminated on 3 October 2014 (the "Leaving Date").
Steve Corbett received all salary and benefit entitlements accrued and due through to the Leaving Date, less withholdings required by law.
Steve Corbett was paid in lieu of the amount of notice that remains outstanding as at the Leaving Date. He therefore received a payment in lieu of notice calculated in accordance with his employment agreement, comprising base salary, pension allowance and the cost to the Company of providing contractual benefits for the balance of the notice period paid as follows:
• a lump sum payment of US\$478,991 (less withholdings required by law), was paid on 28 October 2014; and
• six monthly instalments of US\$79,831.83 (less withholdings required by law), subject to mitigation should Steve Corbett obtain new employment before the date on which an instalment falls due.
At Steve Corbett's election he is entitled to continue to receive certain US healthcare benefits provided by Alent for 12 months following the Leaving Date, the cost of which US\$13,475 will be met by Alent.
Steve Corbett was eligible to be considered for an annual incentive payment in respect of services rendered during 2014, calculated on a time pro-rated basis through the Notice Date, to reflect the proportion of the year during which he was actively employed. As a result, Steve Corbett was awarded a bonus of £344,560 for his performance over 2014 (see earlier section for full calculation of the annual bonus). This amount was calculated at the same time as for other executives, and will be paid at the same time as for other executives and was subject to the rules and the attainment of performance targets set out in the bonus scheme, subject to approval by the Remuneration Committee at the time.
Steve Corbett has awards under the Cookson Group Long Term Incentive Plan (of 118,121 and 222,544 shares), and awards under the Alent Share Plan (of 268,203 and 287,958 shares). These awards will be treated in accordance with the rules of each Plan, and will all lapse except for 21,898 shares of the 2014 Alent Share Plan award which will vest on 3 April 2015. This is based on the committees assessment of the achievement of the performance conditions at the leaving date and calculated on a time pro-rated basis.
Alent share plan performance share awards
During 2014, awards with a face value of 200% of salary were granted to Steve Corbett and David Egan under the Alent Share Plan. Details of these awards are shown in the table below. No other awards were made to either Steve Corbett or David Egan.
| Individual | Scheme | Type of award |
Award basis | Face Value1 |
% vesting for achieving minimum level of performance |
End of performance period |
Summary of performance condition |
|
|---|---|---|---|---|---|---|---|---|
| Steve Corbett |
Alent Share Plan |
287,9583 performance shares |
200% of salary | £928,665 | 25%2 | 31/12/2016 | 50% of award subject to a relative TSR |
|
| David Egan | Alent Share Plan |
197,0544 performance shares |
200% of salary | £635,499 | 25%2 | 31/12/2016 | performance measure. 50% of award subject to an EPS growth performance condition. |
Based on a share price of 322.5p which was the average mid-market quotations for Wednesday 5 March 2014 to Friday 7 March 2014 and Monday 10 March 2014 to Tuesday 11 March 2014 (being the five trading days before grant).
Assumes that the threshold target is achieved for both the TSR and EPS performance condition.
For Steve Corbett, 21,898 shares will vest on 3 April 2015 based on the committee's assessment of the achievement of the performance condition at the leaving date. The remaining 266,060 shares will lapse on 3 April 2015. See the section on loss of office payments for further details.
For David Egan, vesting of half of these awards will be determined by Alent TSR performance over the performance period relative to a comparator group, whilst the remainder will be determined by Alent EPS growth.
Further information on the performance conditions is provided in the tables, below:
| 2016 adjusted EPS | % of Total award vesting | |||
|---|---|---|---|---|
| Performance targets for 2016 | Less than 27.9 pence | 0% | ||
| adjusted EPS | 27.9 pence | 12.5% | ||
| Between 27.9 pence and 30.4 pence | Pro rata between 12.5% and 31.25% | |||
| Between 30.4 pence and 33.0 pence | Pro rata between 31.25% and 50% |
Performance targets for Alent TSR at end of the performance period
| Below Median | 0% |
|---|---|
| Median | 12.5% |
| Upper Quartile | 50% |
| Between Median and Upper Quartile | Pro rata between 12.5% and 50% |
The 2014 TSR comparator group is: Air Liquide, Arkema, Cabot Microelectronics, Croda, Dow Chemical, DuPont, Elementis, HB Fuller, Henkel, Illinois Tool Works (ITW), Integris, Johnson Matthey, Lanxess, Merck Group, Nitto Denko, OM Group, Park Electrochemical, Platform Specialty Products, Solvay, Umicore, Victrex and Wacker Chemie AG.
The EPS performance conditions take 2013 EPS as the base with stretching targets for 2016 adjusted EPS.
REPORT STRATEGIC
GOVERNANCE CORPORATE
STATEMENTS FINANCIAL
Vesting of half of these awards is determined by Alent TSR performance over the performance period relative to a comparator group, whilst the remainder is determined by Alent EPS growth in accordance with the following schedule:
| 2015 adjusted EPS | % of Total award vesting | |
|---|---|---|
| Performance targets for 2015 | Less than 29.72 pence | 0% |
| adjusted EPS | 29.72 pence | 12.5% |
| Between 29.72 pence and 32.74 pence | Pro rata between 12.5% and 31.25% | |
| Between 32.74 pence and 35.97 pence | Pro rata between 31.25% and 50% | |
| TSR performance condition | ||
| TSR rank vs. comparator group1 |
| at end of performance period | % of Total award vesting | |
|---|---|---|
| Performance targets for Alent TSR | Below Median | 0% |
| at end of the performance period | Median | 12.5% |
| Upper Quintile | 50% | |
| Between Median and Upper Quintile | Pro rata between 12.5% and 50% |
This section sets out the interests of Directors in the Alent Share Plan together with their beneficial interests.
| Type | Grant Date | Number of shares at 1 January 2014 |
Granted during year |
Vested during year |
Lapsed during year |
Number of shares at 31 December 2014 |
Percentage vesting for achieving minimum level of performance |
Performance condition3 |
End of performance period |
Normal vesting date |
|---|---|---|---|---|---|---|---|---|---|---|
| Cookson performance shares |
01-04-2011 | 102,631 | – | – | (102,631) | – | 25%2 | Cookson 2011 condition |
31-12-2013 | 05-04-2014 |
| Cookson performance shares |
05-04-2012 | 118,121 | – | – | – | 118,121 | 25%2 | Cookson 2012 condition |
31-12-2014 | 05-04-2015 |
| Cookson matching shares |
05-04-2012 | 222,544 | – | – | – | 222,544 | 11.1%2 | Cookson 2012 condition |
31-12-2014 | 05-04-2015 |
| Alent Share Plan | 09-04-2013 | 268,203 | – | – | – | 268,203 | 25%3 | Alent 2013 condition |
31-12-2015 | 09-04-2016 |
| Alent Share Plan | 12-03-2014 | – | 287,958 | – | – | 287,958 | 25%4 | Alent 2014 condition |
31-12-2016 | 12-03-2017 |
| Total | 711,499 | 287,958 | – | (102,631) | 896,826 | |||||
| David Egan | ||||||||||
| Alent share plan | 28-03-2013 | 11,955 | – | (11,955) | – | – | n/a | n/a1 | n/a1 | 01-01-2014 |
| Alent Share Plan | 28-03-2013 | 11,954 | – | – | – | 11,954 | n/a | n/a1 | n/a1 | 01-01-2015 |
| Alent Share Plan | 09-04-2013 | 168,204 | – | – | – | 168,204 | 25%2 | Alent 2013 condition |
31-12-2015 | 09-04-2016 |
| Alent Share Plan | 01-04-2014 | – | 197,054 | – | – | 197,054 | 25%2 | Alent 2014 condition |
31-12-2016 | 12-03-2017 |
| Total | 192,113 | 197,054 | (11,955) | – | 377,212 |
This award was made as part of David Egan's recruitment arrangements. It will vest subject to continued employment.
Assumes that the threshold target is achieved for all performance conditions.
See section on Loss of Office Payments for further detail.
The information in the above table is audited by the Company's auditor. Further detail on the performance conditions is set out below.
In the case of Alent Share Plan grants for which the performance period ends on 31 December 2014, these represent the grants made to Executive Directors in 2012 under the Cookson LTIP. These awards over Cookson shares were rolled over to become awards over Alent shares of equivalent value. Performance was measured over a three-year period, but by reference to Cookson performance up to the demerger effective time and by reference to Alent performance thereafter to the end of the period. The awards continued to be subject to the terms and conditions of the existing Cookson LTIP, save that the relevant company (and relevant remuneration committee) was Alent instead of Cookson.
The vesting of the awards, when originally granted, was based on Cookson's performance against specified performance conditions measured over a three-year period. Vesting of 50% of shares awarded was based upon Cookson's three-year TSR performance relative to that of the constituent companies of the FTSE 250, excluding Investment Trusts, and 50% on EPS growth over the three-year period. The two measures operated independently.
The new Alent targets for measuring performance for the 2012 Cookson LTIP awards, following the demerger, were determined as follows:
Highlighted below are the current service contracts and letters of appointment for Alent's Directors:
Andrew Heath was appointed as the Chief Executive of the Company effective on 21 February 2015. He is eligible to participate in the annual incentive and the Alent Share Plan. Mr Heath's appointment is terminable by the Company on not less than 12 months' written notice, and by Mr Heath on not less than six months' written notice. Mr Heath is subject to certain non-compete and non-solicitation covenants for a period of 12 months following the termination of his employment. The agreement is governed by English law.
David Egan was appointed as the Finance Director of the Company effective on 1 January 2013. He is eligible to participate in the annual incentive and the Alent Share Plan. Mr Egan's appointment is terminable by the Company on not less than 12 months' written notice, and by Mr Egan on not less than six months' written notice. Mr Egan is subject to certain non-compete and non-solicitation covenants for a period of 12 months following the termination of his employment. The agreement is governed by English law.
Neither of the Executive Directors' contracts contains any change of control provisions. Both contracts give the Company the option, in the event of termination upon notice by either party, to make a payment in lieu of any notice due, a significant part of which is subject to offset against subsequent income earned by the relevant Executive Director.
No Director had any material interest in a contract of significance (other than service agreements) with the Company or any subsidiary company during the year.
GOVERNANCE CORPORATE
STATEMENTS FINANCIAL
Non-executive Director Letters of Appointment
| Date of appointment | Annual General Meeting at which current term is expected to expire |
Unexpired notice period | |
|---|---|---|---|
| Chairman (Non-executive Director) |
|||
| Peter Hill | 10 September 2012 | 7 May 2015 | 6 months |
| Non-executive Directors | |||
| Emma FitzGerald | 31 October 2012 | 7 May 2015 | – |
| Jan Oosterveld1 | 31 October 2012 | 7 May 2015 | – |
| Noël Harwerth | 31 October 2012 | 7 May 2015 | – |
| Lars Förberg | 31 October 2012 | 7 May 2015 | – |
| Mark Williamson | 31 October 2012 | 7 May 2015 | – |
The beneficial interests of the Directors and their families in the ordinary shares of the Company as at 31 December 2014 are shown below, together with the total number of shares subject to performance conditions which have been granted under the Alent Share Plan. These amounts have been adjusted for the share consolidation carried out on 26 September 2014.
| Ordinary shares | 31 December 2014 Ordinary shares No. | Alent Share Plan1 |
|---|---|---|
| David Egan | 21,415 | 377,212 |
| Peter Hill | 57,391 | – |
| Emma FitzGerald | 15,421 | – |
| Lars Förberg2 | NIL | – |
| Noël Harwerth | 2,097 | – |
| Jan Oosterveld | 17,114 | – |
| Mark Williamson | 7,652 | – |
Awards under the Alent Share Plan are subject to continued employment or the achievement of performance conditions that are set out on pages 74 to 75.
Mr Förberg is Managing Partner of, and has a financial interest in, Cevian Capital, which held just over 20% of Alent's issued share capital on the date of his appointment to the Alent Board and continues to hold an interest of just under 22% in Alent's issued share capital as of the date of this Report. None of the other Directors, nor their spouses nor minor children, held non-beneficial interests in the ordinary shares of the Company during the year.
There were no changes to the interests of the Directors in the ordinary shares of the Company in the period from 1 January 2015 to 2 March 2015.
Full details of Directors' shareholdings and share allocations are given in the Company's Register of Directors' Interests, which is open to inspection at the Company's registered office during business hours.
The information in the above table is audited by the Company's auditor.
As set out in the Policy Report, the Remuneration Committee encourages Executive Directors to build and hold a shareholding in the Company equivalent in value to at least one times gross base salary. For new Executive Directors, the target is to achieve this within a four-year period.
As at 31 December 2014, David Egan held 21,415 shares in Alent. Using the Company's closing share price at 31 December 2014 of 321p, this represents 21.6% of base salary (gross, pre-tax) for David Egan.
The percentage change in profit, dividends and overall expenditure on pay in the reporting period compared to the previous period is set out below.
| 2014 £m |
2013 £m |
% change | |
|---|---|---|---|
| Adjusted operating profit¹ | 95.1 | 94.1 | 1% |
| Dividends paid2 | 66.3 | 23.3 | 185% |
| Overall expenditure on pay3 | 133.1 | 132.9 | – |
Before share of joint ventures and exceptional items, and including the effect of proforma adjustments.
Dividends paid in 2014 include a special dividend of £42.0m. Ordinary dividends paid in 2014 amounted to £24.3m, a 4% increase on 2013.
The 2013 overall expenditure on pay has been amended from £124.5m to £132.9m to include £8.4m of employee benefits within exceptional items.
Alent does not have a share buyback programme.
Steve Corbett served as Chief Executive until 4 September 2014. In January 2014, Steve Corbett was awarded a 2.5% salary increase which was in line with the 2.5% salary increase awarded to the general workforce.
Although Steve Corbett was a US based employee, his remuneration benefits were designed based on the UK Market. As such, with Andrew Heath joining, the transition to reflecting only the UK 'average employee' remuneration details is the most relevant comparator given that Alent's headquarters are based in the UK.
| Salary | Benefits1 | Annual Incentives |
|
|---|---|---|---|
| Chief Executive | 2.5% | (20%) | n/a2 |
| Average UK employee | 2.5% | 9% | 14% |
Taxable benefits for 2014 includes: company car allowances, life assurance and medical insurance.
Steve Corbett did not receive an annual incentive in 2013. Details of his 2014 annual incentives are set out on page 71.
The primary role and responsibilities of the Remuneration Committee are:
• setting the appropriate remuneration for the Chairman, the Executive Directors and the Company Secretary;
• recommending and monitoring the level and structure of remuneration for senior management, being the first layer of management below Board level; and
• overseeing the operation of any executive share incentive plans.
A copy of the Remuneration Committee's Terms of Reference is available on the Company's website www.alent.com and the members of the Remuneration Committee are set out on page 49 of the Corporate Governance Report.
In formulating its policies and deciding individual remuneration levels, the Remuneration Committee is advised by the Chief Executive and the Company Secretary, and by the external advisers New Bridge Street (NBS), part of Aon PLC. NBS has been appointed directly by the Remuneration Committee to provide advice on executive remuneration matters, including remuneration structure and policy, updates on market practices and trends, guidance on the implementation and operation of long-term incentive plans and provides share award valuation advice to the Company. NBS has also provided the Remuneration Committee with remuneration benchmarking data for certain executives. NBS is a signatory to the Remuneration Consultants Group Code of Conduct in relation to Executive Remuneration Consulting in the UK. During 2014 NBS was paid a total of £99,000 for its services to the Committee as listed above. The Remuneration Committee is satisfied that advice received from NBS is objective.
REPORT STRATEGIC
Activities of the Remuneration Committee:
The Remuneration Committee met six times in 2014, twice more than planned, to consider such matters as:
At the 2014 AGM Alent's shareholders approved the Annual Report on Remuneration and the Remuneration Policy Report. The voting outcomes are summarised in the table below:
| Remuneration Policy Report | |||||
|---|---|---|---|---|---|
| No of votes | % of votes cast | No of votes | % of votes cast | ||
| Votes cast in favour | 232,659,462 | 96.81 | 239,186,743 | 99.42 | |
| Votes cast against | 7,672,226 | 3.19 | 1,388,945 | 0.58 | |
| Total votes cast | 240,331,688 | 100 | 240,575,688 | 100 | |
| Number of abstentions | 250,482 | n/a | 6,482 | n/a |
Given that Alent did not exist until 19 December 2012, it is not possible to produce a graph which compares the Company's TSR over the past five years with the return on an appropriate index (in compliance with the Large & Medium sized Companies and Groups (Accounts & Report) Regulations 2008). For completeness, and in accordance with the Regulations, the graph below does compare the Company's TSR over the shortened period from the demerger to 31 December 2012 with the return on the FTSE 250 index (excluding Investment Trusts) through 31 December 2014. This index has been chosen as the comparator index to reflect the size, international scope and diversity of the Company. The table following the chart shows the single figure remuneration for the Chief Executive over the same period.
Source: Thomson Reuters
This graph shows the value, by 31 December 2014, of £100 invested in Alent plc on 19 December 2012 compared with the value of £100 invested in the FTSE 250 Index (excluding investment trusts) on the same date.
| FTSE250 xIT | Alent |
|---|---|
| ------------- | ------- |
| Year Ending | Executive | Total Remuneration |
Annual Bonus (% of max) |
Alent Share Plan vesting (% of max) |
|---|---|---|---|---|
| 31 December 20142 | Steve Corbett | £1,215,001 | 73.8% | 0% |
| 31 December 2013 | Steve Corbett | £617,886 | 0% | 0% |
| 31 December 20121 | Steve Corbett | £18,797 | 8.9% | 0% |
The above details only reflect the applicable period after 19 December 2012 under Alent plc.
Includes payments for loss of office. % of maximum pro-rated.
Under the rules of the Plan the Company has the discretion to satisfy awards either by the transfer of existing shares or by the allotment of newly issued shares. The decision on how to satisfy awards is taken by the Board, which considers the most prudent and appropriate sourcing arrangement for the Company.
The Alent Share Plan complies with the current ABI guidelines on headroom which provide that overall dilution under all plans should not exceed 10% over a 10-year period in relation to the Company's issued share capital, with a further limitation of 5% in any 10-year period on discretionary schemes.
Details of the awards granted to Executive Directors and outstanding under the Cookson LTIP as at 31 December 2012 and outstanding awards under the Alent Share Plan are given in note 27 to the Group financial statements and note 10 to the Company financial statements.
The following sections of this report are subject to audit:
• single total figure for remuneration (pages 70 to 71);
• variable pay and other share awards granted during 2014 (page 73); and
• statement of Directors' shareholdings and share interests (page 74).
On behalf of the Board
Chairman of the Remuneration Committee 2 March 2015
The Directors submit their Annual Report together with the audited accounts of the Group and of the Company, Alent plc, registered in England and Wales No.8197966, for the year ended 31 December 2014.
The Companies Act 2006 requires the Company to provide a Directors' Report for Alent plc for the year ended 31 December 2014. The information that fulfils this requirement and which is incorporated by reference into, and forms part of this report, is included in the following sections of the Annual Report: the Corporate Governance Report; the information on financial risk management objectives and policies contained in note 25 of the Group financial statements, and the details on Greenhouse Gas emissions set out on page 30.
This Directors' Report and Strategic Report together represents the management report for the purpose of compliance with DTR 4.1.8R of the UK Listing Authority Disclosure and Transparency Rules.
Alent plc is a holding company. A list of its principal subsidiary companies is set out on page 126. The Company does not have any overseas branches within the meaning of the Companies Act 2006.
The Directors have prepared cash flow forecasts and assessed the future funding requirements of the Group and the Company and compared it to the level of long-term debt and committed bank facilities for a period in excess of 12 months from the date that the financial statements were approved. These forecasts reflect an assessment of current and future end-market conditions and their impact on the Group's future trading performance. The assessment included a sensitivity analysis on the key factors which could affect future cash flow and funding requirements. Having undertaken this work the Directors consider that the Group has adequate resources to fund its operations for the foreseeable future and so determine that it is appropriate to prepare the accounts on a going concern basis.
The Group's investment in research and development ("R&D") during the year under review amounted to £15.2 million (representing 3.7% of Group net sales value (2013: 3.8%). Further details of the Group's R&D activities can be found on page 38 of the Strategic Report.
An interim dividend of 3.0 pence per ordinary share and a special dividend of 15.0 pence per ordinary share was paid on 17 October 2014.
The Board is recommending a final dividend in respect of 2014 of 6.0 pence per ordinary share which, if approved, will be paid on 19 June 2015 to shareholders on the register at 16 May 2015.
A responsibility statement of the Directors and a statement by the Auditor about its reporting responsibilities can be found on pages 83 and 84 to 85 respectively. The Directors fulfil the responsibilities set out in their statement within the context of an overall control environment of central strategic direction and decentralised operating responsibility. As at the date of this report, so far as each Director of the Company is aware, there is no relevant audit information of which the Company's Auditor is unaware and each Director hereby confirms that they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.
KPMG LLP has expressed its willingness to continue in office as Auditor and a resolution for the reappointment of KPMG LLP and to authorise the Directors to determine its remuneration are to be proposed at the AGM.
The Directors shall not be fewer than five nor more than 15 in number. The Company may, by ordinary resolution, from time to time vary the minimum number and/or maximum number of Directors. The Board may appoint any person to be a Director (so long as the total number of Directors does not exceed the limit prescribed in the Articles). Any such Director shall only hold office until the next AGM and shall then be eligible for election.
A Director my be removed by the Company as provided for by applicable law, in certain circumstances set out in the Company's Articles of Association (for example bankruptcy or resignation), or by a special resolution of the Company.
Biographical information for all the current Directors of the Company is given on pages 42 to 43. All the Directors will retire at the AGM and offer themselves for election. Further information on the contractual arrangements of the Executive Directors is given on page 75. The Nonexecutive Directors do not have service agreements.
Mr Steve Corbett resigned as Chief Executive on 3 September 2014.
Mr Andrew Heath was appointed as Chief Executive and Director of Alent plc on 21 February 2015.
Ms Helen Barrett-Hague was appointed as Company Secretary on 2 January 2015, following the resignation of Mr Simon O'Hara.
The Directors have been granted Qualifying Third Party Indemnity Provisions by the Company.
The AGM of the Company will be held at 10.00 am on Thursday 7 May at the offices of UBS, 1 Finsbury Avenue, London EC2M 2PP.
The notice of the 2015 AGM is contained in the circular to shareholders accompanying this Annual Report, together with an explanation of resolutions to be considered at the meeting.
Information on our reporting of greenhouse gas emissions, and the methodology used to record these, is set out on page 30 of the Corporate Responsibility section of the Strategic Report.
In accordance with Company policy, no political or charitable donations were made in 2014.
A small number of senior management employees within the Group are entitled to receive payments of up to 12 months' salary in the event that employment is terminated in certain circumstances within 12 months of a change of control of Alent. The Remuneration Committee has approved these arrangements as being in line with Alent's wider Remuneration Policy. No Director of Alent is entitled to any such payment.
The terms of the Group's committed bank facility contain provisions entitling the counterparties to exercise termination or other rights in the event of a change of control on takeover of the Company. A number of other arrangements to which the Company and its subsidiaries are party, such as other debt arrangements and share incentive plans, may alter or terminate on a change of control in the event of a takeover. In the context of the Group as a whole, these other arrangements are not considered to be significant.
As at the date of this report, the Company had an issued share capital of 266,353,736 ordinary shares of 10 5/11p each, being the total number of Alent plc shares with voting rights. All issued shares are fully paid. There are no other classes of share capital. Further information relating to the Company's issued share capital can be found in note 21 to the Company financial statements.
The Company operates a number of share-based incentive plans (further details about these are given in the Directors' Remuneration Report). For these plans the Company can satisfy entitlements either by the acquisition of existing shares or by the issue of new shares.
No ordinary shares have been issued in relation to the exercise of options granted under the Company's share option schemes.
During the year, 11,955 ordinary shares of 10 pence each, equivalent to 50% of Mr David Egan's restricted share award were issued for cash to satisfy his award.
Resolutions giving the Directors the authority to allot shares and make allotments of shares to persons other than existing shareholders in certain circumstances will be proposed at the AGM.
Alent operates a share based incentive plan. The Group can satisfy entitlements either by the acquisition of existing shares or by the issue of new shares. Existing shares are held in an employee share ownership trust ("ESOT"). The trustee of the ESOT purchases shares in the open market when required, to enable the Group to meet liabilities for the issue of shares to satisfy awards that vest. The trustee does not register votes in respect of these shares and has waived the right to receive any dividends. In 2014 the trustee of the ESOT purchased 110,000 ordinary shares of 10p each in Alent plc with a market value of £382,279.75 at an average price, including transactions costs of £3.475 per share to satisfy the actual and potential vesting of awards under the Group's share-based payments plan. Details of outstanding awards and costs associated with the share plans are set out in note 27 to the Group Financial Statements.
No adjustments were made to outstanding share based incentives as a result of the share consolidation.
In each country in which the Group operates, the pension arrangements in place are considered to be consistent with good employment practice in that particular area. Independent advisers are used to ensure that the plans are operated in accordance with local legislation and the rules of each plan. Group policy prohibits direct investment of pension fund assets in the Company's shares. Outside the US, the majority of pension plans in the Group are of a defined contribution nature. Current active employees in the UK are offered membership of a defined contribution plan, which is operated on a contract basis, with oversight by a governance committee. In compliance with new legislation, the Company introduced autoenrolment for all eligible UK employees.
All US retirement plan assets are held in trust for the exclusive benefit of plan participants and their beneficiaries. An independent financial institution acts as the Trustee. The trust assets are protected by law and by Federal Government Regulation and are subject to annual audit by an independent accountant, the Internal Revenue Service and the Department of Labor. Further details of pension arrangements are given in note 26.
The Company's Articles of Association ("Articles") do not contain any specific restrictions on the size of a holding or on the transfer of shares. The Directors are not aware of any agreements between holders of the Company's shares that may result in restrictions on the transfer of securities or voting rights. No person has any special rights with regard to the control of the Company's share capital and all issued shares are fully paid. This is a summary only and the relevant provisions of the Articles should be consulted if further information is required.
The Company may make amendments to the Articles by way of special resolution in accordance with the Companies Act.
REPORT STRATEGIC
GOVERNANCE CORPORATE
The Company has been notified in accordance with DTR 5 of the Disclosure and Transparency Rules of interests in the voting rights of the Company's issued share capital exceeding the 3% notification threshold:
| Fund Manager |
Current rank |
Country | Number of shares |
% at 31/12/14 |
|---|---|---|---|---|
| Cevian Capital |
1 | Jersey | 58,432,694 | 21.94 |
| Franklin Templeton |
2 | USA | 29,559,215 | 11.10 |
| Artisan Partners |
3 | USA | 27,353,198 | 10.27 |
| Janus Capital Management |
4 | USA | 17,775,011 | 6.67 |
| GO Investment Partners |
5 | England | 10,641,347 | 4.00 |
| Dimensional Fund Advisers |
6 | USA | 9,297,161 | 3.49 |
| Norges Bank Investment Management |
7 | Norway | 8,276,162 | 3.11 |
| BlackRock | 8 | USA | 8,238,483 | 3.09 |
The interests of Directors and their connected persons in the ordinary shares of the Company as disclosed in accordance with the Listing Rules of the UK Listing Authority are as set in the Directors' Remuneration Report and details of the Directors' long-term incentive awards are set out in the Directors Remuneration Report.
No material changes in the interests disclosed to the Company have been notified between 31 December 2014 and 2 March 2015.
Certain information that is required to be included in the Directors' Report can be found elsewhere in this document as referred to below, each of which is, to the extent not in this report, incorporated by reference.
A full list of the individuals who were directors of the Company during the financial year ended 31 December 2014 can be found on page 46.
Disclosures relating to exposure to price, credit, liquidity and cash flow risks are set out in note 25 to the Group financial statements.
Disclosures relating to financial risk management objectives and policies, including our policy for hedging, are set out in note 25 to the Group financial statements.
The Strategic report starting on page 2 contains details of likely future developments within the Group.
Disclosures concerning greenhouse gas emissions can be found on page 30.
Information concerning past balance sheet events can be found in note 30 to the Group consolidated financial statements.
Details of the Group's profit for the year ended 31 December 2014 can be found on page 86.
Information provided to the Company pursuant to the Disclosure and Transparency Rules is published on the Regulatory News section of the Company's website.
The Strategic Report, the Directors' Report and the Remuneration Report have been approved by the Board.
The Directors' Report is signed on the Board's behalf by:
Company Secretary 2 March 2015
The Directors of Alent plc are responsible for preparing the Annual Report and the Group and parent company ("the Company") financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Group and Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and applicable law and have elected to prepare the Company financial statements in accordance with UK Accounting Standards and applicable law ("UK Generally Accepted Accounting Practice").
Under company law, the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of their profit or loss for that period. In preparing each of the Group and the Company financial statements, the Directors are required to:
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Strategic Report, Remuneration Report and Corporate Governance Report that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Board's objective is to present a balanced and understandable assessment of the Company's position and prospects, particularly in the Annual Report, interim report and other published documents and reports to regulators. The Board has established an Audit Committee to assist with this obligation.
As required by the Code, the Directors confirm that they consider that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy. When arriving at this position the Board was assisted by a number of processes including the following:
Each of the Directors, as at the date of the Annual Report, whose names and functions are indicated below confirms that to the best of their knowledge:
| Peter Hill | Chairman |
|---|---|
| Andrew Heath | Chief Executive |
| David Egan | Finance Director |
| Emma FitzGerald | Non-executive Director |
| Lars Förberg | Non-executive Director |
| Noël Harwerth | Non-executive Director and |
| Chairman of the Remuneration | |
| Committee | |
| Jan Oosterveld | Non-executive Director |
| Mark Williamson | Non-executive Director, Senior |
| Independent Director and Chairman | |
| of the Audit Committee |
The Annual Report & Accounts for 2014 was approved by the Board of Directors and authorised for issue on 2 March 2015 and signed on behalf of the Board by:
Chief Executive 2 March 2015
GOVERNANCE CORPORATE
Opinions and conclusions arising from our audit 1. Our opinion on the financial statements is unmodified We have audited the financial statements of Alent plc for the year ended 31 December 2014 which comprise the Group income statement, the Group statement of comprehensive income, the Group statement of cash flows, the Group and parent company balance sheets, the Group statement of changes in equity and related notes. In our opinion:
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.
Our assessment of risks of material misstatement In arriving at our audit opinion above on the financial statements the risks of material misstatement that had the greatest effect on our audit were as follows:
Refer to page 58 (Audit Committee statement), page 93 (critical judgements) and page 100 (financial disclosures)
setting out the basis of the deferred tax balance and the level of estimation involved, as well as the appropriateness of disclosing the asset recognition within exceptional tax items.
Refer to page 58 (Audit Committee statement), page 92 (ctritical judgements) and pages 124 to 125 (financial disclosures)
The materiality for the financial statements as a whole was set at £4 million, determined with reference to a benchmark of Group profit before taxation, of £73.4 million, of which it represents 5.4%.
We report to the Audit Committee any corrected and uncorrected misstatements identified exceeding £0.3 million, in addition to other identified misstatements that warranted reporting on qualitative grounds.
Of the Group's 103 reporting components, audits for Group reporting purposes were performed by component auditors at 11 key reporting components in China, Germany, Hong Kong, India, Netherlands and Taiwan and by the Group audit team for the United Kingdom. In addition, specified audit procedures over the principal assets, liabilities, income and expense items were performed by component auditors over six components in Brazil, the United States of America and Hungary.
STATEMENTS FINANCIAL
Together, these Group procedures covered 71% of total Group revenue (comprising: 42% – audits, 29% – specified audit procedures); 85% of the total profits and losses before taxation that made up Group profit before taxation (49% – audits, 36% – specified audit procedures); and 83% of total Group assets (72% – audits, 11% – specified audit procedures).
The remaining 29% of revenue, 15% of the total profits and losses before taxation and 17% of total Group assets is represented by more than 86 reporting components around the world. None of these reporting components represented more than 3% of revenue, profit before tax or total Group assets. For these components, we performed analysis at an aggregated Group level to re-examine our assessment that there were no significant risks of material misstatement within these. Local statutory audits are performed in over 20 of these components, but generally these are completed after the date of this report.
The Group audit team instructed component auditors as to the significant risks to be covered, including the relevant risks detailed above and the information to be reported back. The Group audit team approved the component materialities, which ranged from £0.2 million to £3 million having regard to the mix of size and risk profile of the Group across the components.
The Group audit team visited the United States and attended the Dutch component audit close meeting. Telephone conference meetings were also held with all the audit teams in all locations in scope for Group reporting purposes where audit close meetings were not physically attended.
In our opinion:
Under ISAs (UK and Ireland) we are required to report to you if, based on the knowledge we acquired during our audit, we have identified other information in the Annual Report that contains a material inconsistency with either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
Under the Companies Act 2006 we are required to report to you if, in our opinion:
Under the Listing Rules we are required to review:
We have nothing to report in respect of the above responsibilities.
As explained more fully in the Statement of Directors' Responsibilities set out on page 83, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. A description of the scope of an audit of financial statements is provided on the Financial Reporting Council's website at www.frc.org.uk/auditscopeukprivate. This report is made solely to the Company's members as a body and is subject to important explanations and disclaimers regarding our responsibilities, published on our website at www.kpmg.com/uk/auditscopeukco2014a, which are incorporated into this report as if set out in full and should be read to provide an understanding of the purpose of this report, the work we have undertaken and the basis of our opinions.
For and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 15 Canada Square, London, E14 5GL 2 March 2015
| Note | 2014 £m |
2013 £m |
|
|---|---|---|---|
| Revenue | 5 | 644.8 | 684.7 |
| Manufacturing costs before exceptional items | 8 | (393.8) | (433.3) |
| Administration, selling and distribution costs before exceptional items | 8 | (155.9) | (157.3) |
| Operating profit before exceptional items | 95.1 | 94.1 | |
| Exceptional items | 8 | (18.1) | (10.3) |
| Operating profit | 5 | 77.0 | 83.8 |
| Share of post-tax profit of joint ventures | 1.6 | 0.8 | |
| Finance costs | 10 | (5.7) | (7.4) |
| Finance income | 10 | 0.5 | 0.5 |
| Profit before tax | 73.4 | 77.7 | |
| Income tax costs – ordinary activities | 11 | (28.5) | (20.9) |
| – exceptional items | 11 | 1.9 | 4.8 |
| Profit for the year | 46.8 | 61.6 | |
| Earnings per share (pence) | 12 | ||
| Basic | 17.0 | 22.1 | |
| Diluted | 17.0 | 22.1 |
| Note | 2014 £m |
2013 £m |
GO CO |
|
|---|---|---|---|---|
| Profit for the year | 46.8 | 61.6 | VE RP OR RN |
|
| Other comprehensive income | AN AT E |
|||
| Items that will not be reclassified to profit or loss | CE | |||
| Remeasurement of the net defined benefit liability | 26 | (7.0) | 3.9 | |
| Income tax relating to items not reclassified | 11 | 0.1 | – | |
| (6.9) | 3.9 | |||
| Items that may be reclassified subsequently to profit or loss | ||||
| Exchange differences on translation of the net assets of foreign operations | 22 | 3.9 | (15.1) | |
| Exchange differences on translation of net investment hedges | 22 | (4.9) | 8.5 | STA FIN |
| Change in fair value of cash flow hedges | 22 | (0.3) | (0.4) | AN TE |
| (1.3) | (7.0) | ME CI AL NT S |
||
| Other comprehensive loss for the year, net of tax | (8.2) | (3.1) | ||
| Total comprehensive income for the year | 38.6 | 58.5 |
INFORMATION ADDITIONAL
REPORT STRATEGIC
| Note | 2014 £m |
2013 £m |
|
|---|---|---|---|
| Cash flows from operating activities | |||
| Profit for the year | 46.8 | 61.6 | |
| Adjustments for: | |||
| Depreciation | 15 | 9.1 | 9.0 |
| Exceptional items | 8 | 18.1 | 10.3 |
| Share of post-tax profit of joint ventures | (1.6) | (0.8) | |
| Net finance costs | 10 | 5.2 | 6.9 |
| Net income tax costs | 11 | 26.6 | 16.1 |
| EBITDA | 104.2 | 103.1 | |
| Decrease in inventories | 0.1 | 0.9 | |
| Decrease in trade receivables | 4.6 | 4.5 | |
| (Decrease)/increase in trade payables | (6.7) | 2.4 | |
| Decrease/(increase) in other working capital balances | 1.8 | (2.2) | |
| Net (increase)/decrease in trade and other working capital | (0.2) | 5.6 | |
| Outflow related to restructuring charges | 8 | (9.3) | (4.0) |
| Litigation settlements | 8 | 1.7 | – |
| Payment of demerger costs | 9 | (0.2) | (4.8) |
| Additional funding contributions into Group pension plans | 26 | (2.4) | (1.9) |
| Cash generated from operations | 93.8 | 98.0 | |
| Interest paid | (3.8) | (4.6) | |
| Interest received | 0.5 | 0.5 | |
| Income taxes paid | (17.5) | (19.3) | |
| Net cash inflow from operating activities | 73.0 | 74.6 | |
| Cash flows from investing activities | |||
| Capital expenditure | 15 | (11.7) | (13.7) |
| Proceeds from the sale of property, plant and equipment | – | 0.1 | |
| Proceeds from the sale of investments | – | 0.4 | |
| Acquisition of subsidiaries and joint ventures, net of cash acquired | (0.6) | (1.0) | |
| Disposal of subsidiaries and joint ventures, net of cash disposed | 8 | 0.5 | – |
| Dividends received from joint ventures | 0.4 | 5.5 | |
| Other investing outflows | (1.7) | (1.8) | |
| Net cash outflow from investing activities | (13.1) | (10.5) | |
| Net cash inflow before financing activities | 59.9 | 64.1 | |
| Cash flows from financing activities | |||
| Repayment of borrowings | 14 | (4.1) | (64.5) |
| Purchase of own shares | (0.4) | (0.2) | |
| Borrowing facility arrangement costs | (1.1) | – | |
| Dividends paid to equity shareholders | 24 | (66.3) | (23.3) |
| Net cash outflow from financing activities | (71.9) | (88.0) | |
| Net decrease in cash and cash equivalents | 14 | (12.0) | (23.9) |
| Cash and cash equivalents at 1 January | 14 | 56.3 | 80.6 |
| Effect of exchange rate fluctuations on cash and cash equivalents | 14 | 0.6 | (0.4) |
| Cash and cash equivalents at 31 December | 14 | 44.9 | 56.3 |
| Assets Property, plant and equipment 15 85.9 Intangible assets 16 294.3 Interests in joint ventures 6.3 Investments 0.7 Deferred tax assets 11 9.6 Other receivables 5.4 Total non-current assets 402.2 Cash and short-term deposits 14 49.5 Inventories 19 51.5 Trade and other receivables 18 128.4 Income tax recoverable 1.4 Derivative financial instruments 20 0.8 Total current assets 231.6 Total assets 633.8 Equity Issued share capital 21 27.8 Other reserves 22 (439.0) Retained earnings 23 697.1 Total equity 285.9 Liabilities Interest-bearing borrowings 25 153.0 Employee benefits 26 24.1 Other payables 28 0.4 Provisions 30 14.4 Deferred tax liabilities 11 37.4 Total non-current liabilities 229.3 Interest-bearing borrowings 25 4.8 Trade and other payables 28 78.9 Provisions 30 16.3 Income tax payable 17.9 Derivative financial instruments 20 0.7 Total current liabilities 118.6 Total liabilities 347.9 |
Note | 2014 £m |
2013 £m |
GO CO |
|---|---|---|---|---|
| VE RP OR RN |
||||
| 85.2 | AN AT E |
|||
| 288.5 | CE | |||
| 5.5 | ||||
| 0.7 | ||||
| 11.2 | ||||
| 1.8 | ||||
| 392.9 | ||||
| STA FIN |
||||
| 63.1 | AN TE |
|||
| 51.6 | ME CI |
|||
| 131.0 | AL NT S |
|||
| 0.6 | ||||
| 0.5 | ||||
| 246.8 | ||||
| 639.7 | ||||
| 27.8 | AD INF |
|||
| (437.7) | DIT OR |
|||
| 722.3 | IO MA NA |
|||
| 312.4 | TIO L N |
|||
| 153.4 | ||||
| 18.8 | ||||
| 0.6 | ||||
| 11.7 | ||||
| 32.4 | ||||
| 216.9 | ||||
| 6.2 | ||||
| 80.1 | ||||
| 11.8 | ||||
| 12.1 | ||||
| 0.2 | ||||
| 110.4 | ||||
| 327.3 | ||||
| Total equity and liabilities 633.8 |
639.7 |
The financial statements were approved and authorised for issue by the Board on 2 March 2015 and signed on its behalf by:
ANDREW HEATH DAVID EGAN
Chief Executive Group Finance Director
REPORT STRATEGIC
| Note | Issued share capital £m |
Other reserves £m |
Retained earnings £m |
Total equity £m |
|
|---|---|---|---|---|---|
| As at 1 January 2013 | 27.8 | (430.8) | 679.0 | 276.0 | |
| Total comprehensive income | |||||
| Profit for the year | – | – | 61.6 | 61.6 | |
| Other comprehensive loss for the year | – | (7.0) | 3.9 | (3.1) | |
| Total comprehensive income for the year | – | (7.0) | 65.5 | 58.5 | |
| Transactions with owners | |||||
| Recognition of share–based payments | – | – | 1.4 | 1.4 | |
| Purchase of own shares | – | – | (0.2) | (0.2) | |
| Redemption of redeemable preference shares | – | 0.1 | (0.1) | – | |
| Dividends paid to equity shareholders | – | – | (23.3) | (23.3) | |
| Total transactions with owners | – | 0.1 | (22.2) | (22.1) | |
| As at 1 January 2014 | 27.8 | (437.7) | 722.3 | 312.4 | |
| Total comprehensive income | |||||
| Profit for the year | – | – | 46.8 | 46.8 | |
| Other comprehensive loss for the year | – | (1.3) | (6.9) | (8.2) | |
| Total comprehensive income for the year | – | (1.3) | 39.9 | 38.6 | |
| Transactions with owners | |||||
| Recognition of share–based payments | – | – | 1.6 | 1.6 | |
| Purchase of own shares | – | – | (0.4) | (0.4) | |
| Dividends paid to equity shareholders | 24 | – | – | (66.3) | (66.3) |
| Total transactions with owners | – | – | (65.1) | (65.1) | |
| As at 31 December 2014 | 27.8 | (439.0) | 697.1 | 285.9 |
Further information on the movements in the components of the other reserves and retained earnings shown in the table above may be found in notes 22 and 23.
Alent plc ("the Company") is a public limited company registered in England and Wales and listed on the London Stock Exchange. The nature of the operations and principal activities of the Company and its subsidiary and joint venture companies ("the Group") can be found within the Strategic Report on pages 2 to 41. The Company's registered address is Forsyth Road, Sheerwater, Woking GU21 5RZ.
The consolidated financial statements of Alent plc have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS").
The consolidated financial statements of the Group incorporate the financial statements of the Company and entities controlled by the Company (its "subsidiaries"). Control exists when the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing whether control exists, potential voting rights that are currently exercisable are taken into account. The results of subsidiaries acquired or disposed of during the year are included in the Group income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those detailed herein to ensure that the Group financial statements are prepared on a consistent basis.
All intra-Group transactions, balances, income and expenses are eliminated on consolidation.
The Company has amended the presentation of information contained in its Group income statement and segment information note (note 5), to present its share of post-tax profit of joint ventures after operating profit, but before profit before tax. As a result of this change, the previously reported operating profit sub-total for 2013 is now reported as £83.8m (previously £84.6m), with no change to the previously reported profit before tax, profit for the year, earnings per share or net financial position of the Group. The Directors believe that this amendment provides a better understanding of the Group's operating profit and of its adjusted operating profit, which is one of the key non-Generally Accepted Accounting Practice measures used to assess the underlying performance of the Group (note 4).
As discussed in more detail in the Directors' Report on page 80, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and, accordingly, they have continued to adopt the going concern basis in preparing the financial statements for the year ended 31 December 2014.
The financial statements are presented in millions of pounds sterling, which is the functional currency of the Company, and rounded to one decimal place. Foreign operations are included in accordance with the policies set out in note 25.1.
IAS 1, Presentation of Financial Statements, provides no definitive guidance as to the format of the income statement, but states key lines which should be disclosed, encourages disclosure of additional line items where such presentation will assist in understanding financial performance and requires separate disclosure of material items of income or expense. Accordingly, the Company discloses exceptional items separately on the face of its Group income statement, together with a full explanation of the nature and function of such items in the notes to the financial statements.
Both materiality and the nature and function of the item are considered in deciding whether an item warrants treatment as an exceptional item. Such items may include, inter alia: the financial effect of major restructuring activity; profits or losses relating to current and non-current assets; gains or losses relating to employee benefit plans; profits or losses arising on business disposals; recognition and utilisation of deferred tax assets; and other items, including the taxation impact of the aforementioned items, which have a significant impact on the Group's results either due to their size or nature.
REPORT STRATEGIC
GOVERNANCE CORPORATE
STATEMENTS FINANCIAL
During the year a number of new and amended IFRS became effective and were adopted by the Group, including IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements, none of which had a material impact on the Group's net cash flows, financial position, total comprehensive income or earnings per share.
A number of new and amended IFRS were issued during the year, which do not become effective until after 1 January 2015, none of which is likely to have a material impact on the Group's net cash flows, financial position, total comprehensive income or earnings per share.
Determining the carrying amount of some assets and liabilities requires estimation of the effect of uncertain future events. The major sources of estimation uncertainty that have a significant risk of resulting in a material adjustment to the carrying amounts of assets or liabilities are noted below.
The Directors use their judgement to determine the extent to which goodwill has a value that will benefit the performance of the Group over future periods. To assist in making this judgement, the Directors undertake an assessment, at least annually, of the carrying value of the Group's capitalised goodwill. In the assessment undertaken as at 31 December 2014, further details of which are given in note 17, value in use was derived from discounted five-year cash flow projections, using a growth rate of 3.0% in the years beyond the projection period and pre-tax discount rates. The projection period is, in the opinion of the Directors, an appropriate period over which to view the future results of the Group's businesses for this purpose. Changes to the assumptions used in making these forecasts could significantly alter the Directors' assessment of the carrying value of goodwill.
The Group's financial statements include the costs and obligations associated with the provision of pension and other post-retirement benefits to current and former employees. It is the Directors' responsibility to set the assumptions used in determining the key elements of the costs of meeting such future obligations. The assumptions are set after consultation with the Group's actuary, and whilst the Directors believe that the assumptions used are appropriate, a change in the assumptions used would affect the Group's profit and financial position.
Alent has extensive international operations and is subject to various legal and regulatory regimes, including those covering taxation and environmental matters. Several of the Group's subsidiaries are parties to legal proceedings, certain of which are insured claims arising in the ordinary course of the operations of the company involved, and are aware of a number of issues which are, or may be, the subject of dispute with tax authorities. Reserves are made for the expected amounts payable in respect of known or probable costs resulting both from legal or other regulatory requirements, or from third-party claims. As the settlement of many of the obligations for which reserve is made is subject to legal or other regulatory process, the timing and amount of the associated outflows is subject to some uncertainty. The Directors use their judgement and experience to make reserves in the financial statements for an appropriate amount relating to such matters.
Tax benefits are not recognised unless it is probable that they will result in future economic benefits to the Group. In assessing the amount of the benefit to be recognised in the financial statements, the Directors exercise their judgement in considering the effect of negotiations, litigation and any other matters that they consider may impact upon the potential settlement. Any interest and penalties on tax liabilities are provided for in the tax charge. The Group operates internationally and is subject to tax in many different jurisdictions. As a consequence, the Group is routinely subject to tax audits and local enquiries which, by their very nature, can take a considerable period of time to conclude. Provisions are made for known issues based upon the Directors' interpretation of country-specific tax law and their assessment of the likely outcome.
GOVERNANCE CORPORATE
STATEMENTS FINANCIAL
The Group has recognised deferred tax assets in respect of unutilised losses and other timing differences arising in a number of the Group's businesses. Account has been taken of future forecasts of taxable profit in arriving at the values at which these assets are recognised. If these forecast profits do not materialise or change, or there are changes in tax rates or to the period over which the losses or timing differences might be recognised, then the value of deferred tax assets will need to be revised in a future period.
The Group also has losses and other timing differences for which no deferred tax assets have been recognised in these financial statements, relating either to loss-making subsidiaries where the future economic benefit of the timing difference is not probable or to where the timing difference is of such a nature that its value is dependent on certain types of profit being earned, such as capital profits. If operating or other appropriate profits are earned in future in these companies, these losses and other timing differences may yield benefit to the Group in the form of a reduced tax charge.
The Company uses a number of non-Generally Accepted Accounting Practice ("non-GAAP") financial measures in addition to those reported in accordance with IFRS. The Directors believe that these non-GAAP measures, listed below, are important when assessing the underlying financial and operating performance of the Group and its businesses.
NSV is revenue less commodity metals that pass through to customers. As the changes in the value of these commodity metals are passed through to customers, NSV is a more appropriate measure of the underlying activity of the business.
Return on sales is calculated as adjusted operating profit divided by revenue and NSV margin is calculated as adjusted operating profit divided by NSV.
Adjusted operating profit, adjusted profit before tax, adjusted profit for the year and adjusted earnings per share are, where appropriate, each stated before: exceptional items; amortisation of acquired intangible assets; deferred tax on acquired intangible assets and goodwill; utilisation of deferred tax assets (where initial recognition was as an exceptional item); acquisition costs; the impact arising from the fair valuing of financial instruments and profits or losses arising on business disposals.
Adjusted cash generated from operations is cash generated from operations as reported in the Group statement of cash flows after adding back £0.2m (2013: £4.8m) for demerger cash costs (note 9).
Free cash flow is defined as net cash flow from operating activities after net outlays for the purchase and sale of property, plant and equipment and dividends from joint ventures but before additional funding contributions to Group pension plans.
The average working capital to sales ratio is calculated as the percentage of average working capital balances to the annualised revenue for the year. Average working capital (comprising inventories, trade and other receivables, and trade and other payables) is calculated as the average of the six previous month-end balances, and annualised revenue is derived from the revenue for the previous six months.
4.7 EBITDA
EBITDA is calculated as the total of operating profit before exceptional items and depreciation charges.
Net interest is calculated as interest payable on borrowings less interest receivable, excluding any item therein considered by the Directors to be exceptional.
Interest cover is the ratio of EBITDA to net interest.
Net debt comprises the net total of: short-term deposits; cash at bank and in hand; bank overdrafts; and current and non-current interest-bearing borrowings net of capitalised borrowing costs.
Net debt to EBITDA is the ratio of net debt at the year-end to EBITDA for that year.
Return on capital employed ("ROCE") is calculated as adjusted operating profit plus share of post-tax profit of joint-ventures, divided by average capital employed (being total equity plus net debt, net defined benefit liability, income tax and deferred tax).
The segment information contained in this note makes reference to several non-GAAP financial measures, definitions for which can be found in note 4.
Revenue comprises the fair value of the consideration received or receivable for goods supplied and services rendered to customers after deducting rebates, discounts and value-added taxes, and after eliminating sales within the Group. Where a contractual arrangement consists of two or more separate elements that can be provided to customers either on a stand-alone basis or as an extra, such as the provision of supplementary materials with equipment, revenue is recognised for each element as if it were an individual contractual arrangement.
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership have been transferred to the customer, there is no continuing management involvement with the goods and recovery of the related consideration is probable. In practice this usually occurs when the goods have been delivered to, and accepted by, the customer. A provision for anticipated returns is made based primarily on historical return rates.
For reporting purposes, the Group is organised into two main business segments, namely Assembly Materials and Surface Chemistries. It is the Alent Board that makes the key operating decisions in respect of these segments. The information used by the Board to review performance and determine resource allocation is presented with the Group's activities analysed between these two business segments. Taking into account the basis on which the Group's activities are reported to the Alent Board and the nature of the products and services within each of these business segments, the Directors believe that these two business segments are the appropriate way to analyse the Group's results. The principal activities of each of these segments are described in the Business Unit Review on pages 16 to 17.
The Group's adjusted results (note 4.3) have been used as the basis for presenting its segment results shown in the tables below. Segment revenue represents revenue from external customers (inter-segment revenue is not material) and segment result is operating profit before exceptional items and before corporate costs directly related to managing the parent company, which are reported separately in the tables below. Segment result includes items directly attributable to a segment as well as those items that can be allocated on a reasonable basis.
| 2014 | ||||
|---|---|---|---|---|
| Assembly Materials £m |
Surface Chemistries £m |
Corporate/ Unallocated £m |
Group £m |
|
| Segment revenue | 393.9 | 250.9 | – | 644.8 |
| Segment net sales value | 204.9 | 208.1 | – | 413.0 |
| Adjusted segment EBITDA | 62.8 | 48.5 | – | 111.3 |
| Segment depreciation | (5.2) | (3.9) | – | (9.1) |
| Adjusted segment result | 57.6 | 44.6 | – | 102.2 |
| Adjusted corporate costs | – | – | (7.1) | (7.1) |
| Adjusted operating profit | 57.6 | 44.6 | (7.1) | 95.1 |
| Exceptional items | (4.2) | (1.3) | (12.6) | (18.1) |
| Operating profit | 53.4 | 43.3 | (19.7) | 77.0 |
| Share of post-tax profit of joint ventures | 1.6 | |||
| Finance costs | (5.7) | |||
| Finance income | 0.5 | |||
| Profit before tax | 73.4 | |||
| Return on sales margin (%) | 14.6 | 17.8 | – | 14.7 |
| NSV margin (%) | 28.1 | 21.4 | – | 23.0 |
| Capital expenditure additions (£m) | 6.0 | 5.7 | – | 11.7 |
| Average number of employees (number) | 1,397 | 1,155 | 38 | 2,590 |
The Group's share of post-tax profit from joint ventures of £1.6m (2013: £0.8m) included a one-off pension settlement gain of £1.4m (2013: £nil).
GOVERNANCE CORPORATE
5.3 Income statement (continued)
| 2013 | ||||
|---|---|---|---|---|
| Assembly Materials £m |
Surface Chemistries £m |
Corporate/ Unallocated £m |
Group £m |
|
| Segment revenue | 423.1 | 261.6 | – | 684.7 |
| Segment net sales value | 209.5 | 210.6 | – | 420.1 |
| Adjusted segment EBITDA | 63.4 | 46.5 | – | 109.9 |
| Segment depreciation | (5.2) | (3.8) | – | (9.0) |
| Adjusted segment result | 58.2 | 42.7 | – | 100.9 |
| Adjusted corporate costs | – | – | (6.8) | (6.8) |
| Adjusted operating profit | 58.2 | 42.7 | (6.8) | 94.1 |
| Exceptional items | (4.4) | (5.9) | – | (10.3) |
| Operating profit | 53.8 | 36.8 | (6.8) | 83.8 |
| Share of post-tax profit of joint ventures | 0.8 | |||
| Finance costs | (7.4) | |||
| Finance income | 0.5 | |||
| Profit before tax | 77.7 | |||
| Return on sales margin (%) | 13.8 | 16.3 | – | 13.7 |
| NSV margin (%) | 27.8 | 20.3 | – | 22.4 |
| Capital expenditure additions (£m) | 5.3 | 8.4 | – | 13.7 |
| Average number of employees (number) | 1,342 | 1,214 | 32 | 2,588 |
| External revenue | Non-current assets | |||
|---|---|---|---|---|
| 2014 £m |
2013 £m |
2014 £m |
2013 £m |
|
| China (including Hong Kong) | 156.4 | 161.1 | 31.1 | 30.7 |
| United States of America | 150.1 | 165.0 | 123.1 | 112.4 |
| Germany | 63.6 | 66.5 | 35.9 | 31.6 |
| Taiwan | 52.6 | 58.9 | 3.5 | 3.5 |
| Singapore | 30.8 | 28.5 | 94.7 | 90.7 |
| United Kingdom | 27.9 | 29.0 | 18.8 | 18.9 |
| Brazil | 24.8 | 31.7 | 1.7 | 2.4 |
| Rest of the World | 138.6 | 144.0 | 83.8 | 91.5 |
| Total Group | 644.8 | 684.7 | 392.6 | 381.7 |
External revenue disclosed in the table above is based upon the geographical location of the operation. The Group's customers are widely dispersed around the world and no single country included within Rest of the World in the table above, for either of the years presented, amounts to more than 5% of the Group's total external revenue. Non-current assets exclude deferred tax assets.
Information relating to the Group's products and services is included within the Strategic Report on pages 8 to 9. The Group is not dependent upon any single customer for its revenue and no single customer, for either of the years presented in the tables above, accounts for more than 10% of the Group's total external revenue.
| 2014 | 2013 £m £m |
|
|---|---|---|
| Wages and salaries 115.2 |
117.0 | |
| Social security costs | 9.6 7.4 |
STA |
| Pension costs – defined contribution pension plans (note 26) | 6.1 5.8 |
TE |
| – defined benefit pension and other post-retirement plans (note 26) | 0.9 1.4 |
ME |
| Share-based payments (note 27) | 1.3 1.3 |
NT S |
| Total employee benefits expense 133.1 |
132.9 |
Of the total employee benefits expense of £133.1m (2013: £132.9m), £125.4m (2013: £123.4m) was charged in arriving at operating profit before exceptional items; £0.8m (2013: £1.1m) was charged within finance costs; and £6.9m (2013: £8.4m) was charged within exceptional items. The total employee benefits expense for 2013 has been amended from £124.5m to £132.9m to include £8.4m of employee benefits expenses within exceptional items.
| 2014 £m |
2013 £m |
|
|---|---|---|
| Fees payable to the Company's auditor and its associates for the audit of the Company's annual accounts |
0.2 | 0.2 |
| Fees payable to the Company's auditor and its associates for other services: | ||
| Audit of the Company's subsidiaries | 0.7 | 0.7 |
| Audit-related assurance services | – | 0.1 |
| Tax compliance services | 0.1 | 0.1 |
| Tax advisory services | 0.1 | – |
| Total auditor's remuneration | 1.1 | 1.1 |
FINANCIAL
INFORMATION ADDITIONAL
The tables below detail the exceptional items charged in arriving at Group operating profit, together with the segment against which they were charged.
| Assembly Materials £m |
Surface Chemistries £m |
Corporate/ Unallocated £m |
2014 £m |
|
|---|---|---|---|---|
| Restructuring charges | 2.3 | 3.6 | 2.3 | 8.2 |
| Litigation settlement charges | – | – | 7.3 | 7.3 |
| Disposal and closure costs | – | – | 3.0 | 3.0 |
| Impairment charges | 2.1 | – | – | 2.1 |
| Total exceptional charges | 4.4 | 3.6 | 12.6 | 20.6 |
| Litigation settlement income | – | (2.3) | – | (2.3) |
| Profit on disposal of continuing operations | (0.2) | – | – | (0.2) |
| Total exceptional income | (0.2) | (2.3) | – | (2.5) |
| Total net exceptional charges | 4.2 | 1.3 | 12.6 | 18.1 |
| Assembly Materials £m |
Surface Chemistries £m |
Corporate/ Unallocated £m |
2013 £m |
|
| Restructuring charges | 4.4 | 5.9 | – | 10.3 |
| Total net exceptional charges | 4.4 | 5.9 | – | 10.3 |
Restructuring charges in the year amounted to £8.2m (2013: £10.3m) and arose in connection with operational restructuring initiatives that included redundancy programmes, the downsizing or closure of facilities, the streamlining of manufacturing processes and the rationalisation of product lines, and corporate management restructuring initiatives comprising termination payments and other costs related to the replacement of the Chief Executive and other senior management positions. The net tax credit attributable to these restructuring charges was £0.7m (2013: £1.9m). Restructuring cash costs of £9.3m (2013: £4.0m) were incurred in the year, in respect of restructuring initiatives commenced both in 2014 and in prior years.
Charges: During 2014 the Group recognised litigation charges of £7.3m (2013: £nil) arising on settlement of legacy issues that pre-dated the demerger from Cookson Group plc in 2012. Of these charges, £6.4m (2013: £nil) related to the full and final settlement that was reached in February 2015 of actions brought by MacDermid (incorporated in the United States) against Alent and Vesuvius plc that arose out of corporate activity between the parties in 2006, and represents Alent's share of the gross settlement, after recoveries from insurance and Vesuvius plc. This matter had been noted as a contingent liability in Alent's 2013 annual report.
Income: Litigation settlement income of £2.3m (2013: £nil) arose following the settlement in 2014 of patent litigation.
No tax credits or charges (2013: £nil) were attributable to any of these settlements. The Group cash flow statement reflects £1.7m received in respect of litigation settlements, representing £0.1m (2013: £nil) paid in relation to settlement charges and £1.8m (2013: £nil) received in relation to settlement income.
Costs of £3.0m (2013: £nil) were recognised in connection with the demolition, environmental clean-up and monitoring of sites of former Group businesses that were either closed or disposed of in prior years. No tax credit (2013: £nil) was attributable to these costs.
GOVERNANCE CORPORATE
STATEMENTS FINANCIAL
Impairment charges of £2.1m (2013: £nil) were incurred in respect of an uneconomic product line in the Assembly Materials division. A tax credit of £0.1m (2013: £nil) was attributable to these charges.
The profit on disposal of continuing operations of £0.2m (2013: £nil) arose on disposal of the US stencils business of the Assembly Materials division. No tax charge (2013: £nil) was attributable to this profit. The disposal generated cash proceeds of £0.5m (2013: £nil).
The table below shows manufacturing costs and administration, selling and distribution costs, both before and after items reported as exceptional items in the Group income statement.
| 2014 | 2013 | |||||
|---|---|---|---|---|---|---|
| Before exceptional items £m |
Exceptional items £m |
After exceptional items £m |
Before exceptional items £m |
Exceptional items £m |
After exceptional items £m |
|
| Manufacturing costs | 393.8 | 4.3 | 398.1 | 433.3 | – | 433.3 |
| Administration, selling and distribution costs |
155.9 | 13.8 | 169.7 | 157.3 | 10.3 | 167.6 |
| 549.7 | 18.1 | 567.8 | 590.6 | 10.3 | 600.9 |
One-off costs of £10.7m were incurred in 2012 in effecting the demerger of Alent from Cookson Group plc, of which £0.2m (2013: £4.8m) were paid in cash in the year. The costs principally related to professional fees for audit and accounting services, pension advice, and legal and regulatory compliance services.
10.1 Accounting policy
Borrowing costs are recognised as an expense in the income statement using the effective interest rate method.
| 2014 £m |
2013 £m |
|
|---|---|---|
| Finance costs | 5.7 | 7.4 |
| Finance income | (0.5) | (0.5) |
| Total net finance costs | 5.2 | 6.9 |
| Interest payable on borrowings: | |
|---|---|
| Loans, overdrafts and factoring arrangements 4.8 |
6.2 |
| Total interest payable on borrowings 4.8 |
6.2 |
| Other interest payable: | |
| Net interest expense on the net defined benefit liability 0.8 |
1.1 |
| Unwinding of discounted provisions 0.1 |
0.1 |
| Total finance costs 5.7 |
7.4 |
| Interest receivable (0.5) |
(0.5) |
| Total finance income (0.5) |
(0.5) |
Tax expense represents the sum of current tax and deferred tax. Current and deferred tax are recognised in profit or loss except to the extent that they relate to items charged or credited in other comprehensive income or directly to equity, in which case the associated tax is also dealt with in other comprehensive income or directly to equity.
Current tax is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable nor deductible. The Group's liability for current tax is calculated using tax rates and laws that have been enacted, or substantively enacted, by the balance sheet date.
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rates and laws that have been enacted, or substantively enacted, by the balance sheet date.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
| 11. Income tax (continued) 11.2 Income tax costs |
GO CO |
||
|---|---|---|---|
| 2014 £m |
2013 £m |
VE RP OR RN AT |
|
| Current tax | AN E CE |
||
| Current year | 22.0 | 18.9 | |
| Adjustments in respect of prior years | – | 0.5 | |
| Total current tax | 22.0 | 19.4 | |
| Deferred tax | |||
| Origination and reversal of temporary taxable differences | 3.4 | 2.9 | |
| Utilisation of US deferred tax asset | 5.8 | – | STA FIN |
| Recognition of US deferred tax asset | (4.0) | (6.1) | AN TE ME CI |
| Adjustments in respect of prior years | (0.6) | (0.1) | AL NT |
| Total deferred tax | 4.6 | (3.3) | S |
| Total income tax costs | 26.6 | 16.1 | |
| Total income tax costs attributable to: | |||
| Ordinary activities | 28.5 | 20.9 | |
| Exceptional items | (1.9) | (4.8) | |
| Total income tax costs | 26.6 | 16.1 | AD INF |
| The Group's total income tax costs of £26.6m (2013: £16.1m) include an exceptional credit of £1.9m (2013: £4.8m) as analysed in the table below: |
OR DIT IO MA NA TIO |
||
| 2014 £m |
2013 £m |
L N |
|
| Restructuring charges | 0.7 | 1.9 | |
| Impairment charges | 0.1 | – |
Deferred tax on goodwill (2.9) (3.2) Recognition of US deferred tax asset 4.0 6.1 Total net exceptional tax credit 1.9 4.8
Tax credited in the Group statement of comprehensive income in the year amounted to £0.1m (2013: £nil) all of which related to net actuarial gains and losses on employee benefit plans.
The Group operates in a number of countries that have differing tax rates, laws and practices. Changes in any of these areas could, adversely or positively, impact the Group's tax charge in the future. Continuing losses, or insufficiency of taxable profit to absorb all expenses, in any subsidiary could have the effect of increasing tax charges in the future, relative to 2014, as effective tax relief may not be available for those losses or expenses. Other significant factors affecting the tax charge are described in notes 3.4 and 11.1.
11.3 Reconciliation of income tax costs to profit before tax
| 2014 £m |
2013 £m |
|
|---|---|---|
| Profit before tax | 73.4 | 77.7 |
| Tax at the UK corporation tax rate of 21.5% (2013: 23.25%) | 15.8 | 18.1 |
| Overseas tax rate differences | 7.8 | 4.4 |
| Withholding taxes | 4.5 | 2.7 |
| Deferred tax on goodwill | 2.9 | 3.2 |
| Recognition of US deferred tax asset | (4.0) | (6.1) |
| Expenses not deductible for tax purposes | 0.3 | 0.2 |
| Utilisation of unrecognised deferred tax asset | (0.1) | (6.8) |
| Adjustments in respect of prior years | (0.6) | 0.4 |
| Total income tax costs | 26.6 | 16.1 |
| Operating losses £m |
Intangible assets £m |
Other £m |
Total £m |
|
|---|---|---|---|---|
| As at 1 January 2013 | 2.7 | (28.9) | 1.5 | (24.7) |
| Exchange adjustments | (0.3) | 0.6 | (0.1) | 0.2 |
| Credit/(charge) to Group income statement | 6.4 | (3.2) | 0.1 | 3.3 |
| As at 1 January 2014 | 8.8 | (31.5) | 1.5 | (21.2) |
| Exchange adjustments | 0.1 | (2.2) | – | (2.1) |
| Credit to Group statement of other comprehensive income | – | – | 0.1 | 0.1 |
| Credit/(charge) to Group income statement | (3.9) | (1.6) | 0.9 | (4.6) |
| As at 31 December 2014 | 5.0 | (35.3) | 2.5 | (27.8) |
| 2014 £m |
2013 £m |
|||
| Recognised in the Group balance sheet as: | ||||
| Non-current deferred tax assets | 9.6 | 11.2 | ||
| Non-current deferred tax liabilities | (37.4) | (32.4) | ||
| Net total deferred tax liabilities | (27.8) | (21.2) |
Tax loss carry-forwards and other temporary differences of £nil (2013: £0.2m) were recognised by subsidiaries reporting a loss in 2013 or 2014. On the basis of approved business plans of these subsidiaries, the Directors consider it probable that the tax loss carry-forwards and temporary differences can be offset against future taxable profits.
As at 31 December 2014, the Group recognised a deferred tax asset of £5.0m (2013: £8.8m) related to tax loss carryforwards on the basis that it is probable that there will be sufficient future taxable profits to recover the asset. The period used for assessment of the recovery of the deferred tax asset was from between 1 to 3 years. In determining this period the Directors took into account the uncertainty in the future profitability of the relevant operations and, in particular, whether or not those operations have a recent history of losses and have established a consistent track record of profits.
GOVERNANCE CORPORATE
STATEMENTS FINANCIAL
INFORMATION ADDITIONAL
The total deferred tax asset not recognised as at 31 December 2014 was £126.6m (2013: £128.7m) as analysed below.
| 2014 £m |
2013 £m |
|
|---|---|---|
| Operating losses | 71.6 | 67.9 |
| Capital losses available to offset future US capital gains (due to expire 2016) | 19.6 | 18.5 |
| Other timing differences | 35.4 | 42.3 |
| Total deferred tax asset not recognised | 126.6 | 128.7 |
In accordance with the accounting policy in note 11.1, these items have not been recognised as deferred tax assets on the basis that their future economic benefit is not probable.
As at 31 December 2014, the Group had total operating losses carried forward with a tax value of £76.6m (2013: £76.7m) as analysed below.
| 2014 £m |
2013 £m |
|
|---|---|---|
| Losses available to set against future US taxable income (due to expire 2021 to 2033) | 58.2 | 57.8 |
| Losses available to set against future UK taxable income (may be carried forward indefinitely) | 11.2 | 9.7 |
| Losses available to set against future ROW taxable income | ||
| Due to expire within 5 years | 1.0 | 2.3 |
| Due to expire between 5 and 20 years | 2.3 | 2.8 |
| Carried forward indefinitely | 3.9 | 4.1 |
| ROW operating losses | 7.2 | 9.2 |
| Total net operating losses | 76.6 | 76.7 |
The above losses available relating to the rest of the world arise in a number of countries and are not individually significant, reflecting the spread of the Group's operations.
As at 31 December 2014, the Group had unrecognised US tax credits carried forward with a tax value of £10.2m (2013: £18.1m) as follows:
| 2014 £m |
2013 £m |
|
|---|---|---|
| US research and experimentation credits (due to expire 2017 to 2034) | 5.5 | 4.9 |
| US foreign tax credits (due to expire 2022 to 2024) | 4.7 | 13.2 |
| Total US tax credits | 10.2 | 18.1 |
From 1 April 2014, the UK corporation tax rate reduced from 23% to 21%. On 2 July 2013, the UK Government passed the 2013 Finance Bill, which will reduce the main rate of corporation tax to 20% from 1 April 2015. Accordingly, the Group's closing UK deferred tax liability has been provided using a tax rate of between 21% and 20%, depending on the expected timing of the realisation or settlement of the liability.
| 12.1 Per share amounts | |
|---|---|
| 2014 pence |
2013 pence |
| EPS – basic 17.0 |
22.1 |
| – diluted 17.0 |
22.1 |
Basic and diluted EPS are based upon profit for the year as reported in the Group income statement of £46.8m (2013: £61.6m).
| 2014 m |
2013 m |
|---|---|
| For calculating basic EPS 275.3 |
278.4 |
| Adjustment for dilutive potential ordinary shares 0.3 |
0.6 |
| For calculating diluted EPS 275.6 |
279.0 |
For the purposes of calculating diluted EPS, the weighted average number of ordinary shares is adjusted to include the weighted average number of ordinary shares that would be issued on the conversion of all dilutive potential ordinary shares relating to the Company's share-based payment plans. Potential ordinary shares are only treated as dilutive when their conversion to ordinary shares would decrease earnings per share, or increase loss per share, from continuing operations.
Other than the ordinary shares shown as being dilutive in the table above, the Company had no other outstanding options or share awards in relation to its share-based payment plans that could dilute EPS in the future, but which are not included in the calculation of diluted EPS above because they were anti-dilutive in the years presented.
| 2014 £m |
2013 £m |
|---|---|
| Net cash inflow from operating activities 73.0 |
74.6 |
| Additional funding contributions into Group pension plans 2.4 |
1.9 |
| Capital expenditure (11.7) |
(13.7) |
| Proceeds from the sale of property, plant and equipment – |
0.1 |
| Dividends received from joint ventures 0.4 |
5.5 |
| Free cash flow 64.1 |
68.4 |
CORPORATE
FINANCIAL
| Balance at 1 January 2014 £m |
Foreign exchange adjustments £m |
Non-cash movements £m |
Cash flow £m |
Balance at 31 December 2014 £m |
GO VE RN AN CE |
|---|---|---|---|---|---|
| 0.6 | – | – | 7.4 | 8.0 | |
| 62.5 | 0.4 | – | (21.4) | 41.5 | |
| 63.1 | 0.4 | – | (14.0) | 49.5 | |
| (6.8) | 0.2 | – | 2.0 | (4.6) | |
| 56.3 | 0.6 | – | (12.0) | 44.9 | |
| (0.2) | – | – | – | (0.2) | STA TE |
| (154.7) | (4.9) | – | 4.1 | (155.5) | ME |
| 2.1 | – | 0.4 | – | 2.5 | NT S |
| (152.8) | (4.9) | 0.4 | 4.1 | (153.2) | |
| (96.5) | (4.3) | 0.4 | (7.9) | (108.3) | |
Net debt is a measure of the Group's net indebtedness to banks and other external financial institutions and comprises the net total of: short-term deposits; cash at bank and in hand; bank overdrafts; and current and non-current interest-bearing borrowings net of capitalised borrowing costs. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the Group statement of cash flows. There is no significant difference between the fair value of the Group's net debt and the amount at which it is reported in the Group balance sheet.
Freehold land is carried at cost less accumulated impairment losses. Other items of property, plant and equipment are carried at cost less accumulated depreciation and accumulated impairment losses. Costs are capitalised only when it is probable that they will result in future economic benefits flowing to the Group and when they can be measured reliably. All other repairs and maintenance expenditure is charged to the Group income statement in the period in which it is incurred.
Freehold land is not depreciated. Depreciation on other items of property, plant and equipment begins when the asset is available for use and is therefore not charged on construction in progress. Depreciation is charged to the Group income statement on a straight-line basis so as to write off the cost less residual value of the asset over its estimated useful life as follows:
| Asset category | Estimated useful life | |||
|---|---|---|---|---|
| Freehold property | between 10 and 50 years | |||
| Leasehold property | the term of the lease | |||
| Plant and equipment – motor vehicles | between 1 and 5 years | |||
| – information technology equipment | between 1 and 5 years | |||
| – other | between 5 and 15 years |
The depreciation method used, residual values and estimated useful lives are reviewed and changed, if appropriate, at least at each financial year-end. As described in note 17.1, an asset's carrying amount is immediately written down to its recoverable amount if its carrying amount is greater than its estimated recoverable amount. Gains and losses arising on disposals are determined by comparing the sales proceeds with the carrying amount and are recognised in the Group income statement.
15.2 Movement in net book value
| Freehold property £m |
Leasehold property £m |
Plant and equipment £m |
Construction in progress £m |
Total £m |
|
|---|---|---|---|---|---|
| Cost | |||||
| As at 1 January 2013 | 52.4 | 16.8 | 135.2 | 18.2 | 222.6 |
| Exchange adjustments | (0.9) | (0.7) | (4.3) | – | (5.9) |
| Capital expenditure additions | 0.1 | – | 6.0 | 7.6 | 13.7 |
| Disposals | (0.1) | (0.1) | (3.0) | – | (3.2) |
| Reclassifications | 0.3 | 0.4 | 2.4 | (3.1) | – |
| As at 1 January 2014 | 51.8 | 16.4 | 136.3 | 22.7 | 227.2 |
| Exchange adjustments | (0.1) | 0.2 | 2.3 | (0.1) | 2.3 |
| Capital expenditure additions | 0.4 | 0.1 | 4.6 | 6.6 | 11.7 |
| Disposals | (0.8) | – | (5.0) | – | (5.8) |
| Business disposals | – | (0.1) | (0.9) | – | (1.0) |
| Reclassifications | 0.2 | (0.3) | 22.1 | (22.0) | – |
| As at 31 December 2014 | 51.5 | 16.3 | 159.4 | 7.2 | 234.4 |
| Accumulated depreciation and impairment losses As at 1 January 2013 Exchange adjustments |
30.0 (0.3) |
9.2 (0.4) |
99.5 (2.5) |
– – |
138.7 (3.2) |
| Depreciation charge | 0.8 | 0.9 | 7.3 | – | 9.0 |
| Disposals | – | – | (2.5) | – | (2.5) |
| Reclassifications | 0.3 | – | (0.3) | – | – |
| As at 1 January 2014 | 30.8 | 9.7 | 101.5 | – | 142.0 |
| Exchange adjustments | 0.2 | 0.2 | 1.1 | – | 1.5 |
| Depreciation charge | 0.9 | 0.5 | 7.7 | – | 9.1 |
| Impairment loss | – | – | 2.1 | – | 2.1 |
| Disposals | (0.6) | – | (4.7) | – | (5.3) |
| Business disposals | – | (0.1) | (0.8) | – | (0.9) |
| Reclassifications | (0.1) | 0.1 | – | – | – |
| As at 31 December 2014 | 31.2 | 10.4 | 106.9 | – | 148.5 |
| Net book value as at 31 December 2014 | 20.3 | 5.9 | 52.5 | 7.2 | 85.9 |
| Net book value as at 31 December 2013 | 21.0 | 6.7 | 34.8 | 22.7 | 85.2 |
| Net book value as at 1 January 2013 | 22.4 | 7.6 | 35.7 | 18.2 | 83.9 |
GOVERNANCE CORPORATE
STATEMENTS FINANCIAL
Intangible assets comprise goodwill that has been acquired through business combinations.
Goodwill arising in a business combination is initially recognised as an asset at cost, measured as the excess of the aggregate of the acquisition-date fair value of the consideration transferred and the amount of any non-controlling interest acquired over the net of the acquisition-date fair value amounts of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. Goodwill is subsequently measured at cost less accumulated impairment losses, with impairment testing carried out annually, or more frequently when there is an indication that the cash-generating unit to which the goodwill has been allocated may be impaired. On disposal of a business, the attributable amount of goodwill is included in the calculation of the profit or loss on disposal.
Research Expenditure on research activities is recognised in the income statement as an expense in the year in which it is incurred.
Development Development expenditure is capitalised only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognised in the income statement as an expense in the year in which it is incurred.
In determining whether development expenditure is capitalised as an intangible asset or recognised in the income statement as an expense, management considers whether the strict intangible asset recognition criteria set out in IAS 38, Intangible Assets, have been met at the time the expenditure is incurred. In making this determination, management recognise that a significant portion of the development expenditure undertaken by the Group is focused on incremental improvements to existing products, as opposed to new or substantially improved products, and that for most of the Group's product developments commercial feasibility is not probable until acceptance by potential end customers, so future economic benefits from the developments are not often probable at the time the expenditure is incurred.
| 2014 | 2013 | |
|---|---|---|
| Goodwill £m |
Goodwill £m |
|
| Cost and net book value | ||
| As at 1 January | 288.5 | 295.0 |
| Exchange adjustments | 5.9 | (6.5) |
| Business disposals | (0.1) | – |
| As at 31 December | 294.3 | 288.5 |
Goodwill acquired in a business combination is allocated to each of the Group's CGUs expected to benefit from the synergies of the combination. For the purposes of impairment testing, the Directors consider that the Group has two CGUs: the Assembly Materials and Surface Chemistries businesses. These CGUs represent the lowest level within the Group at which goodwill is monitored.
| 2014 £m |
2013 £m |
|---|---|
| Surface Chemistries 225.5 |
223.7 |
| Assembly Materials 68.8 |
64.8 |
| Total goodwill 294.3 |
288.5 |
At each balance sheet date, the Directors review the carrying value of the Group's tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent, if any, of the impairment loss. Where it is not feasible to estimate the recoverable amount of an individual asset, the Directors estimate the recoverable amount of the cash-generating unit ("CGU") to which the asset belongs.
Goodwill acquired in a business combination is allocated to each of the Group's CGUs expected to benefit from the synergies of the combination and the Directors carry out annual impairment testing of the carrying value of its CGUs, to assess the need for any impairment of the carrying value of goodwill and other intangible and tangible assets associated with these CGUs.
For the purpose of impairment testing, the recoverable amount of an asset or CGU is the higher of (i) its fair value less costs to sell and (ii) its value in use. If the recoverable amount of a CGU is less than the carrying amount of that CGU, the resulting impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to the other assets of the CGU pro rata on the basis of the carrying amount of each asset in the CGU. An impairment loss recognised for goodwill is not reversed in a subsequent period. An impairment loss recognised in a prior year for an asset other than goodwill may be reversed where there has been a change in the estimates used to measure the asset's recoverable amount since the impairment loss was recognised. The value in use calculations of the Group's CGUs are based on detailed business plans covering a five year period from the balance sheet date. The cash flows in the calculations are discounted to their current value using pre-tax discount rates.
The key assumptions used in determining value in use are NSV margin, growth rates and discount rates. NSV margin assumptions are based on historical financial information, adjusted to factor in the anticipated impact of restructuring and rationalisation plans already announced at the balance sheet date.
Growth rates are determined with reference to: current market conditions; external forecasts and historical trends for the Group's key end-markets of electronics and automotive; and expected growth in output within the industries in which each CGU operates. A perpetuity growth rate of 3.0% (2013: 3.0%) has been applied based upon external forecasts of the long-term growth rates experienced in the Group's end-market locations.
Discount rates are calculated for each CGU, reflecting market assessments of the time value of money and the risks specific to each CGU. The pre-tax discount rate used for the Assembly Materials CGU was 13.4% (2013: 14.1%) and for the Surface Chemistries CGU 11.3% (2013: 12.5%).
In assessing goodwill for potential impairment as at 31 December 2014, the Directors made use of detailed calculations of the recoverable amount of the Group's CGUs as at 31 December 2014. Those calculations resulted in recoverable amounts significantly higher than the carrying values of each of the Group's CGUs and consequently no impairment charges were recognised.
18.1 Accounting policy
Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost, using the effective interest method, less impairment losses.
| 2014 | 2013 | ||||||
|---|---|---|---|---|---|---|---|
| Gross £m |
Impairment £m |
Net £m |
Gross £m |
Impairment £m |
Net £m |
||
| Trade receivables – current | 99.0 | (0.1) | 98.9 | 100.0 | – | 100.0 | |
| – 1 to 30 days past due | 7.6 | (0.2) | 7.4 | 9.2 | (0.1) | 9.1 | |
| – 31 to 60 days past due | 1.5 | (0.3) | 1.2 | 1.6 | (0.1) | 1.5 | |
| – 61 to 90 days past due | 0.6 | (0.4) | 0.2 | 0.4 | (0.1) | 0.3 | |
| – more than 90 days past due | 1.7 | (1.6) | 0.1 | 2.1 | (1.8) | 0.3 | |
| Trade receivables | 110.4 | (2.6) | 107.8 | 113.3 | (2.1) | 111.2 | |
| Other receivables | 15.1 | 14.6 | |||||
| Prepayments and accrued income | 5.5 | 5.2 | |||||
| Total trade and other receivables | 128.4 | 131.0 |
All of the Group's operating companies have policies and procedures in place to assess the creditworthiness of the customers with whom they do business. Where objective evidence exists that a trade receivable balance may be impaired, provision is made for the difference between its carrying amount and the present value of the estimated cash that will be recovered. Evidence of impairment may include such factors as the customer being in breach of contract, or entering bankruptcy or financial reorganisation proceedings. Impairment provisions are assessed on an individual customer basis for all significant outstanding balances and collectively for all remaining balances, based upon historical loss experience. Historical experience has shown that the Group's trade receivable provisions are maintained at levels that are sufficient to absorb actual bad debt write-offs, without being excessive.
| 2014 £m |
2013 £m |
|
|---|---|---|
| As at 1 January | 2.1 | 4.2 |
| Charge for the year | 1.0 | 0.6 |
| Receivables written off during the year as uncollectable | (0.3) | (2.1) |
| Unused amounts reversed | (0.2) | (0.6) |
| As at 31 December | 2.6 | 2.1 |
Impairment charges, write-offs and the reversal of unused amounts shown in the table above are charged or credited as appropriate within administration, selling and distribution costs in the Group income statement. All of the provision for impairment of trade receivables at 31 December 2014 of £2.6m (2013: £2.1m) related to balances that were impaired on an individual basis.
Due to the large number of customers that the Group transacts its business with, none of which represents a significant proportion of the total outstanding trade receivables balance, the Group is not exposed to any significant concentration of credit risk. There is no significant difference between the fair value of the Group's trade and other receivable balances and the amount at which they are reported in the Group balance sheet.
GOVERNANCE CORPORATE
Inventories are stated at the lower of cost (using the first-in, first-out method) and net realisable value. Cost comprises expenditure incurred in purchasing or manufacturing inventories together with all other costs directly incurred in bringing the inventory to its present location and condition and, where appropriate, attributable production overheads based on normal activity levels. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. The amount of any write-down of inventories to net realisable value is recognised as an expense in the year in which the write-down occurs.
| 2014 £m |
2013 £m |
|---|---|
| 15.7 Raw materials |
17.4 |
| 7.8 Work-in-progress |
8.1 |
| Finished goods 28.0 |
26.1 |
| Total inventories 51.5 |
51.6 |
The cost of inventories recognised as an expense and included in cost of sales in the income statement during the year was £338.5m (2013: £378.5m).
As at 31 December 2014, in addition to the inventory recorded in the balance sheet, the Group held £11.1m (2013: £10.1m) of precious metals on consignment terms. As the precious metals consignors retain title and associated risks and rewards of ownership under these arrangements, the value of the physical metal so held is not recognised in the balance sheet. Consequently, the obligations in respect of the consigned metal are not recognised as a liability in the Group balance sheet.
The Group uses derivative financial instruments ("derivatives") in the form of forward foreign currency contracts and forward commodity contracts to manage the effects of its exposure to foreign exchange risk and commodity price risk. The way in which derivatives are used to manage the Group's financial risk is detailed in note 25.
Derivatives are measured at fair value. The fair value of forward foreign currency contracts and forward commodity contracts is calculated using market prices at the balance sheet date.
The method of recognising the gain or loss on remeasurement to fair value depends on whether the derivative is designated as a hedging instrument for hedge accounting purposes and, if so, the nature of the item being hedged. Strict conditions have to be satisfied in order to qualify for hedge accounting, including a determination both at inception of the hedge and on an ongoing basis that the hedge is expected to be highly effective in achieving offsetting changes in fair values or cash flows attributable to the hedged risk. The change in fair value of a derivative that is not designated as a hedging instrument for hedge accounting purposes is recognised within operating profit in the Group income statement. Wherever possible, the Group avoids the administrative burden of hedge accounting, and does not designate a derivative as a hedge when, in the absence of hedge accounting, the change in fair value of the hedged item is itself recognised within operating profit in the Group income statement in the same period as the change in fair value of the derivative. No derivatives are held for speculative purposes.
GOVERNANCE CORPORATE
STATEMENTS FINANCIAL
The effective part of any gain or loss on a derivative that is designated as a cash flow hedge is recognised in other comprehensive income and presented in the hedging reserve in equity. The ineffective part of any gain or loss is recognised immediately within operating profit. When the transaction that was being hedged is realised and affects profit or loss, the cumulative gain or loss on the derivative is removed from the hedging reserve and recognised in the income statement in the same period.
The change in fair value of a derivative that is designated as a fair value hedge is recognised within operating profit in the income statement. The carrying amount of the hedged item is adjusted by the change in its fair value that is attributable to the hedged risk and this adjustment is recognised within operating profit in the income statement.
| 2014 | 2013 | |||
|---|---|---|---|---|
| Assets £m |
Liabilities £m |
Assets £m |
Liabilities £m |
|
| Cash flow hedges | – | (0.3) | – | – |
| Fair value hedges | 0.8 | (0.4) | 0.5 | (0.2) |
| Total derivative financial instruments | 0.8 | (0.7) | 0.5 | (0.2) |
All of the fair values shown in the table above have been calculated using quoted prices from active markets. Cash flows in respect of the cash flow hedges shown in the table above will all occur in 2015. All of the £0.7m (2013: £0.2m) of derivative liabilities reported in the table above will mature within a year of the balance sheet date.
Cash flow hedges in the table above include: forward foreign currency contracts used to hedge the currency risk in forecast sales or purchases; interest rate swaps used to hedge the interest risk on borrowings under the Group's syndicated bank facility; and forward metal purchase contracts used to hedge the cash flow risk relating to future sales arising from fluctuation in commodity metals prices.
Fair value hedges in the table above comprise forward foreign currency contracts used to hedge the currency risk in payables and receivables and forward metal sales contracts used to hedge the fair value risk relating to the balance sheet value of inventory arising from fluctuation in commodity metals prices.
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Detailed information on the Company's issued share capital is given in note 7 of the Notes to the Company Financial Statements.
Further information relating to the Company's share capital is given in the Directors' Report on page 81.
| Capital | ||||||
|---|---|---|---|---|---|---|
| Other capital reserve £m |
Other reserve £m |
redemption reserve £m |
Hedging reserve £m |
Translation reserve £m |
Total other reserves £m |
|
| As at 1 January 2013 | 444.7 | (862.4) | – | 0.3 | (13.4) | (430.8) |
| Items included within other comprehensive income: |
||||||
| Exchange differences on translation of the net assets of foreign operations |
– | – | – | – | (15.1) | (15.1) |
| Exchange differences on translation of net investment hedges |
– | – | – | – | 8.5 | 8.5 |
| Change in fair value of cash flow hedges |
– | – | – | (0.4) | – | (0.4) |
| Transactions with owners: | ||||||
| Redemption of redeemable preference shares |
– | – | 0.1 | – | – | 0.1 |
| As at 1 January 2014 | 444.7 | (862.4) | 0.1 | (0.1) | (20.0) | (437.7) |
| Items included within other comprehensive income: |
||||||
| Exchange differences on translation of the net assets of foreign operations |
– | – | – | – | 3.9 | 3.9 |
| Exchange differences on translation of net investment hedges |
– | – | – | – | (4.9) | (4.9) |
| Change in fair value of cash flow hedges |
– | – | – | (0.3) | – | (0.3) |
| As at 31 December 2014 | 444.7 | (862.4) | 0.1 | (0.4) | (21.0) | (439.0) |
On 19 December 2012, Alent plc issued 278,448,752 ordinary shares of £1.50 each to the public shareholders of Vesuvius plc in return for the receipt of the entire share capital of Alent Investments Limited. Alent plc applied merger relief under section 612 of the Companies Act 2006 to this transaction and, accordingly, the £444.7m excess of the total market value of Alent Investments Limited, being £862.4m, over the nominal value of the shares issued of £417.7m has been recorded in the other capital reserve.
The other reserve arose as a result of applying reverse acquisition accounting following the demerger of the Alent Group from Cookson Group plc, and represents the difference between the capital reserves of the legal acquirer of the Alent Group, Alent plc, and those of the legal acquiree, Alent Investments Limited.
On 9 December 2013, Alent plc redeemed the 50,000 redeemable non-voting preference shares with a nominal value of £1.00 per share. Further details can be found in note 9 of the Notes to the Company Financial Statements.
The effective part of the gain or loss on derivatives designated as cash flow hedges is recognised in the hedging reserve, as explained in note 20.
The translation reserve in the table above comprises all foreign exchange differences attributable to the owners of the parent. These exchange differences arise from the translation of the financial statements of foreign operations and from the translation of financial instruments that hedge the Group's net investment in foreign operations.
| Reserve for own shares £m |
Other retained earnings £m |
Total retained earnings £m |
GO CO VE RP OR RN AN AT E |
|
|---|---|---|---|---|
| As at 1 January 2013 | – | 679.0 | 679.0 | CE |
| Profit for the year | – | 61.6 | 61.6 | |
| Items included within other comprehensive income: | ||||
| Remeasurement of the net defined benefit liability | – | 3.9 | 3.9 | |
| Transactions with owners: | ||||
| Recognition of share-based payments | – | 1.4 | 1.4 | |
| Purchase of own shares | (0.2) | – | (0.2) | STA FIN |
| Redemption of redeemable preference shares | – | (0.1) | (0.1) | AN TE ME |
| Equity dividends paid | – | (23.3) | (23.3) | CI AL NT |
| As at 1 January 2014 | (0.2) | 722.5 | 722.3 | S |
| Profit for the year | – | 46.8 | 46.8 | |
| Items included within other comprehensive income: | ||||
| Remeasurement of the net defined benefit liability | – | (7.0) | (7.0) | |
| Income tax relating to items recognised in other comprehensive income |
– | 0.1 | 0.1 | |
| Transactions with owners: | ||||
| Recognition of share-based payments | – | 1.6 | 1.6 | AD INF |
| Purchase of own shares | (0.4) | – | (0.4) | DIT OR |
| Disposal of own shares | 0.5 | (0.5) | – | IO MA NA |
| Equity dividends paid | – | (66.3) | (66.3) | TIO L N |
| As at 31 December 2014 | (0.1) | 697.2 | 697.1 |
A final dividend for the year ended 31 December 2013 of £15.9m (year ended 31 December 2012: £15.3m), equivalent to 5.71 pence (year ended 31 December 2012: 5.5 pence) per ordinary share, was paid in June 2014. An interim dividend for the year ended 31 December 2014 of £8.4m (2013: £8.0m), equivalent to 3.0 pence (2013: 2.89 pence) per ordinary share was paid in October 2014, resulting in a total cash cost of ordinary dividends paid in 2014 of £24.3m (2013: £23.3m).
A proposed final dividend for the year ended 31 December 2014 of £16.0m, equivalent to 6.0 pence per ordinary share, is subject to approval by shareholders at the Company's Annual General Meeting and has not been included as a liability in these financial statements. If approved by shareholders, the dividend will be paid on 19 June 2015 to ordinary shareholders on the register at 15 May 2015.
In addition to the ordinary dividends described above, the Board also approved a special dividend to shareholders of £42.0m (2013: £nil), equivalent to 15.0 pence (2013: nil pence) per ordinary share. The special dividend was paid in October 2014.
Dividend payments in the Group statement of cash flows of £66.3m (2013: £23.3m) represent both the ordinary dividends paid in the year of £24.3m (2013: £23.3m) and the special dividend paid in the year of £42.0m (2013: £nil).
Loans and borrowings are initially recognised at fair value plus directly attributable transaction costs. After initial recognition they are measured at amortised cost, using the effective interest method.
The individual financial statements of each Group entity are prepared in their functional currency, which is the currency of the primary economic environment in which that entity operates. For the purpose of the consolidated financial statements, the results and financial position of each entity are translated into pounds sterling, which is the presentational currency of the Group.
Transactions in currencies other than the entity's functional currency (foreign currencies) are initially recorded at the rates of exchange prevailing on the dates of the transactions. At each subsequent balance sheet date:
When the functional currency of a Group entity is different from the Group's presentational currency (pounds sterling), its results and financial position are translated into the presentational currency as follows:
Exchange differences arising on a monetary item that forms part of a reporting entity's net investment in a foreign operation are initially recognised in other comprehensive income and presented in the translation reserve in equity and reclassified to profit or loss on disposal of the net investment.
The Group's treasury department, acting in accordance with policies approved by the Board, is principally responsible for managing the financial risks faced by the Group. The Group's activities expose it to a variety of financial risks, the most significant of which are market risk and liquidity risk.
Market risk is the risk that either the fair values or the cash flows of the Group's financial instruments may fluctuate because of changes in market prices. The Group is principally exposed to market risk through fluctuations in exchange rates ("currency risk") and interest rates ("interest rate risk").
GOVERNANCE CORPORATE
The Group is exposed to currency risk on its borrowings and financial assets (being cash and short-term deposits) that are denominated in currencies other than pounds sterling. The Group's general policy is proportionally to match the currency profile of its core borrowings with the currency profile of its earnings and net assets achieved, where necessary, by the use of forward foreign exchange contracts ("FX swaps"). The currency profile of the Group's borrowings and financial assets is shown in the table below.
| 2014 | 2013 | ||||||
|---|---|---|---|---|---|---|---|
| Borrowings £m |
Financial assets £m |
Net debt £m |
Borrowings £m |
Financial assets £m |
Net debt £m STA |
||
| Chinese renminbi | – | 19.1 | 19.1 | – | 23.2 | TE 23.2 |
|
| Euro | (25.7) | 4.6 | (21.1) | (31.5) | 10.5 | ME (21.0) NT |
|
| Sterling | (27.1) | 2.7 | (24.4) | (55.8) | 5.7 | S (50.1) |
|
| United States dollar | (107.0) | 1.4 | (105.6) | (73.0) | 0.2 | (72.8) | |
| Other | (0.5) | 21.7 | 21.2 | (1.4) | 23.5 | 22.1 | |
| Capitalised borrowing costs | 2.5 | – | 2.5 | 2.1 | – | 2.1 | |
| As at 31 December | (157.8) | 49.5 | (108.3) | (159.6) | 63.1 | (96.5) |
Based upon the currency profile shown in the table above, while not impacting reported profit, the change in net debt arising from a 10% strengthening of sterling would increase reported equity by £7.9m (2013: £4.4m) and a corresponding 10% weakening of sterling would reduce reported equity by £9.6m (2013: £5.4m).
The tables below show the net unhedged monetary assets and liabilities of Group companies that are not denominated in their functional currency and which could give rise to exchange gains and losses in the Group income statement.
| Net unhedged monetary assets/(liabilities) | ||||||
|---|---|---|---|---|---|---|
| Sterling £m |
US dollar £m |
Euro £m |
Renminbi £m |
Other £m |
Total £m |
|
| Functional currency: | ||||||
| Sterling | – | 0.5 | 0.7 | (0.5) | 0.3 | 1.0 |
| United States dollar | – | – | (0.3) | 0.1 | 0.8 | 0.6 |
| Euro | (0.1) | (0.2) | – | – | (0.2) | (0.5) |
| Chinese renminbi | (0.1) | 2.8 | (0.8) | – | 1.6 | 3.5 |
| Other | – | 3.7 | 0.3 | – | (0.7) | 3.3 |
| As at 31 December 2014 | (0.2) | 6.8 | (0.1) | (0.4) | 1.8 | 7.9 |
| Net unhedged monetary assets/(liabilities) | ||||||
| Sterling £m |
US dollar £m |
Euro £m |
Renminbi £m |
Other £m |
Total £m |
|
| Functional currency: | ||||||
| Sterling | – | (0.9) | 0.1 | – | – | (0.8) |
United States dollar (2.2) – (0.1) – 1.9 (0.4) Euro – (0.3) – – – (0.3) Chinese renminbi – 5.6 (0.6) – 0.8 5.8 Other – 10.8 (0.1) – 0.7 11.4 As at 31 December 2013 (2.2) 15.2 (0.7) – 3.4 15.7
FINANCIAL
The Group's interest rate risk principally arises in relation to its net financial debt.
The interest rate profile of the Group's borrowings and net financial debt is detailed in the tables below.
| Fixed rate financial liabilities £m |
Floating rate financial liabilities £m |
Total financial liabilities £m |
Financial assets £m |
Net financial assets/(debt) £m |
|
|---|---|---|---|---|---|
| Chinese renminbi | – | – | – | 19.1 | 19.1 |
| Euro | (23.3) | (2.4) | (25.7) | 4.6 | (21.1) |
| Sterling | – | (27.1) | (27.1) | 2.7 | (24.4) |
| United States dollar | (86.7) | (20.3) | (107.0) | 1.4 | (105.6) |
| Other | – | (0.5) | (0.5) | 21.7 | 21.2 |
| Capitalised borrowing costs | 1.7 | 0.8 | 2.5 | – | 2.5 |
| As at 31 December 2014 | (108.3) | (49.5) | (157.8) | 49.5 | (108.3) |
The fixed rate financial liabilities comprise drawings under the Group's syndicated bank facility on which the interest rate has been fixed by means of interest rate swaps. These swaps terminate on 25 July 2016, from which date these drawings will be classified as floating rate borrowings.
| Fixed rate financial liabilities £m |
Floating rate financial liabilities £m |
Total financial liabilities £m |
Financial assets £m |
Net financial assets/(debt) £m |
|
|---|---|---|---|---|---|
| Chinese renminbi | – | – | – | 23.2 | 23.2 |
| Euro | (29.1) | (2.4) | (31.5) | 10.5 | (21.0) |
| Sterling | (30.0) | (25.8) | (55.8) | 5.7 | (50.1) |
| United States dollar | (72.4) | (0.6) | (73.0) | 0.2 | (72.8) |
| Other | – | (1.4) | (1.4) | 23.5 | 22.1 |
| Capitalised borrowing costs | 1.9 | 0.2 | 2.1 | – | 2.1 |
| As at 31 December 2013 | (129.6) | (30.0) | (159.6) | 63.1 | (96.5) |
The floating rate financial liabilities shown in the tables above bear interest at various rates. The financial assets attract floating rate interest at various rates.
Based upon the interest rate profile of the Group's financial assets and liabilities shown in the tables above, a 1% increase in market interest rates would decrease both the net finance costs charged in the Group income statement and the net interest paid in the Group statement of cash flows by £0.5m (2013: £0.3m) and a 1% reduction in market interest rates would increase both the net finance costs charged in the Group income statement and the net interest paid in the Group statement of cash flows by £0.5m (2013: £0.3m). Similarly, a 1% increase or decrease in market interest rates would result in no change (2013: no change) in the fair value of the Group's net debt.
GOVERNANCE CORPORATE
STATEMENTS FINANCIAL
INFORMATION ADDITIONAL
Liquidity risk is the risk that the Group might have difficulties in meeting its financial obligations. The Group manages this risk by ensuring that it maintains sufficient levels of committed borrowing facilities and cash and cash equivalents to ensure that it can meet its operational cash flow requirements and any maturing financial liabilities, while at all times operating within its financial covenants. The level of operational headroom provided by the Group's committed borrowing facilities is reviewed at least annually as part of the Group's three year planning process. Where this process indicates a need for additional finance, this will normally be addressed 12 to 18 months in advance by means of either additional committed bank facilities or raising finance in the capital markets.
As at 31 December 2014, the Group had committed borrowing facilities of £300m (2013: £300m), of which £144.7m (2013: £145.5m) were undrawn. These undrawn facilities are due to expire in September 2019.
The maturity analysis of the Group's gross borrowings is shown in the tables below.
| Non-current | Current | Total | ||||
|---|---|---|---|---|---|---|
| 2014 £m |
2013 £m |
2014 £m |
2013 £m |
2014 £m |
2013 £m |
|
| Loans and overdrafts | 155.2 | 154.5 | 4.6 | 6.8 | 159.8 | 161.3 |
| Obligations under finance leases | 0.3 | 0.2 | 0.2 | 0.2 | 0.5 | 0.4 |
| Capitalised borrowing costs | (2.5) | (1.3) | – | (0.8) | (2.5) | (2.1) |
| Total interest-bearing borrowings | 153.0 | 153.4 | 4.8 | 6.2 | 157.8 | 159.6 |
| 2014 £m |
2013 £m |
|
|---|---|---|
| Interest-bearing borrowings repayable | ||
| On demand or within one year | 4.8 | 7.0 |
| In the second year | 0.1 | 0.2 |
| In the third year | 0.1 | – |
| In the fourth year | 0.1 | 154.5 |
| In the fifth year | 155.2 | – |
| Capitalised borrowing costs | (2.5) | (2.1) |
| Total interest-bearing borrowings | 157.8 | 159.6 |
The Group's committed borrowing facilities of £300m (2013: £300m) were refinanced in October 2014, with the term of the facility being extended by a further two years to September 2019.
The Group monitors its capital using a number of key performance indicators, including free cash flow, average working capital to sales ratios, net debt to EBITDA ratios and ROCE (note 4). The Group's objectives when managing its capital are:
The Group operated comfortably within the requirements of its debt covenants and has substantial liquidity headroom within its committed debt facilities. Details of the Group's covenant compliance and committed debt facilities can be found in the Financial Review on pages 39 to 40.
The Group's net obligation in respect of its defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount using interest rates on high quality corporate bonds that have terms to maturity approximating the terms of the related pension liability, and deducting the fair value of any plan assets. These calculations are performed by independent actuaries using the projected unit credit method.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses on the defined benefit obligations and the return on the plan assets, are recognised in the Group statement of comprehensive income. The net interest expense on the net defined benefit liability is determined by applying the discount rate used to measure the defined benefit obligation at the beginning of the year to the net defined benefit liability at the beginning of the year and taking into account changes in the net defined benefit liability during the year as a result of contributions and benefit payments. Net interest expense is recognised in the Group income statement. Gains and losses arising on settlements and curtailments are also recognised in the Group income statement.
The Group makes payments to defined contribution pension plans and has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense in the Group income statement when they fall due.
The Group operates a number of pension plans around the world, both of the defined benefit and defined contribution type.
The Group's principal defined benefit pension plans are in the US. The assets of the US plans are held outside the Group in funds administered by an investment committee comprised of senior Group executives, which takes advice from independent third party actuarial and investment advisors. The investment committee is required to act in the best interests of the plan's beneficiaries.
The Group also has defined benefit pension plans in other territories, but these are not individually material in relation to the Group as a whole.
GOVERNANCE CORPORATE
STATEMENTS FINANCIAL
The Group's US defined benefit plans are closed to new members and to future benefit accrual for existing members. These plans provide retirement benefits based on final salary or a fixed benefit. The main US plan, the Retirement Security Plan, has a minimum performance level guaranteed by the Group on the members' accounts. The cash balance rate assumption in the table in note 26.3(a) refers to this minimum return.
Actuarial valuations of the US plan are carried out annually by independent actuaries and the last full valuation was carried out as at 31 December 2013. At that date, the market value of the plan assets was £43.6m, representing a funding level of 80% of funded accrued plan benefits of £54.8m.
Funding levels for the Group's US defined benefit plan are determined by management after taking into account the results of the annual valuations of the plans, minimum funding levels prescribed by US government regulations and advice received from the Group's independent investment advisers. In 2014, the Group made additional funding contributions in to its US defined benefit plans of £2.4m and is expected to make a similar level of contributions in 2015.
The total expense recognised for the Group's defined contribution pension plans and recognised in the Group income statement for the year amounted to £6.1m (2013: £5.8m).
Actuarial assumptions are set by the Directors after consultation with independent professionally qualified actuaries. The principal assumptions used in calculating the costs and obligations of the Group's defined benefit pension plans relate to the Group's US plans and these are summarised in the tables below.
| Life expectancy of US pension plan members | 2014 years |
2013 years |
|---|---|---|
| Age to which current pensioners are expected to live – Men | 86.6 | 85.1 |
| – Women | 88.8 | 87.3 |
| Age to which future pensioners are expected to live – Men |
88.3 | 87.2 |
| – Women | 90.5 | 89.2 |
The mortality assumptions summarised in the table above are based on fully generational mortality tables that explicitly allow for differences in mortality levels and future trends in mortality, for people born in different years.
The other principal actuarial assumptions for the Group's US defined benefit pension plans are shown below.
| 2014 % p.a. |
2013 % p.a. |
|
|---|---|---|
| Discount rate | 3.60 | 4.50 |
| Cash balance rate | 5.25 | 5.25 |
The discount rates in the table above, which are used to determine the liabilities of the US plans, are determined by reference to market yields on high quality corporate bonds, using the Citigroup pension discount curve. The cash balance rate is the minimum performance level guaranteed by the Group to members of its main US defined benefit plan.
(b) Sensitivity analysis
The following table analyses the theoretical estimated impact on the Group's US pension plan liabilities resulting from changes to key actuarial assumptions, whilst holding all other assumptions constant.
| Assumption Change in assumption Impact on US plan liabilities |
||
|---|---|---|
| Discount rate | Increase/decrease by 0.1% | Decrease/increase by 1.1% |
| Mortality | Increase by one year | Increase by 2.9% |
The following table shows a reconciliation from the opening balances to the closing balances for the Group's net defined benefit liability.
| Present value of defined benefit obligation |
Fair value of plan assets | Net defined benefit liability | ||||
|---|---|---|---|---|---|---|
| 2014 £m |
2013 £m |
2014 £m |
2013 £m |
2014 £m |
2013 £m |
|
| At 1 January | 58.7 | 65.4 | (39.9) | (41.1) | 18.8 | 24.3 |
| Included in Group income statement |
||||||
| Current service cost | 0.1 | 0.3 | – | – | 0.1 | 0.3 |
| Interest cost/(income) | 2.4 | 2.3 | (1.6) | (1.2) | 0.8 | 1.1 |
| 2.5 | 2.6 | (1.6) | (1.2) | 0.9 | 1.4 | |
| Included in other comprehensive income |
||||||
| Remeasurements: | ||||||
| – Actuarial gain from changes in demographic assumptions |
1.7 | (0.5) | – | – | 1.7 | (0.5) |
| – Actuarial (gain)/loss from changes in financial assumptions |
6.7 | (5.5) | – | – | 6.7 | (5.5) |
| – Actuarial loss/(gain) from experience adjustments |
0.5 | 1.1 | – | – | 0.5 | 1.1 |
| – Return on plan assets | – | – | (1.9) | 1.0 | (1.9) | 1.0 |
| 8.9 | (4.9) | (1.9) | 1.0 | 7.0 | (3.9) | |
| Exchange differences | 3.1 | (0.8) | (2.6) | 0.6 | 0.5 | (0.2) |
| 12.0 | (5.7) | (4.5) | 1.6 | 7.5 | (4.1) | |
| Other | ||||||
| Employer contributions to funded plans |
– | – | (2.5) | (2.0) | (2.5) | (2.0) |
| Benefits paid – funded plans | (2.7) | (2.8) | 2.7 | 2.8 | – | – |
| – unfunded plans | (0.6) | (0.8) | – | – | (0.6) | (0.8) |
| At 31 December | 69.9 | 58.7 | (45.8) | (39.9) | 24.1 | 18.8 |
| Analysis of net defined benefit liability | ||||||
| In funded plans | 12.1 | 8.0 | ||||
| In unfunded plans | 12.0 | 10.8 | ||||
| 24.1 | 18.8 |
The average duration of the obligations to which the liabilities of the Group's US pension plans relate is 11 years.
| 2014 £m |
2013 £m |
|
|---|---|---|
| Equities | 11.4 | 10.1 |
| Bonds | 30.7 | 25.7 |
| Cash | 3.7 | 4.1 |
| Total assets | 45.8 | 39.9 |
The allocation of assets in the Group's US plan is based upon a liability-focused investment strategy, designed to reduce the funding volatility of the plan as the funding level improves, and substantially to remove the investment risk of the plan once full funding on an accounting valuation basis is achieved. This is accomplished by dividing the portfolio into "return-seeking" and "liability-matching" portfolios. The return-seeking assets are designed to generate returns in excess of the change in the value of the plan's projected liabilities and the liability-matching portfolio, comprised of high quality fixed income investments, is designed to match the change in value of the plan's liabilities. The mix at 31 December 2014 between return-seeking and liability-matching assets was approximately 40%/60%. Other assets in the table above are principally comprised of cash. The values of all of the assets shown in the table above are based upon quoted market prices in active markets.
The total net charge of £0.9m (2013: £1.4m) recognised in the Group income statement in respect of the Group's defined benefit plans is recognised in the following lines:
| 2014 £m |
2013 £m |
|
|---|---|---|
| In arriving at operating profit – within manufacturing costs | – | 0.1 |
| – within administration, selling and distribution costs | 0.1 | 0.2 |
| In arriving at profit before tax – within finance costs | 0.8 | 1.1 |
| Total net charge | 0.9 | 1.4 |
General pension plan administration costs paid out of plan assets during the year are included within ordinary finance costs and amounted to £0.1m (2013: £0.2m).
The history of the fair value of the Group's plan assets, the present value of defined benefit obligations, the net defined benefit liability in the plans and the experience gains and losses on plan assets and liabilities are shown below.
| Defined benefit plans | ||||||
|---|---|---|---|---|---|---|
| 2014 £m |
2013 £m |
2012 £m |
2011 £m |
2010 £m |
||
| Fair value of plan assets | 45.8 | 39.9 | 41.1 | 45.0 | 51.9 | |
| Present value of defined benefit obligations | (69.9) | (58.7) | (65.4) | (71.4) | (78.8) | |
| Net defined benefit liability | (24.1) | (18.8) | (24.3) | (26.4) | (26.9) | |
| Experience losses/(gains) on plan liabilities | 0.5 | 1.1 | (0.3) | (0.6) | 0.3 | |
| Experience losses/(gains) on plan assets | (1.9) | 1.0 | (1.6) | (1.4) | (0.8) |
The cumulative amount of actuarial losses recognised in the Group statement of comprehensive income is £29.5m (2013: £22.5m).
STATEMENTS FINANCIAL
GOVERNANCE CORPORATE
Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date takes account of the effect of market-based conditions, such as the Total Shareholder Return target upon which vesting for some of the awards is conditional, and is expensed to the Group income statement on a straight-line basis over the vesting period with a corresponding increase in equity. The cumulative expense recognised is adjusted for the best estimate of the shares that will eventually vest and for the effect of other non market-based vesting conditions, such as growth in headline earnings per share, which are not included in the fair value determined at the date of grant.
For cash-settled share-based payments, the fair value of the liability is determined at each balance sheet date, and is expensed to the Group income statement over the vesting period with a corresponding increase in liabilities.
The number of awards and associated share prices in the tables below have been restated following the demerger of the Alent plc business from the former Cookson Group plc.
| Outstanding awards | ||||||||
|---|---|---|---|---|---|---|---|---|
| As at 1 January 2014 no. |
Granted no. |
Exercised no. |
Forfeited/ lapsed no. |
As at 31 December 2014 no. |
Awards exercisable as at 31 December 2014 no. |
Weighted average outstanding contractual life of awards years |
Range of exercise prices pence |
|
| Performance shares | 2,335,152 | 1,056,533 | – | (802,782) | 2,588,903 | – | 2.8 | |
| Weighted average exercise price |
nil | nil | – | nil | nil | – | n/a | |
| Other shares | 383,937 | 56,627 | (199,633) | (21,850) | 219,081 | – | 1.7 | |
| Weighted average exercise price |
nil | nil | nil | nil | nil | – | n/a |
| Outstanding awards | ||||||||
|---|---|---|---|---|---|---|---|---|
| As at 1 January 2013 no. |
Granted no. |
Exercised no. |
Forfeited/ lapsed no. |
As at 31 December 2013 no. |
Awards exercisable as at 31 December 2013 no. |
Weighted average outstanding contractual life of awards years |
Range of exercise prices pence |
|
| Performance shares | 2,391,053 | 795,576 | (572,742) | (278,735) | 2,335,152 | – | 2.0 | |
| Weighted average exercise price |
nil | nil | nil | nil | nil | – | n/a | |
| Other shares | 370,645 | 73,805 | (60,513) | – | 383,937 | – | 1.4 | |
| Weighted average exercise price |
nil | nil | nil | – | nil | – | n/a |
For awards exercised during 2014, the share price at the date of exercise was 312.3p (2013: 345.3p).
CORPORATE
STATEMENTS FINANCIAL
INFORMATION ADDITIONAL
| 27.3 Income statement recognition The total expense recognised in the Group income statement is shown below. |
GO VE RN |
|
|---|---|---|
| 2014 £m |
AN 2013 CE £m |
|
| Performance shares | 1.0 | 0.8 |
| Other shares | 0.3 | 0.5 |
| Total share-based payments expense | 1.3 | 1.3 |
The Group operates a number of different share-based payment arrangements, the main features of which are described on pages 71 to 75 of the Remuneration Report.
| 2014 | 2013 | |||
|---|---|---|---|---|
| EPS element |
TSR element |
EPS element |
TSR element |
|
| Fair value of awards granted (per share) | 323.5p | 154.1p | 340.0p | 192.2p |
| Share price on date of grant (per share) | 323.5p | 323.5p | 340.0p | 340.0p |
| Expected volatility | n/a | 31.0% | n/a | 31.8% |
| Risk-free interest rate | n/a | 1.0% | n/a | 0.3% |
| Exercise price (per share) | nil | nil | nil | nil |
| Expected term (years) | 5 | 5 | 4 | 4 |
| Expected dividend yield | 0% | 0% | 0% | 0% |
Trade and other payables are initially recognised at fair value and subsequently measured at amortised cost, using the effective interest method.
| 2014 £m |
2013 £m |
|
|---|---|---|
| Non-current | ||
| Deferred purchase consideration | 0.4 | 0.6 |
| Total non-current other payables | 0.4 | 0.6 |
| Current | ||
| Trade payables | 35.2 | 42.0 |
| Other taxes and social security | 5.4 | 5.4 |
| Accruals and other payables | 37.9 | 31.7 |
| Deferred purchase consideration | 0.4 | 1.0 |
| Total current trade and other payables | 78.9 | 80.1 |
There is no significant difference between the fair value of the Group's trade and other payables balances and the amount at which they are reported in the Group balance sheet.
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Rentals payable under operating leases are charged to the income statement on a straight-line basis over the term of the lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.
| 2014 £m |
2013 £m |
|---|---|
| The future aggregate minimum lease payments under non-cancellable operating leases are payable as follows: |
|
| Not later than one year 5.6 |
5.4 |
| Later than one year and not later than five years 12.7 |
13.0 |
| Later than five years 2.4 |
2.7 |
| Total operating lease commitments 20.7 |
21.1 |
The Group's property, plant and equipment assets are either purchased outright or held under lease contracts. Where the terms of the lease transfer substantially all the risks and rewards of ownership of the asset to the Group, the asset is capitalised in the Group balance sheet and the corresponding liability to the lessor is recognised as a finance lease obligation. Where all the risks and rewards of ownership are not transferred to the Group, the lease is classified as an operating lease and neither the asset nor the corresponding liability to the lessor is recognised in the Group balance sheet. The net book value of the Group's property, plant and equipment assets held under finance lease contracts at 31 December 2014 and 31 December 2013 was not material.
The cost incurred by the Group in the year in respect of assets held under operating leases, all of which was charged within operating profit, amounted to £6.2m (2013: £6.4m).
Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the balance sheet date. Where the effect of the time value of money is material, provisions are discounted using a pre-tax discount rate that reflects both the current market assessment of the time value of money and the specific risks associated with the obligation. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
| Disposal and closure costs £m |
Litigation costs £m |
Restructuring and other charges £m |
Total £m |
|
|---|---|---|---|---|
| As at 1 January 2014 | 13.5 | – | 10.0 | 23.5 |
| Exchange adjustments | 1.0 | – | (0.7) | 0.3 |
| Charge to Group income statement | 3.0 | 6.8 | 5.5 | 15.3 |
| Transfers | 1.1 | – | (0.2) | 0.9 |
| Cash spend | (1.1) | – | (8.2) | (9.3) |
| As at 31 December 2014 | 17.5 | 6.8 | 6.4 | 30.7 |
Of the total provision balance as at 31 December 2014 of £30.7m (2013: £23.5m), £14.4m (2013: £11.7m) is recognised in the Group balance sheet within non-current liabilities and £16.3m (2013: £11.8m) within current liabilities. During the year, £1.1m was reclassified to the provision for disposal and closure costs; £0.2m came from restructuring provisions and £0.9m from accruals.
GOVERNANCE CORPORATE
STATEMENTS FINANCIAL
The provision for disposal and closure costs includes the Directors' best estimate of the costs to be incurred in connection with the sites of former Group businesses that were either closed or disposed of in prior years. The provision as at 31 December 2014 principally comprised amounts payable in respect of environmental remediation and monitoring works, demolition and site clean-up costs, and associated regulatory liabilities. As the settlement of many of the obligations for which provision is made is subject to legal or other regulatory process, the timing of the associated cash outflows is subject to some uncertainty, but the majority of the amounts provided are expected to be utilised over the next five to ten years.
In 2014 the Group recognised litigation charges arising on settlement of legacy issues that pre-dated the demerger from Cookson Group plc in 2012. Of these charges, £6.4m relates to the full and final settlement that was reached in February 2015 of actions brought by MacDermid (incorporated in the United States) against Alent and Vesuvius plc that arose out of corporate activity between the parties in 2006, and represents Alent's share of the gross settlement. Of the £6.8m provision held at the end of the year, £6.4m was paid in March 2015 and the balance of the provision is expected to be fully utilised in 2015. This matter had been noted as a contingent liability in Alent's 2013 annual report and accounts.
Provisions for restructuring and other charges include the costs of all of the Group's initiatives to restructure its operating activities. The balance of £6.4m as at 31 December 2014 includes £2.3m in relation to onerous leases terminating in between four and twelve years, and £3.8m in relation to other restructuring initiatives, all of which is expected to be paid out in 2015.
In compliance with current reporting requirements, certain arrangements entered into by the Group in its normal course of business are not reported in the Group balance sheet. Of such arrangements, those considered material by the Directors are inventory held under precious metal consignment arrangements (note 19) and future lease payments in relation to assets used by the Group under non-cancellable operating leases (note 29).
The Group has extensive international operations and is subject to various legal and regulatory regimes, including those covering taxation and environmental matters. Legal claims have been brought against certain Group companies by third parties alleging that persons have been harmed by exposure to hazardous materials used by those companies in the manufacture of industrial and consumer products, and further claims may be brought in the future. Several of the Group's subsidiaries are subject to legal proceedings, certain of which are insured claims arising in the ordinary course of the operations of the company involved, and the Directors are aware of a number of issues which are, or may be, the subject of dispute with tax authorities. Reserves are made for the expected amounts payable in respect of known or probable costs resulting both from legal or other regulatory requirements, or from third-party claims. As the settlement of many of the obligations for which reserve is made is subject to legal or other regulatory process, the timing and amount of the associated outflows is subject to some uncertainty.
The members of the Board of Directors of Alent are the key management personnel of Alent. Further information about the remuneration of individual Directors is provided in the audited sections of the Remuneration Report on pages 70 to 71 and 73 to 74. With effect from 4 September 2014, Rick Ertmann (President of Alent's Assembly Materials Division) fulfilled the role of Interim Chief Executive, and as such the analysis in the table below also includes his remuneration from this date.
| 2014 £m |
2013 £m |
|
|---|---|---|
| Short-term employee benefits | 1.6 | 0.8 |
| Post-employment benefits | 0.2 | 0.2 |
| Loss of office payments | 0.4 | – |
| Share-based payments | 0.8 | 0.6 |
| Total remuneration of key management personnel | 3.0 | 1.6 |
All transactions with related parties are conducted on an arm's length basis and in accordance with normal business terms. Transactions between related parties that are Group subsidiaries are eliminated on consolidation.
Set out below is a list of material subsidiaries of the Group and Company as at 31 December 2014 and 31 December 2013.
| Country of incorporation and place of business |
Ownership interest held by the Group |
Ownership interest held directly by the parent |
|
|---|---|---|---|
| Alent Alpha Metals (Shenzhen) Co., Ltd | China | 100% | – |
| Alent Brasil Soldas Ltda | Brazil | 100% | – |
| Alent Enthone Chemistry Trading (Shanghai) Co Ltd (formerly Cookson Enthone Chemistry Trading (Shanghai) Co Ltd) |
China | 100% | – |
| Alent Finance Limited | UK | 100% | – |
| Alent Hong Kong Limited | Hong Kong | 100% | – |
| Alent Investments Limited | UK | 100% | 100% |
| Alent Singapore Pte Ltd | Singapore | 100% | – |
| Alent, Inc | USA | 100% | – |
| Alpha Fry Limited | UK | 100% | – |
| Alpha Metals (Taiwan) Inc | Taiwan | 100% | – |
| Alpha Metals Lötsysteme GmbH | Germany | 100% | – |
| Alpha Metals, Inc | USA | 100% | – |
| Alpha Netherlands B.V. | Netherlands | 100% | – |
| Cookson India Private Limited | India | 100% | – |
| Cookson Investments, Inc | USA | 100% | – |
| Enthone GmbH | Germany | 100% | – |
| Enthone Inc | USA | 100% | – |
The following UK subsidiaries of the Group, having met the criteria set out in sections 479A-479C of the Companies Act 2006, are claiming exemption from the audit of their individual accounts afforded by those sections for the year ended 31 December 2014.
| Registered Number | |
|---|---|
| Alent Finance Limited | 8232406 |
| Alent Holdings Brazil Limited | 4985515 |
| Alent Investments Limited | 8180976 |
| Alent Management Limited | 8009351 |
| Alent New Finance (UK) Limited | 8243686 |
| Alent New Mexico Holdings Limited | 8243942 |
| Alent Property Limited | 8058935 |
| Alent Services Limited | 8242265 |
| Alpha Fry Limited | 208173 |
| Enthone Limited | 1804603 |
| Enthone-OMI Holdings (UK) Limited | 232860 |
| Note | 2014 £m |
2013 £m |
GO CO |
|---|---|---|---|
| Fixed assets | VE RP OR RN |
||
| Investment in subsidiaries 5 |
864.4 | 863.4 | AN AT E |
| Total fixed assets | 864.4 | 863.4 | CE |
| Current assets | |||
| Debtors – amounts falling due within one year | 0.2 | 0.1 | |
| Cash at bank and in hand | 0.2 | 0.4 | |
| Total current assets | 0.4 | 0.5 | |
| Creditors – amounts falling due within one year | STA FIN AN TE |
||
| Interest-bearing borrowings | (0.4) | (0.5) | ME CI |
| Other creditors 6 |
(107.8) | (36.9) | AL NT S |
| Total current liabilities | (108.2) | (37.4) | |
| Net current liabilities | (107.8) | (36.9) | |
| Net assets | 756.6 | 826.5 | |
| Equity capital and reserves | |||
| Issued share capital 7 |
27.8 | 27.8 | AD INF |
| Other capital reserves 8 |
444.8 | 444.8 | DIT OR IO |
| Retained earnings 8 |
284.0 | 353.9 | MA NA TIO |
| Shareholders' funds – equity | 756.6 | 826.5 | L N |
The Company financial statements were approved and authorised for issue by the Board on 2 March 2015 and signed on its behalf by:
ANDREW HEATH DAVID EGAN
Chief Executive Group Finance Director
1.1 Basis of accounting
Alent plc ("the Company") was incorporated on 31 August 2012 and is registered in England and Wales.
The financial statements of Alent plc are prepared in accordance with the Companies Act 2006 and under the historical cost convention and in accordance with UK GAAP. The Company has not presented a separate profit and loss account, as permitted by Section 408(3) of the Companies Act 2006.
The Directors have a reasonable expectation that the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they have adopted the going concern basis in preparing the financial statements of the Group and the Company for the year ended 31 December 2014.
The total employee benefits expense for the year comprises:
| 2014 £m |
2013 £m |
|
|---|---|---|
| Wages and salaries | 0.8 | 0.4 |
| Social security costs | 0.1 | 0.1 |
| Share-based payments | 0.3 | 0.2 |
| Total employee benefits expense | 1.2 | 0.7 |
Details of the Directors' remuneration are disclosed in the Remuneration Report on pages 69 to 79. The remuneration expense of Mr Steve Corbett was borne by other Group companies.
The average number of employees during the year was 1 (2013: 1).
Amounts payable to KPMG LLP in relation to audit and non-audit fees for 2014 and 2013 are disclosed within note 7 to the Group financial statements.
A final dividend for the year ended 31 December 2013 of £15.9m (year ended 31 December 2012: £15.3m), equivalent to 5.71 pence (year ended 31 December 2012: 5.5 pence) per ordinary share, was paid in June 2014. An interim dividend for the year ended 31 December 2014 of £8.4m (2013: £8.0m), equivalent to 3.0 pence (2013: 2.89 pence) per ordinary share was paid in October 2014, resulting in a total cash cost of ordinary dividends paid in 2014 of £24.3m (2013: £23.3m).
A proposed final dividend for the year ended 31 December 2014 of £16.0m, equivalent to 6.0 pence per ordinary share, is subject to approval by shareholders at the Company's Annual General Meeting and has not been included as a liability in these financial statements. If approved by shareholders, the dividend will be paid on 19 June 2015 to ordinary shareholders on the register at 15 May 2015.
In addition to the ordinary dividends described above, the Board also approved a special dividend to shareholders of £42.0m (2013: £nil), equivalent to 15.0 pence (2013: nil pence) per ordinary share. The special dividend was paid in October 2014.
Dividend payments in the Group statement of cash flows of £66.3m (2013: £23.3m) represent both the ordinary dividends paid in the year of £24.3m (2013: £23.3m) and the special dividend paid in the year of £42.0m (2013: £nil).
GOVERNANCE CORPORATE
5.1 Accounting policy
Shares in subsidiaries are stated at cost less any impairment in value.
5.2 Analysis of investment in subsidiaries
| Shares in subsidiaries at cost £m |
|
|---|---|
| As at 1 January 2014 | 863.4 |
| Additions | 1.0 |
| As at 31 December 2014 | 864.4 |
Details of principal subsidiaries and joint ventures of Alent plc and the countries in which they are incorporated are given in note 34 to the Group financial statements. A full list of Group companies will be included in the Company's Annual Return to the Registrar of Companies.
The name and registered number for each of the UK subsidiaries of the Company that have met the criteria set out in sections 479A-479C of the Companies Act 2006 and are exempt from audit (the "Exempt Subsidiaries") are given in note 34 to the Group financial statements. In accordance with sections 479A-479C of the Companies Act 2006, the Company has guaranteed the outstanding liabilities of each of the Exempt Subsidiaries that were outstanding as at 31 December 2014. Such liabilities are guaranteed until paid.
| 2014 £m |
2013 £m |
|
|---|---|---|
| Amounts owed to subsidiary undertakings | 106.8 | 36.2 |
| Accruals and other creditors | 1.0 | 0.7 |
| Total other creditors | 107.8 | 36.9 |
7.1 Accounting policy
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
As at 1 January 2013 and 31 December 2013, the Company's issued share capital was 278,448,752 ordinary shares of 10 pence each.
During 2014 the Company issued 11,972 ordinary shares of 10 pence each. On 4 August 2014, the Board of Alent plc announced its intention to pay a special dividend to shareholders of 15.0 pence (the "Special Dividend") for every ordinary share of 10 pence each (the "Existing Ordinary Shares"). On 27 August 2014, a circular was sent to shareholders proposing a consolidation of Alent plc's share capital (the "Share Consolidation") in connection with the Special Dividend, which would result in every 23 Existing Ordinary Shares being consolidated into 22 ordinary shares of 10 5/11 pence each (the "New Ordinary Shares").
The shareholders of Alent plc approved the Share Consolidation at a general meeting held on 26 September 2014. As a result and with effect from that date, Alent plc's share capital was consolidated from 278,460,724 Existing Ordinary Shares into 266,353,736 New Ordinary Shares. Alent plc's share capital as at 26 September 2014 and 31 December 2014 was £27,846,072 divided into 266,353,736 New Ordinary Shares.
STATEMENTS FINANCIAL
| Reserve for own shares £m |
Other retained earnings £m |
Total retained earnings £m |
Other capital reserve £m |
Capital redemption reserve £m |
Total reserves £m |
|
|---|---|---|---|---|---|---|
| As at 1 January 2014 | (0.2) | 354.1 | 353.9 | 444.7 | 0.1 | 798.7 |
| Share-based payments | – | 1.5 | 1.5 | – | – | 1.5 |
| Purchase of own shares | (0.4) | – | (0.4) | – | – | (0.4) |
| Disposal of own shares | 0.5 | (0.5) | – | – | – | – |
| Dividends paid (note 4) | – | (66.3) | (66.3) | – | – | (66.3) |
| Loss recognised in the year | – | (4.7) | (4.7) | – | – | (4.7) |
| As at 31 December 2014 | (0.1) | 284.1 | 284.0 | 444.7 | 0.1 | 728.8 |
The other capital reserve of £444.7m and the capital redemption reserve of £0.1m are described further in note 9 to the Company financial statements.
As at 31 December 2014, 14,923 ordinary shares of 10 5/11 pence each of the Company were held by The Alent Employees' Share Ownership Plan Trust, with a nominal value of £nil, which were purchased at a gross cost of £0.1m. The purchase of these shares was financed out of borrowings included in the Company balance sheet as at 31 December 2014. The market value of these shares was £nil as at 31 December 2014. The Trustee of the Trust has waived its rights to receive dividends on the shares held. The shares are held to meet obligations under the Company's share-based payment plans as and when they arise at the discretion of the Company.
As at 31 December 2014, options exercisable over the Company's ordinary shares of 10 5/11 pence each and capable of being satisfied through new allotments of shares were as follows:
| Years of award/grant |
Option prices £ |
Latest year of exercise |
Number of options/ allocations outstanding |
|
|---|---|---|---|---|
| Performance Share Awards | 2012-2014 | nil | 2015-2024 | 2,588,903 |
| Deferred Share Bonus Awards | 2012-2014 | nil | 2015-2024 | 207,127 |
| Restricted Share Awards | 2013 | nil | 2015 | 11,954 |
CORPORATE
FINANCIAL
| Share capital £m |
Other capital reserve £m |
Capital redemption reserve £m |
Total retained earnings £m |
Total reserves £m |
GO VE RN AN |
|
|---|---|---|---|---|---|---|
| At 1 January 2013 | 27.8 | 444.7 | – | 379.4 | 851.9 | CE |
| Share-based payments | – | – | – | 0.9 | 0.9 | |
| Purchase of own shares | – | – | – | (0.2) | (0.2) | |
| Dividends paid (note 4) | – | – | – | (23.3) | (23.3) | |
| Loss recognised in the year | – | – | – | (2.8) | (2.8) | |
| Redemption of preference shares | – | – | 0.1 | (0.1) | – | |
| At 1 January 2014 | 27.8 | 444.7 | 0.1 | 353.9 | 826.5 | STA |
| Share-based payments | – | – | – | 1.5 | 1.5 | TE |
| Purchase of own shares | – | – | – | (0.4) | (0.4) | ME NT |
| Dividends paid (note 4) | – | – | – | (66.3) | (66.3) | S |
| Loss recognised in the year | – | – | – | (4.7) | (4.7) | |
| As at 31 December 2014 | 27.8 | 444.7 | 0.1 | 284.0 | 756.6 |
On 19 December 2012, the Company issued 278,448,752 ordinary shares of £1.50 each to the public shareholders of Vesuvius plc in return for the receipt of the entire share capital of Alent Investments Limited. The Company applied merger relief under section 612 of the Companies Act 2006 and, accordingly, the £444.7m excess of the total market value of Alent Investments Limited, being £862.4m, over the nominal value of the shares issued of £417.7m, was recorded in the other capital reserve. The other capital reserve does not form part of the reserves available for distribution by the Company.
On 9 December 2013 Alent plc established a capital redemption reserve of £0.1m in respect of the redemption of 50,000 redeemable non-voting preference shares with a nominal value of £1.00, and the cancellation of 1 deferred share with a nominal value of £1.00.
INFORMATION ADDITIONAL
The Company principally operates equity-settled share-based payment arrangements for its employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date takes account of the effect of market-based conditions, such as the Total Shareholder Return target upon which vesting for some of the awards is conditional, and is expensed on a straight-line basis over the vesting period with a corresponding increase in equity. The cumulative expense recognised is adjusted for the best estimate of the shares that will eventually vest and for the effect of other non market-based vesting conditions, such as growth in headline earnings per share, which are not included in the fair value determined at the date of grant.
The Company operates a number of different share-based payment arrangements, the main features of which are described on pages 71 to 75 of the Remuneration Report. The total expense recognised in the year was £0.3m (2013: £0.2m).
| Outstanding Alent share plan awards | ||||||||
|---|---|---|---|---|---|---|---|---|
| As at 1 January 2014 no. |
Granted no. |
Exercised no. |
Lapsed no. |
As at 31 December 2014 no. |
Awards exercisable as at 31 December 2014 no. |
Weighted average outstanding contractual life of awards years |
Range of exercise prices pence |
|
| Performance shares | 879,703 | 485,012 | – | (102,631) | 1,262,084 | – | 3.4 | |
| Weighted average exercise price |
nil | nil | – | nil | nil | – | n/a | |
| Other shares | 23,909 | – | (11,955) | – | 11,954 | – | – | |
| Weighted average exercise price |
nil | – | nil | – | nil | – | n/a |
| Outstanding Alent share plan awards | ||||||||
|---|---|---|---|---|---|---|---|---|
| As at 1 January 2013 no. |
Transfers no. |
Exercised no. |
Lapsed no. |
As at 31 December 2013 no. |
Awards exercisable as at 31 December 2013 no |
Weighted average outstanding contractual life of awards years |
Range of exercise prices pence |
|
| Performance shares | 497,460 | 436,407 | (36,670) | (17,494) | 879,703 | – | 1.6 | |
| Weighted average exercise price |
nil | nil | nil | nil | nil | – | n/a | |
| Other shares | – | 23,909 | – | – | 23,909 | – | 1.0 | |
| Weighted average exercise price |
– | nil | – | – | nil | – | n/a |
For awards exercised during 2014, the share price at the date of exercise was 315.95p (2013: 345.3p).
Details of awards granted during the year can be found in note 27 to the consolidated financial results.
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its Group, the Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee. Guarantees provided by the Company as at 31 December 2014 in respect of the liabilities of its subsidiary companies amounted to £160.3m (2013: £161.8m) which includes £155.3m (2013: £154.5m) of drawings under the syndicated debt facility.
Alent has extensive international operations and is subject to various legal and regulatory regimes, including those covering taxation and environmental matters. Several of the Company's subsidiaries are parties to legal proceedings, certain of which are insured claims arising in the ordinary course of the operations of the company involved, and are aware of a number of issues which are, or may be, the subject of dispute with tax authorities. While the outcome of litigation and other disputes can never be predicted with certainty, having regard to legal advice received and the insurance arrangements of the Company and its subsidiaries, the Directors believe that none of these matters will, either individually or in the aggregate, have a materially adverse effect on the Company's financial condition or results of operations.
All transactions with related parties are conducted on an arm's length basis and in accordance with normal business terms. Transactions between related parties that are wholly owned Group subsidiaries are not disclosed in this note. Further details of the Group's principal subsidiaries can be found in note 34 to the consolidated financial statements.
| Income statement | 2014 £m |
2013 £m |
2012 £m |
2011 £m |
2010 £m |
|---|---|---|---|---|---|
| Revenue | 644.8 | 684.7 | 713.9 | 814.4 | 720.9 |
| Net sales value | 413.0 | 420.1 | 416.7 | 433.3 | 413.4 |
| Operating profit before exceptional items | 95.1 | 94.1 | 103.0 | 99.6 | 71.0 |
| Exceptional items | (18.1) | (10.3) | (15.8) | (3.5) | (5.3) |
| Operating profit | 77.0 | 83.8 | 87.2 | 96.1 | 65.7 |
| Demerger costs | – | – | (10.7) | – | – |
| Share of post-tax profit of joint ventures | 1.6 | 0.8 | 0.3 | 1.2 | 1.3 |
| Net finance costs | (5.2) | (6.9) | (3.6) | (2.9) | (3.6) |
| Profit before tax | 73.4 | 77.7 | 73.2 | 94.4 | 63.4 |
| Income tax costs – ordinary activities | (28.5) | (20.9) | (23.3) | (16.8) | (8.0) |
| – exceptional items | 1.9 | 4.8 | (4.9) | (3.2) | 0.6 |
| Profit for the year | 46.8 | 61.6 | 45.0 | 74.4 | 56.0 |
| Balance sheet | 2014 £m |
2013 £m |
2012 £m |
2011 £m |
2010 £m |
| Property, plant and equipment | 85.9 | 85.2 | 83.9 | 75.8 | 69.7 |
| Intangible assets | 294.3 | 288.5 | 295.0 | 298.8 | 301.0 |
| Other non-current assets (excluding tax balances) | 12.4 | 8.0 | 23.1 | 25.9 | 16.0 |
| Total non-current assets (excluding tax balances) | 392.6 | 381.7 | 402.0 | 400.5 | 386.7 |
| Trade working capital | 124.1 | 120.8 | 130.7 | 120.4 | 133.1 |
| Other net liabilities (excluding tax balances) | (54.1) | (42.1) | (51.8) | (60.4) | (70.9) |
| Net assets employed | 462.6 | 460.4 | 480.9 | 460.5 | 448.9 |
| Total equity | 285.9 | 312.4 | 276.0 | 454.7 | 499.3 |
| Net debt/(cash) | 108.3 | 96.5 | 144.4 | (51.5) | (102.8) |
| Net defined benefit liability | 24.1 | 18.8 | 24.3 | 26.4 | 26.9 |
| Income tax and deferred tax balances | 44.3 | 32.7 | 36.2 | 30.9 | 25.5 |
| Total capital employed | 462.6 | 460.4 | 480.9 | 460.5 | 448.9 |
| GO CO |
||||||
|---|---|---|---|---|---|---|
| Statement of cash flows | 2014 £m |
2013 £m |
2012 £m |
2011 £m |
2010 £m |
VE RP OR RN |
| Profit for the year | 46.8 | 61.6 | 45.0 | 74.4 | 56.0 | AN AT E CE |
| Adjustments for: | ||||||
| Depreciation | 9.1 | 9.0 | 8.9 | 8.5 | 8.7 | |
| Share of post-tax profit of joint ventures | (1.6) | (0.8) | (0.3) | (1.2) | (1.3) | |
| Exceptional items | 18.1 | 10.3 | 15.8 | 3.5 | 5.3 | |
| Demerger costs | – | – | 10.7 | – | – | |
| Net finance costs | 5.2 | 6.9 | 3.6 | 2.9 | 3.6 | |
| Income tax costs | 26.6 | 16.1 | 28.2 | 20.0 | 7.4 | STA FIN |
| EBITDA | 104.2 | 103.1 | 111.9 | 108.1 | 79.7 | AN TE ME CI |
| Net (increase)/decrease in trade and other working capital | (0.2) | 5.6 | (20.0) | (9.6) | (19.5) | NT AL |
| Outflow relating to restructuring charges | (9.3) | (4.0) | (19.8) | (3.8) | (9.0) | S |
| Litigation settlements | 1.7 | – | – | – | – | |
| Payment of demerger costs | (0.2) | (4.8) | (5.7) | – | – | |
| Additional funding contributions into Group pension plans | (2.4) | (1.9) | (2.1) | (1.7) | (3.1) | |
| Net operating outflow related to assets and liabilities classified as held for sale |
– | – | – | – | (1.6) | |
| Cash generated from operations | 93.8 | 98.0 | 64.3 | 93.0 | 46.5 | |
| DIVISIONAL RESULTS | AD INF OR DIT IO MA NA TIO L N |
| 2014 | 2013 | 2012 | 2011 | 2010 | ||
|---|---|---|---|---|---|---|
| Assembly Materials | ||||||
| Revenue | £m | 393.9 | 423.1 | 438.7 | 527.3 | 446.7 |
| Net sales value | £m | 204.9 | 209.5 | 208.0 | 214.1 | 196.9 |
| Segment result | £m | 57.6 | 58.2 | 57.5 | 52.1 | 36.4 |
| Return on sales | % | 14.6 | 13.8 | 13.1 | 9.9 | 8.1 |
| NSV margin | % | 28.1 | 27.8 | 27.6 | 24.3 | 18.5 |
| Number of employees – average | No. | 1,397 | 1,342 | 1,347 | 1,352 | 1,463 |
| – year-end | No. | 1,398 | 1,333 | 1,332 | 1,355 | 1,339 |
| Surface Chemistries | ||||||
| Revenue | £m | 250.9 | 261.6 | 275.2 | 287.1 | 274.2 |
| Net sales value | £m | 208.1 | 210.6 | 208.7 | 219.2 | 216.5 |
| Segment result | £m | 44.6 | 42.7 | 45.2 | 47.5 | 34.6 |
| Return on sales | % | 17.8 | 16.3 | 16.4 | 16.5 | 12.6 |
| Return on net sales value | % | 21.4 | 20.3 | 21.7 | 21.7 | 16.0 |
| Number of employees – average | No. | 1,155 | 1,214 | 1,212 | 1,209 | 1,216 |
| – year-end | No. | 1,140 | 1,185 | 1,193 | 1,194 | 1,212 |
| Ball Grid Array (BGA) A type of surface mount technology used for packaging integrated circuits. |
|||||
|---|---|---|---|---|---|
| Bar solder and flux | Used in mature wave soldering process. | ||||
| Copper damascene | Chemicals used to create nanoscale copper connections within semiconductor wafers. | ||||
| Die-attach products | The "die" refers to the silicon die in active integrated circuit packages. The attachment is most commonly a thermal path to help draw the heat out of the package and is typically either a purely metal or a conductive polymeric bond. This application is critical to the integrated circuit's reliability and ultimate performance. |
||||
| Electronic polymers | Used for packaging, sealing and conductive adhesives. | ||||
| Electroplating | A plating process that uses electrical current to coat a conductive object with a thin layer of another material in order to bestow a desired property (e.g. corrosion/wear resistance, aesthetic qualities) to a surface that otherwise lacks that property. |
||||
| Flux | A chemical-based material designed to help reduce oxides and clean metal surfaces in order to enable effective "wetting" of metal surfaces to the molten solder alloy during the creation of a solder joint when attaching an electronic component to a printed circuit board. |
||||
| LED | A light-emitting diode. | ||||
| Preforms | Solder components engineered into specific shapes/forms. | ||||
| Printed circuit board | A type of circuit board which has conducting tracks superimposed or "printed" on one or both sides. May refer to a board either before or after the assembly process. |
GOVERNANCE CORPORATE
STATEMENTS FINANCIAL
| Printed circuit board assembly | Printed circuit board assembly involves attaching components such as semiconductors and capacitors to a fabricated board and making the required physical and electrical connections. This has to be done with precise accuracy if the finished printed circuit board is to function effectively. |
||||
|---|---|---|---|---|---|
| Reclaim | Metal recycling business - reclaim of waste solder, reused in solder processes. | ||||
| Semiconductor wafers | A thin slice of semiconducting material, upon which microcircuits are constructed by chemical deposition of various materials. |
||||
| Solder | An alloy of tin and other metals with a comparatively low melting point used to join less fusible metals. |
||||
| Solder spheres | Used for integrated circuit and printed circuit board connections. | ||||
| Stencils | Used to apply adhesive and solder paste onto a printed circuit board. | ||||
| Surface mount technology | Both a technology design and the electronic components that are used in the process of soldering components to the surface of a printed circuit board. |
||||
| Through-hole assembly | The use of either older technology parts or parts requiring significant mechanical strength, where the component has wire leads that physically pass through holes in a printed circuit board. |
||||
| Wafer bumping products | Metal alloys for wafer bump plating, including gold, copper, lead-free alloys and low alpha lead-based alloys. |
||||
| Wave solder assembly | A process by which large printed circuit boards can be soldered quickly and reliably during assembly. |
||||
| Wire solder | Used in touch-up and rework applications. |
For enquiries regarding ordinary shares, please contact:
Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA United Kingdom
Or please telephone: (UK only) 0871 384 2335 or (non UK) + 44 121 415 7047 or Fax: + 44 1903 833 168
For the hard of hearing, Equiniti now offers a special Textel service which can be accessed by dialling 0871 384 2255. Shareholders can also access their holdings online by visiting the Registrar's website at www.shareview.co.uk
For enquiries regarding corporate governance, please contact the Company Secretary at the registered office:
Alent plc Forsyth Road Sheerwater Woking Surrey GU21 5RZ
E-mail: [email protected] Telephone: +44 (0)1483 793250 Fax: +44 (0)1483 793299
For investor queries, please contact the investor relations manager at the registered office:
Alent plc Forsyth Road Sheerwater Woking Surrey GU21 5RZ
E-mail: [email protected] Tel: +44 (0)1483 793250 Fax: +44 (0)1483 793299
7 May 2015 Annual General Meeting 3 August 2015 2015 Interim Results
* The financial calendar may be updated from time to time throughout the year. Please refer to our website www.alent.com for up-to-date information.
Shareholders are able to take their dividend as cash, or in shares through the DRIP (Dividend Reinvestment Plan) operated by the Company's Registrar, Equiniti. Further details are available at http://www.shareview.co.uk/ products/Pages/DividendReInvestmentPlan.aspx or directly from Equiniti.
The Dividend Reinvestment Plan (DRIP) allows shareholders to use their cash dividends to buy more shares in the Company. Rather than receiving a dividend cheque through the post or having their bank account credited with the dividend payment, shareholders can choose to use their cash dividend to buy additional shares.
Whole shares are purchased with any residual money being carried forward and added to the next dividend. However, if the amount of the dividend, less any dealing costs incurred in completing the purchase, is insufficient to buy a single share, no charge is made and the dividend is carried forward.
Using the Group's website as the main method of distribution for many statutory documents is part of our commitment to reducing our environmental impact. Shareholders can choose to receive communications, including the Annual Report & Accounts and Notice of Meetings, in electronic form rather than by post.
This has a number of advantages, including:
Shareholders can register through the online service provided by our Registrar, Equiniti, at www.shareview.co.uk. The registration process requires the input of a shareholder reference number (SRN), which can be found on the share certificate.
To ensure that shareholder communications are received in electronic form, "email" should be selected as the mailing preference.
Once registered, shareholders will be sent an email notifying them each time a shareholder communication has been published on the Company website, and providing them with a link to the page on the website where it may be found.
Alent plc is legally obliged to make its share register available to the general public. Consequently some shareholders may receive unsolicited mail, including correspondence from unauthorised investment companies.
Companies have become increasingly aware that their shareholders have received unsolicited phone calls concerning their shareholding. These calls are typically from overseas-based brokers who target UK shareholders offering to sell what often turn out to be worthless or high-risk shares in US or UK investments. They can be very persistent and extremely persuasive. Shareholders are advised to be very wary of any unsolicited advice, offers to buy shares at a discount or offers of free company reports.
If you receive any unsolicited investment advice:
REPORT STRATEGIC
GOVERNANCE CORPORATE
| Shareholder Analysis | Shareholding Analysis | ||||
|---|---|---|---|---|---|
| No. of holders |
% of holders |
No. of shares |
% of issued share capital |
||
| 2,871 | 76.32 | 471,119 | 0.18 | ||
| 719 | 19.11 | 4,833,092 | 1.81 | ||
| 106 | 2.82 | 19,810,408 | 7.44 | ||
| 66 | 1.75 | 241,239,117 | 90.57 | ||
| 3,762 | 100 | 266,353,736 | 100 | ||
INFORMATION ADDITIONAL
Rothschild New Court St Swithin's Lane London EC4N 8AL
Pendomer Communications Limited 55 Farringdon Road London EC1M 3JB
KPMG LLP 15 Canada Square London E14 5GL
Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA
Liberum Ropemaker Place 25 Ropemaker Street London EC2Y 9LY
UBS
1 Finsbury Avenue London EC2M 2PP
Linklaters LLP One Silk Street London EC2Y 8HQ
Lockton The St Botolph Building 138 Houndsditch London EC3A 7AG
Designed and produced by MerchantCantos www.merchantcantos.com
| ALENT plc Forsyth Road Sheerwater Woking Surrey GU21 5RZ T: +44 (0)1483 793250 F: +44 (0)1483 793299 WWW.ALENT.COM Stock code: ALNT |
||
|---|---|---|
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