COOKSON IS A LEADING GLOBAL SUPPLIER OF CONSUMABLES USED MAINLY IN THE PRODUCTION OF STEEL, FOUNDRY CASTINGS AND ELECTRONICS.

WE ADD VALUE TO OUR CUSTOMERS' BUSINESSES BY PROVIDING PRODUCTS, PROCESSES AND SERVICES THAT ALLOW THEM TO INCREASE THE EFFICIENCY AND QUALITY OF THEIR OPERATIONS AND PRODUCTS.

WE HAVE LEADING TECHNOLOGIES SUPPORTED BY OUTSTANDING TECHNICAL SERVICE AND R&D RESOURCES.

WE HAVE HIGH QUALITY BUSINESSES WITH LEADING MARKET POSITIONS.

OUR KEY END-MARKETS (STEEL PRODUCTION, FOUNDRY CASTINGS AND ELECTRONICS) HAVE GOOD LONG-TERM PROSPECTS.

WE HAVE A GLOBAL PRESENCE WITH 15,500 PEOPLE WORKING IN MORE THAN 40 COUNTRIES AND WE SELL INTO MORE THAN 100 COUNTRIES.

Our Business

Highlights of the year	01
Key Performance Indicators	02
Chairman's Statement	03
Chief Executive's Statement	04
Corporate Social Responsibility	06
Operating Review	09
Financial Review	16
Shareholder Information	120

Our Governance

Board of Directors	21
Corporate Governance Report	22
Principal Risks and Uncertainties	27
Directors' Report	30
Directors' Remuneration Report	35
Statement of Directors' Responsibilities	45
Independent Auditor's Report	46

Our Financials

Group Income Statement	47
Group Statement of
Comprehensive Income	48
Group Statement of Cash Flows	49
Group Balance Sheet	50
Changes in Equity	51
Notes to the Consolidated
Financial Statements	52
Company Balance Sheet	105
Notes to the Company Financial Statements	106
Five Year Summary — Group	117
Five Year Summary — Divisional Results	119

HIGHLIGHTS OF THE YEAR

"With the continuing market penetration of our new higher-margin products, our strong presence in high-growth emerging markets, and the further recovery potential in mature markets where our cost base has been significantly reduced, we are well positioned for further strong earnings growth." Nick Salmon, Chief Executive

SIGNIFICANT PERFORMANCE IMPROVEMENT IN 2010:
■ Revenue of £2,546m, up 30%; 23% on an underlying basis1 (2009: £1,961m)
■ Trading profit1 of £252.1m, up 126% (2009: £111.7m)
■ Return on sales1 of 9.9% (2009: 5.7%) — Ceramics 11.9%; Electronics 9.8%
■ Headline profit before tax1 of £222.1m, up 193% (2009: £75.7m)
END-MARKETS HAVE RECOVERED STRONGLY BUT GENERALLY REMAIN BELOW PRE-CRISIS LEVELS, LEAVING CONSIDERABLE POTENTIAL FOR FURTHER IMPROVEMENT
EFFECTIVE TAX RATE 2 OF 21.1% (2009: 35.2%) REFLECTS A MORE NORMAL GEOGRAPHIC DISTRIBUTION OF PROFITABILITY AND CERTAIN NON-RECURRING CREDITS (UNDERLYING RATE 24%)
HEADLINE EARNINGS PER SHARE1 OF 61.5p, UP 242% (2009: 18.0p)
NET DEBT REDUCED BY £41m TO £330m. NET DEBT TO EBITDA1 RATIO OF 1.1 TIMES
RECOMMENDED FINAL DIVIDEND OF 11.5p PER SHARE (LAST DIVIDEND PAYMENT DECLARED IN AUGUST 2008)
NEW THREE-YEAR PERFORMANCE TARGETS ANNOUNCED IN JANUARY 2011 SET OUT THE AMBITION AND STRATEGY FOR FURTHER STRONG PROGRESS THROUGH TO END 2013
HEALTHY GROWTH RATES ANTICIPATED FOR 2011 IN KEY END-MARKETS OF STEEL PRODUCTION, FOUNDRY CASTINGS AND ELECTRONICS — GROUP PERFORMANCE EXPECTED TO BE WELL AHEAD OF 2010

1 Refer to note 3.22 to the consolidated financial statements for definitions.

2 Tax rate on Headline profit before tax and before share of post-tax profit of joint ventures.

group performance

continuing operations

Revenue

Trading profit £m 150 170 216 112 252

2007

2008

2009

2010

2006

Return on sales %

Key Performance Indicators

Cookson's Board and executives monitor a large number of financial and non-financial performance indicators, reported on a periodic basis, to measure the Group's performance over time.

The Group's financial key performance indicators ("KPIs") are more fully defined in note 3.22 to the consolidated financial statements. Performance data in relation to the KPIs for 2010 and the prior year are discussed in more detail in the Operating Review, the Financial Review and the Corporate Social Responsibility report. Targets are set annually for these performance indicators through the Group's annual budgeting process, in line with the Group's strategic objectives.

Non-Financial KPIs	Purpose	2010 performance vs 2009
Rate of injuries and illness resulting in absence from work	Measured to monitor progress towards the Group's goal of zero work-related injuries and illness	 Rate of injuries and illness resulting in absence from work at 0.8% compared with 0.7% in 2009
Research and development ("R&D") spend	Monitored to ensure that adequate resources are being invested to maintain the Group's strong pipeline of new products and services	 R&D spend: £38.1m vs £37.0m in 2009
Total energy consumption	Measured as part of the Group's programme to reduce energy usage and the associated carbon emissions	 Energy usage in manufacturing operations: • Gas use down 8% • Electricity use down 2%

Financial KPIs	Purpose	2010 performance vs 2009
Underlying revenue growth	Provides an important indicator of organic or "like-for like" growth of Group businesses between reporting periods. This measure eliminates the impact of exchange rates, metal prices, acquisitions, disposals and significant business closures. It is calculated using revenue for the Ceramics and Electronics divisions and net sales value for the Precious Metals division	 Underlying revenue growth: • Group +23% • Ceramics +27% • Electronics +18% • Precious Metals +2%
Trading profit, return on sales ("RoS") and return on net sales value ("RoNSV")	Used to assess the underlying trading performance of Group businesses	 Group trading profit from continuing operations: £252.1m, up 126%  RoS (at constant currency): • C eramics 11.9%, up 5.3pts

Headline profit before tax ("PBT") and headline earnings per share ("EPS")

Free cash flow and average working capital to sales ratio

Return on net assets ("RONA") and return on investment ("ROI")

Interest cover ratio and ratio of net debt to EBITDA

Both ratios are used to assess the financial position of the

RONA and ROI are used to assess the underlying financial performance of, respectively, the Group's divisions and

Group and its ability to fund future growth

Free cash flow is used to assess the underlying

earnings capacity of the Group as a whole

One of the factors driving the generation of free cash flow is the average working capital to sales ratio, which indicates the level of working capital used in the business

Used to assess the underlying financial performance and

cash generation of the Group

the Group as a whole

Net debt to EBITDA: 1.1 times (2009: 2.3 times)

Interest cover: 13.8 times (2009: 6.4 times)

Free cash flow: £63.7m, down £93.6m Average working capital to sales of 21.1%

Group ROI: 9.6%, up 6.2pts

• Ceramics 30.6%, up 17.6pts • Electronics 48.1%, up 21.7pts • Precious Metals 19.3%, up 9.1pts

Headline PBT: £222.1m, up 193% Headline EPS: 61.5p, up 242%

RoNSV (at constant currency):

• Electronics 9.8%, up 2.4pts

• Precious Metals 9.5%, up 3.0pts

(2009: 21.4%)

Divisional RONA:

CHAIRMAN'S STATEMENT JEFF HARRIS

"I have been consistently impressed with the calibre and commitment of my colleagues throughout the organisation and the quality of our operations and customer relationships."

I was very pleased to be asked to succeed Bob Beeston as Chairman, following the Annual General Meeting in May last year. I judged that Cookson was a company with great prospects and I am delighted to see that this is now being demonstrated.

A number of factors have changed during the last twelve months. Our end-markets have improved from the unprecedented recession of 2008/09, although there is still further recovery to be seen. Our performance has improved as a result of firm management actions to lower our cost base, expansion in the higher growth, emerging markets and focus on product innovation. Those actions will continue. Our prospects are improved as we benefit from strong market positions in recovering economies. Our share price performance has been encouraging with an increase of more than 50% during 2010.

These improvements have led to the Group reporting record levels of revenue (£2.55bn) and headline profit before tax (£222m); our employee numbers are gradually increasing as we recruit to meet increasing demand; and we are now recommending a return to dividend payments to our shareholders.

I am confident that the Group can continue to deliver further improvements in performance, as reflected by the three-year targets announced in January 2011 and detailed in the Chief Executive's Statement.

Initial impressions

Following my appointment in May, I have travelled extensively to visit Cookson facilities in the Americas, Europe and Asia. I have been consistently impressed with the calibre and commitment of my colleagues throughout the organisation and the quality of our operations and customer relationships. This was exemplified by our operations in China, which is now our largest country in terms of employees and earnings and where we have excellent, modern facilities with further new factories currently under construction to meet the strong market growth.

In terms of the functioning of the Board and its committees, I have been reassured to see the strong commitment to high standards of governance, a focused approach to risk management and a genuine attention to corporate social responsibility and, in particular, health and safety.

I also held meetings with our main institutional shareholders to hear their views on our business, management, governance and strategy. I am pleased to report that the feedback was both positive and supportive.

Financial performance

Revenue of £2.55bn was 30% higher than that reported in 2009. Headline profit before tax nearly trebled to £222.1m and headline earnings per share more than trebled to 61.5p. Overall, post-exceptional items, we reported a profit for the year of £150.9m compared with a loss of £44.7m reported for 2009. Net debt at 31 December 2010 stood at £330m, a reduction of £41m from a year earlier.

Dividend and dividend policy

No interim dividend was paid during the year and the last dividend paid was an interim dividend of 8.8p in October 2008. As a consequence of the Group's improved financial position and prospects, the Board is now recommending to shareholders a final dividend payment in respect of 2010 of 11.5p per ordinary share.

As part of its three-year Group performance targets, the Board is targeting growing dividends from this base at least in line with the growth in earnings, with the next payment expected to be an interim dividend in October 2011.

Board and corporate governance

The Board is responsible for overseeing the Group's strategy and monitoring its performance. In February 2010, the Board was strengthened with the appointment of two additional members: Peter Hill as a Non-executive Director and François Wanecq, Chief Executive Officer of our Ceramics division, as an executive Director.

Barry Perry, who has been a Non-executive Director since 2002, has decided not to stand for re-election at the next AGM and will therefore resign from the Board in May 2011. I would like to thank Barry for his valuable insight and the outstanding contribution he has made over the past nine years.

Outlook

Confidence in the sustainability of the global economic recovery is increasing and fears of a "double-dip" receding. I therefore expect the Group's performance in 2011 will be well ahead of 2010.

Headline PBT

continuing operations £m

Headline EPS

continuing operations pence

Our Governance

chief executive's StATEMENT nick salmon

"We see considerable potential for further improvement and in January 2011 we announced new three-year performance targets, setting out our ambitions and strategy for further strong progress."

2010 Trading profit by division before central costs

2010 Revenue by end-market including Precious Metals at NSV

The Group's performance improved very significantly in 2010. This is the result of the actions taken to radically restructure in late 2008 and the first half of 2009, coupled with the continued market penetration of newly-developed products and the further expansion of our presence in emerging markets, which positioned our businesses favourably to benefit from the continued recovery in our end-markets. We see considerable potential for further improvement and in January 2011 we announced new three-year performance targets, setting out our ambitions and strategy for further strong progress.

Trading performance

Group revenue of £2,546m was 30% higher than 2009 as reported, and 23% higher on an underlying basis, that is to say at constant currency and eliminating the impact of passing through significantly higher commodity metals prices (tin, silver and gold). Trading profit of £252.1m was £140.4m (126%) higher than that reported for 2009 and the return on sales margin improved strongly to 9.9% (2009: 5.7%). The Group's end-markets have continued to recover from the impact of the global economic crisis but generally remain below the levels experienced in the first half of 2008 prior to the crisis.

The Ceramics division's revenue of £1,495m was 32% higher than that reported in 2009 and up 27% on an underlying basis. The global steel production endmarket accounts for almost 60% of the division's revenue. According to the World Steel Association, global steel production in 2010 was 15% higher than in 2009 and, excluding China, the rest of the world showed an increase of 20%. The division's steel-related businesses, Steel Flow Control and Linings, reported revenue for the year of, respectively, £494m and £486m, underlying increases of 32% and 19% on the prior year and approaching 2008 levels, indicating continued market share gains. The recovery in the division's other main end-market, foundry castings, gained momentum through the year. Accordingly, the Foundry product line's revenue of £440m was up 33% on 2009 but was still some 17% below 2008 on an underlying basis. Lastly, the Fused Silica product line's revenue of £75m was up an underlying 29% on prior year, reflecting the strong recovery in the photovoltaic wafer production end-market. In total, the division's trading profit of £177.4m was £106.5m (150%) higher than the prior year, and the return on sales margin was 11.9% (2009: 6.3%).

The Electronics division's revenue of £721m was 36% higher than 2009, as reported. In part, this increase was due to the pass through of higher tin and silver commodity prices in our solder product sales and higher gold prices in our plating chemicals sales, which had the effect of increasing revenue by about £84m compared with the prior year when commodity prices were considerably lower. On an underlying basis, revenue increased by 18%, reflecting the continued strong recovery in electronics end-markets, particularly in the high-end consumer segment, and continuing market penetration of new, higher margin, products. The division's trading profit of £71.0m was £31.8m (81%) higher than the prior year and the return on sales margin was 9.8% (2009: 7.4%). The effect on revenue of passing through higher commodity metals prices than those prevailing in 2009 reduced the reported margin by about 1.3 percentage points.

The Precious Metals division's net sales value (being revenue excluding the precious metals content) of £134m was broadly unchanged from the prior year. Weak retail markets continued to be offset by strong levels of reclaim business in Europe and gold and silver coin blank sales to the US Mint. Trading profit of £12.7m was £3.8m (43%) higher than the prior year, reflecting the full year benefits of the restructuring completed in the first half of 2009 and improved sales mix with higher levels of reclaim and coins.

Exceptional items

A net charge, pre-tax, of £32.7m was incurred, principally due to restructuring charges (£17.3m) and amortisation of intangible assets (£17.7m), partially offset by a gain relating to the closure of the UK defined benefit pension plan to future benefit accrual (£4.7m). The equivalent charge in 2009 was £96.6m, reflecting the major cost reduction/restructuring programme implemented in the face of the economic crisis.

TAXATION

The headline effective tax rate for 2010 was 21.1%, a significant improvement on the 2009 rate of 35.2%. This improvement reflects the return to a more normal geographic distribution of profitability, combined with the benefit of a number of non-recurring credits recognised in the year. These credits related to the recognition of some previously unrecorded tax losses combined with a number of adjustments arising from the finalisation of prior year tax liabilities. The underlying tax rate for 2010, excluding the benefit of these nonrecurring credits, was around 24%. An underlying tax rate of between 23% and 24% is anticipated for 2011 and 2012.

Attributable profits and earnings

Headline attributable profit was £169.8m (2009: £45.6m) and headline earnings per share was 61.5p (2009: 18.0p).

After taking into account all exceptional items, the Group recorded a profit for the year of £145.3m compared with a loss of £48.5m for 2009.

Financial position

Net debt at 31 December 2010 was £330m, £41m lower than a year earlier. The Group has very substantial liquidity headroom within its committed debt facilities which total £855m. In December 2010, we successfully completed the issue of \$250m of USPrivate Placement loan notes with an average fixed interest rate of 4.6% and average duration of just under nine years. The principal maturities under the existing bank facility are in late 2012 and our intention is to refinance this facility by the end of 2011.

At 31 December 2010, the ratio of net debt to EBITDA was 1.1 times, very comfortably within the debt covenant level of 3.0 times and the interest cover ratio was 13.8 times.

Outlook for 2011

For 2011, based on a number of third party forecasts, we are expecting global steel production growth to be at mid-single digit levels, slightly higher growth in electronic equipment production and double digit growth rates in our foundry castings and fused silica end-markets. The significant cost reduction measures implemented in the first half of 2009, the continuing market penetration of new, higher margin products, and the production capacity expansion projects completed in 2010 and currently under way, mean that the Group is well positioned to benefit from these positive end-market growth trends.

Accordingly, we continue to expect that the Group's performance in 2011 will be well ahead of 2010.

2010 Revenue by customer location

2010 Revenue by operating location

Our Governance Our Financials Our Business

Targets and strategy

On 26 January 2011, we gave an extensive Capital Markets presentation setting out our targets for performance improvement over the coming three years and our strategy for achieving those targets. The full presentation is available on our website. The targets are:

average annual revenue growth to exceed 1.5 times global GDP growth;
return on sales margin of 12% by year 2013;
double digit average annual headline earnings growth;
dividend growth at least in line with earnings growth;
return on investment increasingly ahead of the Group's weighted average cost of capital; and
maintaining a strong financial position with a leverage ratio (year-end net debt to EBITDA ratio) of not more than 1.5 times.

In setting these targets we are not assuming any significant acquisitions, but some bolt-on acquisitions are possible. Also, no major disposals are anticipated but any opportunities to create value will be considered objectively.

We see the achievement of these targets being underpinned by:

leading global market positions, supplying consumables to essential industries steel, foundry and electronics;
track record of market share gains with new, enhanced technology, higher margin products increased R&D capability and spending;
significant emerging market exposure (c.50% of revenue; >60% of trading profit);
considerable further recovery potential in mature markets where cost base significantly reduced; and
opportunities to leverage further organic growth through bolt-on acquisitions.

2010 Trading profit by operating location

corporate social responsibility

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.

CONTEXT

Cookson employs some 15,500 people with manufacturing facilities in over 35 countries serving customers in more than 100 countries worldwide. We supply our customers with consumable products which they use in their manufacturing processes, for example in the production of steel, foundry castings, electronics and jewellery products. We operate in "just in time" supply chains with short lead times from order to delivery. 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 2% of revenue) and do not produce large quantities of hazardous or other wastes and emissions.

POLICY

Cookson recognises that its operations impact a wide community of stakeholders, including investors, employees, customers, business associates and local communities, and that appropriate attention to the fulfilment of its corporate responsibilities can enhance overall performance. In structuring its approach to the various aspects of corporate social responsibility, the Company takes account of guidelines and statements issued by stakeholder representatives and other regulatory bodies from around the world. Social, environmental and ethical matters are reviewed by the Board, including the impact such matters may have on the Group's management of risk.

Particular emphasis is focused on the following areas:

Code of Conduct: requiring all Cookson's businesses and employees to comply with the highest standards of legal and ethical behaviour.
Health, Safety and Environment: protecting the health and safety of our employees, contractors, customers and the general public and reducing energy consumption and waste in our operations.
Products and Services: developing innovative products and services which promote sustainability in our customers' production processes and products.

CODE OF CONDUCT

The Company has a Code of Conduct ("the Cookson Code"), which has been distributed throughout the Group in 25 languages and by which all our businesses are required to operate. The Cookson Code emphasises the Company's commitment to compliance with the highest standards of legal and ethical behaviour. The Cookson Code is reproduced in full on the Company's website — www.cooksongroup.co.uk.

The Cookson Code sets out clear and simple principles covering: Customers and Suppliers; Employees; Investors; Society and Local Communities; Health, Safety and Environment; Conflicts of Interest; and Competitors.

The Group believes it can only achieve its goals through the efforts of its employees. Job satisfaction requires working environments that motivate employees, together with opportunities for training and development to maximise personal potential. Wherever they work, employees have the right to be treated in good faith and with respect for the dignity of the individual. All Group companies must ensure that recruitment, training, promotion, career development, termination and similar employmentrelated issues are based on individual ability, achievement, experience and conduct without regard to race, colour, nationality, culture, ethnic origin, religion, sex, sexual orientation, age, disability or any other reason not related to job performance or prohibited by applicable law.

The Group is committed to the highest standards of corporate governance and transparent investor communication, as discussed in more detail in the "Our Governance" section of this report.

Cookson seeks to be a good corporate citizen wherever it conducts business, to observe all national and local laws and take into account regional and local concerns, customs and traditions. Bribery is strictly prohibited and this message is being reinforced throughout the Group as part of the Company's preparations to comply with the requirements of the new UK Bribery Act.

The Cookson Code requires all employees, officers and Directors to have a duty of loyalty to the Group and personal interests that do, may or might appear to conflict with Group interests must be avoided at all times.

Employee Helpline

Cookson has a 24-hour Employee Business Concern Helpline telephone and e-mail facility. This is an independent and confidential service through which employees worldwide may register any concerns about any incorrect or irregular practices they perceive in Cookson's workplaces.

HEALTH, SAFETY AND ENVIRONMENT ("HS&E")

Cookson regards HS&E matters as mainstream management responsibilities. The Board has overall responsibility for the Cookson HS&E Policy and for monitoring its implementation. 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. Particular emphasis is focused on the following areas:

Safety Performance: work-related injuries and illnesses.
Regulatory Compliance: compliance with permitted air, water, waste and noise emissions criteria.
Energy Usage: reducing electricity and gas consumed in our operations and hence carbon dioxide ("CO2 ") emissions.

The Group's HS&E policy and related information can be found on the Group's website — www.cooksongroup.co.uk.

A reporting system is in place to collect details of all HS&E-related incidents throughout the Group and to produce quarterly reports including the KPIs covering work-related injury and illness rates. These reports and related performance improvement plans are regularly reviewed by the Chief Executive with divisional management as part of the normal business review cycle.

The Board reviews HS&E performance as a formal agenda item at least once per year including the KPIs covering work-related injury and illness rates and total energy consumption. Any significant incidents are reported to the Chief Executive and the Board as they occur.

Cookson's larger manufacturing locations are progressively being qualified for certification under ISO 14001, the international standard for environmental management systems. Those facilities handling potentially more hazardous materials are progressively being qualified for certification under the international occupational health and safety management system, OHSAS 18001. Certification to these international standards is not appropriate for all facilities, particularly smaller ones and those with very limited environmental impact.

The Group now has 74 locations certified to ISO 14001 and 34 locations certified to OHSAS 18001.

Facilities certified to ISO 14001

Facilities certified to OHSAS 18001

Safety Performance

Cookson's goal is zero work-related injuries and illnesses. The principal indicators of occupational safety and health performance that are used are based on the US Occupational Safety and Health Administration recording requirements. Cookson operations worldwide report the "days away" incident rate — the number of work-related illnesses or injuries, per 100 employees, that resulted in an employee being absent from work for at least one day. We also track the "recordable" incident rate — the number of workrelated injuries and illnesses, per 100 employees, that resulted in medical treatment beyond first aid.

Cookson's "days away" injury and illness rate has fallen from 2.40 in 2004 to 0.80 in 2010. The Group's "recordable" incident rate has improved to 1.7 in 2010 from greater than 4 in 2004.

Cookson work-related injury and illness incident rates

Regulatory Compliance

Regulatory actions against Cookson companies have been at a low level for several years. This is indicative of the emphasis on continuous HS&E performance improvement across Cookson in relation to statutory obligations. A small number of enforcement notices were issued to Cookson companies in 2010, including several that assessed minor penalties.

Cookson companies began implementing the European regulation for the Registration, Evaluation, Authorisation and Restriction of Chemicals ("REACH") in 2008. Each of the Group's businesses which manufacture chemicals filed appropriate pre-registrations by the statutory deadline and has otherwise complied, as applicable, with the regulatory requirements for the registration of chemical substances.

Like many manufacturers, some Group companies 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.

corporate social responsibility continued

Reducing Energy Use and CO2 Emissions

Since 2004, Cookson has operated a programme aimed at reducing energy use and hence the associated emissions of CO2 . The programme trains employees to understand energy use and conservation principles and introduces energy audits to assist high-use sites in identifying and implementing conservation measures.

The following chart shows Cookson's electricity and gas consumption over the last seven years.

From 2005 to 2007 energy use was reduced markedly as a result of these initiatives, notwithstanding growing revenue over the period. In 2008 energy use increased relative to 2007, due to the acquisition of the Foseco operations. Energy use in 2008, excluding Foseco, is shown on the graph below illustrating further reductions in the rest of the Group. In 2009 gas use fell by 3% (including Foseco) due to the drop in the Group's activity. In 2010 electricity use reduced marginally compared with 2009 and gas usage reduced by 8%, notwithstanding the increased level of manufacturing activity.

Cookson electricity and gas consumption

PRODUCTS AND SERVICES

Cookson's products and services can significantly reduce the environmental impact of our customers' operations. We believe that by continuing to develop innovative products and services we can create leading market positions in profitable businesses which promote sustainability. We therefore maintain R&D spending at a high level and monitor this as a Group level KPI.

For example, our Ceramics division's steel flow control, linings and foundry products reduce the levels of energy usage and material wastage in the production of steel and foundry castings, markets where we are the world's leading supplier of consumable ceramics used to handle molten metal. Similarly, our Electronics division is a market leader in the supply of lead-free and halogen-free materials used in the production of electronic equipment.

In the renewable energy field, the Ceramics division is the leading supplier of crucibles used in the production of multi-crystalline photovoltaic wafers used to make solar cells and the Electronics division has introduced new products for improved solar cell connectivity.

In recent years we have developed significant metal recycling operations in both our Precious Metals and Electronics divisions. Here we recover and refine our own and customers' scrap solder and precious metals/jewellery products to produce high purity silver, gold, tin and lead products which can be reintroduced into the supply chain. This has involved building new recycling facilities in the US and China and expanding recycling capacity in Europe. In both Precious Metals and Electronics markets there is an increasing focus on the traceability of these metals to ensure they are obtained from environmentally and ethically sound sources, for example the "Green Gold" and "Conflict Metals" programmes. We work closely with our customers and suppliers in support of these initiatives.

Operating review — group

2010 was marked by continuing strong recovery in the performance of the Group's businesses, which started towards the end of the first half of 2009, although trading is generally still not back to the levels experienced prior to the onset of the global economic crisis.

Group revenue in 2010 of £2,546m was 26% higher than 2009 at constant currency and 30% higher at reported exchange rates. Underlying revenue (being revenue at constant currency adjusted for the impact of differences in commodity metal prices) was 23% higher than 2009. 2010 saw a gradual improvement in a number of the Group's key end-markets as the year progressed, notably for foundry castings and electronics, and underlying revenue in the second half of 2010 was 6% higher than the first half. Revenue for the Group was well balanced geographically with 34% coming from sales to customers in Europe, 31% from Asia-Pacific, 25% from NAFTA and 10% from the Rest of the World.

Following the extensive cost reduction measures implemented since the fourth quarter of 2008, the majority of which were completed by mid-2009, profit "drop-through" from the increased revenue in 2010 has been strong. As a result, trading profit in 2010 more than doubled to £252.1m (2009: £111.7m), with significant improvements in all three divisions. Trading profit in the second half of 2010 was also 10% higher than the first half (at both constant currency and reported exchange rates).

The return on sales margin in 2010 was 9.9%, significantly higher than the 5.7% reported in 2009. The impact of higher metal prices, which increased reported revenue in the Electronics and Precious Metals divisions without any impact on profitability, reduced the return on sales in 2010 by around 0.5 percentage points.

Headline profit attributable to owners of the parent of £169.8m was over three and a half times higher than the £45.6m reported in 2009, reflecting the higher trading profit, lower finance charges and a significantly lower effective tax rate. Headline earnings per share more than trebled to 61.5p, notwithstanding a 9% increase in the weighted average number of shares as a result of the full year effect of the March 2009 rights issue.

Exceptional charges (net of tax), excluded from headline results, totalled £23.3m, significantly lower than the £90.7m incurred in 2009 which included £75.6m of restructuring costs.

Net debt as at 31 December 2010 was £330m (31 December 2009: £371m) resulting in a net debt to EBITDA ratio at year-end of 1.1 times.

The financial data presented in the charts on pages 9 to 15 is from continuing operations at reported exchange rates.

Revenue

£m

Trading profit £m

Return on sales %

81 major manufacturing locations

Over 15,500 employees

OPERATING review — ceramics

Trading under the Vesuvius and Foseco brand names, the Ceramics division is the world leader in the supply of advanced consumable products and systems to the global steel and foundry industries and a leading supplier of speciality products to the glass and solar industries.

Revenue

Trading profit £m

Return on sales %

In 2010 the Ceramics division experienced a continuation of the improvement in the majority of its end-markets which had started towards the end of the first half of 2009. Revenue of £1,495m was 27% higher than 2009 at constant currency (32% at reported exchange rates). Revenue in the second half of 2010 was 5% higher than the first half (at constant currency).

As a result of the higher revenue, trading profit in 2010 rose significantly to £177.4m (2009: £70.9m), being £99.9m higher at constant currency and £106.5m at reported exchange rates. Trading profit was 5% higher in the second half of 2010 compared to the first half (at constant currency). The return on sales margin in 2010 was 11.9%, significantly higher than the 6.3% reported in 2009.

Steel end-market: Global steel production is the division's main end-market corresponding to a little over half of its total revenue. According to the World Steel Association, global steel production was 1,414m tonnes in 2010, a 15% increase compared to 2009 and a record level of global steel production. Global steel production was marginally lower (by 3%) in the second half compared to the first half.

Within these totals, steel production in China (which now accounts for 44% of global steel production) grew 9% in 2010 compared to 2009. Chinese steel production grew strongly in the first half, but then fell by 6% in the second half compared to the first half as a result of short-term government measures to restrict energy usage. However, market trends outside of China are more significant for the Ceramics division in the short term as China currently accounts for less than 10% of the division's steel-related revenue. A large part of steel production in China is not yet based on the enclosed continuous casting technology which uses Vesuvius' Steel Flow Control products. The use of enclosed continuous casting is expected to increase over time as the Chinese steel industry continues to modernise and demand for higher grade "flat" steel product increases. In the Linings product line, there is only modest revenue arising in China as yet as this market has only recently been addressed.

Excluding China, global steel production in 2010 was 20% higher than 2009. Following the unprecedented collapse in steel production in the fourth quarter of 2008, production levels started to recover from May 2009 onward with the recovery continuing throughout the first half of 2010. Steel production fell marginally in the third quarter, reflecting the normal seasonal slowdown in production notably in Europe, but then recovered in the fourth quarter. As a result, steel production was unchanged between the first and second halves. Whilst the overall improvement in steel production is encouraging, production levels in most regions are still materially below the levels seen prior to the economic downturn. Global production (excluding China) in the fourth quarter of 2010 represented only 90% of the production levels seen in the second quarter of 2008.

Foundry castings end-market: This market, which represents around one-third of the division's revenue, produces castings which are used in a wide variety of engineered products. Approximately 40% of castings (and therefore a similar percentage of the revenue for the Foundry product line) are produced for the vehicle sector, being 25% for cars and light trucks ("automotive") and 14% for heavy trucks. Other endmarkets for foundry castings include construction, agriculture and mining machinery; power generation equipment, pipes and valves; railroad, and general engineering equipment. The foundry castings market deteriorated significantly towards the end of 2008 with the unprecedented reduction in automotive and heavy truck production (particularly in the US and Europe) and the widespread cut in production of other engineering products.

Automotive production improved in the second half of 2009, stimulated by government sponsored vehicle replacement schemes, whilst global truck production remained at very low levels throughout the year. 2010 saw further growth in automotive production according to JD Power, with 38% growth in North America, 13% growth in Europe and 23% growth in the Rest of the World (excluding China). Truck production grew very strongly in 2010, albeit from low levels, with growth of 23% in North America, 57% in Europe and 60% in the Rest of the World (excluding China). The other end-markets mentioned above typically exhibit more "late-cycle" characteristics. Given the extended period of de-stocking through the supply chain, other than for some specific regional markets, it was only towards the end of the first half of 2010 that the Foundry product line started to experience a more generally positive impact on its revenue with this improvement continuing as the year progressed.

Solar and glass end-markets: The principal products in Vesuvius' Fused Silica product line are Solar Crucibles™, which are used in the production of photovoltaic

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("solar") panels, and tempering rollers used mainly in the production of glass for construction and automotive applications. Both products experienced very weak trading conditions in 2009 with weak end-markets exacerbated by a sharp de-stocking of solar panels, particularly in China. However, the significant improvement in demand for Solar Crucibles™, which started in the fourth quarter of 2009 as the de-stocking phase ended, continued throughout 2010. Demand for tempering rollers started to recover midway through 2010.

In the product line analysis below, all of the financial information is presented at constant currency. References to profitability of individual product lines (i.e. "profit contribution" or "contribution margin") refer to the relative contribution they make to divisional trading profit before centralised divisional costs.

STEEL FLOW CONTROL

The Steel Flow Control product line provides a full range of products and services to control, regulate and protect the flow of steel in the enclosed continuous casting process. Products include VISO™ and VAPEX™ products, slide-gate and tube changer systems and refractories, gas purging and temperature control devices, and mould and tundish fluxes.

Global steel production represents almost 100% of the end-market for Steel Flow Control products and services. Revenue of £494m was 32% higher compared to 2009. This growth rate was ahead of the increase in steel production in the key markets in which Vesuvius operates, reflecting favourable product mix, including increased market penetration of the new, higher value-added, tundish tube changer and ladle shroud products, and some limited inventory restocking of Vesuvius products by customers in the first half of the year. Revenue was broadly consistent between the first and second halves of 2010, reflecting the trends in steel production. Revenue in the second half of 2010 represented 95% of the revenue achieved in the first half of 2008, the last half year period prior to the impact of the global economic downturn.

Profit contribution nearly doubled compared to 2009 with a strong profit contribution drop-through of around one-third on the additional revenue.

During 2010, capacity was increased in the Chinese and Indian facilities in order to meet the continuing growth in demand in these countries. In China, during the first half of the year capacity was expanded at the main facility in Suzhou, whilst production restarted at the Tianjin facility. The Tianjin facility had previously been decommissioned following its acquisition with Foseco in April 2008. The expansion of the Wuhan facility, part of the joint venture with Wuhan Iron & Steel Corporation (China's third largest steel producer), and the project to double capacity at the Indian facility in Kolkata have now also been completed.

LININGS

Linings includes products and services that enable customers' plants to withstand the effects of extreme temperatures or erosive chemical attack. The business manufactures castables, gunning materials, ramming mixes, pre-cast shapes, tap hole clay, bricks and mortars, and provides construction and installation services.

Global iron and steel production represents more than 75% of the end-market for Linings products and services with the remainder arising from a variety of non-steel markets including the cement, lime, aluminium, power generation, petrochemical and waste incineration industries.

Revenue of £486m represented an increase of 19% compared to 2009. The growth reflected increased levels of maintenance as steel producers restarted or increased production and was broadly in line with the level of steel production growth in our key markets. The level of activity in non-steel markets remained subdued throughout 2010.

Profit contribution increased by one-half compared to 2009. The contribution margin in 2010 was just over two percentage points lower than for the first half of 2008, as a consequence of revenue in the second half of 2010 still being only 94% of that achieved in the first half of 2008.

A project to increase production capacity by around one-half at the Chinese brick-lining business, BRC, was completed at the end of 2010. The Linings facility in Sao Paulo is being relocated to a larger site to serve better the growing demands of the Brazilian steel market. The relocation is expected to be completed by the end of the first half of 2011.

57 major manufacturing locations
Over 11,500 employees
68% of Group trading profit

2010 Revenue by product line

OPERATING review — ceramics continued

2010 Revenue by end-market

2010 Revenue by customer location

FOUNDRY

The Foundry business is a leading supplier of products, services and solutions to the foundry industry worldwide and trades under the Foseco brand name. Products include feeding systems, filters, metal treatments, metal transfer systems, crucibles, stoppers, sand binders, coatings and moulding materials.

Revenue of £440m represented an increase of 33% compared to 2009. The end-markets for the Foundry product line have more "late-cycle" characteristics and this, combined with significant de-stocking in the supply chain, resulted in only modest recovery in revenue during 2009. However, the beginning of 2010 saw strong and progressive revenue growth in certain regional markets, including Japan, China and Brazil, driven by recovery in their automotive and truck sectors. Revenue growth also started to be evident towards the middle of 2010 in Europe and North America, which constitute around two-thirds of the Foundry product line's global market. As a result, revenue for the Foundry product line in the second half was 10% higher than for the first half. Whilst these trends are encouraging, revenue in the second half was still only 83% of the revenue achieved in the first half of 2008 (pro forma for Foseco).

Profit contribution increased by just under four times compared to 2009, reflecting very strong profit dropthrough of just over 40% on the additional revenue. The contribution margin in 2010 reached low-teens, but was still three percentage points lower than for the first half of 2008.

The closure of the Foundry product line's manufacturing facility in Chambery, France has been announced and is expected to be completed by mid-2011, with production transferring to existing facilities in Poland and India.

The Chinese foundry castings end-market is expected to grow strongly over the next few years. In anticipation of this growth, a project has been initiated to construct a new production facility near Shanghai, planned for completion by the end of 2012. Building work should start in the first half of 2011, on completion of site acquisition and environmental permitting.

FUSED SILICA

The principal products in the Fused Silica product line are Solar Crucibles™ used in the manufacture of photovoltaic ("solar") panels and tempering rolls used in the glass industry.

Revenue of £75m represented a 29% increase compared to 2009, principally driven by a strong recovery in the photovoltaic end-market.

Solar Crucible™ revenue, which represents around 60% of total Fused Silica revenue, increased by 39% compared to 2009 reflecting the end of the severe destocking of solar panels, particularly in China, during the first three quarters of 2009. For tempering rollers and other speciality products used in the manufacture of glass, revenue increased by 15% compared to 2009 as the construction sector started to recover in the second half of the year.

Profit contribution more than doubled compared to 2009, reflecting the very strong profit drop-through on the additional Solar Crucible™ revenue. The contribution margin in 2010 was only just below that achieved in the first half of 2008.

In late 2008, a new Solar Crucible™ production facility in China was completed, but as demand was then falling rapidly the plant was immediately mothballed. Following the strong pick-up in demand, this facility was commissioned during 2010 with commercial production starting in the first quarter of 2011. Construction of an additional Solar Crucible™ production facility in Moravia, Czech Republic has also been recently initiated with completion expected in 2012. In the second half of 2010, a new line at Skawina, Poland was completed for the production of "ready to use" ("RTU") Solar Crucibles™. RTU Solar Crucibles™ are crucibles pre-coated with a patented solution which increases customers' manufacturing productivity. As a result of very strong demand for this product, a project has been initiated to double capacity of RTU Solar Crucibles™ from this facility for completion by mid-2011.

OPERATinG review — electronics

The Electronics division is a world leading supplier of consumable electronic assembly materials (the Assembly Materials product line) to assemblers of PCBs and the semi-conductor packaging industry and advanced surface treatment and electro-plating chemicals (the Chemistry product line) to the electronics industry and for industrial and automotive applications.

Revenue of £721m was 33% higher than 2009 at constant exchange rates (36% higher at reported exchange rates). The higher revenue partially reflects the "pass through" to customers of higher tin and silver prices, the Assembly Materials product line's major raw materials. In 2010, the average prices of tin and silver were, respectively, 53% and 36% higher than 2009, such that approximately £65m of the division's revenue increase was as a result of these higher metal prices. Excluding both the impact of higher metal prices in Assembly Materials and precious metal sales in Chemistry, underlying revenue was 18% higher than 2009. Electronics end-markets (which make up three-quarters of the division's revenue) progressively improved during the year with particularly strong growth in demand for personal computers ("PCs"), mobile phones and automotive electronics. According to estimates from Henderson Ventures, global production of electronic equipment (measured in US dollars at constant currency) grew in 2010 by 17%, following the 11% decrease in 2009. Global PC unit shipments (both traditional and tablet PCs) were estimated to be 21% higher, whilst global unit shipments of mobile phones increased 29%. Other strong areas of growth within consumer electronics included flat screen TVs, games consoles and e-readers. Automotive markets have similarly shown good improvement, although industrial end-markets have generally remained subdued.

Underlying revenue was 23% higher in the first half of 2010 compared with the first half of 2009 but then increased 5% in the second half compared to the first half of 2010, reflecting both the improvement in trading conditions and also the normal seasonality of the business.

Trading profit for 2010 rose significantly to £71.0m (2009: £39.2m), being £30.7m higher at constant currency and £31.8m higher at reported exchange rates. The trading profit in the second half of 2010 of

19 major manufacturing locations
Over 2,500 employees
27% of Group trading profit

£39.7m was £8.4m higher than the £31.3m achieved in the first half of 2010, principally reflecting the normal seasonality of the business and the improved endmarket conditions. The return on sales margin in 2010 was 9.8%, well ahead of the 7.4% achieved in 2009. This 2.4 percentage point increase in margin was achieved notwithstanding higher commodity metal prices and precious metal sales in 2010 which significantly increased revenue but had relatively little impact on trading profit. On an underlying basis, the margin increase was even stronger at 3.7 percentage points.

Asia-Pacific, the division's largest region, accounted for 45% of revenue in 2010 (by location of customer), two percentage points ahead of 2009.

References to profitability of product lines below (i.e. "profit contribution" or "contribution margin") refer to the relative contribution they make to divisional trading profit before centralised divisional costs.

ASSEMBLY MATERIALS

Assembly Materials is a leading global supplier of materials to assemblers of printed circuit boards ("PCBs"), the semi-conductor packaging industry and to certain non-electronics markets such as plumbing, automotive and water treatment under the trade names of Alpha and Fry. In PCB assembly, its products include solder (which is available in bar, paste, powder and sphere form and in no-clean, watersoluble and lead-free options), fluxes, adhesives, cleaning chemistries and stencils.

Revenue for the year at £447m was 40% higher than 2009 at constant exchange rates (45% higher at reported exchange rates). Excluding the impact of passing through higher tin and silver prices, underlying revenue was 17% higher than last year, reflecting the strong growth in the global production of electronic equipment, combined with the continuation of the strategy to focus on higher margin, enhanced technology products. For solder products, which account for three-quarters of Assembly Materials' revenue, sales of higher margin, more value-added products such as solder paste (for which volumes were up 30%) have been stronger than the more commoditised products such as bar solder (up 10%), partially reflecting the continuing shift from wave soldering to surface mount technology for the production of PCBs.

Revenue

Trading profit

£m

Return on sales %

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OPERATING review — electronics continued

Underlying revenue was 21% higher in the first half of 2010 compared with the first half of 2009 and increased by 5% in the second half compared to the first half of 2010, reflecting both the continued improvement in trading conditions and the normal seasonality of the business. Trading profit for 2010 was just under 70% higher than for 2009 (at constant exchange rates).

CHEMISTRY

The Chemistry product line manufactures speciality electro-plating chemicals for the electronics, automotive and surface metal finishing industries under the trade name Enthone.

Revenue for the year at £274m was 22% higher than 2009 at constant exchange rates (23% higher at reported exchange rates). Underlying revenue was 21% higher than in 2009. Sales of plating-on-plastics and corrosion and wear-resistant products for automotive and industrial applications were up 18% compared to 2009, whilst sales of surface coating products serving the PCB fabrication market were up 15%. Copper damascene sales into the semi-conductor market were up by one-third compared to 2009.

Underlying revenue was 26% higher in the first half of 2010 compared with the first half of 2009 and increased by 5% in the second half compared to the first half of 2010, reflecting both the improvement in electronic materials end-markets and normal seasonality. Trading profit for 2010 was 86% higher than for 2009 (at constant exchange rates).

With the continued growth of China's electronic materials, automotive and industrial end-markets, the construction of the new £14m Chemistry facility in Shanghai was started in the first quarter of 2010. Expected completion is in late 2011. Currently the China market is served from Cookson facilities in Shenzen, Tianjin and Singapore.

2010 Revenue by end-market

2010 Revenue by customer location

OPERATING review — precious metals

The Precious Metals division is a leading supplier of fabricated precious metals (primarily gold, silver and platinum) to the jewellery industry in the US, UK, France and Spain and also has significant precious metal recycling operations in Europe. Products include alloy materials, semifinished jewellery components and finished jewellery.

The Precious Metals division operates in two distinct geographic regions: the US, which constitutes 43% of the total net sales value (being revenue excluding the precious metals content) for the division, and Europe (focused on the UK, France and Spain).

Demand for finished jewellery products is influenced to a large extent by both consumer confidence and consumer preferences. Consumer confidence remained weak during the year, particularly in the US, and the shift in customers' discretionary spend over the last few years away from jewellery products more towards consumer electronic products such as mobile phones and MP3 players has continued.

The preference of buyers and wearers of jewellery for white metals and gemstones, a trend experienced over the last few years, continues. The price of precious metals, in particular gold, also has an impact on jewellery demand — as prices increase, the weight of gold in the finished product is typically reduced to meet retailer price points. In addition, retailers are reluctant to hold inventory when prices are volatile.

Average precious metal prices in 2010 have been significantly higher than 2009, being approximately 25% higher for gold, 36% for silver and 35% for platinum.

Net sales value of £134m in 2010 was 2% higher at constant exchange rates (1% higher at reported exchange rates) compared to 2009. This reflected continuing weak retail jewellery markets, particularly in the US, being more than offset by strong sales to the US Mint of gold and silver coin blanks and higher levels of precious metal reclaim in Europe, stimulated by the high price of gold.

5 major manufacturing locations

Over 1,500 employees
6% of Group revenue
5% of Group trading profit

Trading profit in 2010 at £12.7m was £4.1m above 2009 at constant currency (£3.8m higher at reported exchange rates) principally due to improved profits in Europe reflecting the high level of reclaim business, particularly in Spain. Given the continued weak retail jewellery market in the US, further restructuring was initiated in November 2010 to reduce permanent headcount in the US by around 10%. The return on net sales value for the division was 9.5%, well ahead of the 6.7% achieved in 2009.

Net sales value

Trading profit

£m

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Return on net

sales value %

financial review mike butterworth

"The strong trading results in 2010, together with the reduced net debt level and very comfortable leverage (net debt to EBITDA) ratio evidences the Group's strong financial position."

group results highlights

C			hange
	2010	2009	vs 2009
Profit/(loss) before tax (£m)
— headline	222.1	75.7	146.4
— basic	189.4	(20.9)	210.3
Earnings/(loss) per share (p)1
— headline	61.5	18.0	43.5
— basic	53.0	(17.8)	70.8
Dividends per share (p)2
— interim	—	—	—
— final	11.5	—	11.5
Free cash flow (£m)	63.7	157.3 down 93.6
Net debt (£m)	329.7	371.4 down 41.7

Continuing operations.

² Dividends are presented on an "as recommended" basis.

As described in detail in the Operating Review, most of the Group's businesses experienced significantly improved end-market conditions during 2010 and, as a result, the trading profit in 2010 of £252.1m was more than double that achieved in 2009.

After net finance costs (pre-exceptional items) of £30.4m, headline profit before tax was £222.1m. The Group's effective tax rate decreased significantly in 2010 to 21.1% (2009: 35.2%) reflecting the return to a more normal geographic distribution of profitability combined with the benefit of a number of non-recurring credits recognised in the year. These credits related to the recognition of some previously unrecognised tax losses combined with a number of adjustments arising from the finalisation of prior year tax liabilities. The underlying tax rate for 2010, excluding the benefit of these non-recurring credits, was around 24%. A tax rate of between 23% and 24% is anticipated for 2011 and 2012.

The increase in the Group's trading profit combined with the lower finance costs and lower effective tax rate, resulted in headline profit after tax of £175.4m, over three and a half times that for 2009. Similarly, headline earnings per share of 61.5p was just under three and a half times the 18.0p in 2009, reflecting the higher headline profit after tax, partly offset by a 9% increase in the weighted average number of shares arising from the full year effect of the March 2009 rights issue.

During 2010 the Group experienced a significant improvement in its key end-markets and trading performance. This, together with the Board's current expectations of the likely trading environment in 2011, has resulted in the Board recommending to shareholders a final dividend for 2010 of 11.5p per share.

Net debt as at 31 December 2010 was £329.7m, a £41.7m reduction from 31 December 2009, resulting in a leverage ratio (net debt to EBITDA) of 1.1 times.

group income statement

Headline profit before tax

Headline profit before tax was £222.1m for 2010, which was £146.4m higher than for 2009. The increase in headline profit before tax arose as follows:

	2010	2009 C		hange
	£m	£m	£m	%
Trading profit:
— at 2009 exchange rates	252.1	119.1	133.0	+112%
— currency impact	—	(7.4)	7.4
Trading profit
— as reported	252.1	111.7	140.4	+126%
Net finance costs
— ordinary activities	(30.4)	(37.0)	6.6	+18%
Post-tax income from
joint ventures	0.4	1.0	(0.6)	-60%
Headline profit before tax	222.1	75.7	146.4	193%

The £6.6m lower charge for net finance costs (interest) principally comprised £6.0m of lower interest on borrowings, due mainly to a decrease in the average level of borrowings throughout the year, and £1.2m lower pension interest cost. The lower average level of borrowings reflects the positive operating cash flow in the year and the full year benefit of the proceeds (net of expenses) of £241m from the rights issue in March 2009.

Items excluded from headline profit before tax

A net charge of £32.7m was incurred in 2010 (2009: £96.6m) for the following items excluded from headline profit before tax:

Amortisation of intangible assets: Costs of £17.7m (2009: £17.6m) were incurred in 2010 relating to customer relationships, intellectual property rights and the Foseco trade name, arising on the acquisition of Foseco in April 2008. These intangible assets are being amortised over lives varying between 10 and 20 years.

Restructuring and integration charges: Of the total charge of £17.3m (2009: £75.6m), £16.4m related principally to redundancies where there will be a short-term cash cost and £0.9m to non-cash asset write-offs. The principal items included in the charge for 2010 were as follows:

£9.6m arose in the Ceramics division, of which the principal element was £4.6m related to the closure of the Foundry product line's manufacturing facility in Chambery, France. This closure is expected to be completed by mid-2011; and
£5.5m in the Electronics division, of which the principal element was £3.2m for restructuring and redundancy costs in the Chemistry product line in Europe.

Restructuring charges of between £5m and £10m are expected to be incurred in 2011.

Profit/(loss) relating to non-current assets: The net profit of £0.6m (2009: loss of £2.8m) arose mainly on the disposal of surplus property and investments.

Gains relating to employee benefits plans: Of the total non-cash credit of £5.3m (2009: £9.7m), £4.7m related to the closure of the UK defined benefit plan to future benefit accrual. A new Group Personal Pension Plan has been established in place of both that plan and the former UK defined contribution plan to provide defined contribution benefits for all eligible UK employees.

Finance costs — exceptional items: Costs of £3.0m (2009: £14.0m) were incurred in 2010 principally relating to the close-out of interest rate swaps. In December 2010, following receipt of the proceeds from the issuance of \$250m of US Private Placement Loan Notes, the Group was required to prepay certain of its borrowings under its existing syndicated bank facilities. Following these transactions, the Group closed out a number of interest rate swaps that had originally been taken out to hedge the interest payments relating to these borrowings.

Net (loss)/profit on disposal of continuing operations: A net loss of £0.6m (2009: profit of £3.7m) was incurred in 2010 relating to the disposal of the Electronics division's semi-conductor packaging operations, a small non-core business based in Singapore manufacturing epoxy mould compounds for encapsulating semi-conductors, and trailing costs related to prior year disposals.

Group profit before tax and after the items noted above was £189.4m for 2010 compared to a loss before tax of £20.9m in 2009.

Taxation

The tax charge on ordinary activities was £46.7m on a headline profit before tax of £222.1m, an effective tax rate (before share of post-tax profit from joint ventures) of 21.1% (2009: 35.2%). For the full year 2009, the effective tax rate was negatively impacted by the Group's low level of profit before tax which meant that the Group reported profit before tax in a number of tax-paying jurisdictions (such as China and India), whilst incurring losses before tax in jurisdictions (notably the US) where it was not appropriate to record a tax credit. The significantly higher level of profit before tax in 2010 has meant that this situation has not repeated. In addition, the Group has benefited in 2010 from non-recurring credits arising both from the recognition of tax losses in a number of countries where a deferred tax asset for those items had not previously been recorded, and from a number of adjustments arising from the finalisation of prior year tax liabilities. The underlying tax rate for 2010, excluding the benefit of these non-recurring credits, was around 24%. Whilst the Group's effective tax rate going forward will be affected by the geographic split of profit before tax, it is currently expected that the effective tax rate for 2011 and 2012 will be between 23% and 24%.

A tax credit of £9.4m (2009: £5.9m) arose in relation to all the items excluded from headline profit before tax noted above.

Discontinued operations

A charge of £1.2m (2009: £3.4m) was incurred in 2010 in respect of additional costs for operations discontinued in prior years.

Profit attributable to owners of the parent

Headline profit attributable to owners of the parent for 2010 was £169.8m (2009: £45.6m), with the £124.2m increase over 2009 principally arising from the significant increase in headline profit before tax and the lower effective tax rate. Profit attributable to non-controlling interests of £5.6m was £1.8m higher than for 2009.

After taking account of all items excluded from headline profit before tax noted above (net of the related tax impact) and the charge relating to discontinued operations, the Group recorded a profit of £150.9m for 2010, £195.6m higher than the £44.7m loss recorded in 2009.

Return on investment ("ROI")

The Group's post-tax ROI in 2010 was 9.6%, well ahead of the 3.4% reported in 2009, reflecting the significant improvement in trading performance during the year.

Earnings per share ("EPS")

Headline EPS, based on the headline profit attributable to owners of the parent divided by the average number of shares in issue, amounted to 61.5p per share in 2010, compared to headline EPS of 18.0p per share in 2009. The Board believes this basis of calculating EPS is an important measure of the underlying earnings per share of the Group. Basic EPS, based on the net profit from continuing operations attributable to owners of the parent, was 53.0p (2009: loss per share of 17.8p).

The average number of shares in issue during 2010 was 276.2m, 23.4m higher than for 2009, principally reflecting the full year effect of the issue of 255.1m new shares as a result of the rights issue in March 2009. In accordance with IAS 33, the average number of shares in issue used in the calculation of EPS for all periods prior to the rights issue has been multiplied by an adjustment factor to reflect the bonus element in the new shares issued. The adjustment factor used was 6.6391. The average number of shares also reflects the share consolidation in May 2009 whereby shareholders exchanged 10 existing shares for 1 new share.

Dividend

Dividends have been suspended since the end of 2008 as a result of the economic downturn. However, end-market conditions and the Group's trading performance have shown a significant improvement in 2010 compared to 2009. This, together with the Board's current expectations of the likely trading environment in 2011, has resulted in the Board recommending a final dividend for 2010 of 11.5p per share which, if approved, is to be paid on 6 June 2011 to shareholders on the register on 20 May 2011.

financial review continued

GROUP CASH FLOW

Net cash inflow from operating activities

In 2010, the Group generated £109.6m of net cash inflow from operating activities, £74.1m lower than in 2009.

	2010	2009 C	hange
	£m	£m	£m
EBITDA	306.3	165.3	141.0
Working capital	(92.4)	152.5	(244.9)
Outflows re assets held for sale	(1.6)	(0.8)	(0.8)
Restructuring charges paid	(23.8)	(49.3)	25.5
Additional pension contributions	(11.6)	(8.3)	(3.3)
Net interest paid	(19.1)	(35.2)	16.1
Taxation paid	(48.2)	(40.5)	(7.7)
Net operating cash inflow	109.6	183.7	(74.1)

The cash outflow of £92.4m from trade and other working capital reflects the strong increase in underlying revenue in 2010. Whilst the absolute level of trade working capital rose during 2010, the ratio of average trade working capital to sales in 2010 of 21.1%, improved 0.3 percentage points from that achieved in 2009.

Cash outflow for restructuring and integration was £23.8m, of which the majority related to trailing costs from the cost-saving initiatives in the Ceramics and Electronics divisions initiated in the fourth quarter of 2008 and the first half of 2009. A cash outflow for restructuring and integration of around £15m is expected in 2011.

The cash outflow for additional pension plan funding contributions included the following:

US defined benefit pension plans: An amount of £8.7m was paid in March 2010 to ensure continued compliance with the minimum funding levels required under the US Pension Protection Act. With effect from the beginning of 2011, additional top-up payments of approximately £6m per annum are expected to be made into the US pension plan.

UK defined benefit pension plan ("the UK Plan"): Payments totalling £2.9m were made into the UK Plan in 2010. A new funding valuation for the UK Plan as at the end of 2009 was completed in July 2010, based upon which Cookson and the Trustee agreed a new schedule of contributions of £7m per annum commencing in August 2010. The level of "top-up" payments will be reviewed based on the UK Plan's next triennial valuation as of December 2012, which should be available in mid-2013.

Net cash flows from investing activities

Capital expenditure: Payments to acquire property, plant and equipment in 2010 were £57.2m, £22.2m higher than 2009 and representing 106% of depreciation (2009: 65%). A cash outflow for capital expenditure of around £90m is expected in 2011 principally reflecting the expansion of production capacity in the emerging markets of China, India and Brazil and customer installations in the Ceramics and Electronics divisions.

Proceeds from the sale of investments: Net cash inflow from the sale of surplus trade investments was £4.6m (2009: £0.1m).

Acquisition of subsidiaries and joint ventures: Net cash outflow in 2010 was £3.9m (2009: £5.9m), principally relating to the Ceramics division's investment in the Linings joint venture in China with Angang Steel, one of China's largest steel producers.

Disposal of subsidiaries and joint ventures: Net cash inflow in 2010 was £6.2m (2009: £6.2m), principally relating to the disposal by the Electronics division of its epoxy mould compound business, based in Singapore.

Settlement of closed-out interest rate swaps: Net cash outflow in 2010 was £6.5m (2009: £4.0m) and related to interest rate swaps that had been closed-out in 2009.

Free cash flow

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 received from joint ventures and paid to non-controlling shareholders, but before additional funding contributions to Group pension plans.

Free cash inflow for 2010 was £63.7m, £93.6m lower than 2009, principally due to the £74.1m decrease in net cash flow from operating activities for the reasons described above, combined with the £22.2m increase in purchases of property, plant and equipment.

The Group traditionally experiences weaker free cash inflows in the first half of the year compared with the second half, due to the seasonality of trade working capital cash flows. In 2009, the marked reduction in revenue coupled with continued management focus on cash generation resulted in strong free cash flow in both the first and second halves of 2009. In 2010, a more normal trade working capital seasonality was experienced, resulting in much stronger free cash flow in the second half of the year compared to the first half (first half 2010: £14.9m outflow; second half 2010: £78.6m inflow). This normal trade working capital seasonality is expected to continue in 2011.

Net cash flow before financing

Net cash inflow before financing for 2010 was £51.8m, £90.7m lower than 2009 due principally to the decrease in cash flow from operating activities described above.

Cash flow from financing activities

Net cash outflow from financing activities (before movement in borrowings) was £6.9m (2009: inflow of £198.3m), principally comprising a cash outflow of £3.3m relating to the settlement during the year of forward foreign exchange contracts, in particular those relating to the Chinese renminbi. These forward foreign exchange contracts had been taken out to align broadly the currency profile of the Group's borrowings with the net assets of the Group and formed part of the hedge on investments of the Group's foreign operations. The cash inflow in 2009 arose principally from the proceeds (net of expenses) of £240.7m from the rights issue in March 2009.

Net cash inflow and movement in net debt

Net cash inflow for 2010 (before movement in borrowings) was £44.9m, £295.9m lower than 2009.

With a £1.6m negative foreign exchange adjustment and £1.6m in other non-cash movements, this resulted in a decrease in net debt from £371.4m at 31 December 2009 to £329.7m at 31 December 2010.

Net debt

The net debt of £329.7m as at 31 December 2010 was primarily drawn on available committed facilities of £855m. The Group's net debt comprised the following:

	31 Dec 2010	31 Dec 2009
	£m	£m
US Private Placement Loan Notes	282.2	201.3
Committed bank facility	223.2	324.9
Lease financing	3.8	3.6
Other	7.2	1.8
Gross borrowings	516.4	531.6
Cash and short-term deposits	(186.7)	(160.2)
Net debt	329.7	371.4

On 16 December 2010, the Group issued \$250m of new US Private Placement Loan Notes. The notes were issued in two series: \$110m at a fixed interest rate of 4.16% maturing in December 2017, and \$140m at a fixed interest rate of 4.87% maturing in December 2020. The average weighted interest rate on the new notes is 4.57% and the average weighted duration from issuance is 8.7 years. The remaining \$190m of US Private Placement Loan Notes are repayable in May 2012.

In October 2007, the Group entered into a multi-currency, committed bank facility which now totals £573m. This facility is repayable in three tranches: £62m in April 2011; £38m and €19m in October 2011; and £425m and €38m in October 2012.

As at 31 December 2010, the Group's ratio of EBITDA to interest on borrowings was 13.8 times (as compared with not less than 4.0 times for bank covenant purposes) and the ratio of net debt to EBITDA was 1.1 times (as compared with not more than 3.0 times for bank covenant purposes). Based on these covenant ratios, the Group will pay a margin of 65bps over LIBOR on its borrowings under the committed bank facility.

As at 31 December 2010, the Group had undrawn committed debt facilities totalling around £350m.

In January 2010, the Group entered into a number of interest rate swaps which, together with the impact of the US Private Placement Loan Notes issued in December 2010, results in around three quarters of the Group's current gross borrowings now being at fixed interest rates for an average period of just under four and a half years from December 2010.

Currency

During 2010, sterling weakened against the majority of currencies (by 3% against the US dollar and 7% against the Chinese renminbi). The principal exception was the euro, against which sterling strengthened by 4%. Overall, the relative weakness of sterling during the year meant that the average exchange rates used to translate the Group's overseas results into sterling for 2010 and 2009 had a minor positive impact on the Group's reported results. Between these years, the average exchange rates for sterling weakened against the US dollar by 1% and the Chinese renminbi by 2%, but strengthened against the euro by 4%.

In 2010, the net translation impact of currency changes compared to 2009 was to increase 2009 revenue by £54m and 2009 trading profit by £7m.

During the course of the second half of 2008, the majority of the currencydenominated borrowings under both the US Private Placement Loan Notes and the syndicated bank facility were switched into sterling such that changes in exchange rates would not have a material impact on the level of gross borrowings. Following the significant improvement in the Group's financial position since the beginning of 2010, there has been a progressive return to the previous policy of broadly matching the currency of borrowings to the currency of operating activities. Currently, around 75% of the Group's gross borrowings are non-sterling denominated, principally in US dollars, euros and Chinese renminbi.

Pension fund and other post-retirement obligations

The Group operates defined contribution and defined benefit pension plans, principally in the UK, the US and Germany. In addition, the Group has various other post-retirement defined benefit ("PRB") arrangements, being principally healthcare arrangements in the US. The Group's two principal defined benefit pension plans in the US are closed to new members and to further accruals for existing members. Following the closure of the UK Plan and the UK defined contribution plan to future benefit accrual with effect from 31 July 2010 a new Group Personal Pension Plan has been established in their place to provide defined contribution benefits for all eligible UK employees.

The total charge to the income statement in 2010 for all pension plans (including defined contribution plans) was £20.5m, an increase of £5.7m over 2009. Of this charge, £22.2m (2009: £18.9m) has been deducted in arriving at trading profit and £3.6m (2009: £4.8m) has been included within net finance charges. In addition, an exceptional credit of £5.3m was reported (2009: £9.7m) relating mainly to the termination of future benefit accrual in the UK Plan. Total pension cash contributions amounted to £40.5m in 2010 (2009: £36.2m), which included additional cash funding contributions into the UK Plan of £2.9m and a funding contribution into the US plans of £8.7m.

As at 31 December 2010, a net deficit of £113.8m was recognised in respect of employee benefits. The reduction of £23.9m from the net deficit as at 31 December 2009 of £137.7m primarily arose due to a £25.8m improvement in respect of the UK arrangements. This improvement principally arose from actuarial gains on the UK Plan assets of £29.7m and a curtailment gain of £4.7m in connection with the UK Plan closure. The deficit in the Group's US pension arrangements increased by £3.8m to £57.9m, despite additional contributions into the plans of £8.7m. The main contributing factor was increased liabilities (£14.0m) resulting primarily from a reduction in the applicable discount rate. The net deficit in the plans in the remainder of the Group were marginally (£1.9m) lower than at the end of 2009.

The total Group net deficit comprises a surplus of £4.3m relating to the UK Plan and deficits of £57.9m relating to the Group's defined benefit pension plans in the US, £35.0m to plans in Germany, £15.5m to pension arrangements in other countries, and £9.7m to unfunded postretirement defined benefit arrangements, being mainly healthcare benefit arrangements in the US.

During 2009 it was agreed, in consultation with the Trustee of the UK Plan, to reduce the level of "top-up" payments (made in addition to normal cash contributions) from £14.0m per annum such that, with effect from 1 February 2009, no further additional payments would be made until August 2010. A new triennial funding valuation for the UK Plan as at the end of 2009 was completed in July 2010, based upon which the Company and Trustee agreed a new schedule of contributions to commence in August 2010 whereby, whilst the Company will make no further normal cash contributions, it will make "top-up" payments of £7.0m per annum until February 2016, targeted at eliminating the deficit in the UK Plan by that date. "Top-up" payments of £2.9m were made in 2010 (2009: £1.2m). The level of "top-up" payments will be reviewed based on the UK Plan's next triennial valuation as of December 2012, which should be available in mid-2013.

The UK Plan has, since 2006, operated a hedging strategy to mitigate the impact of interest rate and inflation rate movements on the value of its projected liabilities for meeting future pension payments (the UK Plan's "economic liabilities"), the value of which is related more to interest rate and inflation rate swap yields than to corporate bond yields, upon which the discount rate used for IAS 19 valuation purposes is based. When the relationship between the relevant swap yields and corporate bond yields is stable, the UK Plan's hedging strategy should deliver a broadly stable "funding ratio" (the ratio of plan assets to plan liabilities) not just in relation to the UK Plan's economic liabilities, but also under an IAS 19 basis of valuation. As at 31 December 2010, the estimated funding position (incorporating the UK Plan's economic liabilities) showed a funding ratio of 92%, while the IAS 19 valuation reflected a funding ratio of 101%. This represents a valuation difference of £41m. The Group continues to fund the UK Plan with reference to its economic funding position.

In July 2010, the UK government announced changes to the inflation index used for statutory pension increases (both for pensions in payment and pensions in deferment) to apply to private sector pension schemes. The Company and the UK Plan Trustee and their respective legal advisers are currently working to clarify how this impacts the UK Plan and will communicate with any affected members in 2011, at which time any resulting liability reduction will be reflected in the Group financial statements.

In March 2010, the Group made a "top-up" payment of £8.7m into the US defined benefit pension plans to ensure continued compliance with the minimum funding levels required under the US Pension Protection Act. With effect from the beginning of 2011, additional "top-up" payments of approximately £6m per annum are expected to be made into the US pension plans.

board of directors

NICK SALMON c, d Chief Executive

Appointed Chief Executive in July 2004. Prior to joining Cookson, Nick was Executive Vice-President at Alstom SA. Previously he was CEO of Babcock International Group plc and held senior management positions at GEC and China Light & Power Company Limited. Nick is the senior independent non-executive director of United Utilities Group plc.

JEFF HEWITT a, b Non-executive Director

Appointed to the Cookson Board in June 2005 and is Chairman of the Audit Committee. Jeff was previously deputy chairman and group finance director of Electrocomponents plc. He is a nonexecutive director and chairman of the audit committee of Cenkos Securities plc and a nonexecutive director of Cyril Sweett Group plc and Foreign & Colonial Investment Trust plc. He is also the external chairman of the audit committee of the John Lewis Partnership and the chairman of Electrocomponents Pension Trustees Limited. Jeff is a chartered accountant.

BARRY W PERRY a, b Non-executive Director

Appointed to the Cookson Board in January 2002. Barry was formerly chairman and chief executive officer of Engelhard Corporation, a US-based surface and materials science company. Prior to that he held senior executive positions with Rhone-Poulenc and with General Electric Co. Barry is a non-executive director of Albemarle Corporation, Arrow Electronics, Inc and Ashland Inc.

JEFF HARRIS c, d Chairman

Joined the Cookson Board in April 2010 and assumed the role of Chairman at the close of the Company's Annual General Meeting on 13 May 2010. Jeff was senior independent director and interim chairman of Bunzl plc until he retired in 2010. Prior to that, he was chairman of Alliance UniChem plc from 2001 until 2005. He has been chairman of Filtrona plc since 2005.

MIKE BUTTERWORTH d Group Finance Director

Appointed to the Cookson Board in June 2005 and assumed the role of Group Finance Director in August 2005. Prior to joining Cookson, Mike was group finance director of Incepta Group plc. He previously spent five years as group financial controller of BBA Group plc. Mike is a non-executive director and chairman of the audit committee of St Ives plc.

PETER HILL CBE a, b Non-executive Director

Appointed to the Cookson Board in February 2010. Peter is chief executive of Laird PLC. He was a non-executive director of Meggitt plc until March 2010. He previously held senior management positions with BTR plc (subsequently Invensys plc) and was an executive director of Costain Group plc.

a Member of the Audit Committee

b Member of the Remuneration Committee
c Member of the Nominations Committee; the membership also includes any three Nonexecutive Directors
d Member of the Finance Committee
e Senior Independent Director
f Not a member of the Board

FRANÇOIS WANECQ Executive Director

Appointed to the Cookson Board in February 2010. François has been the Chief Executive Officer of Cookson's Ceramics division since October 2005. Prior to joining Cookson he held a series of senior management roles at ArjoWiggins Group and from 1985 to 1995 he was managing director of the technical ceramics division of Saint-Gobain SA.

JAN OOSTERVELD a, b Non-executive Director

Appointed to the Cookson Board in June 2004. Jan spent the majority of his career at Royal Philips Electronics, latterly serving as a member of the group management committee. He is chairman of the supervisory board of Crucell N.V., a non-executive director and chairman of the remuneration committee of Candover Investments plc and a non-executive director of Barco N.V. Jan is also a professor at IESE Business School in Barcelona.

JOHN SUSSENS a, b, e Non-executive Director

Appointed to the Cookson Board in May 2004 and is Senior Independent Director and Chairman of the Remuneration Committee. John was previously managing director of Misys plc. He is currently senior independent non-executive director and chairman of the remuneration committee of Admiral Group plc. He is also a nonexecutive director of Anglo & Overseas plc.

RICHARD MALTHOUSE f Group Secretary

Appointed Group Secretary in 1993. Richard was previously the group secretary of Del Monte Foods International. He has held senior company secretarial positions in pharmaceutical, engineering and automobile manufacturing companies.

corporate governance report

Details are set out in the narrative below of the Company's corporate governance procedures and application of the principles of the Combined Code on Corporate Governance issued by the Financial Reporting Council in June 2008 ("the Code"). The Company has complied with the provisions of the Code throughout the year ended 31 December 2010.

THE Board

Ultimate responsibility for the management of Cookson rests with the Board of Directors. The Board focuses primarily upon strategic and policy issues. It approves the Group's strategy, oversees the allocation of resources and monitors the performance of the Group in pursuit of this.

MEMBERSHIP

The Board currently has nine Directors, comprising the Non-executive Chairman, Jeff Harris; the Chief Executive, Nick Salmon; the Group Finance Director, Mike Butterworth; the Chief Executive Officer of the Ceramics Division, François Wanecq and five Non-executive Directors. The Board considers each of the Non-executive Directors, namely Jeff Hewitt, Peter Hill, Jan Oosterveld, Barry Perry and John Sussens, to be independent of management and free from any business or other relationship which could affect the exercise of their independent judgement. In addition, Jeff Harris was considered on his appointment date, 1 April 2010, to meet the independence criteria set out in the Code.

The Company has reviewed the availability of the Non-executive 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. 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. Mr Sussens continues to hold this position. The biographical details of the Directors are set out on page 21.

The new UK Corporate Governance Code issued by the Financial Reporting Council in May 2010 recommends that all Directors of FTSE 350 companies be subject to annual election by shareholders. With the exception of Mr Perry, who is retiring from the Board at the close of the Annual General Meeting ("AGM"), all the Directors will therefore be offering themselves for election at this year's AGM as set out in the Notice of AGM and on page 31.

Responsibilities and meetings

The Board has a formal schedule of matters reserved to it and delegates certain matters to committees as outlined below. The Board convened on eight formal scheduled occasions during 2010 as well as holding a number of ad hoc committee meetings to consider non-routine business. In addition, the Chairman and the other Non-executive Directors meet routinely on their own without the executive Directors present and at least once each year the Non-executive Directors meet without the Chairman present to discuss matters such as the Chairman's performance.

Specific matters reserved for the Board include: reviewing Group and divisional performance; approving significant transactions including acquisitions, divestments, capital expenditure and changes to the Group's capital structure; setting and approving the Group's strategy and annual budget; approving the Group's financing and treasury policies; succession planning and approving Board appointments and the remuneration of the Non-executive Directors. In addition, the Board considers health, safety and environmental matters and reviews the Group's risk management processes.

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 the Board and meets routinely with the Chief Executive and Group Secretary to discuss matters relating to its efficient functioning. The Chairman also serves as Chairman of Filtrona plc. The Board considers that the Chairman is able to and does devote sufficient time to his duties at Cookson.

The attendance of Directors who served during the year at Board and principal committee meetings during the year, together with the maximum number of meetings in the period when the individual was a Board member (as shown in brackets), was as follows:

	Board	Audit Committee	Remuneration Committee	Nominations Committee
Chairman
Robert Beeston	3(3)	n/a	n/a	1(1)
Jeff Harris	7(7)	n/a	n/a	1(1)
Executive Directors
Mike Butterworth	8(8)	n/a	n/a	n/a
Nick Salmon	8(8)	n/a	n/a	2(2)
François Wanecq	7(8)	n/a	n/a	n/a
Non-executive Directors
Jeff Hewitt	8(8)	4(4)	5(5)	2(2)
Peter Hill	7(8)	4(4)	5(5)	2(2)
Jan Oosterveld	7(8)	4(4)	5(5)	1(2)
Barry Perry	7(8)	4(4)	5(5)	2(2)
John Sussens	8(8)	4(4)	5(5)	2(2)

Our Financials Our Governance Our Business

The Chairmen of each of the Audit, Nomination and Remuneration Committees also discussed the results of the evaluation of each committee with committee members. These reviews concluded that each committee

Induction and training

the Board's agenda in the future.

continued to operate effectively.

The Group Secretary ensures that a comprehensive induction programme is provided to all new Directors, including visits to manufacturing facilities, meetings with key Group executives and introductions to the Company's principal external advisers, as appropriate. New Directors are also advised of their legal and other duties and obligations as Directors of a listed company. This is supplemented by reference materials, which are updated as required, including information about the Board, its committees, Directors' duties, procedures for dealing in the Company's shares and other regulatory and governance matters. Directors are provided with details of seminars and training courses relevant to their role. They are encouraged to attend these as they consider appropriate and are supported by the Company in so doing. Where a general training need is identified, in-house training is provided to the entire Board. In 2010 updates were given to the Board on developments in various areas of governance and regulation, including changes to institutional and regulatory codes on corporate governance and remuneration, forthcoming accounting changes and progress with the enactment of the UK Bribery Bill. During the year Directors also attended external seminars and other functions relevant to specific areas of their responsibility.

The Board agreed a number of specific action items as a result of the evaluation exercise. These included a refinement to the Board's approach to risk evaluation and mitigation and greater attention to succession planning. It was also agreed that commensurate with the increased scale of the Group's activities in emerging markets, the risks and opportunities for the Group's businesses in these countries would feature more prominently on

Relations with shareholders

The Company has an established investor relations programme managed by the Chief Executive and Group Finance Director. The Company reports its financial results to shareholders twice a year, with the publication of its Annual and Half-Yearly Financial Reports. In conjunction with these announcements presentations are made to institutional investors and analysts, copies of which are posted on the Group's website — www. cooksongroup.co.uk. In addition, in 2010 the Company issued Interim Management Statements in April and November.

The Company maintains a regular dialogue with major institutional investors and regular updates on shareholder issues and discussions are provided to the Board. Board members also receive copies of significant analysts' notes issued on the Company. All Directors normally attend the Company's AGM, providing shareholders with the opportunity to question them about issues relating to the Group, either during the meeting or informally afterwards.

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. The Group 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. He also keeps the Board apprised of relevant developments in corporate governance.

Performance evaluation

In accordance with the provisions of the Code, the Board undertakes a formal and rigorous evaluation of its own performance and effectiveness and assesses the performance of its committees and individual Board members on an annual basis. The precise scope of the evaluation varies from year to year and is agreed in advance with the full Board. The Chairman leads the evaluation process with the assistance of the Group Secretary.

The performance of the Chairman is included in the review and takes into account the views of both the executive and Non-executive Directors. The Chairman's evaluation is conducted by the Senior Independent Director who provides feedback to the Chairman. As part of the Chairman's evaluation the Non-executive Directors meet separately with the Senior Independent Director.

The 2010 Board evaluation process was designed to be more "forward looking". It focused upon key aspects of Board performance, including strategy review, succession planning and latest appointments to the Board. Participants were requested to identify their own competencies and to give their perception of their peers' effectiveness and contribution. This enabled a skills matrix to be developed.

Consistent with previous years, the review was carried out with the assistance of an external facilitator (who has no other connection with the Company) and involved the use of a specially designed questionnaire which was completed by the Directors and the Group Secretary with the results being collated and summarised by the external facilitator. Each Director received a copy of the report prepared by the external facilitator, which summarised and analysed all responses on a non-attributable basis.

The process also involved individual meetings between the Chairman and members of the Board and the Group Secretary to discuss any issues arising from the evaluation. The full Board then considered the report with the Chairman and Senior Independent Director adding their own comments based on the outcome of their separate discussions.

The new Chairman was judged to have performed well against all the measured criteria during the first months of his tenure. The Board also concluded that overall it functioned effectively and that all Directors, including the Directors appointed during 2010, performed well, each of them making a significant contribution to the Company. The quality of discussion at Board meetings was judged to be good, with an appropriate level of challenge.

corporate governance report continued

Board COMMITTEES

The principal committees of the Board are the Audit, Remuneration and Nominations Committees. Each committee has written terms of reference agreed by the Board. These are available to view on the Company's website — www.cooksongroup.co.uk.

AUDIT COMMITTEE

The Audit Committee members are the Non-executive Directors, namely Jeff Hewitt, Peter Hill, Jan Oosterveld, Barry Perry and John Sussens. Mr Hill joined the Committee following his appointment to the Board on 1 February 2010. During 2010 the Committee was chaired by Mr Hewitt. The Board believes Mr Hewitt possesses the relevant financial experience, as described by the Code.

The Group Finance Director, the Group Head of Internal Audit and the Company's Auditor, KPMG Audit Plc, are normally invited to attend meetings and other executives are invited to attend as and when appropriate. The Committee meets regularly with the Company's Auditor without any executives being present.

AUDIT COMMITTEE REPORT

The principal roles of the Audit Committee are:

assisting the Board in the discharge of its responsibilities in respect of statutory and other financial reporting and in respect of its review of the effectiveness of the Group's internal controls and risk management systems;
monitoring and reviewing the effectiveness of the Company's internal audit function;
making recommendations to the Board on the appointment and dismissal of the Auditor;
approving the remuneration and terms of engagement of the Auditor;
monitoring and reviewing the Auditor's independence, objectivity and effectiveness, taking into account professional and regulatory requirements; and
helping to strengthen the independent position of the Auditor by providing a direct channel of communication between it and the Non-executive Directors.

The Committee has established procedures for the receipt, retention and treatment of complaints received by the Company including accounting, internal controls, auditing matters and confidential communications from employees.

The Group Head of Internal Audit reports directly to the Committee Chairman and the Committee reviews and approves the internal audit work programme for each year.

During the year under review, the Committee met four times and reviewed, amongst other matters, the Company's published financial results; internal audit reports and management control issues; the scope of the external audit and its cost-effectiveness; the performance of the Auditor; and the extent to which the Auditor's remuneration for non-audit services might affect its independence and objectivity in carrying out the audit. In respect of all matters considered by the Committee, it believes that it received sufficient, reliable and timely information from management to enable it to fulfil its responsibilities.

More specifically, the responsibilities of the Committee were discharged as follows:

at its meetings in July 2010 and February 2011, the Committee reviewed the Company's Half-Yearly Report and Annual Results Announcement/ Annual Report and Accounts, respectively. On both occasions, the Committee received reports from management on significant aspects of the Group's financial statements, including amounts reported at fair value, off-balance sheet items and contingent liabilities, and received reports from the Auditor identifying any accounting or judgemental issues thereon requiring its attention;
at each of the four meetings, the Committee received a report from the Group Head of Internal Audit covering, amongst other things, the work undertaken by the Internal Audit function and management responses to proposals made in the audit reports issued by the function during the year. In addition, at the October 2010 meeting the Committee reviewed the results of an assessment which had been undertaken of the performance of the Internal Audit function and at the December 2010 meeting, the Committee reviewed the internal audit plan, submitted by the Group Head of Internal Audit for 2011.
at each of the four meetings, the Committee reviewed the Auditor's control findings;
at the July 2010 meeting, the Committee reviewed the results of an assessment which had been undertaken of the performance of the Auditor and reviewed and agreed the audit plan presented by the Auditor, which detailed the approach and scope of the work to be undertaken and the level of fee to be charged;
at its meetings in December 2010 and February 2011 the Committee reviewed both the risk management process operated by management designed to identify the key risks facing each business and how those risks were being managed;
at its meeting in February 2011 the Committee reviewed a report from management which addressed the appropriateness of the production of the Group and Company financial statements on a going concern basis;
from time to time, executives were required to make presentations to the Committee or to the full Board on the identification, management
as a matter of routine, the Committee was presented with information on any significant litigation involving the Group.

Group; and

and control of specific areas of risk which impact the Company and the

As noted above, one of the duties of the Committee is to make recommendations to the Board in relation to the appointment 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, including: the quality both of reports provided by the Auditor to the Committee and the Board, and of advice given; the level of understanding demonstrated of the Group's businesses; the objectivity of the Auditor's views on the controls throughout the Group; its ability to coordinate a global audit, working to tight deadlines; the cost-competitiveness of the Auditor in relation to the audit costs of comparable UK companies; the tenure of the incumbent Auditor; and the periodic rotation of the senior audit management assigned to the audit of the Company. Having considered the aforementioned factors in 2010, the Committee decided to recommend the Auditor for reappointment.

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 Committee has put in place safeguards to ensure that the independence of the external audit is not compromised. These safeguards include:

seeking confirmation that the Auditor is independent of the Company in its own professional judgement; and
considering all the relationships between the Auditor and the Group, including those relating to the provision of non-audit services and whether these impair, or appear to impair, the Auditor's judgement or independence.

The Company has a policy governing the Group-wide conduct of nonaudit work by the Auditor. Under that policy the Auditor is prohibited from performing services where it:

may be required to audit its own work;
would participate in activities that would normally be undertaken by management;
is remunerated through a "success fee" structure; or
acts in an advocacy role for the Group.

Other than the above, the Company does not impose an automatic prohibition on the Auditor undertaking non-audit work. The Auditor is permitted 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. Details of the amounts paid to the Auditor during the year for audit and other services are set out in note 8 on page 70.

The Chairman of the Audit Committee reports the outcome of the Committee meetings to the Board and all members of the Board receive the agenda, papers and minutes of Audit Committee meetings.

REMUNERATION COMMITTEE

The Remuneration Committee members are the Non-executive Directors, namely Jeff Hewitt, Peter Hill, Jan Oosterveld, Barry Perry and John Sussens who chairs the Committee. Mr Hill joined the Committee following his appointment to the Board on 1 February 2010. The Committee's principal roles are to set the appropriate remuneration for the Chairman, the executive Directors and the Group Secretary, and to recommend and monitor the level and structure of remuneration for senior management, being the first layer of management below Board level. Further details of the activities of the Remuneration Committee are provided in the Directors' Remuneration Report on pages 35 to 44.

The Chairman of the Remuneration Committee reports the outcome of the Committee meetings to the Board.

NOMINATIONS COMMITTEE

The Nominations Committee advises the Board on appointments to, and retirements and resignations from, the Board. The members of the Committee are the Chairman, the Chief Executive and any three Non-executive Directors. The Committee meets as and when required and is chaired by the Chairman or a Non-executive Director. The Chairman would not act as chairman of the Committee where it was dealing with the appointment of his successor. Formal meetings are held to consider standing items of business; there is also a significant level of ad hoc discussion between members of the Committee, particularly when a recruitment exercise is taking place.

On 1 February 2010, a new executive Director and a new Non-executive Director were appointed to the Board and on 1 April 2010 a new Chairman was appointed to the Board. When considering the appointment of these new Directors, the Committee drew up specifications, taking into consideration the diversity of the Board including the balance of skills, knowledge and experience and the ongoing requirements of the Group. It utilised the services of an external recruitment consultant to identify appropriate candidates for the roles of Chairman and Non-executive Director. The Senior Independent Director and the Chief Executive met with the short-listed candidates for the role of Chairman and the remaining Directors then met with the preferred two candidates. With respect to the appointment of the new non-executive Director, the Chairman and Chief Executive met with the short-listed candidates and the remaining Directors then met with the preferred candidate. The Committee subsequently made 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.

The Nominations Committee reviews the Company's succession plans. The Board as a whole also considers this subject. Each of Cookson's divisions submits detailed succession plans in respect of senior divisional executives to the Board for review each year. The Board also considers succession

corporate governance report continued

planning for senior Corporate executives, with the Nominations Committee focusing in turn, specifically on succession planning for members of the Board. The Chairman of the Nominations Committee reports the outcome of the Committee meetings to the Board.

FINANCE AND SHARE SCHEMES COMMITTEES

The Board delegates certain responsibilities on an ad hoc basis to the Finance and Share Schemes committees.

The Finance Committee is chaired by the Chairman, its other members being the Chief Executive, Group Finance Director and Group Treasurer. The Committee meets as and when required to consider the approval of treasury-related matters.

The Share Schemes Committee's membership consists of any two Directors. It meets as and when required to undertake administrative matters in relation to the Company's share schemes.

CENTRAL EXECUTIVE

In addition to the committees of the Board described above, specific authority has been delegated to the Central Executive comprising the Chief Executive, Group Finance Director and Group Secretary. The Central Executive is responsible for reviewing and approving capital expenditure, acquisitions and disposals at certain levels as determined by the Board. Responsibility for day-to-day operational management rests with the divisional Chief Executives.

INTERNAL CONTROL

The Directors are responsible for the establishment and maintenance of the Group's system of internal control.

The Company has complied with the provisions of the Code relating to internal control which require that the Directors review the effectiveness of the Group's system of internal controls, including financial, operational and compliance controls, and risk management systems. This review covers the Group's financial reporting process, including that for the preparation of the Company's consolidated financial statements, which incorporates the dissemination and use of common accounting policies and procedures and financial reporting software. Whilst 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 problems are identified on a timely basis and are dealt with appropriately. Since the date of the review, there have been no significant changes in internal controls or other matters which could significantly affect them.

There is a continuous process for identifying, evaluating and managing any significant risks faced by Cookson. 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 Group'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 internal control system is monitored and supported by the Group's Internal Audit function, which operates on a global basis. This function assists management and the Board in the effective discharge of their responsibility for internal control by conducting reviews of Cookson 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 Group 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. The Audit Committee receives reports from the Group 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:

review of external and internal audit work plans;
consideration of reports from management, internal audit and external audit on the system of internal control and any material control weaknesses; and
discussions with management on the actions taken on problem areas identified by Board members, in internal audit reports or in external audit management letters.

In addition to the above, 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 Board also reviews the role of insurance and other measures used in managing risks across the Group, 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.

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 Group 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 Group's policies and procedures.

By Order of the Board

Richard M H Malthouse Group Secretary 1 March 2011

principal risks and uncertainties

As described in the Corporate Governance Report, there is a continuous process for identifying, evaluating and managing any significant risks faced by Cookson. Group management operates a risk management process designed to identify the key risks facing each business and reports to the Audit Committee on how those risks are being managed. The Board also reviews the role of insurance and other measures used in managing risks across the Group, 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.

Throughout its global operations, Cookson faces various risks, both internal and external, which could have a material impact on the Group's long-term performance. Cookson manages the risks 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 ones that the Group will face. Some risks are not yet known and some that are not currently deemed material could later become material. All of these risks could materially affect the Group, its businesses, results of future operations or financial condition.

RISK AND IMPACT

The financial performance and financial position of Cookson may be adversely affected by a significant weakening in demand in its core endmarkets.

End-market conditions, and the Group's trading performance, have improved markedly during 2010 following the economic downturn which started in the fourth quarter of 2008 and persisted through much of 2009. Whilst the recovery has been strong, end-markets (and Group underlying revenue) are typically still not yet back to pre-crisis levels. The economic outlook for 2011 remains unclear. For example, whilst concerns about a "double-dip" recession have largely abated, there are still concerns about slowing growth in China, sluggish growth in the developed world, plus the potential impact of a sovereign debt crisis affecting the Eurozone. The Group's end-markets are historically somewhat cyclical in nature and the 2008/09 financial crisis, which affected all end-markets simultaneously, resulted in a very pronounced deterioration in the Group's trading performance.

Cookson's divisions predominantly supply consumable products, on short lead times, to the global steel, foundry, electronics and precious metals industries. As such the Group's expectations of future trading are based upon the Directors' assessment of end-market conditions, which conditions are subject to some uncertainty. In the event that end-market conditions suffer further significant deterioration, Cookson may experience further reductions in trading activity, a lower share price, the financial failure of one or more of its key customers and suppliers, asset impairments, lower profitability and a material adverse impact on its financial position.

Should Cookson be unable to refinance its main banking facilities on acceptable commercial terms as they fall due, this could limit Cookson's operational flexibility.

Cookson's borrowing requirements are met by US Private Placement Loan Notes ("USPP") and a multi-currency committed syndicated bank facility. \$250m of USPP were issued in December 2010 with seven (\$110m) or ten (\$140m) year durations. The current syndicated bank facility expires at the end of 2012. If Cookson is unable to refinance its banking facility on commercially acceptable terms, this could: limit flexibility in the management of the Group; limit flexibility in making acquisitions; place Cookson at a competitive disadvantage to competitors; and increase Cookson's vulnerability to a significant resumption of adverse economic and industry conditions.

MITIGATION

The Board regularly reviews Group strategy, which determines the markets in which the Group operates. The current spread of the Group's major businesses, both geographically and by end-market served, provides some protection to the Group should conditions, in particular markets, deteriorate. Further, the reduction in the Group's cost base — which resulted from the cost-saving initiatives introduced by management in late 2008 and early 2009 as the recent recessionary market conditions began to develop — provides additional insulation to the adverse impact of any near-term market downturn. Also, in view of the extent of the de-stocking which took place during 2009 in the Group's end-markets, the Directors believe that any downturn in its end-markets is likely to be less severe than that experienced in 2009. Following the cost-reduction initiatives and equity raising successfully completed during 2009 and the debt refinancing recently completed in 2010, the Directors believe that the Group is well positioned financially to sustain a further downturn in end-market activity should this occur.

Cookson's total committed debt facilities as at 31 December 2010 were £855m, of which £350m was undrawn. Total Group net debt as at 31 December 2010 was £330m, of which £223m was financed out of the syndicated banking facility which expires in the fourth quarter of 2012.

The Group intends to refinance its bank facility no later than the end of 2011. Based on the favourable market response to the Group's recent USPP issue, the recent marked recovery in the Group's trading performance and its strong financial position, the Board is confident that this will be achievable.

principal risks and uncertainties continued

RISK AND IMPACT

A withdrawal or reduction of precious metal consignment arrangements, or increased precious metal prices resulting in consignment lines being fully utilised, may cause a shortage of raw materials requiring the business to be restructured and downsized and may result in a short-term material increase in the Group's financial indebtedness.

The Group's precious metal fabrication operations utilise significant quantities of precious metals, primarily gold by value. These metals are held predominantly on consignment under contractual arrangements whereby the consignor retains title to the metal and the associated risks and benefits of ownership, with the result that the physical metal so held is not recorded in the Group balance sheet. Certain of these arrangements are uncommitted in that the consignor has the right, with limited or in some cases no notice, to demand physical return or purchase of its consigned metal. The utilisation of consigned precious metals is established practice in the precious metals industry. Should precious metals consignors decide to reduce or withdraw the facilities for whatever reason, or require a return of the consigned metal, or increased metal prices lead to the consignment arrangements becoming fully utilised, the Group's precious metal fabrication operations may suffer shortages of raw materials requiring the business to be restructured and downsized in order to be able to operate within its available consignment facilities. In the short term this may require precious metals to be purchased, which could materially increase the Group's financial indebtedness pending completion of the downsizing.

The Group's worldwide operations and businesses may be adversely affected by various political, legal, regulatory and other developments in countries in which it operates.

The Group is subject to various legal and regulatory regimes, including those covering taxation and environmental matters; and political risks including the imposition of trade barriers, changes of regulatory requirements, lack of protection for intellectual property rights and the volatility of input costs, selling prices, taxes and currencies. In particular, operating within the rapidly evolving emerging nations can expose the Group's businesses to significant local risks and challenges. Future global political, legal or regulatory developments concerning Group businesses may affect their ability to operate and to operate profitably in the affected jurisdictions. Should Group businesses fail to comply with applicable legal and regulatory requirements, this may result in a financial loss or restriction on their ability to operate.

The Group's businesses are subject to a variety of operational risks, including natural catastrophe, terrorist action, theft, fraud and, particularly in emerging nations, insufficient supply of high-quality local management and technical personnel. If any of the operational risks materialise to a significant extent, this could result in a substantial interruption to a facility, loss of future insurance cover, a potential loss of customers and revenue and financial loss.

MITIGATION

Cookson has successfully maintained precious metal consignment arrangements of this nature for over 20 years. The Group has close commercial relationships with its group of consignor banks. Management seeks to operate the business at all times with appropriate headroom within the consignment facilities, taking account of anticipated levels of business activity and precious metals prices.

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. In addition, 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 operational risks which they face.

Our Financials Our Governance Our Business

RISK AND IMPACT

The Group's financial position and trading results may be adversely affected by fluctuations in exchange rates, interest rates or the rate of inflation.

The Group has no control over changes in foreign currency exchange rates, or inflation and interest rates. In the normal course of business, many transactions are carried out by Group businesses in currencies other than their reporting currency, leading to transactional foreign exchange risk, although this is not material for the Group overall. The Group is exposed to the effect of translating the results and net assets of its overseas subsidiaries into sterling. Significant fluctuations in the value of currencies in which it operates, in interest rates, or in rates of inflation may adversely impact the Group's financial position, results of operations and ability to comply with its financial covenants.

The Group may lose customers to competitors with new or alternative technologies if its businesses either do not adequately adapt to market developments or are unable to protect, maintain and enforce their intellectual property.

The markets in which many of the Group's businesses operate can experience rapid changes due to the introduction of new technologies. The Group's continued success depends upon its ability to continue to develop and produce new and enhanced products and services on a cost-effective and timely basis in accordance with customer demands. If the Group fails to adequately adapt to market developments related to new products and technology, it could lose customers to suppliers with better or less costly products. Throughout its operations, the Group relies on a combination of trade secrets, patents, confidentiality procedures and agreements, and copyright and trade mark laws to protect its proprietary rights. If the Group fails to or is unable to protect, maintain and enforce its existing intellectual property, this may result in the loss of the Group's exclusive right to use technologies and processes which are included or used in its businesses. In addition, the laws of certain foreign countries in which the Group operates may not protect proprietary rights to the same extent as those of, for example, the UK or the US.

The Group's financial condition may be materially adversely affected by any significant liabilities for any defects of its products or services.

If a product of the Group or of one of the Group's industrial customers does not conform to agreed specifications or is otherwise defective, the Group may be subject to claims by its customers arising from end-product defects, injury to individuals or other such claims. 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. Certain of the Group's subsidiaries are subject to suits, predominantly in the US, relating to a small number of products containing asbestos manufactured prior to the acquisition of those subsidiaries by the Group. These suits usually also name many other product manufacturers. To date, the Group is not aware of there being any liability verdicts against any of these subsidiaries.

MITIGATION

The Group attempts to manage transactional and balance sheet translation risks associated with currency exchange rate fluctuations through its hedging and funding policies and it is Group policy that foreign currency transaction exposures that are material at an individual operating unit level are hedged using appropriate instruments such as forward foreign exchange contracts. For its key operating currencies, the Group broadly matches the currency profile of its borrowings with the currencies of its asset base, but does not hedge translational impact on the income statements of overseas subsidiaries. Where appropriate, the Group manages its interest rate exposures using interest rate swaps or other instruments.

Cookson invests significant amounts in research and development and endeavours to sustain its competitive advantage and take appropriate action to ensure that its cost base remains competitive. In 2010, total research and development spend was £38.1m, equivalent to 1.5% of revenue.

The Group applies for patents over its major products, technologies and processes in a number of jurisdictions, including in Europe and the US. New product and service offerings by competitors are regularly monitored and any perceived breach of a Group patent is vigorously challenged. To the extent possible, the Group avoids holding key intellectual property in countries which do not afford an acceptable degree of legal protection to the Group.

The Board believes that, taking into account legal advice received, the Group's insurance arrangements, indemnification provided by former owners of certain of the subsidiaries impacted and financial provisions, none of the currently pending or potential claims will, either individually or in the aggregate, have a material adverse impact on the Group's financial position and results of operations.

Directors' report

The Directors submit their Annual Report together with the audited accounts of the Group and of the Company, Cookson Group plc, registered in England and Wales No. 251977, for the year ended 31 December 2010. The Chairman's Statement, the Chief Executive's Statement, the Operating Review, the Financial Review, the Directors' Remuneration Report, and the Corporate Governance, the Principal Risks and Uncertainties, the Corporate Social Responsibility, the Targets and Strategy, the Key Performance Indicators and Board of Directors sections of the Annual Report are each incorporated by reference into, and form part of, this Directors' Report. This Directors' Report also represents the management report for the purpose of compliance with DTR 4.1.8R of the UK LIsting Authority disclosure rules.

The Annual Report contains certain forward-looking statements with respect to the operations, performance and financial condition of the Group. By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect knowledge and information available at the date of preparation of this Annual Report and the Company undertakes no obligation to update these forward-looking statements. Nothing in this Annual Report should be construed as a profit forecast.

PRINCIPAL ACTIVITIES

Cookson Group plc is a leading materials science company which provides materials, processes and services to customers worldwide. The Group's operations are formed into three divisions — Ceramics, Electronics and Precious Metals. Trading under the Vesuvius and Foseco brand names, Cookson's Ceramics division is the world leader in the supply of advanced consumable products and systems to the global steel and foundry industries and a leading supplier of specialist ceramic products to the glass and solar industries. It is also a regional leader in the US, UK and Australia in the supply and installation of monolithic refractory linings. The Electronics division is a leading supplier of consumable electronic assembly materials to assemblers of PCBs and the semi-conductor packaging industry and advanced surface treatment and electro-plating chemicals to the electronics industry and for industrial and automotive applications. The Precious Metals division is a leading supplier of fabricated precious metals (primarily gold, silver and platinum) to the jewellery industry in the US, the UK, France and Spain, and in Europe also has significant precious metal recycling operations. Products include alloy materials, semifinished jewellery components and finished jewellery.

BUSINESS REVIEW

As required by the Companies Act 2006, the Company must provide a fair review of the development and performance of the Group during 2010, its financial position at the end of the year and likely future developments in the Group's business, together with information on environmental matters and employees and a description of the principal risks and uncertainties facing the Group. The information which satisfies these requirements is to be found in the Chief Executive's Statement on pages 4 and 5; the Operating Review on pages 9 to 15; the Financial Review on pages 16 to 20; the Corporate Social Responsibility report on pages 6 to 8; the Key Performance Indicators on page 2; this Directors' Report on pages 30 to 34; the Corporate Governance Report on pages 22 to 26; and the Principal Risks and Uncertainties section on pages 27 to 29.

GOING CONCERN

Information on the business environment in which the Group operates, including the factors that are likely to impact the future prospects of the Group, is included in the Chief Executive's Statement and the Operating Review. The principal risks and uncertainties that the Group faces throughout its global operations are shown on pages 27 to 29. The financial position of the Group, its cash flows, liquidity position and debt facilities are described in the Financial Review. In addition, notes 4 and 37 to the consolidated financial statements set out the Group's objectives, policies and processes for managing its capital; financial risks; financial instruments and hedging activities; and its exposures to credit, market (both currency and interest rate-related) and liquidity risk. Further details of the Group's cash balances and borrowings are included in notes 18, 19 and 36 to the consolidated financial statements.

The Directors have prepared cash flow forecasts for the Group for a period in excess of twelve months from the date of approval of the 2010 financial statements. These forecasts reflect an assessment of current and future end-market conditions and their impact on the Group's future trading performance. The forecasts completed on this basis show that the Group will be able to operate within the current committed debt facilities and show continued compliance with the Company's financial covenants. On the basis of the exercise described above and the Group's available committed debt facilities, the Directors consider that the Group and Company have adequate resources to continue in operational existence for the forseeable future. Accordingly, they continue to adopt a going concern basis in preparing the financial statements of the Group and the Company.

DIVIDENDS

The Board is recommending a final dividend in respect of 2010 of 11.5p per ordinary share which, if approved, will be paid on 6 June 2011 to shareholders on the register at 20 May 2011. No final dividend for the 2009 financial year was recommended to shareholders and no interim dividend was declared for 2009 or 2010.

ACCOUNTABILITY AND AUDIT

A responsibility statement of the Directors and a statement by the Auditor about its reporting responsibilities can be found on pages 45 and 46 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.

DISCLOSURE OF INFORMATION TO THE AUDITOR

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 he has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.

Our Financials Our Governance Our Business

AUDITOR

Resolutions for the reappointment of KPMG Audit Plc as Auditor of the Company and to authorise the Directors to determine its remuneration are to be proposed at the AGM.

REMUNERATION MATTERS

The Directors' Remuneration Report appears on pages 35 to 44. None of the executive Directors' contracts contains any change of control provisions.

REMUNERATION OF THE CHAIRMAN AND NON-EXECUTIVE DirectorS

The Board considers the remuneration policy for the Non-executive Directors. Non-executive Directors' fees have not been increased during the year and remain at £40,000 per annum. A supplementary fee is payable to the Chairman of the Audit Committee of £15,000 per annum and the Chairman of the Remuneration Committee receives a supplementary fee of £10,000 per annum. A supplementary fee of £5,000 per annum is also payable to the Senior Independent Director. No changes were made in 2010 to the supplementary fees payable. The Chairman is paid a fee of £164,000 p.a. The Chairman's remuneration, which is subject to periodic review, is determined by the Remuneration Committee. There has been no change to the Chairman's remuneration since his appointment to the role in May 2010. Neither the Chairman, who is not an executive Director, nor the other Non-executive Directors are members of the Group's pension plans, nor do they participate in the Group's incentive schemes.

DirectorS

Messrs Beeston, Butterworth, Harris, Hewitt, Hill, Oosterveld, Perry, Salmon, Sussens and Wanecq all served as Directors of the Company during the year. Mr Beeston retired from the Board at the close of the AGM on 13 May 2010. Messrs Hill and Wanecq were appointed as Directors on 1 February 2010 and Mr Harris was appointed on 1 April 2010. Biographical information for all the current Directors of the Company is given on page 21. All the Directors will retire at the AGM and, with the exception of Mr Perry, all will offer themselves for election. Mr Perry will step down from the Board at the close of the AGM. Further information on the contractual arrangements of the executive Directors is given on page 41. The Non-executive Directors do not have service agreements.

LEGAL MATTERS

All Directors have access to the advice and services of the Group Secretary. There is also an agreed procedure in place for Directors, in the furtherance of their duties, to take independent legal advice if necessary, at the Company's expense.

DirectorS' INDEMNITIES

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 and the Directors of the Group's UK Pension Plan Trustee Board have been granted Qualifying Pension Scheme Indemnity Provisions by Cookson Pension Plans Trustees Ltd. These indemnities were in force throughout the last financial year and remain in force.

DirectorS' CONFLICTS OF INTEREST

Provisions in the Company's Articles of Association permit the Board to consider and, if thought fit, to authorise situations where a Director has an interest that conflicts, or may possibly conflict, with the interests of the Company ("Situational Conflicts"). The Board has established a formal system for Directors to declare Situational Conflicts so that they can be considered for authorisation by the remaining members of the Board. In deciding whether to authorise a Situational Conflict, the non-conflicted Directors are required to act in the way they consider would be most likely to promote the success of the Company, and they may impose limits or conditions when giving authorisation or subsequently if they think this is appropriate. The Group Secretary minutes the consideration of any conflict and records any authorisations granted. The Board believes that the systems it has in place for reporting Situational Conflicts continue to operate effectively.

EMPLOYMENT POLICIES

A fundamental concept embodied in the Company's Code of Conduct is that Cookson's goals can only be met through the efforts of its employees. Cookson recognises that job satisfaction requires working environments that motivate employees to be productive and innovative and provide opportunities for employee training and development to maximise personal potential and develop careers within the Group. Cookson is managed on a decentralised basis and within each division it is the responsibility of the relevant divisional Chief Executive to adopt employment policies and practices that best suit the size, style and geographical location of their operations.

This management structure allows the Group's operations to respond competitively to changes in the marketplace and to develop and retain a strong sense of identity whilst benefiting from being a part of a major international Group. Cookson values the involvement of its employees and keeps them informed on matters affecting them as employees and factors relevant to Group performance. It is established policy throughout Cookson that decisions on recruitment, career development, training, promotion and other employment-related issues are made solely on the grounds of individual ability, achievement, expertise and conduct. These principles are operated on a non-discriminatory basis. Cookson gives full and fair consideration to applications for employment from disabled persons. Should an employee become disabled during their employment with Cookson, every effort is made to enable them to continue their service with the Group.

Directors' report continued

PENSIONS

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 UK, US, Germany, the Netherlands and Belgium, the majority of pension plans in the Group are of a defined contribution nature.

The Group's main US defined benefit plans are closed to new entrants and have ceased providing future benefits accrual, with all eligible employees instead being provided with benefits through a defined contribution plan.

During 2010, the UK defined benefit and defined contribution plans were closed to future benefit accrual and a new Group Personal Pension Plan was implemented in their place to provide defined contribution benefits for all eligible UK employees.

For the Group's closed UK defined benefit and defined contribution plans a Trustee Board exists comprising employees, former employees and an independent trustee. The Board currently comprises seven trustee directors, of whom three are member nominated. The administration of each plan is outsourced. The Company is mindful of its obligations under the Pensions Act 2004 and of the need to comply with the guidance issued by the Pensions Regulator. Regular dialogue is maintained between the Company and the Trustee Board of the UK plans to ensure that both Company and Trustee are apprised of the same financial and other information about the Group and the plans. This is pertinent to each being able to contribute to the effective functioning of the plans. The Company currently has in place a schedule of contributions, agreed with the Trustee Board, which aims to reduce to zero the deficit existing on the UK defined benefit plan as at 31 December 2009 by February 2016. The adequacy of this schedule of contributions will be monitored over time, so as to assess the need for it to be modified in the light of changes in the deficit position. 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 38 on pages 91 to 98.

DONATIONS

Donations in the UK and Group for charitable purposes each totalled £nil (2009: £nil). In accordance with Company policy, no political donations were made in either 2010 or 2009.

CREDITOR PAYMENT POLICY

Each operating company in the Group is responsible for agreeing the terms and conditions under which business transactions with their suppliers are conducted. It is Group policy that payments to suppliers are made in accordance with these terms, provided that the supplier is also complying with all relevant terms and conditions.

In the accounts of the Company as at 31 December 2010, the number of days' purchases outstanding was 18 (2009: 16 days).

ESSENTIAL CONTRACTS OR ARRANGEMENTS with customers, contractors and suppliers

The Company is required to disclose any contractual or other arrangements with customers, contractors and suppliers which it considers are essential to its business. The Company has a number of contractual arrangements in support of its business activities. Whilst the loss of some of these arrangements may cause temporary disruption, none is considered to be essential in the context of Cookson's business as a whole.

CHANGE OF CONTROL PROVISIONS

The terms of the Group's committed bank facility and US Private Placement Loan Notes 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.

SHARE CAPITAL

As at the date of this report, the Company had an issued share capital of 276,435,881 ordinary shares of £1 each, being the total number of Cookson Group plc shares with voting rights. The Company currently has only one class of shares.

In 2009 the Company conducted a rights issue. Ordinary shareholders on the share register at the close of business on 13 February 2009 were offered, by way of a rights issue, 2,551m 10p ordinary shares on the basis of 12 new 10p ordinary shares for each existing 10p ordinary share held. These shares were fully subscribed, resulting in total proceeds on issue of £241m, net of expenses.

Following the increase in the Company's issued share capital as a result of the rights issue, the Directors considered it desirable to consolidate the ordinary shares of the Company. At the Company's AGM in 2009, shareholders approved a share consolidation, which took effect following the close of business on that same date. The 2,763.9m existing ordinary shares of 10p in issue were consolidated into new ordinary shares on the basis of ten 10p ordinary shares for one new ordinary share, to create 276m new ordinary shares of £1 each.

Details of movements in the Company's issued share capital during 2010 are given in note 13 to the Company financial statements on page 111.

The Company operates a number of share-based incentive plans (further details about these are given in the Directors' Remuneration Report). For the majority of these plans the Company 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 ("ESOP"). The trustee of the ESOP purchases shares in the open market as required, to enable the Company to meet liabilities for the provision of existing shares to satisfy awards that vest. The trustee does not register votes in respect of these shares.

Adjustments were made to outstanding share-based incentives as appropriate following the rights issue, including to the number of shares granted under options and awards and to the exercise price, if any, of those options and awards, and any relevant performance conditions. Such adjustments were made in accordance with the rules of the relevant plan and, where required by the relevant plan rules, adjustments were made with the prior approval of HM Revenue & Customs and/or the Company's Auditor. Since the year-end, 4,541 ordinary shares have been issued as a result of exercises of options granted under the Company's share option schemes. Resolutions giving the Directors the authority to allot further shares and make allotments of shares to persons other than existing shareholders in certain circumstances will again be proposed at the AGM.

ADDITIONAL INFORMATION FOR SHAREHOLDERS

Set out below is a summary of certain provisions of the Company's current Articles of Association ("Articles") and applicable English law concerning companies (the Companies Act 2006, the "Companies Act"). This is a summary only and the relevant provisions of the Articles or the Companies Act should be consulted if further information is required.

AUTHORITY FOR PURCHASE OF OWN SHARES

Subject to the provisions of Company law and any other applicable regulations, the Company may purchase its own shares. At the 2010 AGM, shareholders gave the Company renewed authority to make market purchases of up to a maximum of 10% at that time of the Company's issued ordinary share capital. As at the date of this report, the Company has made no such purchases under this authority. The Directors believe it advisable to seek renewal of this authority at each AGM. The Company's Articles specify that, subject to the authorisation of an appropriate resolution passed by a general meeting of the Company, Directors can allot relevant securities under Section 551 of the Companies Act, up to the aggregate nominal amount specified by that Act. In addition, the Articles state that the Directors can seek the authority of shareholders in general meeting to allot equity securities for cash without first being required to offer such shares to existing ordinary shareholders in proportion to their existing holdings in connection with a rights issue and in other circumstances up to an aggregate nominal amount as specified in Section 561 of the Companies Act.

TRANSFER OF SHARES

All transfers of shares which are in certificated form may be effected by transfer in writing in any usual or common form or in any other form acceptable to the Directors and may be under hand only. The instrument of transfer shall be signed by or on behalf of the transferor and (except in the case of fully paid shares) by or on behalf of the transferee. The transferor will remain the holder of the shares concerned until the name of the transferee is entered in the share register. All instruments of transfer which are registered may be retained by the Company. The Directors may dispense with the execution of the instrument of transfer by the transferee in any case in which they think fit in their discretion to do so. All transfers of shares which are in uncertificated form may be effected by means of the CREST system.

The Directors may decline to recognise any instrument of transfer relating to shares in certificated form unless it is in respect of only one class of share and is lodged (duly stamped if required) at the place where the Company's share register is located accompanied by the relevant share certificate(s) and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer (and, if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do). In the case of a transfer by a recognised clearing house, or by a nominee of a recognised clearing house or of a recognised investment exchange, the lodgement of share certificates will only be necessary if and to the extent that certificates have been issued in respect of the shares in question. The Directors may, in the case of shares in certificated form, in their absolute discretion refuse to register any transfer of shares (not being fully paid shares) provided that such discretion may not be exercised in such a way as to prevent dealings in the shares of that class from taking place on an open and proper basis. The Directors may also refuse to register an allotment or transfer of shares (whether fully paid or not) in favour of more than four persons jointly. If the Directors refuse to register an allotment or transfer of shares they shall within two months after the date on which the letter of allotment or instrument of transfer was lodged with the Company or the operator instruction was received by the Company (in the case of shares held in uncertificated form) send to the allottee or transferee notice of the refusal.

A shareholder does not generally need to obtain the approval of the Company, or of other shareholders of shares in the Company, for a transfer to take place.

The Articles contain certain restrictions on the number of US persons who hold shares in the Company so as to have enabled the Company to suspend its obligations under the US Securities Exchange Act of 1934 and to prevent any such obligations from arising again in the future.

VOTING RIGHTS

Subject to the Articles generally and to any special rights or restrictions attached to any class of shares, at a shareholders' meeting, every shareholder who is present in person and every duly appointed proxy shall have one vote on a show of hands, and on a poll every shareholder who is present in person or by proxy shall have one vote for every ordinary share of which he or she is the holder. In the case of joint holders of a share the vote of the senior holder who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders and for this purpose seniority shall be determined by the order in which the names stand in the share register. A shareholder entitled to attend and vote at a shareholders' meeting is entitled to appoint a proxy or proxies to exercise all or any of his or her rights to attend and speak and vote in his or her place. A shareholder may appoint more than one proxy in relation to a general meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by the shareholder. Proxies need not be shareholders of the Company. For the purposes of determining which persons are entitled to attend or vote at a meeting and how many votes such person may cast, the Company may specify in the notice of the meeting a time, not more than 48 hours before the time fixed for the meeting, by which a person must be entered on the share register in order to have the right to attend or vote at the meeting.

RESTRICTIONS ON SHARES

The Board may withhold payment of all or any part of dividends or other monies payable in respect of the Company's shares from a person with 0.25% interest or more if such person has been served with a notice after failure to provide the Company with information concerning interest in those shares required to be provided under the Companies Act.

VARIATION OF RIGHTS

Subject to statute, the Articles specify that rights attached to any class of shares may be varied with the written consent of the holders of not less than three-quarters in nominal value of the issued shares of that class, or with the sanction of a special resolution passed at a separate general meeting of the holders of those shares. At every such separate general meeting the quorum shall be two persons holding or representing by proxy at least one-third in nominal value of the issued shares of the class. The rights conferred upon the holders of any shares shall not, unless otherwise expressly provided in the rights attaching to those shares, be deemed to be varied by the creation or issue of further shares ranking pari passu with them.

RESTRICTIONS ON VOTING

No shareholder shall, unless the Directors otherwise determine, be entitled in respect of any share held by him or her to vote either personally or by proxy at a shareholders' meeting or to exercise any other right conferred by membership in relation to shareholders' meetings if any call or other sum presently payable by him or her to the Company in respect of that share remains unpaid. In addition, if any shareholder, or any other person appearing to be interested in shares held by such shareholder, has been duly served with a notice to provide the Company with information under Section 793 of the Companies Act and has failed to do so within 14 days, then (unless the Directors otherwise determine) the shareholder shall not (for so long as the default continues) be entitled to attend or vote either personally or by proxy at a shareholders' meeting or to exercise any other right conferred by membership in relation to shareholders' meetings.

APPOINTMENT AND REPLACEMENT OF DirectorS

The Company shall have no fewer than five and no more than fifteen Directors. The Company may by ordinary resolution from time to time vary the minimum number and/or maximum number of Directors. At each AGM all those Directors who were elected or last re-elected at or before the AGM held in the third calendar year before the current year shall retire from office by rotation.

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.

AMENDMENT OF ARTICLES OF ASSOCIATION

The Company may make amendments to the Articles of the Company by way of special resolution in accordance with the Companies Act.

INTERESTS IN THE Company'S SHARES

As at the date of this report, the Company has been notified in accordance with DTR 5 of the Disclosure and Transparency Rules of the following interests in its issued ordinary shares:

	%
Standard Life Investments Ltd	11.97%
BlackRock, Inc	5.03%
AXA S.A.	5.00%
JPMorgan Asset Management Holdings Inc	4.96%
Lloyds Banking Group plc	4.78%
Fidelity Investments Limited	4.20%
Ignis Investment Services Limited	4.02%
Governance for Owners LLP	4.00%
Legal & General Group Plc	3.94%

The interests of Directors and their connected persons in the ordinary shares of the Company, all of which are beneficial, as disclosed in accordance with the Listing Rules of the UK Listing Authority are as set out on page 44 and details of the Directors' long-term incentive awards are set out on page 43.

By Order of the Board

Richard M H Malthouse Group Secretary 1 March 2011

Directors' remuneration report

The Remuneration Committee ("the Committee") is responsible for setting the appropriate remuneration for the Chairman, the executive Directors and the Group Secretary, and recommending and monitoring the level and structure of remuneration for senior management, being the first layer of management below Board level. It also oversees the operation of the Group's executive share incentive plans. A copy of the Committee's Terms of Reference is available on the Company's website, www.cooksongroup.co.uk.

The current members of the Committee are all the Non-executive Directors, namely Jeff Hewitt, Peter Hill, Jan Oosterveld, Barry Perry and John Sussens, who also chairs the Committee. Messrs Hewitt, Oosterveld, Perry and Sussens served as members of the Committee throughout 2010. Mr Hill joined the Committee upon his appointment to the Board on 1 February 2010. All the members of the Committee are deemed to be independent. The Group Secretary acts as Committee Secretary. The Chairman, Chief Executive and Group Finance Director are invited to attend Committee meetings as appropriate but do not participate in discussions of their own remuneration.

In formulating its policies and deciding individual remuneration levels, the Committee was advised during the year by the Chief Executive and the Group Secretary, by the external advisers Kepler Associates ("Kepler"), Hewitt New Bridge Street ("HNBS") and Towers Watson ("Towers"), and the law firms Clifford Chance LLP ("CC") and McDermott Will & Emery UK LLP ("MWE"). Kepler, HNBS and MWE were appointed directly by the Committee and CC and Towers were appointed by the Company on the Committee's behalf. Towers' advice to the Committee related specifically to the provision of remuneration data for the role of CEO, Ceramics division. In addition, Towers provides remuneration advice to the Ceramics division. HNBS provides share award valuation advice to the Company and CC provides legal advice to the Company. MWE and Kepler provide no other services to the Company.

REMUNERATION POLICY FOR EXECUTIVE DIRECTORS

The remuneration policy of the Company aims to establish a remuneration structure for executive Directors and other senior managers in the Group which:

attracts and retains high calibre executives;
aligns management's interests with those of shareholders, by incentivising management to enhance shareholder value; and
fosters a high performance culture, linking a substantial portion of remuneration to performance by providing management with the opportunity to earn competitive remuneration through variable based pay.

In formulating remuneration policy, the Committee has regard to the international scale and nature of the Group's operations and takes into consideration the requirements of the Code and guidelines issued by its leading shareholders and bodies such as the Association of British Insurers ("ABI") and the National Association of Pension Funds. The Committee takes into account the pay and employment conditions of other Group employees when determining Directors' remuneration, particularly when determining base salary increases.

The Committee is cognisant of the need to ensure that the remuneration policy is firmly linked to the Group's strategy, including its risk management philosophy. The Board has set a strategy with the objective to grow earnings in both the short-term and longer-term with the intention of delivering above average shareholder returns in the medium to long-term. This is set out on page 5. This strategy is underpinned by the three-year plan which translates the strategy into operational targets. The remuneration policy incentivises and rewards executives to deliver their contribution to the achievement of the Group's strategy through the combination of short-term incentives targeted at business and Group performance and long-term incentives targeted at Group performance.

More than half of the executive Directors' total remuneration is based on the variable, performance-related elements of the Annual Incentive and the Long-Term Incentive Plan ("LTIP") where the targets focus on key business imperatives such as Headline Earnings (represented by Headline profit attributable to owners of the parent, as shown on page 74), relative Total Shareholder Return ("TSR"), defined as the increase in the value of a share, including reinvested dividends, and Headline Earnings per Share ("Headline EPS", as defined on page 61). These targets are objective, auditable and transparent and as such are considered to be appropriate performance measures for management.

To ensure that their interests are aligned with those of shareholders, executive Directors are required to build a significant stake in the Company in accordance with the Company's share retention guidelines. At the year-end, all executive Directors substantially exceeded this shareholding guideline.

The following illustrates the balance between fixed and variable remuneration for the executive Directors based on the remuneration policy for 2011:

Executive Director Pay Mix

(% of total remuneration)

Nick Salmon — Target

Mike Butterworth and François Wanecq — Target

Mike Butterworth and François Wanecq — Maximum

Directors' remuneration report continued

The Committee evaluates the efficacy of the Group's executive remuneration policy each year and commissions more formal reviews as it considers appropriate. As part of its most recent review of the Group's remuneration strategy for executive Directors and in order to reinforce the Group's risk management controls, the Committee has introduced clawback arrangements for the executive Directors, divisional CEOs and Group Secretary. In the event that a misstatement is identified in the Group's consolidated financial statements which requires the restatement of a prior year's accounts in order to ensure compliance with the requirements of International Financial Reporting Standards, then any variable executive remuneration resulting from the misstatement would be subject to clawback provisions at the discretion of the Committee. These arrangements are to be applied in respect of the 2011 Annual Incentive, the 2011 LTIP awards, and their respective equivalents in future years.

In addition, to align the LTIP even more closely with the Group's strategy the Committee has decided, following consultation with the Company's major shareholders, to amend the EPS performance condition for future LTIP awards, including the 2011 award. Instead of a UK inflation adjusted percentage growth target the Committee will set an actual Headline EPS performance target for each three-year performance period. For the 2011 award the Company reported Headline EPS at the end of the period (year ending 31 December 2013) must be 82.0 pence for any payout to be achieved and 98.5 pence for the maximum payout to be made. These targets are equivalent to a 10%–17% annual EPS compound growth range, or 33%–60% over the three-year period. There is pro rata vesting on a straight-line basis where Headline EPS is between 82.0 pence and 98.5 pence. The Committee concluded that there was very little justification for continuing to utilise a UK-based inflation factor given the very small level of Group activity in the UK and that an absolute EPS target expressed in pence would give a clearer "line of sight" to management.

Summary of key features of the executive Directors' remuneration

Element of remuneration	Purpose and link to Remuneration policy		Maximum Award	Key Features
Base salary	 Helps to recruit and retain key employees.  Reflects the individual's experience, C role and contribution within the Group.	n/a		 Paid in cash.  Normally reviewed by the ommittee annually.
Annual Incentive	 Incentivises executives to achieve specific, pre-defined annual targets. C  For 2011 annual incentives are based on Group Headline Earnings performance. Half of the Annual Incentive for the CEO of the Ceramics division is E based on divisional trading profit with a cash flow adjustment target.		 150% of base salary for the hief Executive.  100% of base salary for the Group CE Finance Director and the CEO of the Ceramics division.	 Entire bonus amount payable in cash to the Group Finance Director and the O of the Ceramics division.  Any bonus award in excess of 100% of base salary earned by the Chief xecutive is deferred into shares for three years.  Subject to clawback.
Long-Term Incentive Plan ("LTIP ") C	 Aligns executives' interests with those of shareholders through the delivery of shares.  Rewards growth in shareholder value and earnings.  Aids retention of key executives over a three-year performance period.		 Performance Shares: executive Directors are eligible to receive a conditional annual allocation M of shares worth up to 100% of base salary.  Matching Shares: executive Directors can elect to invest in ompany shares all or part of their Annual Incentive otherwise payable in cash, in return for which they receive a conditional allocation T of shares worth up to 2.25 times the pre-tax equivalent of the Annual Incentive so invested. (Note: the Chief Executive's maximum  Prior to any vesting the Committee investment in the Matching Share element of the LTIP is capped at an annual bonus equivalent to 100% of base salary.)	 Participants are eligible to receive annual allocations of Performance and atching Shares.  These awards are eligible to vest three years after their award date subject to the achievement of specified performance conditions.  Vesting of half of awards is subject to the Group's TSR performance versus the FTSE 250 (excluding Investment rusts).  Vesting of the remaining half of awards is subject to the growth in the Group's Headline EPS 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 Group over the performance period.
				 Subject to clawback.

DIALOGUE WITH SHAREHOLDERS

The Company is committed to open and transparent dialogue with its shareholders on remuneration as well as other matters. As a matter of course the Committee consults with key institutional shareholders and various representative bodies about any proposed changes to the incentive arrangements of the Company's executive Directors. Following the 2010 AGM and as part of the ongoing commitment to maintain open dialogue, the Chair of the Committee met with major shareholders to obtain detailed feedback on the remuneration policy and to provide an opportunity to discuss any matters arising. The Committee will carefully consider the views expressed when reviewing, setting and communicating future policy.

KEY FEATURES OF THE EXECUTIVE DIRECTORS' REMUNERATION

ANNUAL EMOLUMENTS

Salary levels are reviewed annually and set to reflect individual contribution, experience and Group financial performance. The Committee takes account of the pay environment for employees within the Group. Consideration is also given to levels paid in similar companies. Following the salary freeze applied in 2009, the executive Directors were awarded salary increases of 2% in 2010. With effect from 1 January 2011, Messrs Salmon and Wanecq were awarded increases of 2.5% in line with increases paid to other Group executives. As a result, Messrs Salmon's and Wanecq's current salaries are £540,105 and €632,528 respectively. The salary paid to Mr Butterworth has historically been below the market median. In recognition of his personal performance and the strong Group financial results, the Committee considered it to be an appropriate time to increase his salary towards the median. Accordingly, Mr Butterworth has been awarded an increase of 4.5% in respect of 2011 taking his annual salary to £334,160.

Benefits in kind receivable by Messrs Butterworth, Salmon and Wanecq principally comprise company car allowances, life assurance and medical insurance. These benefits are similar to those provided to other Group executives in the UK.

ANNUAL INCENTIVE

In line with the Group's other senior executives, the executive Directors are eligible to receive an Annual Incentive calculated as a percentage of base salary and based on achievement against specified financial targets. Each year the Committee establishes the financial performance criteria for the forthcoming year. These criteria are set by reference to the Group's financial budget and prior year actual financial results. The target range is set to ensure that maximum bonuses are only paid for significantly exceeding market expectations. The Committee considers that the setting and attainment of these targets is important in the context of achievement of the Group's longer-term strategic goals.

For the financial year 2010, the executive Directors' Annual Incentives were based on Group Headline Earnings performance, the calculation of which is shown in note 16 to the consolidated financial statements. Messrs Butterworth's and Salmon's Annual Incentives were assessed solely against this criterion, whilst half of Mr Wanecq's Annual Incentive was assessed against this criterion and the remainder based upon the divisional trading profit of the Ceramics division adjusted for performance against a key operating cash flow target. As stated in last year's Directors' Remuneration Report, the maximum annual bonus potential for Mr Salmon was increased from 100% to 150% of salary in 2010. The percentage of salary paid for target performance remained unchanged at 50% ensuring that increased bonus payments are only made for above target performance. Any payout over 100% of salary will be payable in deferred shares under the rules of Cookson's Deferred Share Bonus Plan (further information about this Plan is given on page 40). These shares would vest on the third anniversary of their award date, although they will lapse if Mr Salmon ceases employment with the Company before the end of the three-year period other than in certain circumstances permitted under the Plan rules, such as retirement. The maximum annual bonus potential remained at 100% of salary for Messrs Butterworth and Wanecq in 2010 with 50% of salary payable at target.

In 2010, the Group's performance exceeded the maximum Headline Earnings target and the Ceramics division's performance exceeded the maximum trading profit target (as adjusted for cash flow performance) and so annual bonuses equivalent to 100% of base salary will be paid to Messrs Butterworth and Wanecq for 2010, and equivalent to 150% of base salary will be paid to Mr Salmon. Mr Salmon will receive a payment equivalent to 100% of his base salary in cash and will receive a deferred share award equivalent to 50% of his base salary. These annual bonus payments are reported in the Directors' remuneration table on page 42.

The Committee has determined that for 2011 Messrs Butterworth's and Salmon's Annual Incentives will again be based on Group Headline Earnings and Mr Wanecq's Annual Incentive will be based 50% on Group Headline Earnings and 50% on the Ceramics division's trading profit (adjusted for cash flow performance). Their maximum bonus potential will remain unchanged at 150% of salary for Mr Salmon and 100% of salary for Messrs Butterworth and Wanecq.

Directors' remuneration report continued

LONG-TERM INCENTIVE PLAN ("LTIP") AND OTHER SHARE INCENTIVE PLANS

The LTIP rewards executives for delivering superior TSR, defined as the increase in the value of a share, including reinvested dividends, and (from 2007 onwards) Headline EPS growth over a set period of time, and as such is intended to align executive remuneration with shareholders' interests.

The LTIP has two elements: firstly, executive Directors are eligible to receive a conditional annual allocation of shares worth up to 100% of base salary ("Performance Shares"); secondly, executive Directors can elect to invest all or part of their Annual Incentive in ordinary shares of the Company ("Investment Shares") in return for which they receive a conditional allocation of shares worth up to 2.25 times the pre-tax equivalent of the Annual Incentive so invested ("Matching Share Award"). The Chief Executive's maximum investment in the Matching Share element of the LTIP is capped at an annual bonus equivalent to 100% of base salary.

In 2010, each executive Director received an allocation under the LTIP equal to 100% of salary, as shown on page 43. In accordance with the rules of the LTIP, Messrs Butterworth, Salmon and Wanecq chose to use their Annual Incentive award to purchase Investment Shares and received additional Matching Shares in respect of this investment. T hese Matching Shares may vest after three years, conditional upon the achievement of the performance targets described below.

During the year, the Remuneration Committee reviewed the use of TSR and Headline EPS as the basis for the LTIP performance conditions. It remained satisfied that they continue to be the most appropriate measures of long-term performance for the executive Directors at this point. Many investors regard TSR as an important indication of both earnings and capital growth relative to other FTSE 250 companies. The Committee has considered using a sector comparator group for measuring TSR performance, but given the lack of direct competitors deems it to be inappropriate. Use of TSR ensures that the value of awards vesting reflects improvement in the Company's performance over the relevant period. Headline EPS is a key indicator of long-term financial performance and value creation.

Following the most recent review, the criterion applicable to the Headline EPS element of the performance condition has been changed. The new condition is that the Group will have to achieve an actual EPS performance target for the three-year performance period. For the 2011 award the Company reported EPS at the end of the period (year ending 31 December 2013) must be 82.0 pence for any payout to be achieved and 98.5 pence for the maximum payout to be made. The Committee will continue to review the measures as it sees fit to ensure that the LTIP rewards true value creation and sustainable performance going forward.

The rules of the LTIP allow shares purchased by executives under a rights issue to be designated as Investment Shares and qualify for a Matching Share Award. The value of the Matching Share Award relating to shares purchased under a rights issue is, as with any other Matching Share Award, increased as if the executive had invested a pre-tax amount in shares under the rights issue. In respect of the 2009 LTIP awards, the Committee specified that the total annual maximum value of Investment Shares (however sourced) that could qualify for a Matching Share Award was subject to an overall limit of 100% of base salary. Subject to this limit, shares purchased by executives using any Annual Incentive could continue to count as Investment Shares and qualify for a Matching Share Award in addition to any shares purchased in the rights issue which were designated as Investment Shares. In addition to the overall limit, the Committee decided in consultation with major shareholders that only 63% of shares taken up under the 2009 rights issue could be designated as Investment Shares under the LTIP in recognition of the significantly discounted price of the shares issued in the rights issue. Finally, the Committee further specified that the executive Directors be required to retain all of the Cookson shares that they held at the time of the 2009 rights issue for a period of 36 months after the rights issue in order for a Matching Share Award based on shares purchased in the rights issue to be able to vest.

The Committee has the discretion to award participants the dividends that would have been paid on the number of shares that vest in respect of dividend record dates occurring during the period between the award date and the date of vesting.

Performance Shares and Matching Share Awards made in 2008, 2009 and 2010 vest after three years. The proportion of shares vesting is based on the Company's performance against specified performance conditions. Vesting of 50% of shares awarded is based upon the Group's three-year TSR performance relative to that of the companies of its comparator group, the FTSE 250 excluding Investment Trusts, and 50% on Headline EPS (the calculation of which is shown in note 16 to the consolidated financial statements) growth over a three-year period. The two measures operate independently.

The Committee is proposing to grant future LTIP awards, including for 2011, to some participants as nil-cost options. These options would become exercisable, subject to the achievement of the applicable performance conditions, three years after their award, and would then remain exercisable until the fifth anniversary of their award. This would allow each participant the flexibility to decide when to exercise their awards rather than the shares being subject to a one-off vesting date on the third anniversary of their award.

Vesting of 50% of Performance Shares and Matching Share Awards under the 2008, 2009, 2010 and 2011 LTIP awards is based on TSR performance in accordance with the following schedule:

TSR ranking relative to FTSE 250 excluding Investment Trusts	Performance Shares Vesting Percentage	Matching Shares Vesting Ratio (Matching Shares: Investment Shares)
Below Median	0%	0
Median	12.5%	0.25 : 1
Upper Quintile (top 20%)	50%	1.125 : 1
Between Median and Upper Quintile	Pro rata between 12.5% and 50% P	ro rata between 0.25 : 1 and 1.125 : 1

Vesting of 50% of Performance Shares and Matching Share Awards under the 2008, 2009 and 2010 LTIP awards is based on Headline EPS growth, as compared with the compound annual growth in the Retail Prices Index ("RPI"), in accordance with the following schedule:

Annual Compound Headline EPS Growth above RPI	Performance Shares Vesting Percentage	Matching Shares Vesting Ratio (Matching Shares: Investment Shares)
Below 3%	0%	0
3%	12.5%	0.25 : 1
At or above 10%	50%	1.125 : 1
Between 3% and 10%	Pro rata between 12.5% and 50% P	ro rata between 0.25 : 1 and 1.125 : 1

Vesting of 50% of Performance Shares and Matching Share Awards under the 2011 LTIP awards will be based on Headline EPS growth in accordance with the following schedule:

EPS for 2013 financial year	Performance Shares Vesting Percentage	Matching Shares Vesting Ratio (Matching Shares: Investment Shares)
Less than 82.0 pence	0%	0
82.0 pence	12.5%	0.25 : 1
98.5 pence or more	50%	1.125 : 1
Between 82.0 pence and 98.5 pence	Pro rata between 12.5% and 50% P	ro rata between 0.25 : 1 and 1.125 : 1

Matching Share Awards will only vest if the Investment Shares originally purchased have been retained.

The Committee obtains independent external advice to assess whether the Company has met the TSR performance condition at the end of the relevant performance period and to confirm that the companies which make up the index and the measurement of the Company's performance are both in accordance with the rules of the LTIP. Measurement of the Group's TSR takes place over a performance period commencing on the first day of Cookson's financial year in which the award is granted. TSR is measured as the percentage increase in a return index for Cookson and each comparator company between the beginning and end of the performance period. The return index at the beginning of the performance period is the average of the return index on each weekday in the three-month period prior to the start of the performance period. The same three-month averaging method is used to ascertain the return index at the end of the performance period. The companies are then ranked, in descending order, according to their TSR. If Cookson is ranked at or above the median of the comparator group then a proportion of the awards is eligible to vest.

The Group's Headline EPS is calculated on a consistent basis and the Committee has the discretion to adjust for exceptional items as it deems appropriate. Growth in Headline EPS is the annualised percentage growth over the performance period. Headline EPS for the base year — i.e. the calendar year prior to the award date — is compared with the final year — i.e. the calendar year three years after the base year. For the 2008, 2009 and 2010 LTIP awards this was expressed as compound annual growth, above the compound annual growth in RPI.

The performance period applicable to the awards made in 2008 ended on 31 December 2010. The Company's TSR performance during this threeyear performance period was assessed against the comparator group and it was determined that the Company's performance was below median. The portion of the 2008 LTIP awards that was based on TSR will therefore lapse on the vesting date of 31 March 2011. However, the Company did meet the EPS performance condition; the Company's annual compound Headline EPS growth was assessed for the three-year performance period as being more than 10% above RPI. Prior to the vesting of any award, the Committee stipulates that, as an additional hurdle, it needs to be satisfied that vesting has been justified by the underlying financial performance of the Group over the performance period. Having carefully considered the Group's performance over the three-year period, and taking into account the significant improvement in the Group's financial results during the past year, the Committee concluded that the vesting of the Headline EPS element of the 2008 LTIP awards is justified by the underlying financial performance of the Group. Accordingly, 100% of the portion of the 2008 LTIP awards that was based on Headline EPS performance will vest on 31 March 2011.

Directors' remuneration report continued

In 2009 the Committee adjusted the performance conditions applicable to the Company's outstanding LTIP awards to take account of the Company's 2009 rights issue. The adjustments made to the calculation of TSR, reflecting the actual behaviour of the majority of shareholders, and aligned with the executive Directors' own investments, were based upon the assumption that all available rights under the Company's rights issue, and any rights issues carried out by members of the comparator group during the performance period, were taken up in full by eligible shareholders. The adjustments made to the calculation of the Headline EPS performance conditions were based upon the assumption that the rights issue had taken place, on a pro forma basis, at the beginning of the base year, including an adjustment for notional interest on the rights issue funds received in the base year.

In addition to the executive Directors, senior divisional and corporate executives are allocated Performance Shares under the LTIP and members of the Group's Executive Committee and senior corporate executives are also given the opportunity to participate in the Matching Share element.

In 2007, the Company implemented a Deferred Share Bonus Plan ("DSBP") in place of the LTIP for certain senior managers. Under this plan, executives receive an allocation of deferred shares to the value of a percentage of their annual bonus. These shares, which will be sourced from existing shares, vest after three years, although an executive's allocation may lapse if he or she ceases employment in certain circumstances before the end of the three-year period.

Following the Company's rights issue in 2009, the Directors approved adjustments to the number of shares granted under all outstanding options or awards and to any associated exercise price. Adjustments were made in accordance with the rules of the relevant plan and where required by plan rules, adjustments were made with the prior approval of HMRC and/or the Company's Auditor.

Under the rules of the LTIP and executive share option schemes, the Company has the discretion to satisfy the majority of 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. Under the executive share option schemes the Company granted share options, with an option exercise price fixed by reference to the market price prevailing at the time of grant, the exercise of which were subject to an EPS performance condition. The last executive share option grant was made in 2003 and the Company does not intend to make any further grants under the schemes. Any awards that vest under the DSBP are met from the transfer of existing shares.

Further details of the awards and options outstanding under these share plans are given in note 39 to the consolidated financial statements and note 18 to the Company financial statements.

SHARE USAGE

As at 31 December 2010, 234,619 shares were held in the Company's employee share ownership trust ("ESOP"). The trustee of the ESOP purchases shares in the open market or can subscribe for newly-issued shares as required, to meet liabilities for the provision of shares to satisfy options and awards that vest.

Cookson share plans comply with the current ABI guidelines on headroom which provide that overall dilution under all plans should not exceed 10% over a ten year period in relation to the Company's issued share capital, with a further limitation of 5% in any ten year period on discretionary schemes. In the last ten years less than 1% of the Company's current issued share capital has been allotted to settle obligations arising from the exercise or vesting of executive and all employee share incentives and thus the Company remains well within the limits.

Details of the awards outstanding under the Company's share plans as at 31 December 2010 and where granted as options, the associated exercise prices, are given in note 39.2 to the consolidated financial statements and note 15 to the Company financial statements.

PERFORMANCE GRAPH

The graph below compares Cookson's TSR over the last five years with the return on the FTSE 250 Index (excluding Investment Trusts). This index has been chosen as the comparator index to reflect the size, international scope and diversity of the Group's businesses and is the comparator group against which Cookson's performance is measured for the TSR performance condition of the LTIP.

total shareholder return

This graph shows the value by 31 December 2010 of £100 invested in Cookson Group plc on 31 December 2005 compared with the value of £100 invested in the FTSE 250 Index (excluding Investment Trusts). The other points plotted are the values at intervening financial year ends.

n Cookson Group plc n FTSE 250 Index (excluding Investment Trusts)

Our Financials Our Governance Our Business

SHAREHOLDING GUIDELINES

The Committee encourages executive Directors to build and hold a shareholding in the Company equivalent in value to at least one times salary. To this end, executive Directors will normally be expected to retain at least 50% (measured as the value after tax) of any Performance or Matching Share Awards vesting under the LTIP, until this criterion has been met.

DIRECTORS' CONTRACTS

The following paragraphs summarise the main terms and conditions of the contracts of the Directors:

Executive Directors

In line with the policy of the Committee, Messrs Butterworth and Salmon have UK service contracts which have 12 month unexpired terms and provide for 12 months' notice being given. Mr Salmon's contract was dated 14 June 2004 and Mr Butterworth's 25 May 2005. Each contract provides for compensation to be paid on early termination by the Company based on one times salary, pension allowance and benefits payable half in a lump sum and the balance in six separate monthly instalments commencing six months after leaving, mitigated by any salary earned from any new paid occupation. Mr Wanecq is contracted to Vesuvius Group NV/SA, under a Belgian services agreement dated 1 March 2006 for which his remuneration is in the form of fees. His appointment to the Cookson Group plc Board is subject to a separate appointment agreement for which no fee is payable. His termination arrangements are structured to effectively mirror Messrs Butterworth's and Salmon's arrangements including the notice period and mitigation obligations.

None of the executive Directors' contracts contain any change of control provisions and they all contain a duty to mitigate should the Director find an alternative paid occupation in any period during which the Company must otherwise pay compensation on early termination. Other than as described for Mr Wanecq, no Directors had any material interest in a contract of significance (other than service agreements) with the Company or any subsidiary company during the year.

Non-executive Directors

In accordance with the Code, each Non-executive Director is appointed for an initial fixed term of three years subject to their election at the Company's first Annual General Meeting following their appointment and re-election at intervening Annual General Meetings. Thereafter, subject to approval of the Board and their re-election by shareholders, they are appointed for a further three-year term.

		Annual General
		Meeting at which
	Date of	current term	Unexpired
	appointment	is expected to expire	notice period
Non-executive Directors
Jeff Hewitt	1 June 2005	2012	Not required
Peter Hill	1 February 2010	2013	Not required
Jan Oosterveld	15 June 2004	2013	Not required
Barry Perry	1 January 2002	2011	Not required
John Sussens	1 May 2004	2013	Not required

The Chairman, Mr Harris, was appointed as a non-executive Director on 1 April 2010 and succeeded Mr Beeston as Chairman at the conclusion of the 2010 Annual General Meeting. Mr Harris was appointed for a fixed period which is due to expire at the conclusion of the Annual General Meeting in 2016. During the first year of his appointment to the role of Chairman he is entitled to 12 months' notice from the Company; thereafter he is entitled to 6 months' notice from the Company. Any compensation for loss of office would be based upon his fee. Mr Beeston was appointed on 1 April 2003 for a fixed period which was due to expire at the conclusion of the AGM in 2008. This was extended in 2007 and was due to expire at the conclusion of the AGM in 2011. Mr Beeston retired from the Board at the conclusion of the AGM in 2010. He waived his entitlement to any notice from the Company. Non-executive Directors are not entitled to receive compensation for loss of office at any time.

All Directors are subject to retirement, and election or re-election, in accordance with the Company's Articles of Association.

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. The Chairman's remuneration is set by the Committee with reference to the fees of non-executive chairmen within two FTSE 250 comparator groups, the first focusing on sector comparators and the second on companies of similar size.

Directors' remuneration report continued

EXTERNAL APPOINTMENTS

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. In 2010, Mr Salmon received fees of £64,000 for his role as senior independent non-executive director of United Utilities Group plc. Mr Butterworth received fees of £12,833 for his role as non-executive director of St Ives plc.

PENSION ARRANGEMENTS

Messrs Butterworth and Salmon are not entitled to participate in any of the Group's pension arrangements. In accordance with their contracts they received pension allowances of 30% of their base salaries in 2010 to enable them to make their own pension provision. Mr Butterworth's pension allowance in 2010 amounted to £95,931 (2009: £78,375), whilst Mr Salmon's pension allowance in 2010 amounted to £158,080 (2009: £154,980).

Mr Wanecq is entitled to a pension allowance of 30% of his base salary. This amounted to £145,505 in 2010. This comprised his participation in two Group pension arrangements, the US 401K Savings Plan and a Belgian defined contribution plan operated by external providers to the maximum level and a salary supplement.

The following information is audited by the Company's Auditor.

DIRECTORS' REMUNERATION

The following table details the remuneration payable to each Director in respect of the year ended 31 December 2010, together with comparative totals in respect of the year ended 31 December 2009.

	Base
	salary and		Annual	2010	2009
	Non-executive	Benefits I	ncentive	Total T	otal
	Directors' fees	in kind1	bonuses2	remuneration	remuneration
	£	£	£	£	£
Chairman (Non-executive)
Robert Beeston3	60,344	—	—	60,344	164,000
Jeff Harris4	108,730	—	—	108,730	—
Executive Directors
Mike Butterworth	319,770	13,499	319,770	653,039	463,931
Nick Salmon	526,932	17,398	790,398	1,334,728	759,699
François Wanecq5	485,017	50,125	485,017	1,020,159	—
Non-executive Directors6
Jeff Hewitt	55,000	—	—	55,000	55,000
Peter Hill7	36,667	—	—	36,667	—
Jan Oosterveld	40,000	—	—	40,000	40,000
Barry Perry	40,000	—	—	40,000	40,000
John Sussens	55,000	—	—	55,000	55,000
Total Directors' remuneration	1,727,460	81,022	1,595,185	3,403,667	1,577,630

Notes

Benefits in kind comprise mainly the assessed benefits arising from the contractual payments of medical insurance, life assurance and company car allowances.
The Annual Incentive bonuses awarded to Messrs Butterworth, Salmon and Wanecq for 2010 were based on the Group's achievement of an above-Maximum level of performance in respect of Group Headline Earnings for 2010 and for Mr Wanecq, the achievement of an above-Maximum level of performance in respect of the Ceramics Division's operating profit target (as adjusted for cash flow performance). One-third of Mr Salmon's Annual Incentive bonus (equivalent to 50% of his base salary) will be paid in deferred shares. These shares will vest on the third anniversary of their award date although they will lapse if Mr Salmon ceases employment with the Company before the end of the three-year period other than in certain circumstances permitted under the DSBP Rules, such as retirement.
Retired 13 May 2010.
Appointed 1 April 2010.
Appointed 1 February 2010. Mr Wanecq's remuneration details are translated into sterling at the average euro:sterling exchange rate for the year.
Details of the annual fees payable to Non-executive Directors can be found on page 31.
Appointed 1 February 2010.
In addition to the above, ex gratia pensions of £14,026 (2009: £11,879) were paid to former Directors in 2010.
The information in the above table is audited by the Company's Auditor.

LTIP ALLOCATIONS

Details of the executive Directors' allocations of shares under the LTIP are shown in the table below:

T		otal				Total
		share				share M	arket
		allocations	Performance M	atching		allocations	price of
		outstanding S	hares S	hares S	hares	outstanding	shares
		as at	allocated	allocated	lapsed	as at	on day
		31 Dec	during	during	during	31 Dec	before
Director, grant date and type of award N		20091 o. N	the year1,2 o. N	the year1,2 o. N	the year1,5 o.	20101 No.	award1 (p)	Performance period	Vesting date
Mike Butterworth
03/04/07	— Performance Shares	30,371	—	—	(30,371)	—	938.24	01/01/07–31/12/09	03/04/10
	— Matching Shares	40,639	—	—	(40,639)	—	938.24	01/01/07–31/12/09	03/04/10
31/03/08	— Performance Shares	32,368	—	—	—	32,368	968.36	01/01/08–31/12/10	31/03/11
	— Matching Shares	66,209	—	—	—	66,209	968.36	01/01/08–31/12/10	31/03/11
25/03/09	— Performance Shares	174,166	—	—	—	174,166	180.00	01/01/09–31/12/11	25/03/12
	— Matching Shares	321,280	—	—	—	321,280	180.00	01/01/09–31/12/11	25/03/12
07/04/10	— Performance Shares	—	54,522	—	—	54,522	586.50	01/01/10–31/12/12	07/04/13
	— Matching Shares	—	—	52,556	—	52,556	586.50	01/01/10–31/12/12	07/04/13
Totals		665,033	54,522	52,556	(71,010)	701,101
Nick Salmon
03/04/07	— Performance Shares	52,430	—	—	(52,430)	—	938.24	01/01/07–31/12/09	03/04/10
	— Matching Shares	101,599	—	—	(101,599)	—	938.24	01/01/07–31/12/09	03/04/10
31/03/08	— Performance Shares	53,339	—	—	—	53,339	968.36	01/01/08–31/12/10	31/03/11
	— Matching Shares	102,867	—	—	—	102,867	968.36	01/01/08–31/12/10	31/03/11
25/03/09	— Performance Shares	287,000	—	—	—	287,000	180.00	01/01/09–31/12/11	25/03/12
	— Matching Shares	694,033	—	—	—	694,033	180.00	01/01/09–31/12/11	25/03/12
07/04/10	— Performance Shares	—	89,843	—	—	89,843	586.50	01/01/10–31/12/12	07/04/13
	— Matching Shares	—	—	86,605	—	86,605	586.50	01/01/10–31/12/12	07/04/13
Totals		1,291,268	89,843	86,605		(154,029) 1,313,687
François Wanecq
03/04/07	— Performance Shares	35,399	—	—	(35,399)	—	938.24	01/01/07–31/12/09	03/04/10
	— Matching Shares	73,834	—	—	(73,834)	—	938.24	01/01/07–31/12/09	03/04/10
31/03/08	— Performance Shares	42,531	—	—	—	42,531	968.36	01/01/08–31/12/10	31/03/11
	— Matching Shares	85,990	—	—	—	85,990	968.36	01/01/08–31/12/10	31/03/11
25/03/09	— Performance Shares	303,486	—	—	—	303,486	180.00	01/01/09–31/12/11	25/03/12
	— Matching Shares	980,170	—	—	—	980,170	180.00	01/01/09–31/12/11	25/03/12
07/04/10	— Performance Shares	—	93,327	—	—	93,327	586.50	01/01/10–31/12/12	07/04/13
	— Matching Shares	—	—	61,761	—	61,761	586.50	01/01/10–31/12/12	07/04/13
Totals		1,521,410	93,327	61,761		(109,233) 1,567,265

Notes

The interests and market prices shown have been adjusted for the rights issue which took effect in March 2009, and where applicable for the subsequent consolidation of the Company's ordinary shares which took effect on 15 May 2009, when every ten ordinary 10p shares held by shareholders at the close of business on 14 May 2009 were exchanged for one new £1 ordinary share.
In 2010 Messrs Butterworth, Salmon and Wanecq received potential maximum allocations of Performance Shares worth one times their respective base salaries. Under the Matching Share award element of the LTIP they used their 2009 Annual Incentive payments to purchase 13,631, 22,462 and 16,221 shares respectively, and received maximum allocations of Matching Share Awards based on these amounts which had a maximum potential value on the date of award equivalent to circa one times their respective base salaries for Messrs Butterworth and Salmon and circa two-thirds of base salary for Mr Wanecq. The allocations were made to Messrs Butterworth, Salmon and Wanecq on 7 April 2010 and the allocations were calculated based upon the closing mid-market price of Cookson's shares on the day before the awards were made. Cookson's mid-market closing price on the 7 April 2010 was 586p.
The mid-market closing price of Cookson's shares ranged between 367.4p and 659.5p during 2010 and on 31 December 2010 was 658.5p.
The performance criteria which apply to the vesting of share allocations under the LTIP are summarised on pages 38 to 40.
The performance period for the LTIP awards made in 2007 ended on 31 December 2009. The Company's TSR performance during the three-year performance period was assessed against the comparator group and it was determined that the Company's performance was below median. In addition, the Company's annual compound Headline EPS growth over RPI was assessed as being below 3% during this period. Accordingly, the 2007 LTIP awards lapsed on the third anniversary of their award.
The performance period for the LTIP awards made in 2008 ended on 31 December 2010. The Company's TSR performance during the three-year performance period was assessed against the comparator group and it was determined that the Company's performance was below median. The Company's annual compound Headline EPS growth over RPI was assessed as being above 10% during this period. The Remuneration Committee has confirmed that it is satisfied that the vesting of awards under the 2008 LTIP is justified by the underlying financial performance of the Group over the performance period. Accordingly, 100% of the half of the 2008 LTIP awards that was based on Headline EPS performance will vest on the third anniversary of their award.
The information in the above table is audited by the Company's Auditor.

Directors' remuneration report continued

DIRECTORS' INTERESTS

The beneficial interests of the Directors and their families in the ordinary shares of the Company as at 31 December 2010 were as shown below.

	31 Dec	31 Dec
	2010	2009
	£1 Ordinary shares	£1 Ordinary shares
Ordinary shares	No. N	o.
Mike Butterworth	147,507	133,876
Jeff Harris	20,000	—
Jeff Hewitt	14,275	14,275
Peter Hill	5,000	—
Jan Oosterveld	15,206	15,206
Barry Perry	7,741	7,741
Nick Salmon	335,409	312,947
John Sussens	26,000	26,000
François Wanecq	378,528	362,307

Notes

There were no changes to the interests of the Directors in the ordinary shares of the Company in the period from 1 January 2011 to 1 March 2011.
1. 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.
1. None of the Directors, nor their spouses nor minor children, held non-beneficial interests in the ordinary shares of the Company during the year.
1. The information in the above table is audited by the Company's Auditor.

On behalf of the Board

John G Sussens Chairman, Remuneration Committee 1 March 2011

statement of directors' responsibilities in respect of the annual report and the financial statements

The Directors of Cookson Group 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 IFRSs as adopted by the EU and applicable law and have elected to prepare the Company financial statements in accordance with UK Accounting Standards and applicable law.

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 Company and of their profit or loss for that period. In preparing each of the Group and Company financial statements, the Directors are required to:

select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU; and
for the Company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Company financial statements.

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, Directors' 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.

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL FINANCIAL REPORT

Each of the Directors whose names and functions are indicated below confirms that to the best of their knowledge:

the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
the Directors' Report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

The names and functions of the Directors of Cookson Group plc are as follows:

Jeff Harris C	hairman
Nick Salmon C	hief Executive
Mike Butterworth	Group Finance Director
François Wanecq E	xecutive Director
Jeff Hewitt N	on-executive Director and Chairman of the Audit Committee
Peter Hill N	on-executive Director
Jan Oosterveld N	on-executive Director
Barry W Perry N	on-executive Director
John Sussens N	on-executive Director, Senior Independent Director and Chairman of the Remuneration Committee

On behalf of the Board

Mike Butterworth 1 March 2011

INDEPENDENT auditor's report to the members of cookson group plc

We have audited the financial statements of Cookson Group plc ("the Company") for the year ended 31 December 2010 which comprise the Group income statement, the Group statement of comprehensive income, the Group statement of cash flows, the Group and Company balance sheets, the Group statement of changes in equity, and the related notes. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and International Financial Reporting Standards ("IFRSs") as adopted by the EU. The financial reporting framework that has been applied in the preparation of the Company financial statements is applicable law and UK Accounting Standards ("UK Generally Accepted Accounting Practice").

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

As explained more fully in the Directors' Responsibilities Statement set out on page 45, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS

A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm

OPINION ON FINANCIAL STATEMENTS

In our opinion:

the financial statements give a true and fair view of the state of the Group's and of the Company's affairs as at 31 December 2010 and of the Group's profit for the year then ended;
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU;
the Company financial statements have been properly prepared in accordance with UK Generally Accepted Accounting Practice; and
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.

OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006

In our opinion:

the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006;
the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the information given in the Corporate Governance Report set out on pages 22 to 26 with respect to internal control and risk management systems in relation to financial reporting processes and about share capital structures is consistent with the financial statements.

MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION

We have nothing to report in respect of the following matters which, under the Companies Act 2006 we are required to report to you if, in our opinion:

adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us;
the Company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns;
certain disclosures of Directors' remuneration specified by law are not made;
we have not received all the information and explanations we require for our audit; and
a Corporate Governance Report has not been prepared by the Company.
Under the Listing Rules we are required to review:
the Directors' statement, set out on page 30, in relation to going concern;
the part of the Corporate Governance Report on pages 22 to 26 relating to the Company's compliance with the nine provisions of the June 2008 Combined Code specified for our review; and
certain elements of the Directors' Remuneration Report.

Stephen Oxley (Senior Statutory Auditor)

for and on behalf of KPMG Audit Plc, Statutory Auditor, Chartered Accountants 15 Canada Square, London, E14 5GL

1 March 2011

group income statement

For the year ended 31 december 2010

		2010	2009
N	otes	£m	£m
Revenue	6	2,545.5	1,960.6
Manufacturing costs — raw materials		(1,263.7)	(972.7)
— other		(570.6)	(470.1)
Administration, selling and distribution costs		(459.1)	(406.1)
Trading profit	6	252.1	111.7
Amortisation of intangible assets	21	(17.7)	(17.6)
Restructuring and integration charges	9	(17.3)	(75.6)
Profit/(loss) relating to non-current assets	10	0.6	(2.8)
Gains relating to employee benefits plans	38	5.3	9.7
Profit from operations		223.0	25.4
Finance costs — ordinary activities	12	(67.7)	(75.6)
— exceptional items	12	(3.0)	(14.0)
Finance income	12	37.3	38.6
Share of post-tax profit of joint ventures	23	0.4	1.0
Net (loss)/profit on disposal of continuing operations	13	(0.6)	3.7
Profit/(loss) before tax		189.4	(20.9)
Income tax costs — ordinary activities	14	(46.7)	(26.3)
— exceptional items	14	9.4	5.9
Discontinued operations	15	(1.2)	(3.4)
Profit/(loss) for the year		150.9	(44.7)

Profit/(loss) for the year attributable to:
Owners of the parent		145.3	(48.5)
Non-controlling interests	35	5.6	3.8
Profit/(loss) for the year		150.9	(44.7)



Earnings/(loss) per share (pence)	16
From profit/(loss) from continuing operations attributable to owners of the parent:
Basic		53.0	(17.8)
Diluted		52.2	(17.8)

From profit/(loss) attributable to owners of the parent:

Basic 52.6 (19.2) Diluted 51.7 (19.2)

Our Financials Our Governance Our Business

group statement of comprehensive income

For the year ended 31 december 2010

	2010	2009
N otes	£m	£m
Profit/(loss) for the year	150.9	(44.7)
Other comprehensive income/(loss) for the year
Exchange differences on translation of the net assets of foreign operations	84.5	(94.5)
Exchange translation differences arising on net investment hedges 32	(26.1)	16.8
Change in fair value of cash flow hedges 32	(4.2)	(1.0)
Change in fair value of cash flow hedges transferred to profit for the year 32	2.4	12.8
Actuarial gains on employee benefits plans 38	34.9	24.4
Actuarial losses on employee benefits plans 38	(32.4)	(101.7)
Change in fair value of available-for-sale investments 32	(1.4)	0.5
Change in fair value of available-for-sale investments transferred to profit for the year 32	(1.3)	—
Income tax relating to components of other comprehensive income 14	(0.7)	21.8
Other comprehensive income/(loss) for the year, net of income tax	55.7	(120.9)
Total comprehensive income/(loss) for the year	206.6	(165.6)

Total comprehensive income/(loss) for the year attributable to:
Owners of the parent	198.5	(168.2)
Non-controlling interests	8.1	2.6
Total comprehensive income/(loss) for the year	206.6	(165.6)

For the year ended 31 december 2010

		2010	2009
N Cash flows from operating activities	otes	£m	£m
Cash generated from operations	17	176.9	259.4
Interest paid		(27.9)	(43.8)
Interest received		8.8	8.6
Income taxes paid		(48.2)	(40.5)
Net cash inflow from operating activities		109.6	183.7

Cash flows from investing activities
Purchase of property, plant and equipment		(57.2)	(35.0)
Proceeds from the sale of property, plant and equipment		1.6	1.2
Proceeds from the sale of investments		4.6	0.1
Acquisition of subsidiaries and joint ventures, net of cash acquired	42	(3.9)	(5.9)
Disposal of subsidiaries and joint ventures, net of cash disposed of	43	6.2	6.2
Settlement of closed-out interest rate swaps		(6.5)	(4.0)
Dividends received from joint ventures		0.9	1.1
Other investing outflows		(3.5)	(4.9)
Net cash outflow from investing activities		(57.8)	(41.2)
Net cash inflow before financing activities		51.8	142.5

Cash flows from financing activities
Repayment of borrowings		(189.3)	(284.1)
Increase in borrowings		160.6	—
Settlement of forward foreign exchange contracts		(3.3)	(38.0)
Proceeds from the issue of share capital	31	0.1	240.7
Borrowing facility arrangement costs		(0.9)	(2.4)
Dividends paid to non-controlling shareholders	35	(2.8)	(2.0)
Net cash outflow from financing activities		(35.6)	(85.8)
Net increase in cash and cash equivalents	19	16.2	56.7
Cash and cash equivalents at 1 January		157.7	105.6
Effect of exchange rate fluctuations on cash and cash equivalents		7.5	(4.6)
Cash and cash equivalents at 31 December	18	181.4	157.7

FREE CASH FLOW
Net cash inflow from operating activities		109.6	183.7
Additional funding contributions into Group pension plans		11.6	8.3
Purchase of property, plant and equipment		(57.2)	(35.0)
Proceeds from the sale of property, plant and equipment		1.6	1.2
Dividends received from joint ventures		0.9	1.1
Dividends paid to non-controlling shareholders		(2.8)	(2.0)
Free cash flow	3.22	63.7	157.3

Our Financials Our Governance Our Business

group balance sheet

as at 31 december 2010

		2010	2009
N Assets	otes	£m	£m
Property, plant and equipment	20	411.3	391.9
Intangible assets	21	1,137.1	1,115.6
Employee benefits — net surpluses	38	4.3	—
Interests in joint ventures	23	28.9	23.5
Investments	24	5.7	9.8
Deferred tax assets	25	19.9	12.0
Other receivables		12.4	11.0
Total non-current assets		1,619.6	1,563.8

Cash and short-term deposits	18	186.7	160.2
Inventories	27	287.5	222.0
Trade and other receivables	26	522.9	405.1
Income tax recoverable		4.6	5.5
Derivative financial instruments	28	2.4	0.2
Assets classified as held for sale	29	—	3.2
Total current assets		1,004.1	796.2
Total assets		2,623.7	2,360.0
Equity
Issued share capital	30	276.4	276.4
Share premium account	31	0.1	—
Other reserves	32	179.3	127.9
Retained earnings	33	797.8	643.9
Equity attributable to the owners of the parent		1,253.6	1,048.2
Non-controlling interests	35	23.5	18.2
Total equity		1,277.1	1,066.4

Liabilities
Interest-bearing borrowings	36	390.4	441.6
Employee benefits — net liabilities	38	118.1	137.7
Other payables	40	23.1	27.2
Provisions	41	53.2	56.6
Derivative financial instruments	28	14.1	7.7
Deferred tax liabilities	25	95.7	99.3
Total non-current liabilities		694.6	770.1
Interest-bearing borrowings	36	126.0	90.0
Trade and other payables	40	425.7	337.5
Income tax payable		48.4	45.8
Provisions	41	32.6	36.9
Derivative financial instruments	28	19.3	11.9
Liabilities directly associated with assets classified as held for sale	29	—	1.4
Total current liabilities		652.0	523.5
Total liabilities		1,346.6	1,293.6
Total equity and liabilities		2,623.7	2,360.0

The financial statements were approved and authorised for issue by the Directors on 1 March 2011 and signed on their behalf by:

FOR THE YEAR ENDED 31 december 2010

	Issued share capital £m	Share premium account £m	Exchange translation differences £m	Cash flow hedges £m	Available- for-sale investments £m	Retained earnings £m	Owners of the parent £m	Non- controlling interests £m	Total equity £m
As at 1 January 2009	21.3	8.1	202.1	(12.0)	2.0	753.1	974.6	17.6	992.2
(Loss)/profit for the year	—	—	—	—	—	(48.5)	(48.5)	3.8	(44.7)
Exchange differences on translation of
the net assets of foreign operations	—	—	(93.3)	—	—	—	(93.3)	(1.2)	(94.5)
Exchange translation differences arising
on net investment hedges	—	—	16.8	—	—	—	16.8	—	16.8
Change in fair value of cash flow hedges	—	—	—	(1.0)	—	—	(1.0)	—	(1.0)
Change in fair value of cash flow hedges
transferred to profit for the year	—	—	—	12.8	—	—	12.8	—	12.8
Actuarial gains on employee
benefits plans	—	—	—	—	—	24.4	24.4	—	24.4
Actuarial losses on employee
benefits plans	—	—	—	—	—	(101.7)	(101.7)	—	(101.7)
Change in fair value of available-for-sale
investments	—	—	—	—	0.5	—	0.5	—	0.5
Income tax relating to components of
other comprehensive income (note 14)	—	—	—	—	—	21.8	21.8	—	21.8
Other comprehensive (loss)/income	—	—	(76.5)	11.8	0.5	(55.5)	(119.7)	(1.2)	(120.9)
Total comprehensive (loss)/income	—	—	(76.5)	11.8	0.5	(104.0)	(168.2)	2.6	(165.6)
Shares issued in the year	255.1	(8.1)	—	—	—	(6.3)	240.7	—	240.7
Recognition of share-based payments	—	—	—	—	—	1.1	1.1	—	1.1
Dividends paid	—	—	—	—	—	—	—	(2.0)	(2.0)
Total transactions with owners	255.1	(8.1)	—	—	—	(5.2)	241.8	(2.0)	239.8
As at 1 January 2010	276.4	—	125.6	(0.2)	2.5	643.9	1,048.2	18.2	1,066.4
Profit for the year	—	—	—	—	—	145.3	145.3	5.6	150.9
Exchange differences on translation of
the net assets of foreign operations	—	—	82.0	—	—	—	82.0	2.5	84.5
Exchange translation differences
arising on net investment hedges	—	—	(26.1)	—	—	—	(26.1)	—	(26.1)
Change in fair value of cash flow hedges	—	—	—	(4.2)	—	—	(4.2)	—	(4.2)
Change in fair value of cash flow hedges
transferred to profit for the year	—	—	—	2.4	—	—	2.4	—	2.4
Actuarial gains on employee
benefits plans	—	—	—	—	—	34.9	34.9	—	34.9
Actuarial losses on employee
benefits plans	—	—	—	—	—	(32.4)	(32.4)	—	(32.4)
Change in fair value of available-for-sale
investments	—	—	—	—	(1.4)	—	(1.4)	—	(1.4)
Change in fair value of available-for-sale
investments transferred to profit	—	—	—	—	(1.3)	—	(1.3)	—	(1.3)
Income tax relating to components of
other comprehensive income (note 14)	—	—	—	—	—	(0.7)	(0.7)	—	(0.7)
Other comprehensive income/(loss)	—	—	55.9	(1.8)	(2.7)	1.8	53.2	2.5	55.7
Total comprehensive income/(loss)	—	—	55.9	(1.8)	(2.7)	147.1	198.5	8.1	206.6
Shares issued in the year	—	0.1	—	—	—	—	0.1	—	0.1
Recognition of share-based payments	—	—	—	—	—	6.8	6.8	—	6.8
Dividends paid	—	—	—	—	—	—	—	(2.8)	(2.8)
Total transactions with owners	—	0.1	—	—	—	6.8	6.9	(2.8)	4.1
As at 31 December 2010	276.4	0.1	181.5	(2.0)	(0.2)	797.8	1,253.6	23.5	1,277.1

Our Financials Our Governance Our Business

1. GENERAL INFORMATION

Cookson Group plc ("the Company") is a public limited company registered in England and Wales and listed on the London Stock Exchange. Its registered address is shown on page 120. The nature of the operations and principal activities of the Company and its subsidiary and associate companies ("the Group") are set out in the Operating Review on pages 9 to 15.

The financial statements, which were authorised by the Directors for issue on 1 March 2011, are presented in millions of pounds sterling, which is the functional currency of the Company. Foreign operations are included in accordance with the policies set out in note 3.7.

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS"). The financial statements of the Company-only have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice ("UK GAAP"), as disclosed in note 1 to the Company financial statements.

2. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

2.1 REVISED AND AMENDED STANDARDS AND INTERPRETATIONS

The following revised and amended standards and interpretations, which have all been endorsed by the EU, have been adopted by the Group in these consolidated financial statements. With the possible exception of the IFRS 3 (Revised) requirement to expense acquisition costs, none of these revised and amended standards and interpretations is expected to have a material impact on the Group's net cash flows, financial position, total comprehensive income or earnings per share.

IFRS 1 (Revised), First-time Adoption of International Financial Reporting Standards, which is effective for accounting periods beginning on or after 1 July 2009, simplifies the structure of IFRS 1 without making any technical changes.
Amendments to IFRS 1, First-time Adoption of International Financial Reporting Standards, which is effective for accounting periods beginning on or after 1 January 2010, introduces two additional exemptions for first-time adopters in relation to oil and gas assets.
Amendments to IFRS 2, Group Cash-settled Share-based Payments Transactions, which is effective for accounting periods beginning on or after 1 January 2010, provides a clear basis to determine the classification of share-based payment awards in both consolidated and separate financial statements.
IFRS 3 (Revised), Business Combinations, which is effective for accounting periods beginning on or after 1 July 2009, harmonises business combination accounting with US GAAP. The standard continues to apply the acquisition method to business combinations, but with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with some contingent payments subsequently remeasured at fair value through profit or loss; goodwill and non-controlling interests may be calculated on a gross or net basis; and all transaction costs, which under previous practice were treated as part of the cost of a business combination, are to be expensed.
IAS 27, Consolidated and Separate Financial Statements, which is effective for accounting periods beginning on or after 1 July 2009, requires the effects of all transactions with non-controlling interests where there is no change in control to be recorded in equity. Such transactions will no longer result in goodwill or gains and losses in the income statement.
Amendment to IAS 39, Financial Instruments: Recognition and Measurement, for Eligible Hedged Items, which is effective for accounting periods beginning on or after 1 July 2009, clarifies how to apply the principles that determine whether a hedged risk or portion of cash flows is eligible for designation.
IFRIC 12, Service Concession Arrangements, which is effective for accounting periods beginning on or after 29 March 2009, clarifies existing requirements in relation to accounting for government sponsored infrastructure projects.
IFRIC 15, Agreements for the Construction of Real Estate, which is effective for accounting periods beginning on or after 1 January 2010, standardises accounting practice for the recognition of revenue by real estate developers for sales before construction is complete.
IFRIC 16, Hedges of a Net Investment in a Foreign Operation, which is effective for accounting periods beginning on or after 1 July 2009, clarifies which currency exposures qualify for hedge accounting; which entity within a group can hold the hedging instrument; and how to determine the amounts to be reclassified from equity to profit or loss for both the hedging instrument and the hedged item when an investment in a foreign operation is disposed of.
IFRIC 17, Distributions of Non-cash Assets to Owners, which is effective for accounting periods beginning on or after 1 January 2010, clarifies how an entity should measure distributions of assets, other than cash, when it pays dividends to its owners.
IFRIC 18, Transfers of Assets from Customers, which is effective for accounting periods beginning on or after 1 November 2009, clarifies the accounting for arrangements where an item of property, plant and equipment provided by the customer is used to provide an ongoing service.

2. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (CONTINUED)

2.2 STANDARDS, AMENDMENTS AND INTERPRETATIONS THAT ARE NOT YET EFFECTIVE

The following revised and amended standards and interpretations have been issued but are not yet effective and therefore have not been adopted by the Group in these consolidated financial statements. None of these revised and amended standards and interpretations is expected to have a material impact on the Group's net cash flows, financial position, total comprehensive income or earnings per share.

IFRS 9, Financial Instruments, which has not yet been endorsed by the EU and which is effective for accounting periods beginning on or after 1 January 2013, is the first part of a new standard on classification and measurement of financial assets that will replace IAS 39.
IAS 24 (Revised), Related Party Disclosures, which has been endorsed by the EU and which is effective for accounting periods beginning on or after 1 January 2011, removes the requirement for government-related entities to disclose details of transactions with the government and other government-related entities and clarifies and simplifies the definition of a related party.
Amendment to IAS 32, Financial Instruments: Presentation, which has been endorsed by the EU and which is effective for accounting periods beginning on or after 1 February 2010, addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer.
Amendment to IFRIC 14, IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and Their Interaction, entitled Prepayments of a Minimum Funding Requirement, which has been endorsed by the EU and which is effective for accounting periods beginning on or after 1 January 2011, applies to companies that are required to make minimum funding contributions to a defined benefit pension plan.
IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments, which has been endorsed by the EU and which is effective for accounting periods beginning on or after 1 July 2010, clarifies the accounting treatment for equity instruments that are used to extinguish financial liabilities.
Amendments to IFRS 1, First-time Adoption of International Financial Reporting Standards, (a) Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters, which has been endorsed by the EU and which is effective for accounting periods beginning on or after 1 July 2010, ensures that first-time adopters of IFRS benefit from the same transition provisions that amendments to IFRS 7 provide to current IFRS preparers; and (b) Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters, which has not yet been endorsed by the EU and which is effective for accounting periods beginning on or after 1 July 2011, provides relief for first-time adopters of IFRS from having to reconstruct transactions that occurred before their date of transition to IFRS and provides guidance for entities emerging from severe hyperinflation.
Amendments to IFRS 7, Financial Instruments: Disclosures, which has not yet been endorsed by the EU and which is effective for accounting periods beginning on or after 1 July 2011, enhances the reporting of transfers of financial assets.
Amendments to IAS 12, Income Taxes, Deferred tax: Recovery of Underlying Assets, which has not yet been endorsed by the EU and which is effective for accounting periods beginning on or after 1 January 2012, provides a practical approach for measuring deferred tax assets and liabilities when investment properties are measured at fair value.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 BASIS OF ACCOUNTING

With the exception of certain items noted below, which are carried at fair value, the consolidated financial statements have been prepared under the historical cost convention, in accordance with the Companies Act 2006 and IFRS.

3.2 BASIS FOR PREPARATION OF FINANCIAL STATEMENTS ON A GOING CONCERN BASIS

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements of the Group.

3.3 DISCLOSURE OF EXCEPTIONAL ITEMS

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. It also encourages the disclosure of additional line items and the reordering of items presented on the face of the income statement when appropriate for a proper understanding of the entity's financial performance. In accordance with IAS 1, the Company has adopted a policy of disclosing separately on the face of its Group income statement the effect of any components of financial performance considered by the Directors to be exceptional, or for which separate disclosure would assist both in a better understanding of the financial performance achieved and in making projections of future results.

Both materiality and the nature and function of the components of income and expense are considered in deciding upon such presentation. Such items may include, inter alia, amortisation charges relating to intangible assets, the financial effect of major restructuring and integration activity, profits or losses relating to non-current assets, gains or losses relating to employee benefits plans, finance costs, profits or losses arising on business disposals, 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.

3.4 BASIS OF CONSOLIDATION

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.

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's interest therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination together with the non-controlling interests' share of profit or loss and each component of other comprehensive income since the date of the combination. Total comprehensive income is attributed to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

3.5 BUSINESS COMBINATIONS

Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which the Group obtains control. The Group recognises goodwill at the acquisition date, measured as the excess of the aggregate of (i) the acquisition-date fair value of the consideration transferred; (ii) the amount of any non-controlling interest acquired; and (iii) in a business combination achieved in stages, the acquisition-date fair value of the Group's existing equity interest in the acquiree; 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.

Acquisition-related costs, with the exception of costs relating to the issue of debt or equity securities, are expensed in the periods in which the costs are incurred. Contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.6 REVENUE RECOGNITION

Revenue is measured at the fair value of the consideration received or receivable for goods supplied and services rendered to customers, after deducting sales allowances and value-added taxes. Revenue is recognised when the risk of loss transfers to the customer, depending on individual customer terms at the time of dispatch, delivery or upon formal customer acceptance, as appropriate. Provision is made for returns where appropriate.

3.7 FOREIGN CURRENCIES

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.

(a) Reporting foreign currency transactions in functional currency

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:

(i) Foreign currency monetary items are retranslated at the rates prevailing at the balance sheet date. Exchange differences arising on the settlement or retranslation of monetary items are recognised in the income statement;
(ii) Non-monetary items measured at historical cost in a foreign currency are not retranslated; and
(iii) Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the income statement except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised in other comprehensive income, in which case any exchange component of that gain or loss is also recognised in other comprehensive income.

(b) Translation from functional currency to presentational currency

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:

(i) Assets and liabilities are translated using exchange rates prevailing at the balance sheet date;
(ii) Income and expense items are translated at average exchange rates for the year, except where the use of such average rates does not approximate the exchange rate at the date of the transaction, in which case the transaction rate is used; and
(iii) All resulting exchange differences are recognised in other comprehensive income and presented in the translation reserve in equity and are reclassified to profit or loss in the period in which the foreign operation is disposed of.

(c) Net investment in foreign operations

Exchange differences arising on a monetary item that forms part of a reporting entity's net investment in a foreign operation are recognised in the income statement in the separate financial statements of the reporting entity or the foreign operation as appropriate. In the consolidated Group financial statements such exchange differences 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.

3.8 EMPLOYEE BENEFITS

The Group operates a number of pension plans, both of the defined contribution and defined benefit type.

(a) Defined contribution pension plans

Contributions to the Group's defined contribution plans are recognised as employee benefits expense when they fall due. Prepaid contributions, to the extent that they result in either a cash refund or a reduction in future payments, are recognised as an asset. Outstanding contributions are recognised as a liability.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.8 EMPLOYEE BENEFITS (CONTINUED)

(b) Defined benefit pension plans

The net surplus or net liability recognised in the balance sheet for the Group's defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date as adjusted for unrecognised past service costs, less the fair value of the plan assets. The defined benefit obligation is calculated by independent actuaries using the projected unit credit method and by discounting the estimated future cash flows using interest rates on high quality corporate bonds that have terms to maturity approximating the terms of the related pension liability. Any asset recognised in respect of a surplus arising from this calculation is limited to the sum of unrecognised past service costs plus the present value of available refunds and reductions in future contributions to the plan.

Pension expense for the Group's defined benefit plans is recognised as follows:

(i) Within trading profit:

Current service cost — representing the increase in the present value of the defined benefit obligation resulting from employee service in the current year; and

Past service cost — representing the increase in the present value of the defined benefit obligation resulting from employee service in prior periods that arises from changes made to the benefits under the plans in the current year. To the extent that the changes to benefits vest immediately, past service costs are recognised immediately, otherwise they are recognised on a straight-line basis over the vesting period.

(ii) Within ordinary finance costs: Interest cost on the liabilities of the plans — calculated by reference to the plan liabilities and discount rate at the beginning of the year and allowing for changes during the year.
(iii) Within finance income: Expected return on the assets of the plans — calculated by reference to the plan assets and long-term expected rate of return at the beginning of the year and allowing for changes during the year.
(iv) Within the Group statement of comprehensive income:
Actuarial gains and losses arising on the assets and liabilities of the plans.
(v) Gains and losses arising on settlements and curtailments are recognised in the income statement in the same line as the item that gave rise to the settlement or curtailment or, if material, separately reported as a component of profit from operations.

(c) Share-based payments

The Group operates a number of different share-based payment arrangements for its employees of both the equity-settled and cash-settled type.

Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the date of grant takes account of the effect of market-based vesting conditions, such as Total Shareholder Return ("TSR"), 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 number of 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 grants with market-based conditions attaching to them, fair value is measured using a form of stochastic option pricing model. For consistency, this method has also been used to value executive share options and stock appreciation rights granted to executives whose options are not subject to the additional market-based performance conditions. For all other grants, fair value is measured using the Black–Scholes model.

For cash-settled share-based payments, the fair value of the amount payable to the employee is recognised as an expense with a corresponding increase in liabilities. The fair value of the amount payable is initially measured at grant date using a form of stochastic option pricing model and spread over the period during which the employees become unconditionally entitled to payment. The liability is remeasured at each balance sheet date and at settlement date. Any changes in the fair value of the liability are recognised in the income statement.

3.9 RESEARCH AND DEVELOPMENT COSTS

Expenditure on research activities is recognised in the income statement as an expense in the year in which it is incurred.

Expenditure on development activities is capitalised if the product or process is technically and commercially feasible and the Group has sufficient resources to complete development. All other development expenditure is recognised in the income statement as an expense in the year in which it is incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses.

Our Financials Our Governance Our Business

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.10 FINANCE COSTS AND FINANCE INCOME

Finance costs include: interest on loans, overdrafts, factoring arrangements and finance lease obligations; amortisation of the costs incurred in connection with the arrangement of borrowings; the ineffective portion of the change in fair value of interest rate swaps designated as cash flow hedges; interest on retirement benefit obligations; and the unwinding of discounts on long-term provisions. Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. All other borrowing costs are recognised as an expense in the income statement using the effective interest rate method.

Finance income includes: interest receivable from funds invested (including available-for-sale financial assets); the expected return from retirement benefit assets; and the unwinding of discounts on long-term receivables.

3.11 TAXATION

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 in 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 or 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.

3.12 GOODWILL

Goodwill arising on the acquisition of a subsidiary or associate is initially recognised in accordance with the accounting policy in note 3.5 and is subsequently measured at cost less accumulated impairment losses. Impairment testing is carried out annually, as described in notes 3.15, 5.2 and 22. On disposal of a subsidiary or an associate, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.13 PROPERTY, PLANT AND EQUIPMENT

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. Subsequent 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 income statement in the period in which it is incurred.

Freehold land is not depreciated as it has an infinite life. Depreciation on other items of property, plant and equipment begins when the asset is available for use and is charged to the 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 machinery — 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 yearend. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount, as described in note 3.15. Gains and losses arising on disposals are determined by comparing sales proceeds with carrying amount and are recognised in the income statement.

3.14 INTANGIBLE ASSETS OTHER THAN GOODWILL

Intangible assets other than goodwill are recognised on business combinations if they are separable, or if they arise from contractual or other legal rights, and their fair value can be measured reliably. They are amortised over their estimated useful lives, as follows:

Asset category	Estimated useful life
Customer relationships	20 years
Trade names	20 years
Intellectual property rights	10 years
Other	between 5 and 10 years

3.15 IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS

An impairment loss is recognised to the extent that the carrying amount of an asset or cash-generating unit ("CGU") exceeds its recoverable amount. 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, which is the present value of the future cash flows expected to be derived from the asset or CGU, discounted using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. Impairment losses are recognised immediately in the income statement.

(a) Goodwill

Goodwill acquired in a business combination is allocated to each of the Group's CGUs expected to benefit from the synergies of the combination. The Group's CGUs are disclosed in note 21 and represent the lowest level within the Group at which goodwill is monitored. CGUs to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the CGU may be impaired.

If the recoverable amount of the CGU is less than its carrying amount, 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.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.15 IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS (CONTINUED)

(b) Other tangible and intangible assets

At each balance sheet date, the Group reviews the carrying amount of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any 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 possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the CGU to which the asset belongs.

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. Where an impairment loss is subsequently reversed, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset or CGU in prior years. A reversal of an impairment loss for tangible and intangible assets other than goodwill is recognised immediately in the income statement.

3.16 INTERESTS IN JOINT VENTURES

A joint venture is a contractual arrangement whereby the Group and one or more other parties undertake an economic activity that is subject to joint control. Joint control exists when the strategic financial and operating policy decisions relating to the activity require the unanimous consent of the parties sharing control.

The Group conducts its joint venture arrangements through jointly controlled entities and accounts for them using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for under IFRS 5. Where the Group transacts with its jointly controlled entities, unrealised profits and losses are eliminated to the extent of the Group's interest in the joint venture.

3.17 INVENTORIES

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.

In addition to the inventory recorded in the balance sheet, the Group holds precious metals under consignment arrangements, further details of which are given in note 27.

3.18 NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

Non-current assets (or a collection of assets and liabilities in a disposal group) are separately classified as held for sale in the balance sheet when their carrying value will be recovered principally through a sale transaction rather than through continuing use.

Immediately prior to being classified as held for sale the measurement of the assets (and all assets and liabilities in a disposal group) is brought up to date in accordance with applicable IFRS. Then, on initial classification as held for sale, non-current assets and disposal groups are recognised at the lower of carrying amount and fair value less costs to sell. Impairment losses on initial classification as held for sale are included in profit or loss, as are gains and losses on subsequent remeasurement.

Discontinued operations are those operations that can be clearly distinguished from the rest of the Group, both operationally and for financial reporting purposes, that have either been disposed of or classified as held for sale and which represent a separate major line of business or geographical area of operations.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.19 LEASES

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.

(a) Finance leases

Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the income statement.

(b) Operating leases

Rentals payable under operating leases are charged to the income statement on a straight-line basis over the term of the relevant 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.

3.20 FINANCIAL INSTRUMENTS

Financial assets and liabilities are recognised in the Group balance sheet when the Group becomes a party to the contractual provisions of the instrument.

(a) Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

(b) Derivative financial instruments

The Group uses derivative financial instruments in the form of forward foreign currency contracts and interest rate swaps to manage the effects of its exposure to fluctuations in foreign exchange and interest rates on its borrowings and borrowing costs. In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes.

Derivative financial instruments are measured at fair value. The method of recognising the gain or loss on remeasurement to fair value depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged (note 4.2).

The fair value of forward foreign currency contracts is their quoted market price at the balance sheet date. The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the creditworthiness of the swap counterparties.

(c) Non-derivative financial instruments

Non-derivative financial instruments include investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. Non-derivative financial instruments are initially recognised at fair value plus directly attributable transaction costs.

Cash and cash equivalents comprise cash in hand, demand deposits and short-term highly liquid investments with maturities of three months or less that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. 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. Loans and borrowings comprise secured and unsecured loans and obligations under finance leases (note 3.19).

The Group's investments in equity and debt securities are classified as available-for-sale investments. Subsequent to initial recognition they are measured at fair value and changes therein are recognised in other comprehensive income and presented in the investment revaluation reserve in equity. When an investment is derecognised, the cumulative gain or loss in the investment revaluation reserve is transferred to profit or loss.

All other non-derivative financial instruments are measured at amortised cost, using the effective interest method, less impairment losses.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.21 PROVISIONS

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 (note 3.10).

3.22 USE OF NON-GAAP FINANCIAL MEASURES

The Company uses a number of non-Generally Accepted Accounting Practice ("non-GAAP") financial measures in addition to those reported in accordance with IFRS. Because IFRS measures reflect all items which affect reported performance, the Directors believe that certain non-GAAP measures, which reflect what they view as the underlying performance of the Group, are important and should be considered alongside the IFRS measures. The following non-GAAP measures are referred to in this annual report.

(a) Net sales value

Net sales value is calculated as the total of revenue less the amount included therein related to any precious metal component. The Directors believe that net sales value provides an important measure of the underlying sales performance of the Group's Precious Metals division.

(b) Return on sales and return on net sales value

Return on sales is calculated as trading profit divided by revenue. Return on net sales value is calculated as trading profit divided by net sales value. The Directors believe that return on sales provides an important measure of the underlying trading performance of the Group and the Group's Ceramics and Electronics divisions and that return on net sales value provides an important measure of the underlying trading performance of the Group's Precious Metals division.

(c) Underlying revenue growth

Underlying revenue growth measures the organic growth in revenue from one year to the next after eliminating the effects of changes in exchange rates and commodity metals prices and the effects of business acquisitions, disposals and closures. The Directors believe that underlying revenue growth gives an important measure of the organic revenue generation capacity of the Group.

(d) Trading profit

Trading profit is defined as profit from operations before exceptional items. The Directors believe that trading profit is an important measure of the underlying trading performance of the Group.

(e) Headline profit before tax

Headline profit before tax is calculated as the net total of trading profit, plus the Group's share of post-tax profit of joint ventures and total net finance costs associated with ordinary activities. The Directors believe that headline profit before tax provides an important measure of the underlying financial performance of the Group.

(f) Headline earnings per share

Headline earnings per share is calculated as headline profit before tax and after income tax costs associated with ordinary activities and profit attributable to non-controlling interests, divided by the weighted average number of ordinary shares in issue during the year. The Directors believe that headline earnings per share provides an important measure of the underlying earnings capacity of the Group.

(g) Free cash flow

Free cash flow, defined as net cash flow from operating activities after net outlays for the purchase and sale of property, plant and equipment, dividends from joint ventures and dividends paid to non-controlling shareholders, but before additional funding contributions to Group pension plans, is disclosed on the face of the Group statement of cash flows. The Directors believe that free cash flow gives an important measure of the underlying cash generation capacity of the Group.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

3.22 USE OF NON-GAAP FINANCIAL MEASURES (CONTINUED)

(h) Average working capital to sales ratio

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. The Directors believe that the average working capital to sales ratio provides an important measure of the underlying effectiveness with which working capital balances are managed throughout the Group.

(i) EBITDA

EBITDA is calculated as the total of trading profit before depreciation charges. The Directors believe that EBITDA provides an important measure of the underlying financial performance of the Group.

(j) Net interest

Net interest is calculated as interest payable on borrowings less interest receivable, excluding any item therein considered by the Directors to be exceptional.

(k) Interest cover

Interest cover is the ratio of EBITDA to net interest. The Directors believe that interest cover provides an important measure of the underlying financial position of the Group.

(l) Net debt

Net debt comprises the net total of current and non-current interest-bearing loans and borrowings and cash and short-term deposits. The Directors believe that net debt is an important measure as it shows the Group's aggregate net indebtedness to banks and other external financial institutions.

(m) Net debt to EBITDA

Net debt to EBITDA is the ratio of net debt at the year-end to EBITDA for that year. The Directors believe that net debt to EBITDA provides an important measure of the underlying financial position of the Group.

(n) Return on net assets

Return on net assets ("RONA") is calculated as trading profit plus share of post-tax profit of joint ventures, divided by average net operating assets (being the average over the previous 12 months of property, plant and equipment, trade working capital and other operating receivables and payables). The Directors believe that RONA provides an important measure of the underlying financial performance of the Group's divisions.

(o) Return on investment

Return on investment ("ROI") is calculated as trading profit after tax plus share of post-tax profit of joint ventures, divided by invested capital (being shareholders' funds plus net debt, employee benefits net surpluses and net liabilities and goodwill previously written off to, or amortised against, reserves). The Directors believe that ROI provides an important measure of the underlying financial performance of the Group.

Our Financials Our Governance Our Business

4. FINANCIAL RISK MANAGEMENT

4.1 FINANCIAL RISK FACTORS

(a) Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from transactions and borrowings that are denominated in currencies other than pounds sterling. It uses various financial instruments to manage these exposures, as explained below.

● Recognised assets and liabilities

Forward foreign exchange contracts are used to hedge against the Group's exposure to changes in the fair value of a recognised asset or liability that are attributable to a particular risk and which could affect profit or loss. Such forward foreign exchange contracts are accounted for as fair value hedges in accordance with the policy in note 4.2(a).

● Forecast transactions

Forward foreign exchange contracts are used to hedge against the Group's exposure to variability in cash flows that might arise from the fluctuation of exchange rates in relation to highly probable forecast transactions that are denominated in currencies other than its own functional currencies and which might affect profit or loss. Such forward foreign exchange contracts are accounted for as cash flow hedges in accordance with the policy in note 4.2(b).

● Net investment hedges

Forward foreign exchange contracts and foreign currency non-derivative financial instruments are used to hedge against the Group's exposure to changes in the value of its investment in the net assets of its foreign operations that arise from fluctuations in exchange rates. Such financial instruments are accounted for as net investment hedges in accordance with the policy in note 4.2(c).

(b) Credit risk

Credit risk is the risk that the Group may suffer financial loss as a result of a third party failing to carry out its obligations under a financial instrument. The Group's main exposure to credit risk is in relation to its trade receivables. As detailed in note 26, the Group is not exposed to any significant concentration of credit risk.

(c) Liquidity risk

The Group Treasury function ensures that there are sufficient levels of committed facilities, cash and cash equivalents to enable the Group at all times to meet its financial commitments and operate within its financial covenants. Details of the Group's committed facilities and covenant compliance can be found in the Financial Review on page 19.

(d) Cash flow and fair value interest rate risk

The Group's interest rate risk arises primarily from its borrowings. An analysis of the currency and interest rate profiles of the Group's borrowings is shown in note 37.

Borrowings at floating rates expose the Group to cash flow interest rate risk and borrowings at fixed rates expose the Group to fair value interest rate risk. The Group's policy is to borrow a mix of fixed and floating rate debt. From time to time the Group manages its cash flow and fair value interest rate risk by using interest rate swaps, which have the economic effect of changing the interest rate profile of the Group's borrowings.

4. FINANCIAL RISK MANAGEMENT (CONTINUED)

4.2 HEDGING ACTIVITIES

The Group designates certain financial instruments as either: (a) hedges of the exposure to changes in the fair value of recognised assets or liabilities that are attributable to a particular risk and could affect profit or loss (fair value hedges); (b) hedges of the exposure to variability in cash flows that are attributable to a particular risk associated with a highly probable forecast transaction and could affect profit or loss (cash flow hedges); or (c) hedges of net investments in foreign operations.

At the inception of the transaction, the Group documents the relationship between the hedging instrument and the hedged item. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the financial instruments that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

(a) Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised within trading profit in the income statement, together with any changes in the fair value of the hedged assets or liabilities that are subject to the hedged risk.

(b) Cash flow hedges

Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument 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 trading profit, or within finance costs in the case of interest rate swaps designated as cash flow hedges. When the forecast transaction that was being hedged is realised and affects profit or loss, the cumulative gain or loss on the derivative financial instrument is removed from the hedging reserve and recognised in the income statement in the same period. When the forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, the associated cumulative gain or loss is removed from the hedging reserve and included in the initial cost or other carrying amount of the non-financial asset or non-financial liability.

When a hedging instrument expires or is sold, terminated or exercised, or designation of the hedge relationship is revoked, but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in the hedging reserve and is recognised in accordance with the above policy when the transaction takes place. If the hedged transaction is no longer expected to take place, the cumulative gain or loss is removed from the hedging reserve and recognised immediately in the income statement.

(c) Net investment hedges

The portion of the gain or loss on an instrument used to hedge a net investment in a foreign operation that is determined to be an effective hedge is recognised in other comprehensive income and presented in the translation reserve in equity and is subsequently recognised in the income statement as part of the profit or loss on disposal of the net investment. The ineffective portion of the gain or loss is recognised immediately within trading profit in the income statement.

4.3 CAPITAL MANAGEMENT

The Group considers its capital to be equal to the sum of its total equity and net debt. It 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, RONA and ROI (note 3.22). The Group's objectives when managing its capital are:

to ensure that the Group and all of its businesses are able to operate as going concerns and ensure that the Group operates within the financial covenants contained within its debt facilities;
to maximise shareholder value through maintaining an appropriate balance between the Group's equity and net debt;
to have available the necessary financial resources to allow the Group to invest in areas that may deliver acceptable future returns to investors; and
to maintain sufficient financial resources to mitigate against risks and unforeseen events.

The Group operated comfortably within the requirements of its debt covenants throughout the year 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 page 19. The Group has established new three-year performance targets (page 5) that include maintaining a strong financial position with a year-end net debt to EBITDA ratio of not more than 1.5 times and dividend growth at least in line with earnings growth.

5. CRITICAL JUDGEMENTS IN APPLYING ACCOUNTING POLICIES AND KEY SOURCES OF ESTIMATION UNCERTAINTY

5.1 PROPERTY, PLANT AND EQUIPMENT

It is Group policy to depreciate its property, plant and equipment assets, except freehold land, on a straight-line basis over their estimated useful lives. This policy applies an appropriate matching of the revenue earned with the capital costs of production and delivery of goods and services. A key element of this policy is the estimate of the useful life applied to each category of property, plant and equipment which, in turn, determines the annual depreciation charge. Variations in asset lives could significantly impact Group profit through an increase or decrease in the depreciation charge.

5.2 GOODWILL AND OTHER INTANGIBLE ASSETS

The Directors use their judgement to determine the extent to which goodwill and other capitalised intangible assets have 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 and other intangible assets, using discounted cash flow forecasts to derive the value in use to the Group of the capitalised assets. In the assessment undertaken in 2010, further details of which are given in note 22, value in use was derived from discounted five-year cash flow projections, using a growth rate of 3% 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 and other intangible assets.

5.3 CURRENT ASSET RESERVES

In the course of normal trading activities, judgement is used to establish the net realisable value of various elements of working capital, principally inventory and trade receivables. Reserves are established for obsolete or slow-moving inventories, bad or doubtful debts and product warranties.

Reserve requirements are based on the facts available at the time and are also determined by using profiles, based on past practice, applied to certain aged inventory and receivables categories. In estimating the collectability of trade receivables, judgement is required in assessing their likely realisation, including the current creditworthiness of each customer and related ageing of the past due balances. Specific accounts are assessed in situations where a customer may not be able to meet its financial obligations due to deterioration in its financial condition, credit ratings or bankruptcy.

5.4 EMPLOYEE BENEFITS

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. These assumptions are set after consultation with the Group's actuaries and include those used to determine regular service costs and the financing elements related to the plans' assets and liabilities. 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.

5.5 LIABILITY RESERVES

Cookson 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.

5.6 DISCONTINUED OPERATIONS

The Group's financial statements present the results of discontinued operations separately from continuing operations. Discontinued operations include those businesses that have been sold, or are classified as held for sale, and which represented a separate major line of business or geographical area of operations. The Directors exercise their judgement to determine which of the Group's businesses should have their results presented within discontinued operations.

5. CRITICAL JUDGEMENTS IN APPLYING ACCOUNTING POLICIES AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED) 5.7 TAXATION

(a) Current tax

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 audit and local enquiries which, by their very nature, can take a considerable period of time to conclude. Provision is made for known issues based upon the Directors' interpretation of country-specific tax law and their assessment of the likely outcome.

(b) Deferred tax

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 has losses and other timing differences for which no value has been recognised for deferred tax purposes in these financial statements. This situation can arise in loss-making subsidiaries where the future economic benefit of these timing differences is not probable. It can also arise where the timing differences are of such a nature that their value is dependent on only certain types of profit being earned, such as capital profits. If trading 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.

6. SEGMENT INFORMATION

The segment information contained in this note makes reference to several non-GAAP financial measures, definitions for which can be found in note 3.22.

6.1 BUSINESS SEGMENTS

For reporting purposes, the Group is organised into three main business segments: Ceramics, Electronics and Precious Metals. The Chief Executive Officer of each of these business segments reports to the Chief Executive of the Group and it is the Cookson Board which makes the key operating decisions in respect of these segments. The information used by the Cookson Board to review performance and determine resource allocation between the business segments is presented with the Group's activities segmented between the three business segments, Ceramics, Electronics and Precious Metals. Taking into account not only the basis on which the Group's activities are reported to the Cookson Board, but also the nature of the products and services of the product lines within each of these segments, the production processes involved in each and the nature of their end-markets, the Directors believe that these three business segments are the appropriate way to analyse the Group's results. The principal activities of each of these segments are described in the Operating Review on pages 9 to 15.

Segment revenue represents revenue from external customers (inter-segment revenue is not material) and segment result is equivalent to trading profit excluding corporate costs directly related to managing the parent company, which are reported separately in the table below. Segment net operating assets exclude goodwill and other intangible assets, net debt, net employee benefits liabilities, net tax liabilities and other net non-operating liabilities. Segment result and segment net operating assets include items directly attributable to a segment as well as those items that can be allocated on a reasonable basis.

6. SEGMENT INFORMATION (continued)

6.2 INCOME STATEMENT

	2010
			Precious
	Ceramics	Electronics M	etals	Unallocated	Group
	£m	£m	£m	£m	£m
Segment revenue	1,494.9	720.9	329.7	—	2,545.5
Segment EBITDA	219.2	79.7	16.3	—	315.2
Segment depreciation	(41.8)	(8.7)	(3.6)	—	(54.1)
Segment result	177.4	71.0	12.7	—	261.1
Corporate costs	—	—	—	(9.0)	(9.0)
Trading profit	177.4	71.0	12.7	(9.0)	252.1
Amortisation of intangible assets	(17.7)	—	—	—	(17.7)
Restructuring and integration charges	(9.6)	(5.5)	(2.2)	—	(17.3)
(Loss)/profit relating to non-current assets	(0.2)	0.8	—	—	0.6
Gains relating to employee benefits plans	—	—	—	5.3	5.3
Profit/(loss) from operations	149.9	66.3	10.5	(3.7)	223.0
Finance costs — ordinary activities					(67.7)
— exceptional items					(3.0)
Finance income					37.3
Share of post-tax profit of joint ventures					0.4
Net loss on disposal of continuing operations					(0.6)
Profit before tax					189.4

			2009
C	eramics E	lectronics M	Precious etals	Unallocated	Group
	£m	£m	£m	£m	£m
Segment revenue	1,130.8	529.9	299.9	—	1,960.6
Segment EBITDA	111.6	48.5	12.5	—	172.6
Segment depreciation	(40.7)	(9.3)	(3.6)	—	(53.6)
Segment result	70.9	39.2	8.9	—	119.0
Corporate costs	—	—	—	(7.3)	(7.3)
Trading profit	70.9	39.2	8.9	(7.3)	111.7
Amortisation of intangible assets	(17.6)	—	—	—	(17.6)
Restructuring and integration charges	(44.3)	(27.8)	(2.4)	(1.1)	(75.6)
Loss relating to non-current assets	(0.1)	(2.6)	(0.1)	—	(2.8)
Gains relating to employee benefits plans	—	—	—	9.7	9.7
Profit from operations	8.9	8.8	6.4	1.3	25.4
Finance costs — ordinary activities					(75.6)
— exceptional items					(14.0)
Finance income					38.6
Share of post-tax profit of joint ventures					1.0
Net profit on disposal of continuing operations					3.7
Loss before tax					(20.9)

6. SEGMENT INFORMATION (continued)

6.3 BALANCE SHEET

	2010
			Precious
	Ceramics	Electronics M	etals	Unallocated	Group
	£m	£m	£m	£m	£m
Property, plant and equipment	315.2	69.7	25.9	0.5	411.3
Trade working capital	344.6	115.9	44.3	(1.3)	503.5
Other net operating liabilities	(68.7)	(42.3)	(23.4)	(8.8)	(143.2)
Net operating assets/(liabilities)	591.1	143.3	46.8	(9.6)	771.6
Goodwill	607.9	301.0	—	—	908.9
Other intangible assets	228.2	—	—	—	228.2
Net debt	—	—	—	(329.7)	(329.7)
Net employee benefits liabilities	—	—	—	(113.8)	(113.8)
Net tax liabilities	—	—	—	(119.6)	(119.6)
Other net non-operating liabilities	—	—	—	(68.5)	(68.5)
Total net assets/(liabilities)	1,427.2	444.3	46.8	(641.2)	1,277.1

eramics E £m	lectronics M £m	recious etals £m	Unallocated £m	Group £m
299.1	65.4	26.8	0.6	391.9
254.1	77.0	51.5	(2.1)	380.5
(61.3)	(31.0)	(18.8)	(9.6)	(120.7)
491.9	111.4	59.5	(11.1)	651.7
585.5	288.5	—	—	874.0
241.6	—	—	—	241.6
—	—	—	(371.4)	(371.4)
—	—	—	(137.7)	(137.7)
—	—	—	(127.6)	(127.6)
—	—	—	(64.2)	(64.2)
1,319.0	399.9	59.5	(712.0)	1,066.4
			2009

Average net operating assets for RONA calculation

As at 31 December 2010 [a]	577.6	150.4	65.9	(12.3)	781.6
As at 31 December 2009 [b]	545.8	151.0	87.0	(15.4)	768.4

6. SEGMENT INFORMATION (continued)

6.4 PERFORMANCE MEASURES

	2010
			Precious
	Ceramics	Electronics M	etals	Unallocated	Group
	£m	£m	£m	£m	£m

Trading profit	177.4	71.0	12.7	(9.0)	252.1
Share of post-tax (loss)/profit of joint ventures	(0.9)	1.3	—	—	0.4
Profit for RONA calculation [c]	176.5	72.3	12.7	(9.0)	252.5

RONA % [c] ÷ [a]	30.6	48.1	19.3	n/a	n/a
Return on sales margin (%)	11.9	9.8	n/a	n/a	9.9
Return on net sales value (%)	n/a	n/a	9.5	n/a	n/a
Property, plant and equipment additions (£m)	50.1	11.0	2.2	—	63.3
Research and development costs (£m)	21.6	16.5	—	—	38.1
Research and development costs as % of sales	1.4	2.3	—	—	1.5
Number of employees — year-end	11,624	2,571	1,528	43	15,766
— average	11,124	2,699	1,582	43	15,448

			2009
P C	eramics E £m	lectronics M £m	recious etals £m	Unallocated £m	Group £m
Trading profit	70.9	39.2	8.9	(7.3)	111.7
Share of post-tax profit of joint ventures	0.3	0.7	—	—	1.0
Profit for RONA calculation [d]	71.2	39.9	8.9	(7.3)	112.7
RONA % [d] ÷ [b]	13.0	26.4	10.2	n/a	n/a
Return on sales margin (%)	6.3	7.4	n/a	n/a	5.7
Return on net sales value (%)	n/a	n/a	6.7	n/a	n/a
Property, plant and equipment additions (£m)	28.7	4.8	1.5	—	35.0
Research and development costs (£m)	20.7	16.3	—	—	37.0
Research and development costs as % of sales	1.8	3.1	—	—	1.9
Number of employees — year-end	10,519	2,711	1,588	42	14,860
— average	10,555	2,820	1,565	45	14,985

6. SEGMENT INFORMATION (continued)

6.5 GEOGRAPHIC ANALYSIS

	External revenue			Non-current assets
	2010	2009	2010	2009
	£m	£m	£m	£m
United Kingdom	158.8	150.2	209.3	221.3
Germany	252.1	207.5	112.6	114.1
United States of America	546.8	446.3	347.3	344.3
China	295.4	223.9	116.7	104.8
Brazil	134.2	84.5	77.4	70.8
Rest of the World	1,158.2	848.2	721.4	688.9
Continuing operations	2,545.5	1,960.6	1,584.7	1,544.2
Unallocated	—	—	10.7	7.6
Total Group	2,545.5	1,960.6	1,595.4	1,551.8

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 employee benefits net surpluses and deferred tax assets.

6.6 PRODUCTS AND CUSTOMERS

Information relating to the Group's products and services is given in the Operating Review on pages 9 to 15. 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 5% of the Group's total external revenue.

7. EXPENSES BY NATURE

The following items have been charged in arriving at trading profit:

2010	2009
£m	£m
Cost of sales 1,834.3	1,442.8
Depreciation (note 20) 54.2	53.6
Minimum lease payments under operating leases (note 44) 25.6	24.4
566.5 Employee benefits expense (note 11)	480.7
Auditor's remuneration (note 8) 3.7	4.4
Foreign exchange differences 5.3	4.0
Research and development costs 38.1	37.0

8. AMOUNTS PAYABLE TO KPMG AUDIT PLC AND ITS ASSOCIATES

	2010	2009
	£m	£m
Audit of these financial statements	0.5	0.5
Audit of financial statements of subsidiaries pursuant to legislation	2.3	2.2
Other services pursuant to such legislation	0.2	0.2
Other services relating to taxation	0.6	0.4
Services relating to corporate finance transactions	0.1	1.1
Total Auditor's remuneration	3.7	4.4

9. RESTRUCTURING AND INTEGRATION CHARGES

The restructuring and integration charge for the year was £17.3m (2009: £75.6m). In 2010, the charge wholly comprised (2009: £48.7m) the cost of a number of initiatives throughout the Group aimed at reducing the Group's cost base and realigning certain of its manufacturing capacity and sales and marketing organisation with its customers' markets. These latter initiatives included redundancy programmes, the downsizing or closure of facilities, the streamlining of manufacturing processes and the rationalisation of product lines. In 2009, total restructuring and integration charges also included £4.9m of costs associated with the integration of Foseco plc into the Group's Ceramics division and £22.0m in respect of onerous lease costs. Of the total charge in the year, £0.9m (2009: £nil) related to asset write-downs. The net tax credit attributable to these restructuring and integration charges was £3.6m (2009: £3.7m).

Cash costs of £23.8m (2009: £49.3m) were incurred in the year in respect of the restructuring and integration initiatives commenced both in 2010 and in prior years, leaving provisions made but unspent of £38.4m (note 41) as at 31 December 2010 (2009: £44.5m), of which £25.1m relate to future lease costs in respect of leases expiring between 3 and 18 years.

10. PROFIT/(LOSS) RELATING TO NON-CURRENT ASSETS

The net profit of £0.6m in 2010 (2009: loss of £2.8m) comprised a net profit of £2.0m (2009: £nil) arising on the sale of investments and surplus property, and asset write-downs of £1.4m principally relating to surplus plant and machinery (2009: £2.8m principally relating to surplus freehold property). The net taxation charge attributable to the sale of non-current assets was £0.2m (2009: £1.3m credit).

11. EMPLOYEES

11.1 EMPLOYEE BENEFITS EXPENSE

	2010	2009
	£m	£m
Wages and salaries	482.2	411.8
Social security costs	55.2	48.9
Share-based payments (note 39)	6.9	1.1
Pension costs — defined contribution pension plans (note 38)	15.7	12.7
— defined benefit pension plans (note 38)	3.8	10.1
Other post-retirement benefits (note 38)	1.0	(8.0)
Total employee benefits expense	564.8	476.6

Of the total employee benefits expense of £564.8m (2009: £476.6m), £566.5m (2009: £480.7m) was charged in arriving at trading profit, £nil (2009: £0.8m) was charged within restructuring and integration charges, £5.3m (2009: £9.7m) was credited within gains relating to employee benefits plans, £36.3m (2009: £34.2m) was charged within ordinary finance costs, and £32.7m (2009: £29.4m) was credited within finance income.

11.2 REMUNERATION OF KEY MANAGEMENT PERSONNEL

The remuneration of the executive Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24, Related Party Disclosures. Further information about the remuneration of individual Directors is provided in the audited part of the Directors' Remuneration Report on pages 35 to 44.

	2010	2009
	£m	£m
Short-term employee benefits	3.0	1.2
Post-employment benefits	0.4	0.2
Share-based payments	3.8	0.3
Total remuneration of key management personnel	7.2	1.7

11. EMPLOYEES (CONTINUED)

11.3 AVERAGE NUMBER OF EMPLOYEES

Total average number of employees	15,448	14,985
Corporate	43	45
Precious Metals	1,582	1,565
Electronics	2,699	2,820
Ceramics	11,124	10,555
	No. N	o.
	2010	2009

12. FINANCE COSTS AND FINANCE INCOME

12.1 TOTAL NET FINANCE COSTS

	2010	2009
	£m	£m
Finance costs — ordinary activities	67.7	75.6
— exceptional items	3.0	14.0
Finance income	(37.3)	(38.6)
Total net finance costs	33.4	51.0

12.2 ORDINARY FINANCE COSTS AND FINANCE INCOME

	2010	2009
	£m	£m
Interest payable on borrowings
Loans, overdrafts and factoring arrangements	26.5	34.6
Obligations under finance leases	0.2	0.2
Amortisation of capitalised borrowing costs	1.9	4.4
	28.6	39.2
Other interest payable
Interest on retirement benefits obligations	36.3	34.2
Unwinding of discounted provisions	2.8	2.2
Total ordinary finance costs	67.7	75.6

Interest receivable	(4.0)	(8.6)
Expected return on retirement benefits assets	(32.7)	(29.4)
Unwinding of discounted receivables	(0.6)	(0.6)
Total finance income	(37.3)	(38.6)

12.3 EXCEPTIONAL FINANCE COSTS

As a consequence of the issuance of \$250m of US Private Placement Loan Notes in December 2010, the Group was required to repay certain of its borrowings under its committed bank facilities. The exceptional finance costs of £3.0m reported in 2010 arose in relation to this early repayment: £2.4m of these costs related to the close-out of interest rate swaps that had been used to hedge the interest payable in relation to the borrowings; and £0.6m related to the write-off of costs that had been capitalised in relation to the borrowings. The exceptional finance costs of £14.0m reported in 2009 arose in relation to the early repayment of certain of the Group's borrowings and the conversion into sterling of the remainder of the Group's foreign currency denominated borrowings: £12.8m of these costs related to the close-out of interest rate swaps that had been used to hedge the interest payable in relation to the borrowings; £0.5m related to the write-off of costs that had been capitalised in relation to the borrowings; and £0.7m related to early repayment costs. The tax associated with these exceptional finance costs was £nil (2009: £nil).

13. NET (LOSS)/PROFIT ON DISPOSAL OF CONTINUING OPERATIONS

The net loss on disposal of continuing operations of £0.6m (2009: £3.7m profit) related to a number of small disposals from the Group's Ceramics and Electronics divisions, which generated £6.2m (2009: £6.2m) of net proceeds. The tax charge associated with these disposals was £nil (2009: £0.9m).

14. INCOME TAX

14.1 INCOME TAX COSTS 2010 2009 £m £m Current tax UK corporation tax — 9.9 Double tax relief — (8.2) Overseas taxation 54.5 30.1 Adjustments in respect of prior years (3.5) (5.1) Total current tax 51.0 26.7 Deferred tax Origination and reversal of temporary taxable differences (8.7) (4.8) Adjustments in respect of prior years (5.0) (1.5) Total deferred tax (note 25) (13.7) (6.3) Total income tax costs 37.3 20.4 Total income tax costs attributable to:

Total income tax costs	37.3	20.4
Exceptional items	(9.4)	(5.9)
Ordinary activities	46.7	26.3

The Group's total income tax costs of £37.3m (2009: £20.4m) include a credit of £9.4m (2009: £5.9m) relating to exceptional items comprising: a credit of £3.6m (2009: £3.7m) in relation to restructuring and integration charges; a credit of £6.4m (2009: £5.1m) relating to the amortisation of intangible assets; a charge of £0.4m (2009: £3.3m) relating to deferred tax on goodwill; a charge of £0.2m (2009: credit of £1.3m) relating to noncurrent assets; and a charge of £nil (2009: £0.9m) relating to the net (loss)/profit on disposal of continuing operations.

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 2010, as effective tax relief may not be available for those losses or expenses. Other significant factors affecting the tax charge are described in notes 3.11 and 5.7.

Tax charged in the Group statement of comprehensive income in the year amounted to £0.7m (2009: £21.8m credit), all of which related to net actuarial gains and losses on employee benefits plans.

14.2 RECONCILIATION OF INCOME TAX COSTS TO PROFIT/(LOSS) BEFORE TAX

	2010	2009
	£m	£m
Profit/(loss) before tax	189.4	(20.9)

Tax at the UK corporation tax rate of 28.0% (2009: 28.0%)	53.0	(5.9)
Overseas tax rate differences	(0.9)	(5.7)
Withholding taxes	3.4	2.9
Amortisation of intangibles	1.1	3.1
Expenses not deductible for tax purposes	1.6	0.6
Deferred tax assets not recognised	(8.3)	33.5
Recognition of previously unrecognised tax losses	(4.1)	(1.5)
Adjustments in respect of prior years	(8.5)	(6.6)
Total income tax costs	37.3	20.4

15. DISCONTINUED OPERATIONS

The net post-tax loss attributable to discontinued operations of £1.2m (2009: £3.4m) related to additional costs in respect of prior years' disposals. The tax charge associated with discontinued operations was £nil (2009: £nil).

16. EARNINGS PER SHARE ("EPS")

16.1 PER SHARE AMOUNTS

	Continuing operations pence	Discontinued operations pence	Total C 2010 pence	ontinuing operations pence	Discontinued T operations pence	otal 2009 pence
Earnings/(loss) per share — basic	53.0	(0.4)	52.6	(17.8)	(1.4)	(19.2)
— diluted	52.2	(0.5)	51.7	(17.8)	(1.4)	(19.2)
— headline	61.5	—	61.5	18.0	—	18.0
— diluted headline	60.4	—	60.4	18.0	—	18.0

16.2 EARNINGS FOR EPS

Basic and diluted EPS are based upon profit/(loss) attributable to owners of the parent, as reported in the Group income statement. Headline and diluted headline EPS are based upon headline profit attributable to owners of the parent. The table below reconciles the profit/(loss) attributable to owners of the parent as reported in the Group income statement to headline profit attributable to owners of the parent.

	Continuing operations £m	Discontinued operations £m	Total C 2010 £m	ontinuing operations £m	Discontinued T operations £m	otal 2009 £m
Profit/(loss) attributable to owners of the parent	146.5	(1.2)	145.3	(45.1)	(3.4)	(48.5)
Adjustments for exceptional items:
Amortisation of intangible assets	17.7	—	17.7	17.6	—	17.6
Restructuring and integration charges	17.3	—	17.3	75.6	—	75.6
(Profit)/loss relating to non-current assets	(0.6)	—	(0.6)	2.8	—	2.8
Gains relating to employee benefits plans	(5.3)	—	(5.3)	(9.7)	—	(9.7)
Exceptional finance costs	3.0	—	3.0	14.0	—	14.0
Net loss/(profit) on disposal of continuing operations	0.6	—	0.6	(3.7)	—	(3.7)
Discontinued operations	—	1.2	1.2	—	3.4	3.4
Tax relating to exceptional items	(9.4)	—	(9.4)	(5.9)	—	(5.9)
Headline profit attributable to owners of the parent	169.8	—	169.8	45.6	—	45.6

16.3 WEIGHTED AVERAGE NUMBER OF SHARES

For calculating diluted basic and diluted headline EPS	280.9	252.8
Adjustment for dilutive potential ordinary shares	4.7	—
For calculating basic and headline EPS	276.2	252.8
	m	m
	2010	2009

For the purposes of calculating diluted basic and diluted headline 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.

In addition to the ordinary shares shown as being dilutive in the table above, the Company had 0.5m (2009: 0.8m) of outstanding options and 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 and diluted headline EPS above because they were antidilutive in the years presented.

17. CASH GENERATED FROM OPERATIONS

	2010	2009
	£m	£m
Profit from operations	223.0	25.4
Adjustments for:
Amortisation of intangible assets	17.7	17.6
Restructuring and integration charges	17.3	75.6
(Profit)/loss relating to non-current assets	(0.6)	2.8
Gains relating to employee benefits plans	(5.3)	(9.7)
Depreciation	54.2	53.6
EBITDA	306.3	165.3
(Increase)/decrease in inventories	(56.1)	91.9
(Increase)/decrease in trade receivables	(78.1)	41.3
Increase in trade payables	34.0	12.4
Decrease in other working capital balances	7.8	6.9
Net (increase)/decrease in trade and other working capital	(92.4)	152.5
Net operating outflow related to assets and liabilities classified as held for sale	(1.6)	(0.8)
Outflow related to restructuring and integration charges	(23.8)	(49.3)
Additional funding contributions into Group pension plans	(11.6)	(8.3)
Cash generated from operations	176.9	259.4

18. CASH AND CASH EQUIVALENTS

	2010	2009
	£m	£m
Short-term deposits	39.6	44.8
Cash at bank and in hand	147.1	115.4
Cash and short-term deposits	186.7	160.2
Bank overdrafts	(5.3)	(2.5)
Cash and cash equivalents in the Group statement of cash flows	181.4	157.7

19. RECONCILIATION OF MOVEMENT IN NET DEBT

	Balance				Balance
	as at	Foreign			as at
	1 January	exchange	Non-cash		31 December
	2010	adjustments	movements	Cash flow	2010
	£m	£m	£m	£m	£m
Cash and cash equivalents
Short-term deposits	44.8	0.2	—	(5.4)	39.6
Cash at bank and in hand	115.4	7.2	—	24.5	147.1
Bank overdrafts	(2.5)	0.1	—	(2.9)	(5.3)
				16.2
Borrowings, excluding bank overdrafts
Current	(89.5)	(6.6)	(115.6)	89.6	(122.1)
Non-current	(444.3)	(2.5)	115.6	(60.9)	(392.1)
Capitalised borrowing costs	4.7	—	(1.6)	—	3.1
				28.7
Net debt	(371.4)	(1.6)	(1.6)	44.9	(329.7)

Net debt is a measure that shows the Group's net indebtedness to banks and other external financial institutions and comprises the total of cash and short-term deposits and current and non-current interest-bearing loans and borrowings.

20. PROPERTY, PLANT AND EQUIPMENT

	Freehold property £m	Leasehold property £m	Plant and machinery £m	Construction in progress £m	Total £m
Cost
As at 1 January 2009	222.4	31.5	634.2	57.1	945.2
Exchange adjustments	(13.3)	(1.5)	(35.3)	(4.5)	(54.6)
Additions	1.4	1.0	21.3	11.3	35.0
Disposals	(1.1)	(0.6)	(25.4)	(0.2)	(27.3)
Business disposals (note 43)	—	—	(0.9)	—	(0.9)
Reclassifications	0.9	(0.5)	10.5	(10.9)	—
As at 1 January 2010	210.3	29.9	604.4	52.8	897.4
Exchange adjustments	4.4	1.0	23.8	1.9	31.1
Additions	3.7	0.1	48.4	11.1	63.3
Disposals	(5.0)	(1.2)	(24.7)	(0.3)	(31.2)
Business disposals (note 43)	—	(6.5)	(9.8)	—	(16.3)
Reclassifications	2.4	0.2	18.5	(21.1)	—
As at 31 December 2010	215.8	23.5	660.6	44.4	944.3
Accumulated depreciation and impairment losses
As at 1 January 2009	78.4	15.4	404.8	—	498.6
Exchange adjustments	(2.9)	(0.7)	(20.0)	—	(23.6)
Depreciation charge	6.1	1.8	45.7	—	53.6
Impairment charge	2.5	—	0.2	—	2.7
Disposals	(0.7)	(0.4)	(24.1)	—	(25.2)
Business disposals (note 43)	—	—	(0.6)	—	(0.6)
Reclassifications	(0.1)	—	0.1	—	—
As at 1 January 2010	83.3	16.1	406.1	—	505.5
Exchange adjustments	0.8	0.5	14.4	—	15.7
Depreciation charge	6.4	1.5	46.3	—	54.2
Impairment charge	0.3	—	1.1	—	1.4
Disposals	(3.7)	(1.1)	(22.9)	—	(27.7)
Business disposals (note 43)	—	(6.5)	(9.6)	—	(16.1)
Reclassifications	0.5	(0.4)	(0.1)	—	—
As at 31 December 2010	87.6	10.1	435.3	—	533.0

Net book value as at 31 December 2010	128.2	13.4	225.3	44.4	411.3
Net book value as at 31 December 2009	127.0	13.8	198.3	52.8	391.9

Net book value as at 1 January 2009	144.0	16.1	229.4	57.1	446.6

The net book value of assets held under finance leases as at 31 December 2010 and 31 December 2009 was not material. Impairment charges are recognised within the profit/(loss) relating to non-current assets.

21. INTANGIBLE ASSETS

Intangible assets comprise goodwill and other intangible assets that have been acquired through business combinations.

Goodwill is initially recognised as an asset at cost and 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. Other intangible assets are initially measured at cost, which is equal to the acquisition date fair value, and subsequently measured at cost less accumulated amortisation charges and accumulated impairment losses. Other intangible assets are subject to impairment testing when there is an indication that an impairment loss may have been incurred.

21. INTANGIBLE ASSETS (CONTINUED)

21.1 MOVEMENT IN NET BOOK VALUE

	2010			2009
		Other intangible			Other intangible
	Goodwill	assets	Total	Goodwill	assets T	otal
	£m	£m	£m	£m	£m	£m
Cost
As at 1 January	909.3	272.5	1,181.8	962.8	278.0	1,240.8
Exchange adjustments	37.1	4.9	42.0	(54.3)	(5.5)	(59.8)
Business acquisitions (note 42)	—	—	—	3.0	—	3.0
Business disposals (note 43)	(1.3)	—	(1.3)	(2.2)	—	(2.2)
As at 31 December	945.1	277.4	1,222.5	909.3	272.5	1,181.8
Accumulated amortisation and impairment
As at 1 January	35.3	30.9	66.2	39.6	13.6	53.2
Exchange adjustments	0.9	0.6	1.5	(3.6)	(0.3)	(3.9)
Amortisation charge for the year (note 21.3)	—	17.7	17.7	—	17.6	17.6
Business disposals (note 43)	—	—	—	(0.7)	—	(0.7)
As at 31 December	36.2	49.2	85.4	35.3	30.9	66.2

Net book value as at 31 December	908.9	228.2	1,137.1	874.0	241.6	1,115.6

21.2 ANALYSIS OF GOODWILL BY CASH-GENERATING UNIT ("CGU")

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 four CGUs: the Ceramics division, the Chemistry and Assembly Materials product lines of the Electronics division and the Precious Metals division. These CGUs represent the lowest level within the Group at which goodwill is monitored. For the Precious Metals division CGU, goodwill recognised in the balance sheet is £nil (2009: £nil).

	2010	2009
	£m	£m
Ceramics	607.9	585.5
Chemistry	233.3	227.3
Assembly Materials	67.7	61.2
Total goodwill	908.9	874.0

21.3 ANALYSIS OF OTHER INTANGIBLE ASSETS

Other intangible assets arose in 2008 on the acquisition of Foseco plc and are being amortised on a straight-line basis over their estimated useful lives. The assets acquired and their remaining useful lives are shown below.

	Net book
	value as at
Remaining	31 December
useful life	2010
years	£m
Foseco — customer relationships 17.3	107.6
— trade name 17.3	62.4
— intellectual property rights 7.3	58.2
Total	228.2

22. IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS

22.1 IMPAIRMENT POLICY

At each balance sheet date, the Directors review the carrying value of the Group's tangible and other 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 possible 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.

The Directors also 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.

The value in use calculations of the Group's CGUs are based on detailed business plans covering a three year period from the balance sheet date, higher level assumptions covering a further two year period and perpetuity calculations beyond this five year projection period. The cash flows in the calculations are discounted to their current value using pre-tax discount rates.

22.2 KEY ASSUMPTIONS

The key assumptions used in determining value in use are return on sales, growth rates and discount rates. Return on sales 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 steel production, foundry castings and electronics; and expected growth in output within the industries in which each major Group business unit operates. A perpetuity growth rate of 3% (2009: 3%) has been applied based on the long-term growth rates experienced in the Group's endmarkets. The Group's projections are based on historical trends and external forecasts.

Discount rates are calculated for each CGU, reflecting market assessments of the time value of money and the risks specific to each CGU. The pretax discount rate used for the Ceramics CGU was 14.5% (2009: 12.9%), for the Chemistry CGU 14.1% (2009: 13.0%) and for the Assembly Materials CGU 12.5% (2009: 11.4%).

22.3 GOODWILL IMPAIRMENT

In assessing goodwill for potential impairment as at 31 December 2010, the Directors made use of detailed calculations of the recoverable amount of the Group's CGUs as at 31 December 2010. Those calculations resulted in recoverable amounts significantly higher than the carrying values of each of the Group's CGUs.

23. INTERESTS IN JOINT VENTURES

The principal joint venture of the Group, in which it has a 50% interest, is Electroplating Engineers of Japan Ltd. The Group's interests in its joint ventures are recognised using the equity method. The aggregate amounts relating to these interests were as follows:

	2010	2009
	£m	£m
Share of current assets	23.5	19.0
Share of non-current assets	22.7	18.6
Share of current liabilities	(16.1)	(13.3)
Share of non-current liabilities	(1.2)	(0.8)
As at 31 December	28.9	23.5

Share of revenue	109.3	78.3
Share of post-tax profit	0.4	1.0

24. INVESTMENTS

	2010	2009
	£m	£m
Available-for-sale investments	5.7	9.8

Available-for-sale investments include £3.9m (2009: £3.9m) of assets held in Rabbi Trusts and £0.2m (2009: £4.1m) of listed equity securities and are accounted for in accordance with the policies in note 3.20(c). The Rabbi Trust assets are held to fund certain non-qualified US pension plan obligations and are not included within pension plan assets as they are available to satisfy creditors in the event of the winding-up of the Group company in which they are held.

25. DEFERRED TAX

	Accelerated capital allowances £m	Operating losses £m	Pension costs £m	Intangible assets £m	Other timing differences £m	Total £m
As at 1 January 2009	(6.2)	3.5	(16.2)	(98.1)	(2.7)	(119.7)
Exchange adjustments	0.4	0.2	(0.5)	3.4	0.8	4.3
Credit to Group statement of comprehensive income (note 14)	—	—	21.8	—	—	21.8
Credit/(charge) to Group income statement (note 14)	2.2	0.3	(0.1)	2.3	1.6	6.3
As at 1 January 2010	(3.6)	4.0	5.0	(92.4)	(0.3)	(87.3)
Exchange adjustments	—	—	—	(2.2)	0.7	(1.5)
Charge to Group statement of comprehensive income (note 14)	—	—	(0.7)	—	—	(0.7)
(Charge)/credit to Group income statement (note 14)	(0.2)	0.6	1.0	5.9	6.4	13.7
As at 31 December 2010	(3.8)	4.6	5.3	(88.7)	6.8	(75.8)
					2010 £m	2009 £m
Recognised in the Group balance sheet as:
Non-current deferred tax assets					19.9	12.0
Non-current deferred tax liabilities					(95.7)	(99.3)
Net total deferred tax liabilities					(75.8)	(87.3)

Tax loss carry-forwards and other temporary differences of £4.9m (2009: £1.9m) were recognised by subsidiaries reporting a loss in 2009 or 2010. On the basis of approved business plans of these subsidiaries and in view of the significant improvement in market conditions in 2010, the Directors consider it probable that the tax loss carry-forwards and temporary differences can be offset against future taxable profits.

The total deferred tax asset not recognised as at 31 December 2010 was £483.0m (2009: £475.6m). This consisted of £45.4m (2009: £51.2m) relating to capital losses that are available to offset future UK capital gains and may be carried forward without time limit, £232.6m (2009: £224.0m) relating to operating losses, £92.4m (2009: £85.8m) relating to unrelieved interest, £99.5m (2009: £101.5m) relating to other categories and £13.1m (2009: £13.1m) relating to UK ACT tax credits, which may be carried forward indefinitely. In accordance with the accounting policy in note 3.11, these items have not been recognised as deferred tax assets on the basis that their future economic benefit is not probable. In total, there was an increase of £7.4m (2009: £20.7m) in net unrecognised deferred tax assets during the year.

As at 31 December 2010, the Group had total operating losses carried forward with a tax value of £237.2m (2009: £228.0m). This total includes £97.8m (2009: £84.5m) for losses which are available to offset future taxable US income, of which approximately £7.6m (2009: £7.3m) will expire in 2020 and the remainder will expire between 2022 and 2029. A further £108.4m (2009: £108.2m) of losses are available to offset future UK taxable income and may be carried forward without time limit. The remaining losses with a value of £31.0m (2009: £35.3m) include £15.9m (2009: £20.9m) which may be carried forward indefinitely and £9.8m (2009: £9.4m) which will expire within the next 5 years if not used. The balance has a maximum life of between 5 and 20 years. The amounts arise in a number of countries and are not individually significant, reflecting the spread of the Group's operations. As at 31 December 2010, the Group had unrelieved interest with a tax value of £92.4m (2009: £85.8m), which may be carried forward indefinitely, and US tax credits carried forward with a tax value of £10.1m (2009: £10.8m), comprising £2.7m (2009: £2.7m) of research and experimentation credits, which expire between 2018 and 2030, and £7.4m (2009: £8.1m) of foreign tax credits expiring between 2014 and 2018.

25. DEFERRED TAX (CONTINUED)

Due to changes in UK tax law enacted in 2009 exempting dividends received from UK tax, the aggregate amount of temporary differences associated with investments in subsidiaries and interests in joint ventures for which deferred tax liabilities have not been recognised is £nil (2009: £nil).

The Emergency Budget on 22 June 2010 announced that the UK corporation tax rate will reduce from 28% to 24% over a period of four years from 2011. The first reduction in the rate from 28% to 27% was substantively enacted on 20 July 2010 and is effective from 1 April 2011. As this rate change was substantively enacted prior to the year end, the Group's closing UK deferred tax liability has been provided using a tax rate of 27%. The impact of using this lower tax rate was to increase the exceptional tax credit relating to the amortisation of intangible assets from £5.2m to £6.4m (note 14.1).

26. TRADE AND OTHER RECEIVABLES

26.1 ANALYSIS OF TRADE AND OTHER RECEIVABLES

		2010			2009
	Gross £m	Impairment £m	Net £m	Gross I £m	mpairment N £m	et £m
Trade receivables— current	346.4	(3.5)	342.9	261.5	(2.2)	259.3
— 1 to 30 days past due	63.7	(0.9)	62.8	54.5	(1.1)	53.4
— 31 to 60 days past due	21.7	(0.6)	21.1	20.1	(0.6)	19.5
— 61 to 90 days past due	9.2	(1.0)	8.2	6.7	(0.5)	6.2
— over 90 days past due	38.5	(25.3)	13.2	39.8	(28.7)	11.1
Trade receivables	479.5	(31.3)	448.2	382.6	(33.1)	349.5
Other receivables			38.8			29.3
Prepayments and accrued income			35.9			26.3
Total trade and other receivables			522.9			405.1

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. 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.

26.2 MOVEMENTS ON IMPAIRMENT PROVISIONS

As at 31 December	31.3	33.1
Unused amounts reversed	(3.0)	(4.8)
Receivables written off during the year as uncollectable	(6.0)	(8.8)
Charge for the year	6.5	14.6
Exchange adjustments	0.7	(1.9)
As at 1 January	33.1	34.0
	£m	£m
	2010	2009

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.

In determining the level of impairment provisions required, the Group's operating companies initially review all significant trade receivable balances on an individual basis for evidence of impairment. Evidence of impairment may include such factors as the customer being in breach of contract, or entering bankruptcy or financial reorganisation proceedings. Of the total provision for impairment of trade receivables at 31 December 2010 of £31.3m (2009: £33.1m) shown in the table above, £25.9m (2009: £29.4m) related to balances that were impaired on an individual basis. The ageing analysis of these individually impaired balances is shown in the table below.

26. TRADE AND OTHER RECEIVABLES (CONTINUED)

26.2 MOVEMENTS ON IMPAIRMENT PROVISIONS (CONTINUED)

	2010	2009
	£m	£m
Ageing analysis of individually impaired trade receivable balances
Current	2.0	1.5
1 to 30 days past due	0.4	0.8
31 to 60 days past due	0.5	0.4
61 to 90 days past due	0.9	0.4
Over 90 days past due	22.1	26.3
Total individually impaired trade receivable balances	25.9	29.4

Due to the large number of customers that the Group transacts its business with, none of which represent 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.

27. INVENTORIES

	2010	2009
	£m	£m
Raw materials	104.7	80.1
Work-in-progress	32.7	26.7
Finished goods	150.1	115.2
Total inventories	287.5	222.0

The cost of inventories recognised as an expense and included in cost of sales in the income statement during the year was £1,263.7m (2009: £972.7m).

As at 31 December 2010, in addition to the inventory recorded in the balance sheet, the Group held £354.8m (2009: £304.5m) of precious metals either on consignment terms or on behalf of customers for processing.

Cookson has entered into various precious metal consignment arrangements with precious metals consigning entities (the "Consignors"). The metal which the Group fabricates for its customers may be purchased by the Group from a Consignor and sold concurrently to the customer, or may be consigned and sold directly from a Consignor to the Group's customers, with the Group charging customers only for the fabrication process. As the 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 Group balance sheet. Consequently, the obligations in respect of the consigned metal are not recognised as a liability in the Group balance sheet. The utilisation of consigned precious metals is established practice in the precious metals industry.

Cookson provides a guarantee in respect of each consignment arrangement. Whilst the terms of each consignment arrangement differ in their specific terms, they share similar characteristics. Metals are held on consignment by the relevant Cookson company (the "Consignee") and the Consignor retains title to the metal and has a right of physical return of the metal without penalty unless the Consignee purchases such metal at a market price for such metals plus a premium. The Consignee pays a consignment fee on the value of the metals consigned to it which have not been returned or purchased. Consignment fees for 2010 amounted to £8.9m (2009: £8.6m).

Consigned metals may be co-mingled with other metals. Consignors are party to either committed or uncommitted arrangements. Under committed arrangements the Consignors provide a fixed term commitment to supply metal to the Group's fabrication operations. Under uncommitted arrangements the Consignor is under no obligation to supply metal to the Group's fabrication operations and has the right, with limited or, in some cases, no notice, to demand physical return of its consigned metal.

28. DERIVATIVE FINANCIAL INSTRUMENTS

28.1 ANALYSIS OF DERIVATIVE FINANCIAL INSTRUMENTS

	2010			2009
	Assets	Liabilities	Assets	Liabilities
	£m	£m	£m	£m
Forward foreign exchange contracts (designated as net investment hedges)	—	26.1	—	17.3
Interest rate swaps (designated as cash flow hedges)	—	2.0	—	—
Forward foreign exchange and commodity contracts (designated as fair value hedges)	2.4	2.6	0.2	2.3
Forward foreign exchange contracts (not designated for hedge accounting purposes)	—	2.7	—	—
Total derivative financial instruments	2.4	33.4	0.2	19.6

Derivative financial instruments are reported at their fair value at the balance sheet date and are accounted for in accordance with the accounting policies in note 4.2. In accordance with Group policy, no derivatives are held for speculative purposes. Of the £33.4m (2009: £19.6m) of derivative liabilities reported in the table above, £19.3m (2009: £11.9m) will mature within a year of the balance sheet date and £14.1m (2009: £7.7m) will mature within two years.

28.2 NET INVESTMENT HEDGES

The Group uses forward foreign exchange contracts to provide a hedge against the foreign exchange risk associated with investments in its foreign operations. Of the change in the fair value of these contracts in the year, £19.1m (which was associated with the change in spot prices) was determined to be an effective hedge and was recognised in other comprehensive income and presented within translation reserves (note 32) and £2.2m (which was associated with the change in forward prices) was credited to the income statement within finance income.

In addition to these derivative net investment hedges, the Group also designated certain non-derivative financial instruments (including foreign currency term loans under its syndicated bank facility; borrowings under its US Private Placement Loan Notes ("USPP"); and other short-term net foreign currency liabilities) as net investment hedges. There was no ineffectiveness associated with the change in the fair value of these instruments and the effective change in fair value of £7.0m was recognised in other comprehensive income and presented within translation reserves (note 32). The fair value of these non-derivative net investment hedging instruments as at 31 December 2010 amounted to £179.6m.

28.3 CASH FLOW HEDGES

During the year the Group entered into interest rate swap contracts ("swaps") intended to provide a hedge against the cash flow risk associated with interest payable on its floating rate debt instruments. Of the change in the fair value of these swaps during the year, £4.4m was determined to be an effective hedge and was recognised in other comprehensive income and presented within hedging reserves and £0.1m was determined to be an ineffective hedge and was recognised in the income statement within ordinary finance costs. Under the terms of these swaps the Group will make semi-annual payments of £0.5m between April 2011 and October 2012, when the contracts are due to mature.

28.4 FAIR VALUE HEDGES

The Group uses forward foreign exchange contracts and forward commodity contracts in its operations to provide a hedge against the risk of changes in the fair value of recognised assets and liabilities that might otherwise arise as a result of the fluctuation in exchange rates and commodity prices. In relation to the fair value hedge assets, gains of £2.3m were recognised during the year within trading profit, matched by losses of £2.3m on the underlying hedged items; and in relation to the fair value hedge liabilities, losses of £2.2m were recognised during the year within trading profit, matched by gains of £2.2m on the underlying hedged items.

28.5 DERIVATIVES NOT DESIGNATED FOR HEDGE ACCOUNTING PURPOSES

Throughout the year the Group used forward foreign exchange contracts to provide an economic hedge against the change in fair value of its USPP arising from the fluctuation in exchange rates. A £9.8m gain (2009: £24.7m loss) arising on the change in the fair value of these contracts in the year was recognised within trading profit, offsetting the £9.8m loss in the year (2009: £24.7m gain) arising on the retranslation of the USPP.

29. ASSETS AND LIABILITIES CLASSIFIED AS HELD FOR SALE

As at 31 December 2009, assets of £3.2m and liabilities of £1.4m in respect of a business in the process of being sold were recorded as held for sale. The business was sold in 2010.

30. ISSUED SHARE CAPITAL

	Number of
	shares
	m	£m
As at 1 January 2009	212.6	21.3
Shares issued in the year	2,551.3	255.1
Share consolidation	(2,487.5)	—
As at 1 January 2010 and 31 December 2010	276.4	276.4

On 4 March 2009, under the terms of a fully underwritten rights issue, shareholders of the Company on the register at the close of business on 13 February 2009 were offered 2,551,293,144 new ordinary shares of 10p each on the basis of twelve new ordinary shares for every existing ordinary share held. Total proceeds on issue amounted to £240.7m, net of expenses of £14.4m.

At the Company's Annual General Meeting held on 14 May 2009, shareholders approved a share consolidation, which took effect following the close of business on that same date, whereby shareholders received one new ordinary share of 100p each for every ten existing ordinary shares of 10p each.

Further information relating to the Company's share capital is given in the Directors' Report on page 32.

31. SHARE PREMIUM ACCOUNT

	£m
As at 1 January 2009	8.1
Expenses associated with shares issued in the year	(8.1)
As at 1 January 2010	—
Arising on exercise of share options	0.1
As at 31 December 2010	0.1

During the year, the Company issued 39,408 ordinary shares under its executive and employee share plans for a consideration of £0.1m.

32. OTHER RESERVES

		Investment
	Hedging	revaluation	Translation
	reserve	reserve	reserve	Total
	£m	£m	£m	£m
As at 1 January 2009	(12.0)	2.0	202.1	192.1
Exchange differences on translation of the net assets of foreign operations	—	—	(93.3)	(93.3)
Exchange translation differences arising on net investment hedges	—	—	16.8	16.8
Change in fair value of cash flow hedges	(1.0)	—	—	(1.0)
Change in fair value of cash flow hedges transferred to profit for the year	12.8	—	—	12.8
Change in fair value of available-for-sale investments	—	0.5	—	0.5
As at 1 January 2010	(0.2)	2.5	125.6	127.9
Exchange differences on translation of the net assets of foreign operations	—	—	82.0	82.0
Exchange translation differences arising on net investment hedges	—	—	(26.1)	(26.1)
Change in fair value of cash flow hedges	(4.2)	—	—	(4.2)
Change in fair value of cash flow hedges transferred to profit for the year	2.4	—	—	2.4
Change in fair value of available-for-sale investments	—	(1.4)	—	(1.4)
Change in fair value of available-for-sale investments transferred to profit for the year	—	(1.3)	—	(1.3)
As at 31 December 2010	(2.0)	(0.2)	181.5	179.3

32.1 HEDGING RESERVE

Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a highly probable forecast transaction (note 28.3), the effective part of the gain or loss on the derivative financial instrument is recognised in other comprehensive income and presented in hedging reserves in equity. When the forecast transaction that was being hedged is realised and affects profit or loss, the cumulative gain or loss on the derivative financial instrument is removed from the hedging reserve and recognised in the Group income statement in the same period.

32.2 INVESTMENT REVALUATION RESERVE

Available-for-sale investments are carried in the Group balance sheet at fair value. Changes in fair value from one balance sheet date to the next are recorded in the investment revaluation reserve, together with any related tax. When the investment is derecognised the cumulative amount relating to it in the investment revaluation reserve, together with any related tax, is recognised in the Group income statement.

32.3 TRANSLATION RESERVE

The translation reserve comprises all foreign exchange differences attributable to the owners of the parent that 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. In addition to foreign exchange differences attributable to the owners of the parent, the Group statement of comprehensive income includes foreign exchange differences attributable to non-controlling interests (note 35).

33. RETAINED EARNINGS

	Treasury shares £m	Share option reserve £m	Other retained earnings £m	Total retained earnings £m
As at 1 January 2009	(2.6)	6.4	749.3	753.1
Loss for the year	—	—	(48.5)	(48.5)
Net actuarial losses on employee benefits plans	—	—	(77.3)	(77.3)
Recognition of share-based payments	—	1.1	—	1.1
Release of share option reserve on exercised and lapsed options	—	(3.2)	3.2	—
Income tax on items recognised in other comprehensive income	—	—	21.8	21.8
Expenses associated with shares issued in the year	—	—	(6.3)	(6.3)
As at 1 January 2010	(2.6)	4.3	642.2	643.9
Profit for the year	—	—	145.3	145.3
Net actuarial gains on employee benefits plans	—	—	2.5	2.5
Disposal of treasury shares	0.1	—	(0.1)	—
Recognition of share-based payments	—	6.8	—	6.8
Release of share option reserve on exercised and lapsed options	—	(1.5)	1.5	—
Income tax on items recognised in other comprehensive income	—	—	(0.7)	(0.7)
As at 31 December 2010	(2.5)	9.6	790.7	797.8

The treasury shares shown in the table above are ordinary shares of 100p each of the Company and are held by Cookson Investments (Jersey) Limited as Trustee of the Cookson Group ESOP (note 15 to the Company financial statements).

34. DIVIDENDS

No final dividend was paid in respect of 2008 or 2009, nor was an interim dividend paid in respect of 2009 and 2010.

A proposed final dividend for 2010 of £31.8m (2009: £nil) equivalent to 11.5p (2009: nil) 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 6 June 2011 to ordinary shareholders on the register at 20 May 2011.

35. NON-CONTROLLING INTERESTS

	2010	2009
	£m	£m
As at 1 January	18.2	17.6
Exchange adjustments	2.5	(1.2)
Non-controlling interest in profit for the year	5.6	3.8
Dividends paid to non-controlling shareholders	(2.8)	(2.0)
As at 31 December	23.5	18.2

36. INTEREST-BEARING BORROWINGS

36.1 BORROWING FACILITIES

As at 31 December 2010, the Group had committed borrowing facilities of £855.4m (2009: £876.2m), of which £350.0m (2009: £350.0m) were undrawn. These undrawn facilities are due to expire in October 2012.

The Group's borrowing requirements are met by US Private Placement Loan Notes ("USPP") and a multi-currency committed syndicated bank facility of £573.2m (2009: £674.9m). The USPP facility was fully drawn as at 31 December 2010 and amounted to £282.2m (\$440.0m), of which \$190.0m is repayable in May 2012, \$110.0m in 2017, and \$140.0m in 2020. The syndicated bank facility comprises £223.2m of term loans and a £350.0m revolving credit facility. The facility is repayable in three instalments: £62.0m in April 2011; £37.5m and €18.8m in October 2011; and £425.3m and €37.6m in October 2012.

Our Financials Our Governance Our Business

36. INTEREST-BEARING BORROWINGS (CONTINUED)

36.2 ANALYSIS OF BORROWINGS BY REPAYMENT TERM

		Non-current Current		Total
	2010	2009	2010	2009	2010	2009
	£m	£m	£m	£m	£m	£m
Loans and overdrafts	389.9	442.8	125.8	89.9	515.7	532.7
Obligations under finance leases	2.2	1.7	1.6	1.9	3.8	3.6
Capitalised borrowing costs	(1.7)	(2.9)	(1.4)	(1.8)	(3.1)	(4.7)
Total interest-bearing borrowings	390.4	441.6	126.0	90.0	516.4	531.6

Capitalised borrowing costs, which have been recognised as a reduction in borrowings in the financial statements, amounted to £3.1m as at 31 December 2010 (31 December 2009: £4.7m), of which £0.9m (2009: £0.1m) related to the USPP and £2.2m (2009: £4.6m) related to the syndicated bank facility.

	2010		2009
	Fixed rate	Floating rate	Total	Fixed rate	Floating rate T	otal
	£m	£m	£m	£m	£m	£m
Interest-bearing borrowings repayable
On demand or within one year	25.0	102.4	127.4	83.6	8.2	91.8
In the second year	195.9	34.7	230.6	—	109.2	109.2
In the third year	—	0.8	0.8	117.7	217.4	335.1
In the fourth year	—	0.2	0.2	—	0.1	0.1
After five years	160.3	0.2	160.5	—	0.1	0.1
Capitalised borrowing costs	(0.9)	(2.2)	(3.1)	(0.1)	(4.6)	(4.7)
Total interest-bearing borrowings	380.3	136.1	516.4	201.2	330.4	531.6

In addition to the maturity analysis of the Group's non-derivative financial liabilities shown in the table above, note 28 includes details of the maturity profile of the Group's derivative financial liabilities. The Group manages the liquidity risk inherent in all these liabilities by maintaining sufficient committed bank facilities to ensure that it is able to meet both its operational cash flow requirements and any maturing financial liabilities. These committed facilities amounted to £573.2m at 31 December 2010, of which £350m was unutilised. The level of these facilities is reviewed annually, as part of the Group's three year planning process, to ensure that it continues to provide adequate operational headroom. Where the Group's long-term cash flow forecasts indicate a need for additional finance, this is normally addressed 12 to 18 months in advance by means of either additional committed bank facilities or raising finance in the capital markets.

36.3 PRESENT VALUE OF MINIMUM FINANCE LEASE OBLIGATIONS

Total present value of minimum finance lease obligations	3.8	3.6
Due between one and five years	2.2	1.7
Due within one year	1.6	1.9
	£m	£m
	2010	2009

37. FINANCIAL RISK MANAGEMENT

37.1 CALCULATION OF FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES

Fair value is defined as the amount at which a financial instrument could be exchanged in an arm's length transaction between informed and willing parties. Wherever possible, fair value is calculated by reference to quoted prices in active markets for identical instruments. Where no such quoted prices are available, other observable inputs are used and if there are no observable inputs then fair values are calculated by discounting projected cash flows at prevailing rates translated at year-end exchange rates.

37.2 FAIR VALUES RECOGNISED IN THE GROUP BALANCE SHEET

The following table shows the assets and liabilities that are recognised in the Group balance sheet at fair value.

£m Investments — available-for-sale investments 5.7	£m

	9.8
Derivative financial assets — forward foreign exchange contracts 2.4	0.2
Derivative financial liabilities — forward foreign exchange contracts (31.4)	(19.6)
— interest rate swap contracts (2.0)	—
Net liabilities recognised at fair value in the Group balance sheet (25.3)	(9.6)

All of the fair values shown in the table above have been calculated using quoted prices from active markets. Of the total derivative financial liabilities of £33.4m (2009: £19.6m), £19.3m (2009: £11.9m) will mature within a year of the balance sheet date and £14.1m (2009: £7.7m) will mature within two years.

37.3 FAIR VALUES FOR FINANCIAL ASSETS AND LIABILITIES RECOGNISED AT COST IN THE GROUP BALANCE SHEET

		2010		2009
	Book value £m	Fair value £m	Book value £m	Fair value £m
Short-term borrowings and current portion of long-term borrowings	125.8	125.8	89.9	92.4
Long-term portion of long-term borrowings	389.9	394.7	442.8	456.1
Obligations under finance leases	3.8	3.8	3.6	3.6
Capitalised borrowing costs	(3.1)	—	(4.7)	—
Gross borrowings	516.4	524.3	531.6	552.1
Cash and short-term deposits (note 18)	(186.7)	(186.7)	(160.2)	(160.2)
Net debt	329.7	337.6	371.4	391.9

The difference between book value and fair value reported in the table above relates to capitalised borrowing costs and to the USPP, the fair value of which has been calculated by discounting future capital and interest obligations using a discount rate equal to US Treasuries plus a spread of 240 basis points for Cookson's credit rating.

37. FINANCIAL RISK MANAGEMENT (CONTINUED)

37.4 CURRENCY AND INTEREST RATE PROFILES OF FINANCIAL ASSETS AND LIABILITIES

The currency and interest rate profiles of the Group's borrowings are set out below. The first table shows the impact of forward foreign exchange contracts on the currency profile of the Group's gross borrowings. The second table shows the fixed/floating profile of the Group's gross borrowings and the impact that interest rate swaps have on this profile.

	2010				2009
	Borrowings before FX swaps	FX swaps	Borrowings after FX swaps	Borrowings before FX swaps	FX swaps	Borrowings after FX swaps
	£m	£m	£m	£m	£m	£m
Sterling	171.7	(0.5)	171.2	320.2	(14.5)	305.7
United States dollar	285.0	(201.4)	83.6	203.3	(201.3)	2.0
Euro	49.0	58.3	107.3	1.7	—	1.7
Chinese renminbi	—	—	—	—	49.9	49.9
Singapore dollar	1.5	72.5	74.0	—	79.3	79.3
Japanese yen	1.0	71.1	72.1	0.8	59.8	60.6
Other	8.2	—	8.2	5.6	26.8	32.4
As at 31 December	516.4	—	516.4	531.6	—	531.6

The fair value of the forward foreign exchange contracts detailed in the table above is a net liability of £28.7m (2009: £19.2m). A 10% strengthening of sterling would result in a decrease of £0.3m (2009: £2.0m) in the fair value of this liability. A 10% weakening of sterling would result in an increase of £0.4m (2009: £2.5m) in the fair value of this liability.

				Financial
				Financial liabilities (gross borrowings)		assets
			Notional			(cash and
		Interest	fixed rate	Floating		short-term
	Fixed rate	rate swaps	debt	rate	Total	deposits)	Net debt
	£m	£m	£m	£m	£m	£m	£m
Sterling	—	99.0	99.0	75.8	174.8	(24.4)	150.4
United States dollar	282.2	—	282.2	2.8	285.0	(13.5)	271.5
Euro	—	—	—	49.0	49.0	(42.0)	7.0
Chinese renminbi	—	—	—	—	—	(40.7)	(40.7)
Singapore dollar	—	—	—	1.5	1.5	(1.0)	0.5
Japanese yen	—	—	—	1.0	1.0	(2.9)	(1.9)
Other	—	—	—	8.2	8.2	(62.2)	(54.0)
Capitalised borrowing costs	(0.9)	—	(0.9)	(2.2)	(3.1)	—	(3.1)
As at 31 December 2010	281.3	99.0	380.3	136.1	516.4	(186.7)	329.7

37. FINANCIAL RISK MANAGEMENT (CONTINUED)

37.4 CURRENCY AND INTEREST RATE PROFILES OF FINANCIAL ASSETS AND LIABILITIES (CONTINUED)

				Financial liabilities (gross borrowings)		assets
N			otional			(cash and
I		nterest	fixed rate	Floating		short-term
	Fixed rate	rate swaps	debt	rate T	otal	deposits) N	et debt
	£m	£m	£m	£m	£m	£m	£m
Sterling	—	—	—	324.9	324.9	(18.6)	306.3
United States dollar	201.3	—	201.3	2.0	203.3	(12.2)	191.1
Euro	—	—	—	1.7	1.7	(23.3)	(21.6)
Chinese renminbi	—	—	—	—	—	(44.3)	(44.3)
Singapore dollar	—	—	—	—	—	(1.0)	(1.0)
Japanese yen	—	—	—	0.8	0.8	(2.7)	(1.9)
Other	—	—	—	5.6	5.6	(58.1)	(52.5)
Capitalised borrowing costs	(0.1)	—	(0.1)	(4.6)	(4.7)	—	(4.7)
As at 31 December 2009	201.2	—	201.2	330.4	531.6	(160.2)	371.4

The financial assets shown in the tables above attract floating rate interest at the inter-bank offered rate of the appropriate currency, less a margin. The floating rate financial liabilities bear interest at the inter-bank offered rate of the appropriate currency, plus a margin. The fixed rate financial liabilities of £281.3m (2009: £201.2m) have a weighted average interest rate of 5.1% (2009: 8.0%) and a weighted average period for which the rate is fixed of 4.5 years (2009: 1.5 years).

37.5 MARKET RISK — CURRENCY RELATED

The Group is exposed to currency risk in relation to the value of its financial assets and liabilities that are denominated in currencies other than sterling (note 37.4), arising from fluctuations in exchange rates. The table below shows the impact on the value of the Group's reported net financial liabilities of exchange rates either strengthening or weakening by 10% against sterling and the impact that this would have on the reported profit or loss and equity. The Group's reported profit is not impacted by the effect of the changes in exchange rates on the value of its net financial liabilities, but equity would be £16.6m higher if sterling strengthened by 10% and £20.3m lower if sterling weakened by 10%.

			Effect of sterling strengthening by 10%		Effect of sterling weakening by 10%
	2010	Rates	Profit/		Rates	Profit/
	As reported	+10%	(loss)	Equity	-10%	(loss)	Equity
Net financial liabilities	£m	£m	£m	£m	£m	£m	£m
Denominated in sterling	146.8	146.8	—	—	146.8	—	—
Not denominated in sterling	182.9	166.3	—	16.6	203.2	—	(20.3)
Total net debt	329.7	313.1	—	16.6	350.0	—	(20.3)

			Effect of sterling strengthening by 10%		Effect of sterling weakening by 10%
Net financial liabilities	2009 As reported	Rates P +10%	rofit/ (loss) E	quity	Rates P -10% £m	rofit/ (loss) E £m	quity
	£m	£m	£m	£m			£m
Denominated in sterling	301.6	301.6	—	—	301.6	—	—
Not denominated in sterling	69.8	63.5	—	6.3	77.6	—	(7.8)
Total net debt	371.4	365.1	—	6.3	379.2	—	(7.8)

37. FINANCIAL RISK MANAGEMENT (CONTINUED)

37.6 MARKET RISK — INTEREST RATE RELATED

(a) Cash flow risk

Changes in market interest rates expose the Group to the risk of fluctuation in its future cash flows in relation to its financial assets and liabilities that attract interest at floating rates (note 37.4). Based upon the interest rate profile of the Group's financial assets and liabilities as at 31 December 2010 and the net floating rate cash position of £50.6m (2009: net floating rate debt position of £170.2m) at that date, a 1% increase in market interest rates would result in a decrease in both the Group's annual net finance costs charged to the Group income statement and the Group's net interest paid in the Group statement of cash flows of £0.5m (2009: £1.7m increase). Correspondingly, a 1% decrease in interest rates would result in an increase in both the Group's annual net finance costs charged to the Group income statement and the Group's net interest paid in the Group statement of cash flows of £0.5m (2009: £1.7m decrease). In January 2010, the Company entered into interest rate swaps aimed at fixing the interest rates on around two-thirds of the Group's gross borrowings for a period of just over two years.

(b) Fair value risk

Changes in market interest rates expose the Group to the risk of fluctuation in the fair value of its financial assets and liabilities that attract interest at fixed rates (note 37.4). Based upon the interest rate profile of the Group's financial assets and liabilities as at 31 December 2010, a 1% increase in market interest rates would result in a decrease of £11.5m (2009: £3.2m) in the fair value of the Group's net debt and a 1% decrease in market interest rates would result in an increase of £12.3m (2009: £3.3m) in the fair value of the Group's net debt.

37.7 CURRENCY EXPOSURE OF FINANCIAL ASSETS AND LIABILITIES

The tables below show the net unhedged monetary assets and liabilities of Group companies that are not denominated in their functional currency and which therefore give rise to exchange gains and losses in the Group income statement.

				Net unhedged monetary assets/(liabilities)
	Sterling US dollar Euro Renminbi Other
	£m	£m	£m	£m	£m	£m
Functional currency
Sterling	—	0.3	2.1	7.2	0.3	9.9
United States dollar	0.7	—	1.8	—	1.7	4.2
Euro	(1.7)	2.6	—	—	0.3	1.2
Chinese renminbi	(0.1)	4.1	(5.1)	—	(4.4)	(5.5)
Other	(0.9)	1.2	6.7	11.0	(0.9)	17.1
As at 31 December 2010	(2.0)	8.2	5.5	18.2	(3.0)	26.9

			Net unhedged monetary assets/(liabilities)
S	terling US	dollar E uro Renminbi Other T
	£m	£m	£m	£m	£m	£m
Functional currency
Sterling	—	(0.3)	7.4	—	1.0	8.1
United States dollar	—	—	0.3	—	2.7	3.0
Euro	(1.4)	(1.9)	—	—	0.3	(3.0)
Chinese renminbi	(0.4)	4.7	(2.8)	—	—	1.5
Other	(1.7)	2.1	2.8	—	4.7	7.9
As at 31 December 2009	(3.5)	4.6	7.7	—	8.7	17.5

Our Financials Our Governance Our Business

38. EMPLOYEE BENEFITS

38.1 GROUP POST-RETIREMENT PLANS

The Group operates a number of pension plans around the world, both of the defined benefit and defined contribution type, and accounts for them in accordance with IAS 19.

(a) Defined benefit pension plans

The Group's principal defined benefit pension plans are in the UK and the US. The assets of these plans are held separately from the Group in trusteeadministered funds. The trustees are required to act in the best interests of the plans' beneficiaries. The Group also has defined benefit pension plans in other territories but, with the exception of those in Germany, these are not individually material in relation to the Group as a whole.

The Group's main defined benefit pension plan in the UK ("the UK Plan") is closed to new members and, having completed the required period of consultation with its employees, the closure of the UK Plan and the UK defined contribution plan to future benefit accrual took effect from 31 July 2010 and a new Group Personal Pension Plan has been established in their place to provide defined contribution benefits for all eligible UK employees. A full actuarial valuation of the UK Plan is carried out every three years by an independent actuary for the UK Plan Trustee and the last full valuation was carried out as at 31 December 2009. At that date, the market value of plan assets was £401.9m and this represented a funding level of 88% of the accrued plan benefits at the time (using the projected unit method of valuation) of £456.4m. Calculated on a "buy-out" basis (using an estimation of the cost of buying out the UK Plan benefits with an insurance company), the liabilities at that date were £589.0m, representing a funding level of 68%. During 2009 it was agreed, in consultation with the UK Plan Trustee, to reduce the level of "top-up" payments (made in addition to normal cash contributions) from £14.0m per annum such that, with effect from February 2009, no further additional payments would be made until August 2010. The triennial funding valuation for the UK Plan as at the end of 2009 was completed in July 2010, based upon which the Company and Trustee agreed a new schedule of contributions which commenced in August 2010, whereby the Company will make "top-up" payments of £7.0m per annum until February 2016, targeted at eliminating the deficit in the UK Plan by that date. The level of "top-up" payments will be reviewed based on the UK Plan's next triennial valuation as of December 2012, which should be available in mid-2013.

In July 2010, the UK government announced changes to the inflation index used for statutory pension increases (both for pensions in payment and pensions in deferment) to apply to private sector pension schemes. The Company, the UK Plan Trustee and their respective legal advisers are currently working to clarify how this impacts the UK Plan and will communicate with any affected members in 2011.

The UK Plan operates a hedging strategy, using a combination of swaps and bonds, to mitigate the impact of interest rate and inflation rate movements on the value of its projected liabilities for meeting future pension payments (the UK Plan's "economic liabilities"), the value of which is related more to interest rate and inflation rate swap yields than to corporate bond yields, upon which the discount rate used for IAS 19 valuation purposes is based. When the relationship between the relevant swap yields and corporate bond yields is stable, the UK Plan's hedging strategy should deliver a broadly stable "funding ratio" (the ratio of plan assets to plan liabilities) not just in relation to the UK Plan's economic liabilities, but also under an IAS 19 basis of valuation. As at 31 December 2010, the estimated funding position (incorporating the UK Plan's economic liabilities) showed a funding ratio of 92%, with the IAS 19 valuation reflecting a funding ratio of 101%. This represents a valuation difference of £41m, reflecting partly the use of differing discount rates, but also the use of stronger mortality assumptions for funding purposes. The Group continues to fund the UK Plan with reference to its economic funding position.

The Group has a number of defined benefit plans in the US, providing retirement benefits based on final salary or a fixed benefit. In addition, the Group's US Retirement Security Plan has characteristics similar to defined contribution plans but with a minimum performance level guaranteed by the Group on the members' accounts. The cash balance rate assumption in the table in note 38.2(b) refers to the assumed minimum guaranteed return on members' accounts. The Retirement Security Plan and the Group's other principal US defined benefit plans are closed to new members and also to future benefit accrual for existing members, with future pension benefit being provided, where appropriate, through a defined contribution arrangement. Actuarial valuations of the US defined benefit pension plans are carried out every year and the last full valuation was carried out as at 31 December 2009. At that date the market value of the plan assets was £93.4m, representing a funding level of 63% of accrued plan benefits at that date (using the projected unit method of valuation) of £147.5m. Funding levels for the Group's US defined benefit pension plans are normally based upon annual valuations carried out by independent qualified actuaries and are governed by US government regulations.

The Group has a number of defined benefit pension arrangements in Germany which are unfunded, as is common practice in that country.

38. EMPLOYEE BENEFITS (CONTINUED)

38.1 GROUP POST-RETIREMENT PLANS (CONTINUED)

(b) Defined contribution pension plans

The Group's principal defined contribution plans are in the UK and the US and the assets of the plans are held separately from the Group in trusteeadministered funds. The total expense for these plans in the Group income statement amounted to £15.7m (2009: £12.7m) and represents the contributions payable for the year by the Group to the plans.

(c) Other post-retirement defined benefit plans

The Group's principal defined benefit plans for employees other than pensions are healthcare benefit arrangements in the US and UK. As is common for these types of plan, the costs of providing these benefits are not funded externally by the Group. In December 2009, the termination of certain US retiree medical benefit arrangements was announced, effective from 1 January 2011.

38.2 POST-RETIREMENT LIABILITY — VALUATION AND RISK MITIGATION

The assumptions used in calculating the costs and obligations of the Group's defined benefit pension and other post-retirement benefit plans, as detailed below, are set by the Directors after consultation with independent professionally qualified actuaries.

(a) Mortality assumptions

The mortality assumptions used in the actuarial valuations of the Group's UK, US and German defined benefit pension liabilities are summarised in the table below and have been selected to reflect the characteristics and experience of the membership of those plans.

For the UK Plan, the 2010 assumptions used have been derived from the Self-Administered Pension Schemes ("SAPS") All table, with future longevity improvements in line with the "core" mortality improvement tables recently published by the Continuous Mortality Investigation ("CMI"), with a long-term rate of improvement of 1.25% per annum. The latter CMI tables are expected to replace the use of the "Cohort" improvement factors widely used since 2002. This approach for the 2010 assumptions represents a strengthening of the mortality assumptions from those used in 2009, which were based on PA 92 tables projected forward with adjustments to reflect (i) a scaling factor of 112%, to take into account the lower level of life expectancy amongst the blue collar membership; (ii) the Medium Cohort improvement factors; and (iii) a minimum level, or "underpin", to the amount by which life expectancy is expected to improve at each age in the future, which has the effect of increasing the life expectancy at age 65 by some 0.5 years for someone currently aged 65 and by up to 2 years for someone currently aged 45.

For the Group's US plans, as in 2009, the assumptions used have been based on the standard RP2000CH mortality tables, projected 64 years for non-pensioners and 33 years for pensioners using projection scale AA. The Group's major plans in Germany have been valued using the Heubeck-Richttafeln 2005G mortality tables, as they were in 2009.

		2010			2009
	UK	US	Germany	UK	US	Germany
Life expectancy of pension plan members	years	years	years	years	years	years
Age to which current pensioners are expected to live
— Men	87.1	84.6	84.3	86.5	84.6	84.1
— Women	89.1	86.9	88.4	89.1	86.9	88.3
Age to which future pensioners are expected to live
— Men	89.0	86.6	87.0	88.4	86.6	86.9
— Women	91.1	89.1	91.0	90.4	89.1	90.8

38. EMPLOYEE BENEFITS (CONTINUED)

38.2 POST-RETIREMENT LIABILITY — VALUATION AND RISK MITIGATION (CONTINUED)

(b) Other principal actuarial valuation assumptions

	2010				2009
	UK	US	Germany U	K US		Germany
	% p.a.	% p.a.	% p.a.	% p.a.	% p.a.	% p.a.
Discount rate	5.40	5.25	4.60	5.65	6.00	5.10
Price inflation	3.60	2.50	2.00	3.80	2.50	2.00
Rate of increase in pensionable salaries	n/a	n/a	2.75	4.80	n/a	2.75
Rate of increase to pensions in payment	3.40	n/a	1.90	3.60	n/a	1.90
Cash balance rate	n/a	5.25	n/a	n/a	5.25	n/a
Expected asset return — equities	7.60	8.80	n/a	8.00	8.70	n/a
— bonds	4.50	5.40	n/a	4.70	4.80	n/a
Healthcare cost trend rate— long-term	5.60	6.50	n/a	5.80	5.50	n/a
— next year	5.60	8.50	n/a	5.80	8.50	n/a

Discount rate

The discount rate used to determine the liabilities of the UK Plan for IAS 19 accounting purposes is required to be determined by reference to market yields on high quality corporate bonds. The UK discount rate in the above table is based on the annualised yield on the iBoxx over 15 year AA-rated sterling corporate bond index; the US discount rate is based on the equivalent iBoxx index for US domestic corporations; and the German discount rate is based on the yield on the iBoxx over 10 year euro corporates AA index.

Price inflation

The assumptions for price inflation are set by reference to the difference between yields on longer-term conventional government bonds and index-linked bonds.

Expected asset return

The expected asset return is the Company's expectation at the valuation date of long-term asset returns. These are based on the "risk-free" yield available by following a buy and hold investment strategy in government bonds. Returns for other bonds and equities are then estimated based on observed historic long-term strategic risk premia. These assumptions do not take account of the relative valuation of markets or of market momentum. The Group's major post-retirement investment portfolios are those related to its UK and US plans. Both portfolios are invested in equities, bonds and cash. In addition, the UK Plan invests in infrastructure, absolute return strategies and derivative contracts for risk mitigation. An investment in real estate is planned for 2011.

During September 2010 the UK Plan's bond portfolio was restructured, liquidating the previous synthetic bond portfolio (cash and swaps) and replacing it predominantly with long duration portfolios of UK government bonds and UK corporate bonds. There are also smaller portfolios of global high yield debt and emerging market debt and provision for a portfolio of index linked gilts once their value is considered acceptable. The rationale for this change was to diversify the fund exposures and to reduce dependence on the swaps market.

The majority of the Group's total post-retirement assets are in bonds and equities and, for the purpose of the 2010 IAS 19 valuation, management makes assumptions as to the expected arithmetic long-term returns for these assets. Based on expectations as at December 2010 and the asset mix of the Group's UK Plan and of its US plans: the expected return for the respective bond portfolios is partway between treasury and corporate bond yields, specifically 4.5% for the UK Plan and 5.4% for the US plans; and the expected return on the respective equity portfolios is expected to outperform long duration government bonds by a margin of 3.5% in the UK Plan and 4.6% in the US plans.

38. EMPLOYEE BENEFITS (CONTINUED)

38.2 POST-RETIREMENT LIABILITY — VALUATION AND RISK MITIGATION (CONTINUED)

(c) UK pension plan risk mitigation strategy

The Company and the UK Plan Trustee consider the following to be the major investment risks which could affect the value of the UK plan's assets compared to the value of its economic liabilities:

Interest rate risk: The risk of government bond interest rates falling, leading to an increase in the value of plan liabilities. ● Inflation risk: The risk of inflation rising faster than expected, leading to an increase in the value of plan liabilities.
Equity market risk: The risk of significant equity market falls, leading to a fall in the value of plan assets.

In order to mitigate these key risks, the Trustee has mandated the following financial derivative contracts which materially reduce the risk that the UK Plan's assets would fall materially relative to the value of its economic liabilities:

An interest rate swap overlay designed (together with the bond portfolios) to mitigate approximately 75% of the interest rate risk of the plan liabilities as measured on an ongoing basis. Under these contracts the UK Plan receives a fixed rate of interest and pays out a variable rate of interest, based on the London Inter Bank Offered Rate. This is beneficial when long-term interest rates fall, significantly offsetting the corresponding increase in the value of the UK Plan's economic liabilities. In December 2010 an interest rate swaption collar was transacted, designed to mitigate the remaining 25% of interest rate risk in the case of extreme market movements during the next three years.
Inflation swaps designed, together with the bond portfolio, to mitigate approximately 70% of the effective inflation risk of the plan liabilities as measured on an ongoing basis. The UK Plan pays out a fixed rate of interest and receives payments indexed with actual inflation. This is beneficial when inflation increases faster than expected and significantly offsets the adverse impact on the funding ratio.

In September 2010, the equity option contracts taken out to protect the UK Plan from an initial fall in equity prices were approaching their expiry date and the cost of a new option strategy was considered too expensive. Consequently, the equity option contracts were liquidated, but at the same time the value of the UK Plan's equity portfolio was reduced so that the overall effective exposure of the UK Plan to equities was not materially changed.

(d) Sensitivity analysis of the impact of changes in key IAS 19 actuarial assumptions

The following table analyses, for the Group's main UK, US and German pension plans, the theoretical estimated impact on plan liabilities resulting from changes to key actuarial assumptions used for IAS 19 valuation purposes, whilst holding all other assumptions constant.

It should be noted that the investment strategy adopted by the UK Plan, details of which are given above, was designed to mitigate a significant majority of the interest rate and inflation risk related to the UK Plan's economic liabilities. The stabilising impact of this strategy is not reflected in the following table.

			Impact on plan liabilities
Assumption	Change in assumption	UK	US	Germany
Discount rate I	ncrease/decrease by 0.1%	Decrease/increase by 1.9%	Decrease/increase by 1.3%	Decrease/increase by 1.5%
Price inflation I	ncrease/decrease by 0.1% I	ncrease/decrease by 1.4%	n/a	Increase/decrease by 0.8%
Mortality I	ncrease by one year I	ncrease by 4.0%	Increase by 3.2%	Increase by 2.1%

With regard to the Group's post-retirement healthcare benefit plans, a 1% increase in the healthcare cost trend rate assumptions shown in the table in note 38.2(b) would increase the accumulated post-employment medical benefit obligation by £0.2m without changing the post-employment medical benefit costs and a 1% decrease in the healthcare cost trend rate assumptions would reduce the obligation by £0.1m without changing the post-employment medical benefit costs.

38. EMPLOYEE BENEFITS (CONTINUED)

38.3 DEFINED BENEFIT OBLIGATION

The liabilities of the Group's defined benefit pension and other post-retirement plans for IAS 19 accounting purposes are measured by discounting the best estimate of the future cash flows to be paid out by the plans using the projected unit method, in which the calculation of plan liabilities makes allowance, where appropriate, for projected increases in benefit-related earnings.

						Other post-
						retirement
		benefit
	UK	US	Germany	ROW	Total	plans	Total
	£m	£m	£m	£m	£m	£m	£m
Present value as at 1 January 2010	426.4	147.5	32.9	47.5	654.3	15.3	669.6
Exchange differences	—	5.2	(0.9)	—	4.3	0.4	4.7
Current service cost	2.1	0.3	0.7	2.8	5.9	0.6	6.5
Interest cost	23.4	8.9	1.6	2.0	35.9	0.4	36.3
Curtailment gains	(4.7)	(0.6)	—	—	(5.3)	—	(5.3)
Transferred to payables	—	—	—	—	—	(2.1)	(2.1)
Actuarial losses/(gains)	11.5	14.0	2.3	3.3	31.1	(2.8)	28.3
Contributions from members	0.8	—	—	0.1	0.9	—	0.9
Benefits paid	(19.8)	(8.0)	(1.6)	(3.2)	(32.6)	(2.1)	(34.7)
Present value as at 31 December 2010	439.7	167.3	35.0	52.5	694.5	9.7	704.2

						Other post-
						retirement
				Defined benefit pension plans		benefit
U	K US		Germany	ROW T	otal	plans T	otal
	£m	£m	£m	£m	£m	£m	£m
Present value as at 1 January 2009	337.6	175.4	32.3	47.3	592.6	29.1	621.7
Exchange differences	—	(16.6)	(2.4)	(2.8)	(21.8)	(2.6)	(24.4)
Current service cost	2.7	0.3	0.6	2.0	5.6	0.5	6.1
Interest cost	20.6	8.7	1.6	2.0	32.9	1.3	34.2
Curtailment gains	(0.2)	—	—	(0.7)	(0.9)	(9.8)	(10.7)
Actuarial losses/(gains)	82.5	(5.6)	2.4	2.1	81.4	(0.2)	81.2
Contributions from members	1.3	—	—	0.2	1.5	—	1.5
Benefits paid	(18.1)	(14.7)	(1.6)	(2.6)	(37.0)	(3.0)	(40.0)
Present value as at 31 December 2009	426.4	147.5	32.9	47.5	654.3	15.3	669.6

38. EMPLOYEE BENEFITS (CONTINUED)

38.4 FAIR VALUE OF PLAN ASSETS

			2010					2009
	UK	US	Germany	ROW	Total	UK	US	Germany	ROW T	otal
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January	404.1	93.4	—	34.4	531.9	406.3	86.5	—	33.6	526.4
Exchange differences	—	3.3	—	0.7	4.0	—	(9.0)	—	(1.9)	(10.9)
Expected return	23.9	7.2	—	1.6	32.7	22.0	6.0	—	1.4	29.4
Settlements	—	—	—	—	—	—	—	—	(1.9)	(1.9)
Actuarial gains/
(losses)	29.7	0.5	—	0.6	30.8	(12.0)	14.2	—	1.7	3.9
Contributions from:
— employer	4.5	12.1	—	3.6	20.2	4.6	10.4	—	5.5	20.5
— members	0.8	—	—	0.1	0.9	1.3	—	—	0.2	1.5
Benefits paid	(19.8)	(7.1)	—	(3.2)	(30.1)	(18.1)	(14.7)	—	(4.2)	(37.0)
As at 31 December	443.2	109.4	—	37.8	590.4	404.1	93.4	—	34.4	531.9

(a) UK Plan asset allocation

As at 31 December 2010, the UK Plan's assets, excluding risk-mitigation derivatives, were allocated 20% in equities; 61% in bonds and debt instruments; 7% in infrastructure investments; 5% in hedge funds; and 7% in cash. The UK Trustee's target allocation is currently 25% "liquid return" assets (mainly equities, but also global high yield and emerging market debt), 56% bonds, 6% infrastructure investments, 6% hedge funds, 2% cash and 5% in property investments. In addition, the UK Plan holds a liability driven investment portfolio of financial derivative contracts which materially reduce the risk that the UK Plan's assets would fall materially relative to the value of its economic liabilities.

(b) US pension plan assets not recognised above

In addition to the assets reported above, £3.9m (2009: £3.9m) of assets were held as at 31 December 2010 to fund certain non-qualified US pension plan obligations (note 24). These assets are not included within pension plan assets as they are available to satisfy creditors in the event of the winding-up of the Group company in which they are held and are reported as investments in the Group balance sheet.

(c) Defined benefit contributions in 2011

The Group is expected to make aggregate contributions into its defined benefit pension plans of around £20m in 2011. The Group is also expected to make aggregate contributions in respect of its other post-retirement benefit plans of around £2m in 2011.

The triennial funding valuation for the UK Plan as at the end of 2009 was completed in July 2010, based upon which the Company and UK Plan Trustee agreed a new schedule of contributions which commenced in August 2010 whereby the Company will make "top-up" payments of £7.0m per annum until February 2016, targeted at eliminating the deficit in the UK Plan by that date. The level of "top-up" payments will be reviewed based on the UK Plan's next triennial valuation as of December 2012, which should be available in mid-2013.

(d) Actual return on plan assets

The actual return on all Group pension plan assets was £63.5m (2009: £33.3m).

38. EMPLOYEE BENEFITS (CONTINUED)

38.5 BALANCE SHEET RECOGNITION

The amount recognised in the Group balance sheet in respect of the Group's defined benefit retirement plans and other post-retirement benefit plans is analysed in the following tables.

						Other post-
						retirement
				Defined benefit pension plans		benefit	2010
	UK	US	Germany	ROW	Total	plans	Total
	£m	£m	£m	£m	£m	£m	£m
Equities	81.9	20.2	—	4.2	106.3	—	106.3
Bonds	253.7	71.1	—	6.7	331.5	—	331.5
Risk-mitigation derivatives	29.7	—	—	—	29.7	—	29.7
Other assets	77.9	18.1	—	26.9	122.9	—	122.9
Fair value of plan assets	443.2	109.4	—	37.8	590.4	—	590.4
Present value of funded defined benefit obligations	(438.9)	(153.4)	—	(50.0)	(642.3)	—	(642.3)
	4.3	(44.0)	—	(12.2)	(51.9)	—	(51.9)
Present value of unfunded post-retirement benefits plans	(0.8)	(13.9)	(35.0)	(2.5)	(52.2)	(9.7)	(61.9)
Total net surpluses/(liabilities)	3.5	(57.9)	(35.0)	(14.7)	(104.1)	(9.7)	(113.8)
Recognised in the Group balance sheet as:
Net surpluses	4.3	—	—	—	4.3	—	4.3
Net liabilities	(0.8)	(57.9)	(35.0)	(14.7)	(108.4)	(9.7)	(118.1)
Total net surpluses/(liabilities)	3.5	(57.9)	(35.0)	(14.7)	(104.1)	(9.7)	(113.8)

						Other post-
						retirement
				Defined benefit pension plans		benefit	2009
U	K US		Germany	ROW T	otal	plans T	otal
	£m	£m	£m	£m	£m	£m	£m
Equities	179.4	57.6	—	3.8	240.8	—	240.8
Bonds	45.7	35.8	—	6.0	87.5	—	87.5
Money market instruments and swaps	100.6	—	—	—	100.6	—	100.6
Risk-mitigation derivatives	12.7	—	—	—	12.7	—	12.7
Other assets	65.7	—	—	24.6	90.3	—	90.3
Fair value of plan assets	404.1	93.4	—	34.4	531.9	—	531.9
Present value of funded defined benefit obligations	(425.7)	(135.2)	—	(45.1)	(606.0)	—	(606.0)
	(21.6)	(41.8)	—	(10.7)	(74.1)	—	(74.1)
Present value of unfunded post-retirement benefits plans	(0.7)	(12.3)	(32.9)	(2.4)	(48.3)	(15.3)	(63.6)
Net liabilities recognised in the Group balance sheet	(22.3)	(54.1)	(32.9)	(13.1)	(122.4)	(15.3)	(137.7)

38. EMPLOYEE BENEFITS (CONTINUED)

38.6 INCOME STATEMENT RECOGNITION

The expense recognised in the Group income statement in respect of the Group's defined benefit retirement plans and other post-retirement benefits plans is shown below.

	2010				2009
		Other			Other
	Defined	post-		Defined	post-
	benefits	retirement		benefits	retirement
	pension	benefits		pension	benefits
	plans	plans	Total	plans	plans T	otal
	£m	£m	£m	£m	£m	£m
Current service cost	5.9	0.6	6.5	5.6	0.5	6.1
Interest on obligation	35.9	0.4	36.3	32.9	1.3	34.2
Expected return on plan assets	(32.7)	—	(32.7)	(29.4)	—	(29.4)
(Gains)/losses relating to employee benefits plans	(5.3)	—	(5.3)	0.2	(9.8)	(9.6)
Restructuring and integration charges	—	—	—	0.8	—	0.8
Total expense	3.8	1.0	4.8	10.1	(8.0)	2.1

The total expense recognised in the Group income statement in respect of the Group's defined benefit retirement plans and other post-retirement benefits plans is recognised in the following lines:

	2010	2009
	£m	£m
In arriving at trading profit — within other manufacturing costs	2.5	2.3
— within administration, selling and distribution costs	4.0	3.9
In arriving at profit from operations — within restructuring and integration charges	—	0.8
— gains relating to employee benefits plans	(5.3)	(9.7)
In arriving at profit/(loss) before tax — within ordinary finance costs		34.2
— within finance income	(32.7)	(29.4)
Total expense	4.8	2.1

With effect from 31 July 2010, the UK Plan was closed to future benefit accrual. This closure, together with the closure of one of the remaining defined benefit plans in the US, resulted in the recognition of curtailment gains of £5.3m in the year. The net gain relating to employee benefits plans of £9.7m in 2009 principally arose in relation to the reduction in the costs of providing benefits under the Group's US post-retirement medical arrangements.

38.7 HISTORICAL INFORMATION

The history of the fair value of the Group's plan assets, the present value of defined benefit obligations, the net deficit in the plans and the experience adjustments on plan assets and liabilities are shown below.

		Defined benefit pension plans
	2010	2009	2008	2007	2006
	£m	£m	£m	£m	£m
Fair value of pension plan assets	590.4	531.9	526.4	389.0	351.6
Present value of defined benefit pension obligations	(694.5)	(654.3)	(592.6)	(463.6)	(483.3)
Net pension plan deficit	(104.1)	(122.4)	(66.2)	(74.6)	(131.7)

Experience gains/(losses) on pension plan liabilities	6.3	3.6	5.6	(0.3)	23.1
Experience gains/(losses) on pension plan assets	30.8	3.9	(15.6)	(0.9)	2.9
			Other post-retirement benefit plans
	2010	2009	2008	2007	2006
	£m	£m	£m	£m	£m
Present value of defined benefit obligations/net deficit	(9.7)	(15.3)	(29.1)	(21.5)	(23.4)
Experience gains/(losses) on plan liabilities	2.8	0.2	1.2	(0.1)	(2.2)

The cumulative amount of actuarial losses recognised in the Group statement of comprehensive income is £85.9m (2009: £88.4m).

39. SHARE-BASED PAYMENTS

39.1 SHARE-BASED PAYMENT PLANS

The Group operates a number of different share-based payment plans; the main features of each plan are outlined below.

(a) Long-term incentive plan ("LTIP")

The LTIP was introduced in 2004 to replace the Group's executive share option schemes.

The LTIP has two elements. Firstly, executives who are eligible receive a conditional annual award of shares worth up to a prescribed percentage of their base salary ("Performance Shares"). Secondly, executives who are eligible can elect to invest all or part of their annual incentive in ordinary shares of the Company ("Investment Shares") in return for which they receive a conditional award of ordinary shares worth up to 2.25 times the pre-tax equivalent of the annual incentive so invested ("Matching Shares"). In addition, for awards made after 7 March 2008, the Remuneration Committee has the discretion to award participants the dividends that would have been paid on the number of shares that vest in respect of dividend record dates occurring during the period between the award date and the date of vesting.

Performance Shares and Matching Shares can vest after three years, with the proportion of shares vesting being based on the Company's performance against specified performance conditions.

For outstanding and future awards, vesting of 50% of shares awarded will be based on the Group's three-year Total Shareholder Return ("TSR") performance relative to that of a comparator group, the FTSE 250 excluding Investment Trusts, and 50% on Headline earnings per share ("Headline EPS", the calculation of which is shown in note 16) growth over a three-year period. The two measures operate independently. Vesting of Performance Shares and Matching Shares under the outstanding and future LTIP awards will be based on TSR performance and Headline EPS growth in accordance with the schedules disclosed in the Directors' Remuneration Report on page 39.

An executive's Matching Shares award will only vest if the Investment Shares originally purchased have been retained. The fair value of awards granted under the LTIP are measured using a stochastic pricing model for those shares based on TSR performance, and using a Black–Scholes pricing model for those shares based on Headline EPS performance.

(b) Executive option schemes ("ESOS")

The last executive share option grant was made in 2003. Under these schemes, share options were granted at the market price prevailing at the time of grant. Options normally only became exercisable if the growth in Headline EPS was at least equal to the increase in the RPI plus 3% per annum for a consecutive three-year period.

The fair value of awards granted under the ESOS was measured using a stochastic pricing model.

(c) UK and international Sharesave schemes ("SAYE schemes")

The last grant under the SAYE schemes was made in 2004. Under the SAYE schemes, employees had the opportunity to purchase ordinary shares in the Company at a discounted price of up to 20% by using their savings together with an additional tax-free bonus at the end of their saving period. The schemes operated in conjunction with a three or five-year savings contract and options were granted at a discount of up to 20% of the market value of the shares at the date of grant. Employees who entered into these contracts had to make monthly savings of between £5 and £250.

The fair value of awards granted under the SAYE schemes was measured using a Black–Scholes pricing model.

(d) Deferred Share Bonus Plan ("DSBP")

In 2007, the Company implemented a new DSBP in place of the LTIP for certain senior managers. Under this plan, executives receive an allocation of deferred shares to the value of a percentage of their annual bonus. These shares vest after three years, although an executive's allocation may lapse if their employment ceases in certain circumstances before the end of the three-year period.

The fair value of awards granted under the DSBP scheme is measured using a Black–Scholes pricing model.

(e) Stock Appreciation Rights ("SAR")

Due to the disadvantageous tax regime in Belgium, Belgian participants in the ESOS and SAYE schemes received SAR instead of share options. These SAR were awarded under exactly the same rights and conditions as the share options, except that individuals received, in cash, the difference between the subscription price and market price of Company shares on the date of exercise, rather than having the right to purchase shares.

39. SHARE-BASED PAYMENTS (CONTINUED)

39.2 DETAILS OF OUTSTANDING OPTIONS

The Company has followed the transitional provisions of IFRS 2 and applied it to those options that were granted after 7 November 2002 and which had not vested by 1 January 2005. The following disclosures are only in respect of those options that fall within the scope of IFRS 2. The number of options and the associated share prices in the tables below have been restated to reflect the bonus element of the shares issued under the terms of the rights issue which completed on 4 March 2009 and the 10 for 1 share consolidation completed on 14 May 2009.

					Awards W exercisable	eighted average
	As at 1 January 2010 no.	Granted no.	Exercised no.	Outstanding awards Forfeited/ lapsed no.	As at 31 December 2010 no.	as at 31 December 2010 no.	outstanding contractual life of awards years	Range of exercise prices pence
LTIP	5,945,891	902,814	—	(628,079)	6,220,626	—	1.3
Weighted average exercise price	nil	nil	—	nil	nil	—		n/a
ESOS	200,883	—	(19,266)	(8,963)	172,654	172,654	2.2
Weighted average exercise price	432p	—	377p	493p	435p	435p		377-542p
SAYE	36,352	—	(20,142)	(16,210)	—	—	n/a
Weighted average exercise price	407p	—	407p	407p	—	—		n/a
DSBP	123,578	66,108	(12,344)	—	177,342	—	1.6
Weighted average exercise price	nil	nil	nil	—	nil	—		n/a
SAR	20,459	—	—	—	20,459	20,459	2.2
Weighted average exercise price	446p	—	—	—	446p	446p		377-542p

Options were exercised on a regular basis throughout 2010. The average share price during 2010 was 503p (2009: 292p).

				Outstanding awards		Awards exercisable	Weighted average
	As at 1 January 2009 no.	Granted E no.	xercised no.	Forfeited/ lapsed no.	As at 31 December 2009 no.	as at 31 December 2009 no.	outstanding contractual life of awards years	Range of exercise prices pence
LTIP	1,641,538	4,802,866	—	(498,513)	5,945,891	—	2.0
Weighted average exercise price	nil	nil	—	nil	nil	—		n/a
ESOS	223,599	—	(1,841)	(20,875)	200,883	200,883	3.2
Weighted average exercise price	431p	—	377p	430p	432p	432p		377–542p
SAYE	61,262	—	—	(24,910)	36,352	36,352	0.4
Weighted average exercise price	436p	—	—	480p	407p	407p		407p
DSBP	15,272	108,306	—	—	123,578	—	2.0
Weighted average exercise price	nil	nil	—	—	nil	—		n/a
SAR	26,478	—	(6,019)	—	20,459	20,459	3.2
Weighted average exercise price	445p	—	440p	—	446p	446p		377–542p

39. SHARE-BASED PAYMENTS (CONTINUED)

39.3 OPTIONS GRANTED DURING THE YEAR

	2010			2009
			LTIP			LTIP
		EPS	TSR EPS TS			R
	DSBP	element	element	DSBP	element	element
Fair value of options granted (per share)	586p	586p	468p	175p	175p	84p
Share price on date of grant (per share)	586p	586p	586p	175p	175p	175p
Expected volatility	n/a	n/a	58.8%	n/a	n/a	39.7%
Risk-free interest rate	n/a	n/a	1.8%	n/a	n/a	1.7%
Exercise price (per share)	nil	nil	nil	nil	nil	nil
Expected term (years)	3	3	3	3	3	3
Expected dividend yield	0%	0%	0%	0%	0%	0%

Share price volatility for options granted in 2010 and 2009 is based upon weekly movements in the Company's share price over a period prior to the grant date that is equal in length to the expected term of the award.

39.4 INCOME STATEMENT RECOGNITION

The total expense recognised in the Group income statement is shown below.

	2010	2009
	£m	£m
LTIP	6.6	1.0
DBP	0.2	0.1
SAR	0.1	—
Total expense	6.9	1.1

The total intrinsic value at the end of the year for cash-settled share-based payments that had vested was £0.1m (2009: £nil).

40. TRADE AND OTHER PAYABLES

£m Non-current Accruals and other payables 22.0 Deferred purchase consideration 1.1 Total non-current other payables 23.1 Current Trade payables 232.2 Other taxes and social security 46.3 Accruals and other payables 146.4 Deferred purchase consideration 0.8 Total current trade and other payables 425.7	2010	2009
		£m

		25.3
		1.9
		27.2


		191.0
		35.1
		110.5
		0.9
		337.5

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.

41. PROVISIONS

		Restructuring
	Disposal	and
	and closure	integration
	costs	charges	Other	Total
	£m	£m	£m	£m
As at 1 January 2010	34.9	44.5	14.1	93.5
Exchange adjustments	1.4	(0.1)	0.1	1.4
Charge to Group income statement	2.1	16.4	1.1	19.6
Unwind of discount	1.4	1.4	—	2.8
Cash spend	(5.5)	(23.8)	(2.2)	(31.5)
As at 31 December 2010	34.3	38.4	13.1	85.8

	2010 £m	2009 £m
Recognised in the Group balance sheet as:
Non-current provisions	53.2	56.6
Current provisions	32.6	36.9
Total provisions	85.8	93.5

The provision for disposal and closure costs includes the Directors' current best estimate of the costs to be incurred both in the fulfilment of obligations undertaken in connection with former Group businesses, resulting from either disposal or closure, together with those related to the demolition and clean-up of closed sites. The provision comprises amounts payable in respect of known or probable costs resulting both from legal or other regulatory requirements, or from third-party claims, including claims relating to product liability. 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 years and the underlying estimates of costs are regularly updated to reflect changed circumstances with regard to individual matters.

The provision for restructuring and integration charges includes the costs of all of the Group's initiatives to rationalise its operating activities. The balance of £38.4m as at 31 December 2010 comprises £25.1m in relation to onerous lease provisions in respect of leases terminating between three and eighteen years, and £13.3m in relation to future expenditure on restructuring initiatives, the majority of which commenced in 2009 and 2010 and which is expected to be paid out over the next two years.

Other provisions comprise 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 provision is made is subject to legal or other regulatory process, the timing of the associated outflows is subject to some uncertainty, but the majority of the amounts provided are expected to be utilised over the next five years and the underlying estimates of costs are regularly updated to reflect changed circumstances with regard to individual matters.

Where insurance cover exists for any of these known or probable costs, a related asset is recognised in the Group balance sheet only when its realisation is virtually certain. As at 31 December 2010, £10.1m (2009: £10.1m) was recorded in receivables in respect of associated insurance reimbursements, of which £7.5m (2009: £7.5m) is non-current. The amounts reported in the table above as charged to the Group income statement represent only that part of the total income statement charge reported as a movement on provisions. Other components of the charge, such as asset write-offs, are reported as a reduction in the carrying value of the relevant balance sheet item.

42. ACQUISITION OF SUBSIDIARIES AND JOINT VENTURES, NET OF CASH ACQUIRED

During 2010 an additional £2.9m was invested in the Group's joint ventures, along with £1.0m of deferred consideration in respect of prior year acquisitions. The fair value of net assets acquired was £0.5m (of which £0.3m was cash) and £4.7m was invested in joint ventures. Goodwill arising on these acquisitions amounted to £3.0m (note 21). In 2009, the Group acquired interests in subsidiaries and joint ventures for a total consideration of £8.2m, of which £5.9m was paid in cash and £2.3m was deferred, subject to future earn-out arrangements.

43. DISPOSAL OF SUBSIDIARIES AND JOINT VENTURES, NET OF CASH DISPOSED

		2010			2009
	Continuing	Discontinued	C	ontinuing	Discontinued
	operations £m	operations £m	Total £m	operations £m	operations T £m	otal £m

Net consideration
Net proceeds received	6.2	—	6.2	6.2	—	6.2
Proceeds receivable	—	—	—	0.9	—	0.9
Provision for future disposal costs	(1.9)	(1.2)	(3.1)	—	(3.4)	(3.4)
Total net consideration	4.3	(1.2)	3.1	7.1	(3.4)	3.7

Assets and liabilities disposed
Property, plant and equipment (note 20)	0.2	—	0.2	0.3	—	0.3
Attributable goodwill (note 21)	1.3	—	1.3	1.5	—	1.5
Trade working capital	1.6	—	1.6	1.3	—	1.3
Assets previously classified as held for sale	1.8	—	1.8	0.3	—	0.3
Net assets disposed	4.9	—	4.9	3.4	—	3.4
(Loss)/profit on disposal of operations	(0.6)	(1.2)	(1.8)	3.7	(3.4)	0.3

Net cash received from disposals
Net proceeds received for current year disposals	6.2	—	6.2	6.2	—	6.2
Net costs paid for prior years' disposals	(1.1)	(2.7)	(3.8)	(0.8)	(4.5)	(5.3)
Net cash inflow/(outflow) from disposals	5.1	(2.7)	2.4	5.4	(4.5)	0.9

Recognition in the Group statement of cash flows
Disposal of subsidiaries and joint ventures	6.2	—	6.2	6.2	—	6.2
Other investing outflows	(1.1)	(2.7)	(3.8)	(0.8)	(4.5)	(5.3)
Net cash inflow/(outflow) from disposals	5.1	(2.7)	2.4	5.4	(4.5)	0.9

No cash or cash equivalents were disposed of in the year (2009: £nil).

44. COMMITMENTS

	2010	2009
	£m	£m
Capital commitments
Contractual commitments for the acquisition of property, plant and equipment	9.8	2.4

Operating lease commitments
The future aggregate minimum lease payments under non-cancellable operating leases are payable as follows:
Not later than one year	17.3	17.6
Later than one year and not later than five years	41.7	40.7
Later than five years	49.2	57.5
Total operating lease commitments	108.2	115.8

44. COMMITMENTS (continued)

The Group's property, plant and equipment assets are either purchased outright or held under lease contracts. In accordance with the accounting policy in note 3.19, 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.

As disclosed in the table above, as at 31 December 2010 the Group was committed to making £108.2m (2009: £115.8m) of future payments in respect of assets held under non-cancellable operating leases. The cost incurred by the Group in the year in respect of assets held under operating leases, all of which was charged within trading profit, amounted to £25.6m (2009: £24.4m).

45. OFF-BALANCE SHEET ARRANGEMENTS

In compliance with current reporting requirements, certain arrangements entered into by the Group in its normal course of business do not get reported in the Group balance sheet. Of such arrangements, those considered material by the Directors include: inventory held under precious metal consignment arrangements (note 27); future lease payments in relation to assets used by the Group under non-cancellable operating leases (note 44); and trade receivable balances that have been subject to non-recourse factoring arrangements.

Under its non-recourse factoring arrangements, the Group sells trade receivables balances to a third-party factoring company in exchange for a cash payment from the factoring company, net of fees. All the risks and rewards of the trade receivables subject to these arrangements are transferred to the factoring company and, accordingly, the trade receivables are derecognised in the Group balance sheet. Such arrangements are used from time to time by the Group to manage the recovery of cash from its trade receivables. As at 31 December 2010, the Group balance sheet included £39.4m (31 December 2009: £34.2m) of cash that would otherwise have been reported as trade receivables if these arrangements were not in place. Factoring fees incurred during the year ended 31 December 2010, which are written off to the Group income statement within ordinary finance costs, amounted to £1.5m (2009: £1.4m).

46. CONTINGENT LIABILITIES

Guarantees given by the Group under property leases of operations disposed of amounted to £4.1m (2009: £3.9m). Details of guarantees given by the Company, on behalf of the Group, are given in note 19 to the Company financial statements.

The Group 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. While the outcome of litigation can never be predicted with certainty, having regard to legal advice received and the Group's insurance arrangements, the Directors believe that none of these matters will, either individually or in the aggregate, have a materially adverse effect on the Group's financial position or results of operations.

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. Certain of the Group's subsidiaries are subject to lawsuits, predominately in the US, relating to a small number of products containing asbestos manufactured prior to the acquisition of those subsidiaries by the Group. These suits usually also name many other product manufacturers. To date, the Group is not aware of there being any liability verdicts against any of these subsidiaries. A number of lawsuits have been withdrawn, dismissed or settled and the amount paid, including costs, in relation to this litigation has not had a material adverse effect on the Group's financial position or results of operations.

47. PRINCIPAL SUBSIDIARIES AND JOINT VENTURES

Details of the principal subsidiaries and joint ventures of Cookson Group plc and the countries in which they are incorporated are given in note 7 to the Company financial statements.

48. RELATED PARTIES

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 and are not disclosed in this note. During the year, Group subsidiaries made sales of products and services to Group joint venture companies of £1.7m (2009: £1.1m) and made purchases of goods and services from Group joint venture companies of £13.5m (2009: £12.3m). As at 31 December 2010, amounts owed by the Group's joint ventures to Group subsidiaries was £nil (2009: £nil) and amounts owed to Group joint ventures by Group subsidiaries was £nil (2009: £nil). Details of related party information in relation to key management personnel are given in note 11.2.

Company balance sheet

As at 31 December 2010

		2010	2009
N	otes	£m	£m
Fixed assets
Tangible assets	6	0.4	0.5
Investment in subsidiaries	7	2,615.1	2,517.9
Total fixed assets		2,615.5	2,518.4
Current assets
Debtors — amounts falling due within one year	8	4.2	3.8
Short-term deposits		39.6	20.5
Cash at bank and in hand		97.0	92.6
Derivative financial instruments	9	—	0.1
Total current assets		140.8	117.0
Creditors: amounts falling due within one year
Interest-bearing borrowings	10	(394.5)	(296.1)
Other creditors	11	(451.7)	(373.7)
Derivative financial instruments	9	(16.7)	(11.4)
Total current liabilities		(862.9)	(681.2)
Net current liabilities		(722.1)	(564.2)
Total assets less current liabilities		1,893.4	1,954.2
Creditors: amounts falling due after more than one year
Interest-bearing borrowings	10	(388.1)	(439.8)
Other creditors	11	(2.0)	(7.8)
Derivative financial instruments	9	(14.1)	(7.7)
Provisions for liabilities	12	(2.9)	(3.7)
Employee benefits	17	(1.5)	(2.0)
Net assets		1,484.8	1,493.2

Equity capital and reserves
Issued share capital	13	276.4	276.4
Share premium account	14	0.1	—
Retained earnings	15	453.8	475.2
Other reserves	15	754.5	741.6
Shareholders' funds — equity		1,484.8	1,493.2

The Company-only financial statements were approved and authorised for issue by the Directors on 1 March 2011 and signed on their behalf by:

Jeff Harris, Chairman Mike Butterworth, Group Finance Director

Our Financials Our Governance Our Business

notes to the company financial statements

1. BASIS OF PREPARATION

1.1 BASIS OF ACCOUNTING

The Company-only financial statements of Cookson Group plc ("the Company"), a company registered in the United Kingdom, are prepared in accordance with the Companies Act 2006 and under the historical cost convention and in accordance with UK GAAP.

A separate Company-only profit and loss account has not been presented, as permitted by Section 408(3) of the Companies Act 2006.

1.2 BASIS FOR PREPARATION OF FINANCIAL STATEMENTS ON A GOING CONCERN BASIS

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 continue to adopt a going concern basis in preparing the financial statements of the Group and the Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following principal accounting policies have been applied consistently when dealing with all items which are material in relation to the Company-only financial statements.

2.1 CURRENT AND DEFERRED TAXATION

Both current and deferred tax are calculated using tax rates and laws that have been enacted, or substantively enacted, by the balance sheet date.

Current tax payable is based on the taxable result for the year. Deferred taxation is recognised, without discounting, in respect of all timing differences that have originated, but not reversed, at the balance sheet date, with the exception that deferred taxation assets are only recognised if it is considered more likely than not that there will be suitable future profits from which the reversal of the underlying timing differences can be deducted. Provision is made for the tax that would arise on remittance of the retained earnings of overseas subsidiaries only to the extent that, at the balance sheet date, dividends have been accrued as receivable.

2.2 SHARE-BASED PAYMENTS

The Company 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. For grants with market-based conditions attaching to them, fair value is measured using a form of stochastic option pricing model. For all other grants, fair value is measured using the Black–Scholes model.

2.3 PENSION COSTS

The Company participates in a UK-wide Group pension plan (the "UK Plan") providing benefits based on final pensionable salary. The assets of the UK Plan are held separately from those of the Company in an independently administered fund. The Company is unable to identify its share of the underlying assets and liabilities of the UK Plan on a consistent and reasonable basis and therefore, as required by FRS 17, Retirement Benefits, accounts for the UK Plan as if it were a defined contribution scheme. Following a period of consultation with its employees, the closure of the UK Plan to future accrual took effect from 31 July 2010, with a new Group Personal Pension Plan established in its place to provide defined contribution benefits for all eligible UK employees. As a result of these changes, the amount charged to the profit and loss account represents the contributions payable to the UK Plan and the Group Personal Pension Plan during the year.

The new Group Personal Pension Plan established with effect from 31 July 2010 also replaced, for future accrual, the UK-wide Group defined contribution pension plan to which the Company participated up to that date. The assets of both old and new plans are held separately from those of the Company in independently administered funds. The amount charged to the profit and loss account represents the contributions payable to each plan for the part of the year during which each was in operation. Differences between contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in the balance sheet.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.4 POST-RETIREMENT PLANS OTHER THAN PENSION PLANS

The Company operates a post-retirement healthcare benefits plan. The costs of providing the benefits under this plan are not funded and the amount recognised in the balance sheet is based upon an independent actuarial valuation, using the projected unit method.

2.5 FOREIGN CURRENCIES

Transactions in currencies other than the Company'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 foreign currency monetary assets and liabilities are translated into sterling at rates prevailing at the balance sheet date. All exchange differences are taken to the profit and loss account.

2.6 FINANCE COSTS

Interest-bearing borrowings are recorded at the proceeds received, net of direct issue costs. Finance charges and direct issue costs are accounted for on an accruals basis in the profit and loss account using the effective interest rate method.

2.7 FINANCIAL INSTRUMENTS

The Company uses derivative financial instruments in the form of forward foreign currency contracts and interest rate swaps to manage the effects of its exposure to fluctuations in foreign exchange and interest rates on its borrowings. In accordance with its treasury policy, the Company does not hold or issue derivative financial instruments for trading purposes.

The fair value of forward foreign currency contracts is their quoted market price at the balance sheet date. The fair value of interest rate swaps is the estimated amount that the Company would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the creditworthiness of the swap counterparties.

2.8 INVESTMENT IN SUBSIDIARIES

Shares in subsidiaries are stated at cost, together with long-term loans that are stated at amortised cost, less any impairment in value.

2.9 PROVISIONS

Provisions are recognised when the Company has a present obligation as a result of a past event and it is probable that the Company 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.

notes to the company financial statements

3. EMPLOYEE BENEFITS EXPENSE

The total employee benefits expense for the year comprises:

	2010	2009
	£m	£m
Wages and salaries	7.4	5.6
Social security costs	2.0	0.9
Share-based payments (note 18)	3.5	0.6
Pension costs — defined benefit pension plans (note 17)	4.3	3.7
— defined contribution pension plans (note 17)	0.1	0.1
Other post-retirement benefits — interest cost (note 17)	0.1	0.1
— curtailment loss (note 17)	—	0.7
Total employee benefits expense	17.4	11.7

Details of the Directors' remuneration are disclosed in the Directors' Remuneration Report on pages 35 to 44. Of the total pension costs of £4.4m (2009: £3.8m), £2.9m (2009: £1.2m) related to the Company's additional funding "top-up" payments made in the year.

The average number of employees during the year was 35 (2009: 35).

4. AUDIT AND NON-AUDIT FEES

Amounts payable to KPMG Audit Plc in relation to audit and non-audit fees are disclosed within note 8 to the consolidated financial statements.

5. DIVIDENDS

No final dividend was paid in respect of 2008 or 2009, nor was an interim dividend paid in respect of 2009 and 2010.

6. TANGIBLE ASSETS

The net book value of the Company's tangible fixed assets as at 31 December 2010 amounted to £0.4m (2009: £0.5m) in respect of leasehold improvements, for which depreciation charged to the profit and loss account during the year amounted to £0.1m (2009: £0.1m) and capital expenditure amounted to £nil (2009: £nil). The tangible fixed assets of the Company are depreciated in accordance with note 3.13 to the consolidated financial statements.

7. INVESTMENT IN SUBSIDIARIES

				Net book
	Cost	Loans	Provisions	value
	£m	£m	£m	£m
As at 1 January 2010	1,480.1	1,100.8	(63.0)	2,517.9
Exchange adjustments	—	32.5	—	32.5
Additions	13.7	95.8	—	109.5
Disposals, repayments and other movements	(4.5)	(40.3)	—	(44.8)
As at 31 December 2010	1,489.3	1,188.8	(63.0)	2,615.1

The principal subsidiaries and joint ventures of Cookson Group plc and the countries in which they are incorporated are as follows:

* Cookson Australia Pty Ltd, Australia * Foseco (Jersey) Ltd, Jersey
* Cookson Ceramics Ltd, England and Wales * Foseco Ltd, England and Wales Cookson (Europe) SA, Switzerland * Fry's Metals Inc., USA
* Cookson Investments, Inc., USA * Stern/Leach Company, USA
Cookson Overseas Ltd, England and Wales * Vesuvius Crucible Company, USA
* Cookson Precious Metals Ltd, England and Wales * Vesuvius GmbH, Germany
* Cookson Singapore Pte Ltd, Singapore * Vesuvius USA Corporation, USA
* Electroplating Engineers of Japan Ltd, Japan (50%) * Wilkes-Lucas Ltd, England and Wales
* Cookson America, Inc., USA * Foseco International Ltd, England and Wales
* Cookson Investments Ltd, England and Wales * Vesuvius Advanced Ceramics (Suzhou) Co., Ltd, China

Where marked with an asterisk (*), the ordinary capital of the above companies was owned by a Cookson Group plc subsidiary as at 31 December 2010. All of the above companies are wholly owned, unless otherwise stated. A full list of Group companies will be included in the Company's Annual Return to the Registrar of Companies.

All of the above companies have the same year-end as Cookson Group plc with the exception of Electroplating Engineers of Japan Ltd which has a year-end of 31 March. All of the subsidiaries of Cookson Group plc are included in the consolidated financial statements of the Company.

8. DEBTORS

	2010	2009
Amounts falling due within one year	£m	£m
Corporate taxes recoverable	3.0	3.0
Other debtors	0.2	0.2
Prepayments and accrued income	0.8	0.1
Amounts owed by subsidiary undertakings	0.2	0.5
Total amounts falling due within one year	4.2	3.8

9. DERIVATIVE FINANCIAL INSTRUMENTS

Derivative financial instruments are measured at fair value and comprise forward foreign exchange contracts, where changes in fair value are recognised in the profit and loss account, and interest rate swaps, where changes in fair value are initially recognised in reserves. The fair values of the Company's derivative financial instruments as at 31 December 2010 comprised an asset of £nil (2009: £0.1m), which is recognised within current assets, and a liability of £30.8m (2009: £19.1m), of which £16.7m (2009: £11.4m) is recognised within current liabilities and £14.1m (2009: £7.7m) recognised within non-current liabilities.

notes to the company financial statements

10. INTEREST-BEARING BORROWINGS

10.1 BORROWING FACILITIES

As at 31 December 2010, the Company had committed borrowing facilities of £855.4m (2009: £876.2m), of which £350.0m (2009: £350.0m) were undrawn. These undrawn facilities are due to expire in October 2012.

The Company's borrowing requirements are met by US Private Placement Loan Notes ("USPP") and a multi-currency committed syndicated bank facility of £573.2m (2009: £674.9m). The USPP facility was fully drawn as at 31 December 2010 and amounted to £282.2m (\$440.0m), of which \$190.0m is repayable in May 2012, \$110.0m in 2017 and \$140.0m in 2020. The syndicated bank facility comprises £223.2m of term loans and a £350.0m revolving credit facility. The facility is repayable in three instalments: £62.0m in April 2011; £37.5m and €18.8m in October 2011; and £425.3m and €37.6m in October 2012.

10.2 ANALYSIS OF BORROWINGS

	2010 £m	2009 £m
Amounts falling due within one year
Loans	115.6	83.5
Bank overdrafts	280.3	214.4
Capitalised borrowing costs	(1.4)	(1.8)
Total amounts falling due within one year	394.5	296.1
Amounts falling due after more than one year
Loans	389.8	442.7
Capitalised borrowing costs	(1.7)	(2.9)
Total amounts falling due after more than one year	388.1	439.8
Total interest-bearing borrowings	782.6	735.9

Analysis of interest-bearing borrowings
Loans and overdrafts repayable within five years
Unsecured — senior loan notes	121.8	201.3
— other	503.5	539.3
Loans repayable after five years
Unsecured — senior loan notes	160.4	—
Capitalised borrowing costs	(3.1)	(4.7)
Total interest-bearing borrowings	782.6	735.9

The loans and bank overdrafts are repayable as follows
On demand or within one year	395.9	297.9
In the second year	229.4	108.3
In the third year	—	334.4
In the fourth year	—	—
In the fifth year	—	—
After five years	160.4	—
Capitalised borrowing costs	(3.1)	(4.7)
Total interest-bearing borrowings	782.6	735.9
Less: amount repayable within one year	(394.5)	(296.1)
Amount repayable in more than one year	388.1	439.8

11. OTHER CREDITORS

	2010	2009
	£m	£m
Amounts owed to subsidiary undertakings	438.3	364.0
Other taxes and social security	2.0	0.7
Accruals and other creditors	13.4	16.8
Total other creditors	453.7	381.5
Less: amounts falling due in more than one year — accruals and other creditors	(2.0)	(7.8)
Total amounts falling due within one year	451.7	373.7

12. PROVISIONS FOR LIABILITIES

As at 31 December	2.9	3.7
Credit to profit and loss account	(0.8)	(0.7)
As at 1 January	3.7	4.4
	£m	£m
	2010	2009

The balance of £2.9m as at 31 December 2010 (31 December 2009: £3.7m) represents a deferred tax liability in respect of deferred income relating to interest rate swaps closed-out in the current and prior years. The total deferred tax asset not recognised as at 31 December 2010 was £84.3m (31 December 2009: £86.8m), consisting of £46.6m (2009: £43.0m) relating to operating losses, £2.0m (2009: £7.2m) relating to other temporary differences, £22.6m (2009: £23.5m) relating to capital losses and £13.1m (2009: £13.1m) relating to ACT tax credits.

13. ISSUED SHARE CAPITAL

	Number of shares
	m	£m
As at 1 January 2009	212.6	21.3
Shares issued in the year	2,551.3	255.1
Share consolidation	(2,487.5)	—
As at 1 January 2010 and 31 December 2010	276.4	276.4

Further information relating to the Company's share capital is given in the Directors' Report on page 32.

14. SHARE PREMIUM ACCOUNT

	£m
As at 1 January 2009	8.1
Expenses associated with shares issued in the year	(8.1)
As at 1 January 2010	—
Arising on exercise of share options	0.1
As at 31 December 2010	0.1

notes to the company financial statements

15. RESERVES

		Share		Other	Total
	Treasury	option	Hedging	retained	retained	Other	Total
	shares	reserve	reserve	earnings	earnings	reserves	reserves
	£m	£m	£m	£m	£m	£m	£m
As at 1 January 2010	(2.6)	2.1	—	475.7	475.2	741.6	1,216.8
Net loss transferred from the profit and loss account	—	—	—	(23.4)	(23.4)	—	(23.4)
Actuarial gain on employee benefits plans	—	—	—	0.3	0.3	—	0.3
Recognition of share-based payments	—	3.5	—	—	3.5	—	3.5
Release of share option reserve on exercised and
lapsed options	—	(0.8)	—	0.8	—	—	—
Disposal of treasury shares	0.1	—	—	(0.1)	—	—	—
Change in fair value of cash flow hedges	—	—	(4.4)	—	(4.4)	—	(4.4)
Cash flow hedges released to the profit and loss account	—	—	2.4	—	2.4	—	2.4
Unrealised income during the year	—	—	—	—	—	13.1	13.1
Transfers	—	—	—	0.2	0.2	(0.2)	—
As at 31 December 2010	(2.5)	4.8	(2.0)	453.5	453.8	754.5	1,208.3

Treasury shares

As at 31 December 2010, 0.2m ordinary shares of 100p each of the Company were held by Cookson Investments (Jersey) Limited, as Trustee of the Cookson Group Employee Share Ownership Plan ("ESOP"), with a nominal value of £0.2m, which were purchased at a gross cost of £2.5m. The purchase of these shares was financed by the Company out of borrowings included in the Company balance sheet as at 31 December 2010. The market value of these shares as at 31 December 2010 was £1.5m (2009: £1.0m). The Trustee of the ESOP has waived its rights to receive dividends on the shares held. The shares are held, as treasury shares, to meet share option obligations as and when they arise at the discretion of the Company.

As at 31 December 2010, options exercisable over the 100p ordinary shares and capable of being satisfied through new allotments of shares or through shares held by the Company's ESOP were as follows:

				Number
			Latest year	of options/
	Years of	Option	of exercise/	allocations
	award/grant	prices (£)	vesting	outstanding
Long-Term Incentive Plan	2008–2010	nil	2011–2013	6,220,626
Executive Share Option Schemes	2001–2003	3.77–19.34	2011–2013	574,202
Deferred Share Bonus Plan	2008–2010	nil	2011–2013	177,342
Stock Appreciation Rights	2001–2003	3.77–19.34	2011–2013	51,658

The share prices reported in the table above have been restated to reflect the bonus element of the shares issued under the terms of the rights issue which completed on 4 March 2009 and the 10 for 1 share consolidation completed on 14 May 2009.

Other reserves

The cancellation in 2006 of the Company's deferred shares and share premium account created, following the registration of the order of the High Court with the Registrar of Companies, a non-distributable reserve of the Company of £1,003.4m reported within other reserves. This reserve becomes distributable at such time when all external creditors of the Company as at 15 February 2006 have either been fully settled, or have agreed that this reserve may be deemed distributable, or to the extent that additional share capital or share premium arises after 2006 as a result of an issue of new shares. The balance on this reserve as at 31 December 2010 was £741.4m (2009: £741.6m). In addition, the Company received a dividend in specie during the year amounting to £13.1m from one of its subsidiaries, all of which was recognised as a non-distributable reserve.

16. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

	Share capital £m	Share premium £m	Retained earnings £m	Other reserves £m	Total shareholders' equity £m
As at 1 January 2009	21.3	8.1	224.7	996.7	1,250.8
Net loss transferred from the profit and loss account	—	—	(8.8)	—	(8.8)
Actuarial loss on employee benefits plans (note 17)	—	—	(0.2)	—	(0.2)
Recognition of share-based payments (note 18)	—	—	0.6	—	0.6
Arising from issue of shares during the year (notes 13 and 14)	255.1	(8.1)	(6.3)	—	240.7
Change in fair value of cash flow hedges	—	—	(2.7)	—	(2.7)
Cash flow hedges released to the profit and loss account	—	—	12.8	—	12.8
Transfers	—	—	255.1	(255.1)	—
As at 1 January 2010	276.4	—	475.2	741.6	1,493.2
Net loss transferred from the profit and loss account	—	—	(23.4)	—	(23.4)
Actuarial gain on employee benefits plans (note 17)	—	—	0.3	—	0.3
Recognition of share-based payments (note 18)	—	—	3.5	—	3.5
Arising from issue of shares during the year (notes 13 and 14)	—	0.1	—	—	0.1
Change in fair value of cash flow hedges	—	—	(4.4)	—	(4.4)
Cash flow hedges released to the profit and loss account	—	—	2.4	—	2.4
Unrealised income during the year	—	—	—	13.1	13.1
Transfers	—	—	0.2	(0.2)	—
As at 31 December 2010	276.4	0.1	453.8	754.5	1,484.8

17. EMPLOYEE BENEFITS

17.1 PENSION PLANS

The Company participates in a UK-wide Group defined benefit pension plan (the "UK Plan"). The Company is unable to identify its share of the underlying assets and liabilities of the UK Plan and therefore accounts for its membership of the plan as it would for a defined contribution plan. Costs charged in the year in respect of its contributions payable to the UK Plan were £4.3m (2009: £3.7m). Following a period of consultation with its employees, the closure of the UK Plan to future accrual took effect from 31 July 2010, with a new Group Personal Pension Plan established in its place to provide defined contribution benefits for all eligible UK employees. As a result of these changes, the amount charged to the profit and loss account represents the contributions payable to the UK Plan and the Group Personal Pension Plan during the year.

The last full actuarial valuation of the UK Plan, which was performed by an independent qualified actuary, was carried out as at 31 December 2009. At that date, the market value of the plan assets was £401.9m, representing 88% of accrued plan benefits at the time (using the projected unit method of valuation) of £456.4m. Calculated on a "buy-out" basis (using an estimation of the cost of buying out the UK Plan benefits with an insurance company), the liabilities at that date were £589.0m, representing a funding level of 68%. The 2009 full valuation has been updated, as appropriate, in order to estimate the liabilities of the scheme as at 31 December 2010, at which date the market value of the plan assets was £443.2m (2009: £404.1m), representing 101% (2009: 95%) of estimated accrued plan benefits of £439.7m (2009: £426.4m).

In July 2010, the UK government announced changes to the inflation index used for statutory pension increases (both for pensions in payment and pensions in deferment) to apply to private sector pension schemes. The Company, the UK Plan Trustee and their respective legal advisers are currently working to clarify how this impacts the UK Plan and will communicate with any affected members in 2011.

The new Group Personal Pension Plan established with effect from 31 July 2010 also replaced, for future accrual, the UK-wide Group defined contribution pension plan to which the Company participated up to that date. The pension cost charge represents contributions payable by the Company to each plan for the part of the year for which each was in operation and amounted to £0.1m (2009: £0.1m). There were no outstanding contributions payable to the plan as at 31 December 2010 (31 December 2009: £nil).

notes to the company financial statements

17. EMPLOYEE BENEFITS (CONTINUED)

17.2 POST-EMPLOYMENT PLANS OTHER THAN PENSION PLANS

The Company operates a post-retirement healthcare benefits plan. The costs of providing the benefits under this plan are not funded. The level of the accrued plan benefits provision is based on an independent actuarial valuation, using the projected unit method. As at 31 December 2010, the accrued plan benefits were £1.5m (2009: £2.0m; 2008: £1.2m; 2007: £1.3m; 2006: £3.8m).

(a) Principal assumptions used to calculate post-employment plan obligations

	2010	2009
	%	%
Discount rate	5.40	5.65
Healthcare cost trend— long-term	5.60	5.80
— next year	5.60	5.80

(b) Movement on the present value of post-employment benefits plan liabilities

Present value as at 31 December	1.5	2.0
Net benefits paid out	(0.3)	(0.2)
Actuarial (gain)/loss recognised in equity	(0.3)	0.2
Curtailment loss	—	0.7
Interest cost	0.1	0.1
Present value as at 1 January	2.0	1.2
	£m	£m
	2010	2009

(c) History of experience adjustments

	2010	2009	2008	2007	2006
Experience gain/(loss) arising on the plan liabilities (£m)	0.3	—	—	(0.1)	1.2
As % of present value of plan liabilities	20%	—	—	(8%)	32%
Actuarial gain/(loss) recognised in equity (£m)	0.3	(0.2)	0.1	1.6	1.1
As % of present value of plan liabilities	20%	(10%)	8%	123%	29%

18. SHARE-BASED PAYMENTS

18.1 SHARE-BASED PAYMENT SCHEMES

The Company operates a number of different share-based payment schemes, the main features of each scheme being detailed in note 39 to the consolidated financial statements. The number of options and the associated share prices in the tables below have been restated to reflect the bonus element of the shares issued under the terms of the rights issue which completed on 4 March 2009 and the 10 for 1 share consolidation completed on 14 May 2009.

18.2 DETAILS OF OUTSTANDING OPTIONS

						Awards W	eighted
				Outstanding awards		exercisable	average
	As at				As at	as at	outstanding	Range of
	1 January			Forfeited/	31 December	31 December	contractual	exercise
	2010	Granted	Exercised	lapsed	2010	2010	life of awards	prices
	no.	no.	no.	no.	no.	no.	years	pence
LTIP	3,029,827	424,291	—	(290,847)	3,163,271	—	1.3
Weighted average exercise price	nil	nil	—	nil	nil	—		n/a
ESOS	3,755	—	—	—	3,755	3,755	2.7
Weighted average exercise price	536p	—	—	—	536p	536p		377-542p
DSBP	34,055	9,426	(7,608)	—	35,873	—	1.3
Weighted average exercise price	nil	nil	nil	—	nil	—		n/a

						Awards	Weighted
				Outstanding awards		exercisable	average
	As at				As at	as at	outstanding	Range of
	1 January			Forfeited/	31 December	31 December	contractual	exercise
	2009	Granted E	xercised	lapsed	2009	2009	life of awards	prices
	no.	no.	no.	no.	no.	no.	years	pence
LTIP	904,844	2,417,522	—	(292,539)	3,029,827	—	1.9
Weighted average exercise price	nil	nil	—	nil	nil	—		n/a
ESOS	3,755	—	—	—	3,755	3,755	3.7
Weighted average exercise price	536p	—	—	—	536p	536p		377–542p
DSBP	15,272	18,783	—	—	34,055	—	1.6
Weighted average exercise price	nil	nil	—	—	nil	—		n/a

Options were exercised on a regular basis throughout 2010. The average share price during 2010 was 503p (2009: 292p).

18.3 OPTIONS GRANTED DURING THE YEAR

		2010			2009
						LTIP
		EPS	TSR EPS TS			R
	DSBP	element	element	DSBP	element	element
Fair value of options granted (per share)	586p	586p	468p	175p	175p	84p
Share price on date of grant (per share)	586p	586p	586p	175p	175p	175p
Expected volatility	n/a	n/a	58.8%	n/a	n/a	39.7%
Risk-free interest rate	n/a	n/a	1.8%	n/a	n/a	1.7%
Exercise price (per share)	nil	nil	nil	nil	nil	nil
Expected term (years)	3	3	3	3	3	3
Expected dividend yield	0%	0%	0%	0%	0%	0%

18.4 PROFIT AND LOSS ACCOUNT RECOGNITION

The total expense recognised in respect of share-based payments in the year was £3.5m (2009: £0.6m), which all related to the LTIP.

notes to the company financial statements

19. CONTINGENT LIABILITIES

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 2010 in respect of the liabilities of its subsidiary companies amounted to £40.8m (31 December 2009: £32.5m), which includes guarantees under property leases of operations disposed of amounting to £4.1m (31 December 2009: £3.9m).

In addition, on behalf of its subsidiaries the Company has given guarantees to precious metals consignors amounting to £354.8m (2009: £304.5m), representing all of the value of precious metals held by its subsidiaries on consignment terms as at 31 December 2010. Further details of these consignment arrangements are given in note 27 to the consolidated financial statements.

Cookson 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.

20. RELATED PARTIES

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.

During the year, the Company received a dividend of £0.2m (2009: £0.1m) from Foseco India Limited, a company that is 75% owned by the Group. At the balance sheet date, the Company had an outstanding loan payable of £nil (2009: £1.2m) to Vesuvius Ceska Republika, a.s., a company that is 60% owned by the Group.

21. OPERATING LEASE COMMITMENTS

The Company charged £0.4m (2009: £0.4m) to the profit and loss account in respect of operating lease arrangements, of which £0.1m (2009: £0.1m) related to the hire of plant and machinery. Payments under operating lease arrangements in 2011 are expected to be £0.4m, principally under lease arrangements ending in more than five years.

five year sUmmary — group

INCOME STATEMENT	2010 £m	2009 £m	2008 £m	2007 £m	2006 £m
Revenue
Continuing operations	2,545.5	1,960.6	2,202.5	1,619.5	1,589.6
Discontinued operations	—	—	—	1.5	71.8
Total revenue	2,545.5	1,960.6	2,202.5	1,621.0	1,661.4

Trading profit
Continuing operations	252.1	111.7	216.3	169.6	150.3
Discontinued operations	—	—	—	(0.2)	7.9
Total trading profit	252.1	111.7	216.3	169.4	158.2
Amortisation and impairment of intangible assets	(17.7)	(17.6)	(52.5)	—	—
Restructuring and integration charges	(17.3)	(75.6)	(39.6)	(5.8)	(34.7)
Inventory fair value adjustment	—	—	(2.6)	—	—
Profit/(loss) relating to non-current assets	0.6	(2.8)	3.4	7.0	13.1
Gains relating to employee benefits plans	5.3	9.7	6.0	1.0	8.6
Profit from operations	223.0	25.4	131.0	171.6	145.2
Net finance costs — ordinary activities	(30.4)	(37.0)	(40.8)	(21.5)	(28.4)
— exceptional items	(3.0)	(14.0)	(2.2)	—	—
Share of post-tax profit of joint ventures	0.4	1.0	0.7	1.7	1.4
Net (loss)/profit on disposal of continuing operations	(0.6)	3.7	0.9	(0.4)	(4.7)
Profit/(loss) before tax	189.4	(20.9)	89.6	151.4	113.5
Income tax costs	(37.3)	(20.4)	(40.2)	(43.4)	(43.8)
Discontinued operations	(1.2)	(3.4)	—	(0.1)	(3.3)
Profit/(loss) for the year	150.9	(44.7)	49.4	107.9	66.4

	2010	2009	2008	2007	2006
BALANCE SHEET	£m	£m	£m	£m	£m
Property, plant and equipment	411.3	391.9	446.6	254.7	222.4
Goodwill and other intangible assets	1,137.1	1,115.6	1,187.6	430.8	429.0
Employee benefits — net surpluses	4.3	—	70.6	—	—
Other non-current assets	66.9	56.3	59.3	50.0	50.8
Total non-current assets	1,619.6	1,563.8	1,764.1	735.5	702.2

Inventories	287.5	222.0	331.6	201.4	171.2
Trade receivables	448.2	349.5	412.7	299.9	263.7
Trade payables	(232.2)	(191.0)	(188.8)	(138.8)	(131.2)
Trade working capital	503.5	380.5	555.5	362.5	303.7
Other net liabilities	(398.2)	(368.8)	(429.8)	(185.4)	(186.1)
Total capital employed	1,724.9	1,575.5	1,889.8	912.6	819.8

Equity attributable to the owners of the parent	1,253.6	1,048.2	974.6	754.0	474.8
Non-controlling interests	23.5	18.2	17.6	11.9	9.4
Net debt	329.7	371.4	731.7	50.6	180.5
Employee benefits — net liabilities	118.1	137.7	165.9	96.1	155.1
Total funding	1,724.9	1,575.5	1,889.8	912.6	819.8

Our Financials Our Governance Our Business

five year sUmmary — group

	2010	2009	2008	2007	2006
STATEMENT OF CASH FLOWS	£m	£m	£m	£m	£m
Profit from operations	223.0	25.4	131.0	171.6	145.2
Adjustments for:
Amortisation and impairment of intangible assets	17.7	17.6	52.5	—	—
Restructuring and integration charges	17.3	75.6	39.6	5.8	34.7
Inventory fair value adjustment	—	—	2.6	—	—
(Profit)/loss relating to non-current assets	(0.6)	2.8	(3.4)	(7.0)	(13.1)
Gains relating to employee benefits plans	(5.3)	(9.7)	(6.0)	(1.0)	(8.6)
Depreciation	54.2	53.6	47.2	34.9	37.0
EBITDA	306.3	165.3	263.5	204.3	195.2
Net (increase)/decrease in trade and other working capital	(92.4)	152.5	(8.9)	(44.8)	(29.2)
Net operating outflow related to assets and liabilities classified as held for sale	(1.6)	(0.8)	—	(1.5)	(7.2)
Outflow related to restructuring and integration charges	(23.8)	(49.3)	(23.0)	(14.7)	(16.1)
Additional funding contributions into Group pension plans	(11.6)	(8.3)	(25.0)	(28.1)	(25.5)
Cash generated from operations	176.9	259.4	206.6	115.2	117.2
Net interest paid	(19.1)	(35.2)	(34.2)	(19.1)	(22.0)
Income taxes paid	(48.2)	(40.5)	(52.0)	(26.7)	(27.5)
Net cash inflow from operating activities	109.6	183.7	120.4	69.4	67.7
Additional funding contributions into Group pension plans	11.6	8.3	25.0	28.1	25.5
Purchase of property, plant and equipment	(57.2)	(35.0)	(72.8)	(59.9)	(43.2)
Proceeds from the sale of property, plant and equipment	1.6	1.2	2.2	10.5	16.6
Dividends received from joint ventures	0.9	1.1	0.4	1.3	0.9
Dividends paid to non-controlling shareholders	(2.8)	(2.0)	(2.1)	(1.8)	(3.0)
Free cash flow	63.7	157.3	73.1	47.6	64.5

SHAREHOLDER RETURN STATISTICS	2010	2009	2008	2007	2006
Earnings/(loss) per share from continuing operations — headline (pence)	61.5	18.0	88.5	81.9	64.2
— basic (pence)	53.0	(17.8)	32.7	80.6	46.1
Dividends per share (pence)	11.50	nil	8.80	19.58	15.06
Share price — year-end (pence)	658.5	422.2	190.9	1,049.8	945.9
— high (pence)	659.5	467.5	1,168.8	1,317.9	961.0
— low (pence)	367.4	112.5	112.6	870.6	640.1
Shares in issue — weighted average (millions)	276.2	252.8	140.8	130.6	127.1
— year-end (millions)	276.4	276.4	141.2	141.1	128.4

The figures reported above have been adjusted, where appropriate, to reflect the bonus element in the shares issued under the rights issue which completed on 4 March 2009 (the adjustment factor used was 6.6391) and to take account of the 10 for 1 share consolidation that took effect on 14 May 2009.

five year summaRY — divisional results from continuing operations

		2010	2009	2008	2007	2006
Ceramics division
Revenue	£m	1,494.9	1,130.8	1,264.3	781.1	756.6
Trading profit	£m	177.4	70.9	167.7	109.4	89.5
Return on sales	%	11.9	6.3	13.3	14.0	11.8
Employees: year-end N	o.	11,624	10,519	11,384	8,567	8,744

Electronics division
Revenue	£m	720.9	529.9	620.3	558.2	554.7
Trading profit	£m	71.0	39.2	51.7	58.0	58.5
Return on sales	%	9.8	7.4	8.3	10.4	10.5
Employees: year-end N	o.	2,571	2,711	3,028	3,070	2,882

Precious Metals division
Net sales value ("NSV")	£m	134.3	132.8	117.6	105.1	110.8
Trading profit	£m	12.7	8.9	4.5	9.9	11.0
Return on NSV	%	9.5	6.7	3.8	9.4	9.9
Employees: year-end N	o.	1,528	1,588	1,678	1,887	1,716

shareholder information

ENQUIRIES

The Company's share register is managed by Equiniti, who can be contacted regarding shareholding queries at the following address:

Equiniti Limited Aspect House, Spencer Road Lancing, West Sussex BN99 6DA Tel (UK only) 0871 384 2335 Tel (non-UK) +44 (0)121 415 7047

For the hard of hearing, Equiniti offers a special Textel service which can be accessed by dialling 0871 384 2255 (or +44 (0)121 415 7028 from outside the UK).

All other shareholder enquiries not related to the share register should be addressed to the Group Secretary at the Registered Office or e-mailed to: [email protected]

REGISTERED OFFICE AND GROUP HEAD OFFICE

Cookson Group plc 165 Fleet Street London EC4A 2AE Tel +44 (0)20 7822 0000 Fax +44 (0)20 7822 0100 (Registered in England & Wales No. 251977)

CORPORATE WEBSITE

Shareholder and other information about the Company can be accessed on the Company's website: www.cooksongroup.co.uk

SHAREVIEW

A website, www.shareview.co.uk, is operated by Equiniti, the Company's Registrars, enabling shareholders to access details of their shareholdings online. The website provides information useful to the management of investments together with an extensive schedule of frequently asked questions. In order to gain access to information on shareholdings the shareholder reference number is required, which can be found at the top of the Company's share certificates.

Shareholders can register to receive electronically shareholder communications, including the Company's Report and Accounts, rather than in paper form, using Shareview. The registration process requires input of the shareholder reference number. To ensure that shareholder communications are received in electronic form, "e-mail" should be selected as the mailing preference. Once registered, shareholders will be sent an e-mail notifying them each time that a shareholder communication has been published on the Company's website.

DEALING SERVICES

UK resident shareholders can now sell shares on the Internet or by phone using Equiniti's Shareview Dealing facility by either logging on to www. shareview.co.uk/dealing or by calling 0845 603 7037 between 8.00am and 4.30pm on any business day (excluding Bank Holidays). In order to gain access to this service the shareholder reference number is required, which can be found at the top of the Company's share certificates.

ANALYSIS OF ORDINARY SHAREHOLDERS

In addition to the Shareview Dealing facility offered for UK shareholders, the Company has arranged a postal share dealing service for shares in Cookson with JPMorgan Cazenove Ltd. This provides shareholders with a simple method of buying and selling Cookson shares. For further information please contact JPMorgan Cazenove Ltd. on: Tel +44 (0)20 7155 5155.

DIVIDEND REINVESTMENT PLAN

The Company offers holders of ordinary shares the opportunity to participate in a dividend reinvestment plan, through which shareholders can use any cash dividend declared to buy additional shares in Cookson. Further details, including the terms and conditions of the Plan are available on the Cookson website (www.cooksongroup.co.uk) or from Equiniti by calling the Share Dividend Helpline on 0871 384 2268 (or +44 (0)121 415 7047 from outside the UK).

OVERSEAS PAYMENT SERVICE

Equiniti provides a dividend payment service in over 30 countries that automatically converts payments into the local currency by an arrangement with Citibank Europe PLC. Further details, including an application form and terms and conditions of the service, are available on www.shareview.co.uk or from Equiniti by calling +44 (0)121 415 7047 or writing to Equiniti, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom (please quote Overseas Payment Service with details of the Company and your Shareholder Reference).

FINANCIAL CALENDAR

2011 Annual General Meeting	12 May 2011
Announcement of 2011 half year results	August 2011
Announcement of 2011 full year results	February 2012

Boiler Room Scams

In recent years, many companies have become aware that their shareholders have received unsolicited phone calls or correspondence concerning investment matters. These are typically from overseas based 'brokers' who target UK shareholders, offering to sell them what often turn out to be worthless or high risk shares in US or UK investments. These operations are commonly known as 'boiler rooms'.

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:

Make sure you get the correct name of the person and organisation
Check that they are properly authorised by the FSA before getting involved by visiting www.fsa.gov.uk/register/
Report the matter to the FSA by calling 0845 606 1234 (or +44 20 7066 1000 if calling from overseas)
If the calls persist, hang up.

More detailed information on this can be found on the FSA website at: www.fsa.gov.uk/pages/consumerinformation/

As at 31 December 2010		Investor Type				Shareholdings
	Institutional				1,001–	50,001–
	Private	and other	Total	1–1,000	50,000	500,000	500,001+
Number of holders	4,080	1,206	5,286	4,068	891	243	84
Percentage of holders	77.19%	22.81%	100%	76.96%	16.86%	4.60%	1.58%
Percentage of shares held	1.01%	98.99%	100%	0.22%	2.46%	16.03%	81.29%

www.cooksongroup.co.uk

Cookson Group plc 165 Fleet Street London EC4A 2AE

Tel +44 (0)20 7822 0000 Fax +44 (0)20 7822 0100

AI assistant

Vesuvius PLC — Annual Report 2010

4901_10-k_2010-12-31_305e1fc5-3e18-46cc-a36c-64298268062b.pdf

Our Business

Our Governance

Our Financials

HIGHLIGHTS OF THE YEAR

Trading profit £m 150 170 216 112 252

Return on sales %

Key Performance Indicators

CHAIRMAN'S STATEMENT JEFF HARRIS

Initial impressions

Financial performance

Dividend and dividend policy

Board and corporate governance

Outlook

Headline PBT

Headline EPS

chief executive's StATEMENT nick salmon

2010 Revenue by end-market including Precious Metals at NSV

Trading performance

Exceptional items

TAXATION

Attributable profits and earnings

Financial position

Outlook for 2011

2010 Revenue by customer location

2010 Revenue by operating location

Targets and strategy

2010 Trading profit by operating location

corporate social responsibility

CONTEXT

POLICY

CODE OF CONDUCT

Employee Helpline

HEALTH, SAFETY AND ENVIRONMENT ("HS&E")

Facilities certified to ISO 14001

Facilities certified to OHSAS 18001

Safety Performance

Cookson work-related injury and illness incident rates

Regulatory Compliance

corporate social responsibility continued

Reducing Energy Use and CO2 Emissions

Cookson electricity and gas consumption

PRODUCTS AND SERVICES

Operating review — group

Revenue

£m

Trading profit £m

Return on sales %

81 major manufacturing locations

OPERATING review — ceramics

Revenue

Return on sales %

STEEL FLOW CONTROL

LININGS

2010 Revenue by product line

OPERATING review — ceramics continued

2010 Revenue by end-market

2010 Revenue by customer location

FOUNDRY

FUSED SILICA

OPERATinG review — electronics

ASSEMBLY MATERIALS

Revenue

Trading profit

Return on sales %

OPERATING review — electronics continued

CHEMISTRY

2010 Revenue by end-market

OPERATING review — precious metals

Net sales value

Return on net

sales value %

financial review mike butterworth

group results highlights

group income statement

Headline profit before tax

Items excluded from headline profit before tax

Taxation

Vesuvius PLC Annual Report 2010