Vesuvius PLC — Annual Report 2011

Dec 31, 2011

Cookson Group plc Annual Report for the year ended 31 December 2011

leading materials science

Cookson is a leading materials science company supplying specialist consumable materials and chemicals used in industrial production processes — notably for the steel, foundry castings and electronics industries and emerging sectors such as solar and LED.

Cookson's core competencies are:

• ❯ Leading technologies supported by outstanding technical service and R&D resources.
• ❯ Global presence, with manufacturing facilities and technical support resources in every major economic region. We have OVER 15,000 people working in more than 40 countries.
• ❯ Reliable, just in time supply based on our global manufacturing footprint and logistics competency.

Cookson has high quality businesses, with leading global market positions, supplying essential industries which have good long-term prospects.

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"The Group's performance continued to improve significantly in 2011. Continued market penetration of newly-developed products and the further expansion of our presence in developing markets have positioned our businesses favourably to benefit from the growth in our main endmarkets. Accordingly, we have recorded strong progress towards achievement of the three year performance targets we announced in January 2011."

Nick Salmon Chief Executive

HIGHLIGHTS OF THE YEAR

• ❯ Significant performance improvement in 2011:
• ❯ Revenue of £2,826m, up 11%; 9% on an underlying basis1
• ❯ Trading profit of £290.2m, up 15%
• ❯ Return on sales1 of 10.3%:
  • ❯ Engineered Ceramics 11.5%
  • ❯ Performance Materials 12.2% (return on net sales value1 23.8%)
• ❯ Headline profit before tax1 of £261.5m, up 18%
• ❯ Higher growth developing countries now contribute almost 50% of Group revenue and around 60% of Group trading profit
• ❯ Good progress towards the return on sales margin target of 12% by 2013 at constant metal prices — 2011 restated margin was 10.9% versus 9.9% in 2010
• ❯ Headline earnings per share1 of 70.4p, up 14%
• ❯ Recommended final dividend of 14.50p per share, up 26%; total dividend of 21.75p per share
• ❯ Net debt1 of £364m; leverage ratio (net debt to EBITDA1 ) of 1.1 times
• ❯ Pension deficit significantly reduced from £114m to £59m
• ❯ Disposal of the loss-making US operations of the Precious Metals Processing division agreed; completion expected in second quarter of 2012
• ❯ Strong progress achieved in 2011 towards all Group 2013 targets

Refer to note 4 to the consolidated financial statements for definitions.

Our Business
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Highlights of the Year	01
Business Model and Strategy	02
Key Performance Indicators	03
Chairman's Statement	04
Chief Executive's Statement	05
Corporate Social Responsibility	08
Operating Review	11
Financial Review	17
Shareholder Information	107

Our Governance

Board of Directors	21
Corporate Governance Report	22
Principal Risks and Uncertainties	29
Directors' Report	32
Directors' Remuneration Report	37
Statement of Directors' Responsibilities	50
Independent Auditor's Report	51

Our Financials

Group Income Statement	52
Group Statement of Comprehensive Income	53
Group Statement of Cash Flows	54
Group Balance Sheet	55
Group Statement of Changes in Equity	56
Notes to the Consolidated Financial Statements	57
Company Balance Sheet	95
Notes to the Company Financial Statements	96
Five Year Summary — Group	104
Five Year Summary — Divisional Results	106

Our Governance

group performance

business model and Strategy

Cookson is a leading materials science company comprised of two main divisions — Engineered Ceramics and Performance Materials. We supply specialist consumable materials and chemicals used in industrial production processes — notably for the steel, foundry castings, electronics and electro-plating industries, and emerging "clean technology" sectors such as solar and LED.

Both divisions' products and services add value to our customers' businesses by enabling them to increase the efficiency and quality of their operations and products, reducing overall production costs, saving energy and reducing their environmental impact. Our products constitute a small fraction of our customers' costs and add significant value to our customers.

In both cases, the business model is based on being recognised by our customers worldwide for technology leadership, outstanding technical support services and reliable "just in time" supply capabilities. This requires us to have manufacturing and technical support resources close to customers in every major economic region, supported by strong central R&D resources.

Group-wide, including the smaller Precious Metals Processing division, we currently employ some 15,500 people working in more than 40 countries. Approximately 23% of Group sales are to customers in NAFTA, 35% in Europe, 32% in Asia-Pacific and 10% in the rest of the world, which is principally Brazil and South Africa.

We have focused our businesses on products and services where we can command leading global market positions and where we can sell on the basis of added value rather than just price. This has resulted in a progressive improvement in the Group's profitability and returns to shareholders.

The Group is committed to maintaining a strong financial position to support its businesses, with low leverage and ample liquidity headroom under long-term financing arrangements. Strong emphasis is placed on risk management and a robust internal control framework has been developed to maintain a high level of governance.

GROUP TARGETS

On 26 January 2011, we set out our targets for performance improvement to the year ended 31 December 2013 and our strategy for achieving those targets. The following table sets out those targets and the strong progress achieved in 2011.

	Targets		2011 Performance
❯	Average annual revenue growth to exceed 1.5 times global GDP growth	❯	2011 revenue growth: +11% as reported; +9% underlying (2011 global GDP: c.+3%)
❯	Return on sales margin of 12% by 2013 (assuming constant metals prices)	❯	2011 margin restated at average 2010 metals prices: 10.9% versus 9.9% in 2010
❯	Double digit average annual headline earnings growth	❯	2011 headline earnings growth: +14%
❯	Dividend growth at least in line with earnings growth	❯	2011 final dividend 14.50p: +26% on 2010; total dividend 21.75p: +89% on 2010
❯	Return on investment ("ROI") increasingly ahead of Group WACC	❯	2011 ROI: 10.3% versus 9.6% in 2010
❯	Maintaining a strong financial position with net debt to EBITDA leverage ratio not more than 1.5 times at year end and 1.75 times at mid-year	❯	Net debt to EBITDA ratio at 31 December 2011 of 1.1 times (1.3x at June 2011)

In setting these targets we are not assuming any significant acquisitions, but some selected bolt-on acquisitions may continue to be made. The significant improvement in the Group's portfolio of businesses means that achievement of the 12% margin target does not require any division to deliver higher margins than they have previously achieved (note: pro forma for Foseco acquired in April 2008).

We see 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 developing market exposure (c.50% of revenue; c.60% of trading profit);
• ❯ considerable further recovery potential in mature markets where cost base significantly reduced;
• ❯ opportunities to leverage further organic growth through bolt-on acquisitions; and
• ❯ maintaining strong cash flow momentum.

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.

Non-Financial KPIs	Purpose	2011 performance vs 2010
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 0.6% compared with 0.8% in 2010
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: £42.1m vs £38.1m in 2010
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 2% — Electricity use up 3%
Financial KPIs
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, commodity metals, acquisitions, disposals and significant business closures	❯ Underlying revenue growth: — Group +9% — Engineered Ceramics +12% — Performance Materials +1% — Precious Metals Processing nil
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: £290.2m, up 15% ❯ RoS (at constant currency): — Engineered Ceramics 11.5%, down 0.4pts ❯ RoNSV (at constant currency): — Performance Materials 23.8%, up 6.9pts — Precious Metals Processing 4.7%, down 5.0pts
Headline profit before tax ("PBT") and headline earnings per share ("EPS")	❯ Used to assess the underlying financial performance and earnings capacity of the Group as a whole	❯ Headline PBT: £261.5m, up 18% ❯ Headline EPS: 70.4p, up 14%
Free cash flow and average working capital to sales ratio	❯ Free cash flow is used to assess the underlying cash generation of the Group. 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	❯ Free cash flow: £90.1m, up £26.4m ❯ Average working capital to sales of 23.1% (2010: 21.1%)
Return on net assets ("RONA") and return on investment ("ROI")	❯ RONA and ROI are used to assess the underlying financial performance of, respectively, the Group's divisions and the Group as a whole	❯ Group ROI: 10.3%, up 0.7pts ❯ Divisional RONA: — Engineered Ceramics 29.1%, down 1.5pts — Performance Materials 51.8%, up 3.7pts — Precious Metals Processing 10.5%, down 8.8pts
Interest cover ratio and ratio of net debt to EBITDA	❯ Both ratios are used to assess the financial position of the Group and its ability to fund future growth	❯ Interest cover: 15.1 times (2010: 13.8 times) ❯ Net debt to EBITDA: 1.1 times (2010: 1.1 times)

Chairman's Statement Jeff Harris

Results

This is my second report to shareholders and over the past year I have spent more time visiting Cookson's operations and meeting with management and employees. I continue to be impressed by the underlying strength of our businesses, and by the commitment both to improving productivity and new product innovation so as to add value to our customers.

Both the Engineered Ceramics division and the Performance Materials division have strong global market positions, competitive cost bases, and see profitable growth as a result of their continued investment in product innovation. We have renamed the divisions to better reflect the true nature of their activities.

Cookson's results for 2011 clearly reflect the benefits of all these strengths, and show that we are making very encouraging progress on the three year targets we set out at the start of 2011. Revenue grew by 11% to £2,826m, headline profit before tax increased by 18% to £261m, and headline earnings per share increased by 14% to 70.4 pence. Our financial position is strong with ample liquidity under our long-term financing arrangements.

Earlier in the year, when growth in some international markets looked uncertain, we made contingency plans for any further global economic downturn. This has not occurred and the outlook today is significantly more positive.

Dividend

Given the good trading performance in 2011 and the outlook for 2012, the Board is recommending a final dividend of 14.50p per share (2010: 11.50p), an increase of 26% and in line with our stated target of growing dividends ahead of earnings growth. Together with the interim dividend of 7.25p per share, this gives a total dividend for the year of 21.75p per share (2010: 11.50p), an increase of 89%.

Board changes

Dr Emma FitzGerald joined the Board as a non-executive Director on 1 August 2011. Dr FitzGerald is Vice President, Global Retail Network for Shell International and has extensive experience of the Asia-Pacific region having served on boards in Korea and China.

We recently announced that Steven Corbett, President and Chief Executive Officer of Cookson's Performance Materials division, will join the Board with effect from 1 May 2012. Mr Corbett joined Cookson's Electronics division in 1990 and was promoted to his current role in 2004.

As reported in my last Chairman's Statement, Barry Perry retired from the Board at the close of the Annual General Meeting on 12 May 2011. He had served with distinction as a Nonexecutive Director since 2002.

Governance

Good governance continues to be an essential element in the conduct of the Group's affairs. The Board acknowledges, as a prime responsibility, its oversight of the Group's strategy and performance. We believe that good governance, as evidenced by an effective Board, rigorous performance management, strong controls and risk appraisal and a culture of integrity, will best deliver long-term shareholder value.

Diversity

Cookson looks at diversity in its broadest sense, as we feel it is important to get the right balance of independence, skills, knowledge and experience, both on the Board and across our business.

Ours is a global business employing over 15,000 people in more than 40 countries; our management grades alone comprise over 40 nationalities. Diversity is therefore an integral part of how we do business. We acknowledge its importance and recognise the benefits that different perspectives can bring. In recruiting our employees we draw on a varied range of backgrounds and expertise, benefitting from all dimensions of diversity including cultural and gender diversity.

We support the broad thrust of the Davies report. We are pleased to have Dr Emma FitzGerald join our Board. In 2011 we also appointed our first female Divisional Chief Executive Officer. We aspire to increase such representation in the future.

Our Board appointments have been and will continue to be made on merit against objective criteria, selecting the best candidate for the post. Cookson will only use executive search firms that have adopted the Voluntary Code of Conduct addressing gender diversity and best practice.

People

Our employees are key to the Group's success. Their commitment and dedication is critical in achieving our goals and I pay tribute to them. The significant improvement in the Group's performance is a credit to the hard work of Cookson employees around the globe.

"I continue to be impressed by the underlying strength of our businesses, and by the commitment both to improving productivity and new product innovation so as to add value to our customers. "

Chief Executive's Statement Nick Salmon

OVERVIEW

The Group's performance continued to improve significantly in 2011. Continued market penetration of newly-developed products and the further expansion of our presence in developing markets have positioned our businesses favourably to benefit from the growth in our main end-markets. Accordingly, we have recorded strong progress towards achievement of the three year performance targets we announced in January 2011.

We announced on 23 February 2012 an agreement to sell the US Precious Metals Processing business which will result in us exiting this loss-making business on a cash neutral basis.

The challenging global macro-economic trends evident through the second half of 2011 had only limited impact on our businesses. As anticipated, we saw some softening in steel production trends in Europe and China in the fourth quarter, but momentum in our foundry and electronics end-markets was maintained through to year-end. For 2012, we anticipate mid-single digit growth globally in our main end-markets with generally weaker demand in Europe being offset by continued growth in the Americas and Asia-Pacific.

"Continued market penetration of newlydeveloped products and the further expansion of our presence in developing markets have positioned our business favourably to benefit from the growth in our main end-markets."

RENAMING OF THE DIVISIONS AND THEIR BUSINESSES

Over the last ten years there have been substantial changes in the Group's portfolio and business model. Two of the four main businesses within the Electronics division, which together represented roughly half the division's revenue in 2003, were sold by 2006. By 2007, another twelve smaller non-core businesses across the Group had been sold or closed and, in early 2008, we completed the major Foseco acquisition which was integrated within the Ceramics division. Our business model has evolved, placing much more emphasis on new product development and higher added-value products and services targeted to lift margins, gain market share and enter new end-market segments. As a consequence we have now decided to rename the Group's three divisions and the businesses within each division to better reflect the value-added nature of their operations and the end-markets they serve:

NEW NAMES PREVIOUS NAMES

Engineered Ceramics Ceramics

Steel Flow Control Steel Flow Control Advanced Refractories Linings Foundry Technologies Foundry Fused Silica Fused Silica

Performance Materials Electronics Joining Technologies Assembly Materials Surface Chemistries Chemistry

Precious Metals Processing Precious Metals

No operations have been transferred between divisions or businesses as a result of the name changes so segmental financial information remains comparable between periods.

2011 Net sales value

Precious Metals Processing

2011 Trading profit by division before central corporate costs

2011 Revenue by end-market

including Precious Metals Processing at NSV

Our Governance

Chief Executive's Statement

2011 Revenue by operating location

2011 Trading profit by operating location

TRADING PERFORMANCE

Group revenue of £2,826m was 11% higher, as reported, than 2010 in part reflecting the pass through to customers of significantly higher commodity metals prices for tin, silver and gold. On an underlying basis (at constant exchange rates and commodity metals prices), Group revenue increased by 9%, reflecting some market share gains and our favourable geographic market coverage, with almost half of revenue coming from higher growth developing countries. Trading profit of £290.2m was 15% higher than that reported for 2010, with around 60% coming from higher growth developing countries. Return on sales margin improved to 10.3% (2010: 9.9%). If commodity metals prices had remained at average 2010 levels, the margin in 2011 would have been 10.9%.

The Engineered Ceramics division's revenue of £1,686m was 13% higher than that reported in 2010 and 12% higher on an underlying basis. Within this, the steel production industry related businesses of Steel Flow Control and Advanced Refractories had revenue of £533m and £545m respectively, underlying increases of 8% and 11%, which compare favourably with growth in global steel production, as reported by the World Steel Association, of 6.8%. The Foundry Technologies business had revenue of £527m, nearly back to the levels recorded in the first half of 2008 prior to the start of the financial crisis, an underlying increase of 19%. For all three of these businesses, raw material costs rose significantly during the year, particularly graphite, zirconia and magnesite minerals. Whilst compensating selling price increases were agreed with customers during the course of the year, there was some time lag in their implementation which had a negative impact on margins. Revenue for the smaller Fused Silica business of £81m was 6% higher than 2010 for the year as a whole, having been 34% ahead at the half year, reflecting the previously reported sharp fall in demand for Solar Crucibles™ driven by excess global inventories of solar panels. Decisive steps have been taken to adapt to these conditions. In total, the division's trading profit of £193.2m was 9% higher than the prior year and the return on sales margin was 11.5% (2010: 11.9%). Excluding the Fused Silica business, the return on sales margin for the remaining Engineered Ceramics division was 11.6% compared to 11.3% in 2010.

The Performance Materials division's revenue of £814m was 13% higher than 2010, as reported. In large part, this increase was due to the pass through of higher tin, silver and gold prices. On an underlying basis, revenue increased as expected by only 1%, reflecting the ongoing strategy of exiting more commoditised products (such as some types of lower margin bar solder), partly offset by continued market penetration of innovative, higher value-added and higher margin, products. As a result of this mix change, the division's trading profit increased significantly to £99.6m, an increase of 40% over that reported in 2010. The return on sales margin rose to 12.2% (2010: 9.8%). The net sales value for the division, being revenue less the value of tin and precious metals included in revenue, was £418m (2010: £410m), an increase of 2% and the return on net sales value was 23.8% (2010: 17.3%).

The Precious Metals Processing division's net sales value (being revenue excluding the precious metals content) of £132m decreased by 1%, as reported. The European business performed well throughout the year, benefiting from high levels of reclaimed precious metal processing and refining activity. As previously reported, having operated around break-even in the first half, the US business incurred significant losses through the second half. As a result the division's overall trading profit in 2011 of £6.2m was £6.5m lower than in 2010. In November 2011, we announced that we had initiated a strategic review and significant downsizing of the US operations. Subsequently we entered into negotiations with Richline Group, Inc. (a subsidiary of Berkshire Hathaway Inc.) for it to acquire these US operations and on 22 February the parties signed a binding Sale and Purchase agreement, which is subject only to normal legal and regulatory closing provisions which we anticipate to be completed in the second quarter of 2012. The net cash consideration is subject to closing balance sheet adjustments, but is expected to be sufficient for the exit from the loss-making US business to be cash neutral, including the restructuring and other costs incurred in preparing the business for sale. The division's profitable European operations are unaffected by the transaction.

EXCEPTIONAL ITEMS

A net charge, pre-tax, of £49.9m was incurred (2010: £32.7m), principally due to charges relating to amortisation of intangible assets (£17.8m), restructuring charges (£8.9m), finance costs (£1.9m), and loss on the disposal of businesses (£36.5m, of which £29.0m related to the US Precious Metals Processing business that was in the process of being disposed of at year-end). These charges have been partially offset by gains relating to employee benefits plans of £15.2m. Of the total net charge, £15m is cash-related and £35m is non-cash related.

TAXATION

The tax charge on ordinary activities was £61.4m on headline profit before tax of £261.5m, an effective tax rate (before share of post-tax profit from joint ventures) of 23.5%. The effective tax rate in 2010 was 21.1%, as this reflected the benefit of a number of nonrecurring credits. The underlying effective tax rate for 2010 was around 24%. It is currently expected that the effective tax rate for 2012 will remain around 23.5%.

ATTRIBUTABLE PROFIT AND EARNINGS

Headline attributable profit was £194.2m (2010: £169.8m), an increase of 14%. Headline earnings per share was 70.4p (2010: 61.5p), also an increase of 14%.

After taking into account all exceptional items, the Group recorded a profit for the year of £146.8m compared with £145.3m for 2010.

PENSIONS

At 31 December 2011, the net deficit in the Group's post-retirement defined benefits plans was £58.7m (31 December 2010: £113.8m). The significant improvement principally arose in respect of the Group's UK pension plan. This reflected both strong gains for the plan assets arising from our investment and hedging strategies plus a gain in connection with the change in the UK inflation index (from RPI to CPI), more than offsetting the negative impact of lower discount rates used to value plan liabilities.

An enhanced transfer value exercise is currently ongoing in the UK and, as at 31 December 2011, a significant number of deferred members with liabilities totalling £37m had so far transferred out of the UK Plan.

FINANCIAL POSITION

Net debt at 31 December 2011 was £364m, £34m higher than a year earlier.

Trade working capital cash outflows were £61m in the year while reported revenue grew by £280m. Hence, the working capital to sales ratio increased to 23.1% (2010: 21.1%). Management action plans are in place targeted at improving working capital performance and we anticipate stronger cash generation in 2012.

Capital expenditure of £85.1m (2010: £57.2m) was 1.5 times depreciation and included investments to expand our production capacity in higher growth markets, notably Brazil, India, China and Eastern Europe and in expanding and upgrading our R&D facilities. The net debt also reflects the acquisition of SERT for €11m (£9m) in November 2011.

In April 2011, the Group entered into a new £600m, five year revolving credit facility with a syndicate of banks to replace the existing £511m bank facility which was due to mature in October 2012. This followed the successful issue in December 2010 of US\$250m of private placement loan notes with an average maturity of 8.7 years.

At 31 December 2011, the ratio of net debt to EBITDA was 1.1 times, very comfortably within the debt covenant level of 3.25 times, and the interest cover ratio was 15.1 times. The Group's financial position is strong with ample liquidity under long-term financing arrangements.

OUTLOOK FOR 2012

While the macro-economic outlook remains uncertain, feedback from our customers and third party industry forecasters continues to indicate mid-single digit growth globally in our main end-markets in 2012, with generally weaker demand in Europe offset by continued growth in the Americas and Asia-Pacific. For the small Solar Crucibles™ business, we hope to see some recovery in the market in the second half of 2012, but are currently uncertain on the timing and rate of that recovery.

Both our Engineered Ceramics and Performance Materials divisions are well positioned to deliver further performance improvement based on their global market coverage, strong presence in higher growth developing markets, leading technologies and strong new product pipelines, high technical service element and value selling competence. The Board is confident of the Group's ability to achieve further progress in the current year towards its 2013 targets, driving further value for shareholders.

Corporate Social Responsibility

Background

Cookson employs some 15,500 people with manufacturing facilities in over 40 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.

sustainability

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, the products of the Steel Flow Control, Advanced Refractories and Foundry Technologies product lines of our Engineered Ceramics division 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 Performance Materials 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 Engineered Ceramics division is the leading supplier of crucibles used in the production of multi-crystalline photovoltaic wafers used to make solar cells and the Performance Materials 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 Processing and Performance Materials 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. 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.

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 over 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, Products and Services; Employees; Investors; Society and Local Communities; Health, Safety and the Environment; Conflicts of Interest; and Competitors.

Long-term customer satisfaction is recognised as being essential to the attainment of Group goals, as is maintaining a reputation for integrity in all business and other dealings both with customers and suppliers. The Cookson Code defines how we must compete vigorously and honestly.

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.

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.

In response to the UK Bribery Act, the Company's Code of Conduct was revised and recommunicated to all employees in 2011. New policies on anti-bribery & corruption have been developed. Together they require that employees and others working on behalf of the Company do not engage in any form of bribery or corruption.

An anti-bribery and corruption compliance programme has been established throughout the Group, and is being implemented through a targeted face-to-face training programme. An e-learning module has been developed and is being rolled out globally, as local language versions become available, to relevant office-based individuals in 2012. New employees, if relevant, will go through the training as part of their induction process. The compliance programme includes undertaking risk assessments and engaging with others working on behalf of the Company to ensure that their standards comply with Cookson's policies.

Cookson is a member of the corporate supporters forum of Transparency International UK.

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 KPI 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 Chief Executive's regular report to the Board includes an overview of Group HS&E performance. 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 67 locations certified to ISO 14001 and 35 locations 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 work-related 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 1.53 in 2007 to 0.55 in 2011. The Group's "recordable" incident rate has improved to 1.36 in 2011 from 2.60 in 2007.

Corporate Social Responsibility

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 2011, including several that assessed minor penalties.

In connection with the European regulation for the Registration, Evaluation, Authorisation and Restriction of Chemicals ("REACH"), each of the Group's businesses which manufacture chemicals has filed, by the statutory deadline, appropriate pre-registrations 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.

Reducing Energy Use and CO2 Emissions

Cookson has, for many years, 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 five years.

Energy use has been reduced markedly as a result of these initiatives, notwithstanding the growth in revenue. In 2008 energy use increased relative to 2007, due to the acquisition of the Foseco operations. Energy use in 2008, excluding Foseco, is also shown on the graph. In 2011 electricity use increased marginally compared with 2010 and gas usage reduced by 2%, notwithstanding the increased level of manufacturing activity.

Operating Review

Group Performance

Review of Group operations

Group revenue in 2011 of £2,826m was 11% higher than 2010 and 9% higher on an underlying basis (being revenue at constant exchange rates and commodity metal prices). Demand in the Group's key end-markets of steel production, foundry castings and electronics was generally strong during the year, although there was some moderate softening of steel production in the fourth quarter. Revenue for the Group was well balanced geographically with 35% coming from sales to customers in Europe, 32% from Asia-Pacific, 23% from NAFTA and 10% from the Rest of the World.

Trading profit in 2011 rose significantly to £290.2m (2010: £252.1m), being 15% higher at both constant and reported exchange rates. Trading profit in the second half of 2011 was 1% lower than the first half at both constant and reported exchange rates.

The return on sales margin in 2011 was 10.3%, ahead of the 9.9% reported in 2010. This improvement was achieved notwithstanding the impact of higher metal prices (notably for gold, silver and tin), which increased reported revenue in the Performance Materials and Precious Metals Processing divisions without any impact on profitability. The return on sales margin in 2011 would have been 10.9% if these metal prices had remained at 2010 average levels.

Note: In the divisional and product line narrative analysis below, all of the financial information is presented at constant currency, unless indicated otherwise.

ENGINEERED CERAMICS

In 2011, the Engineered Ceramics division experienced strong demand in the majority of its end-markets. Revenue of £1,686m was 12% higher than 2010 (13% at reported exchange rates). Revenue in the second half of 2011 was 2% lower than the first half, principally reflecting a moderate slowdown in steel production in the fourth quarter in Europe and China, and a very marked deterioration in the solar end-market in the second half.

Trading profit in 2011 rose significantly to £193.2m (2010: £177.4m), being 8% higher (9% higher at reported exchange rates). Trading profit was 3% lower in the second half of 2011 compared to the first half reflecting the lower revenue. The return on sales margin in 2011 was 11.5%, marginally lower than the 11.9% achieved in 2010. Raw material costs rose significantly during the year, particularly for graphite, zirconia and magnesite minerals. Whilst compensating selling price increases were agreed with customers during the course of the year, there was some time lag in implementing these price increases which had a negative impact on margins. Margins were also impacted in the second half of the year by the marked deterioration in the solar end-market which significantly impacted demand for the division's Solar Crucibles™ products. Excluding the Fused Silica business (of which Solar Crucibles™ represents around 50% of revenue), the return on sales margin for the remaining Engineered Ceramics division was 11.6% in 2011 (first half: 11.3%; second half: 11.9%) compared to 11.3% in 2010.

Operating Review

engineered Ceramics

The Engineered Ceramics division provides leading technologies to its customers supported by outstanding technical support and R&D resources. As outlined in the Capital Markets presentation on 26 January 2011, the division expects to double its R&D spend over the next five years. As part of this initiative, investments in land and facilities for R&D centres have been made in Pittsburgh, US and Vizag, India.

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 1,527m tonnes in 2011, a 6.8% increase compared to 2010 and a record level of global steel production. Global steel production was marginally lower (by 4%) in the second half compared to the first half.

Within these totals, steel production in China (which now accounts for 46% of global steel production) grew 8.9% in 2011 compared to 2010. Chinese steel production grew strongly in the first three quarters of 2011, but then fell sharply in the fourth quarter as a result of slowing economic growth, such that production in the second half of 2011 was 6% lower than the first half. However, market trends outside of China are more significant for the Engineered Ceramics division in the short-term as China currently accounts for only around 12% 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 November 2011, the Chinese government announced a new five year plan (2011 to 2015) for the steel industry which targets higher production levels of better quality, more value-added steel products to be produced in a more environmentally conscious way. In the Advanced Refractories product line, there is as yet only modest revenue arising in China as this market has only recently been addressed.

Excluding China, global steel production in 2011 was 5.1% higher than in 2010 as the recovery in 2010 continued through 2011. Steel production fell marginally in the third quarter of 2011,

reflecting the normal seasonal slowdown in production, and then remained unchanged in the fourth quarter, with a moderate slowdown in Europe being offset by higher production in the US and India. Overall, steel production (excluding China) was only 2% lower in the second half compared to the first. Whilst the overall improvement in steel production in 2011 is encouraging, production levels in the developed world are still materially below the levels seen prior to the 2008 economic downturn, suggesting scope for considerable further growth in steel output in the medium term. Production in Europe and the US in the fourth quarter of 2011 represented only 75% and 84%, respectively, 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 Technologies product line) are produced for the vehicle sector, being 25% for cars and light trucks ("automotive") and 15% for heavy trucks. Other end-markets 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 and has subsequently demonstrated more "late-cycle" characteristics in its recovery. Whilst automotive production started to improve from mid-2009 onwards, truck production (particularly in Europe) only started to recover from mid-2010 onwards. It was only towards the end of the first half of 2010 that the Foundry Technologies business started to experience a more positive impact on its revenue, with this improvement continuing during the remainder of 2010 and in 2011. According to JD Power, in 2011 automotive production grew 10% in North America and 7% in Europe, but fell 2% in the Rest of the World (excluding China). Truck production has grown strongly in 2011, albeit from a relatively low level in 2010, with growth of 30% in North America, 32% in Europe and 3% in the Rest of the World (excluding China).

2011 Revenue by product line

2011 Revenue by end-market

2011 Revenue by customer location

Solar and glass end-markets: the principal products in the Fused Silica product line are Solar Crucibles™, which are used in the production of photovoltaic ("solar") panels, and tempering rollers used mainly in the production of glass for construction and automotive applications. Demand for Solar Crucibles™ was good in the first half of 2011, but fell sharply in the second half as a number of customers cut production in response to excess global inventories of finished solar panels. This slowdown is expected to continue into 2012. However, the prospects for the solar industry in the medium to long-term remain very promising. Demand for tempering rollers remained strong throughout 2011.

Steel Flow Control

The Steel Flow Control product line provides a full range of consumable products, systems and technical 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 £533m was 8% higher compared to 2010. This growth rate was marginally ahead of the increase in steel production in the key markets in which Vesuvius operates, reflecting favourable product mix, including increased market penetration of its new, higher value-added, tundish tube changer and ladle shroud products, and the partial pass-through of higher raw material costs.

The cost of some of the key raw materials used in Steel Flow Control products rose significantly throughout the year, notably for graphite and zirconia. Whilst compensating selling price increases were agreed with customers throughout the year, there was some time lag in implementing these price increases.

In line with the strategy, announced in January 2011, of making "bolt-on" acquisitions to complement our existing product and service offering, we completed the acquisition of SERT in November for a net cash consideration of €11m (£9m). This business, headquartered in France, is a world leader in the development and manufacture of systems for the automation of the casting process of molten metals within steel mills and foundries. In 2011, SERT had

revenue of €11m (£9m) and a trading profit of €2m (£2m).

A project to double manufacturing capacity at the Indian facility in Kolkata was completed in the first half of 2011. The first phase of the project to double the capacity of the existing facility in Trinec, Czech Republic to service more effectively the Eastern Europe and CIS markets was completed at the end of the year. A new facility is being built in Brazil to improve the efficiency of raw material processing.

Advanced Refractories

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

Global iron and steel production represents more than 75% of the end-market for Advanced Refractories' 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 £545m represented an 11% increase compared to 2010. The growth reflected increased levels of maintenance as steel producers increased production, and the passthrough of some higher raw material prices.

As with Steel Flow Control, there were significant raw materials cost increases in the year. However, prices for magnesite the single most important raw material for Advanced Refractories — did stabilise in the second half of the year following large increases in the first half.

Production capacity at our Chinese specialist magnesia carbon brick-lining business, BRC, has been increased by around one-half through the installation of additional automated presses.

Operating Review

engineered Ceramics

Foundry Technologies

The Foundry Technologies business is a leading supplier of consumable products and technical services 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 used in the production of metal castings. These products improve quality and yields whilst reducing energy consumption and production costs.

Revenue of £527m represented a 19% increase compared to 2010. There has been strong growth in most regions, particularly Northern Europe (especially Germany which accounted for just under 20% of revenue), NAFTA, Japan and India, reflecting the strong demand in these markets for cars, trucks, and equipment for the mining, agriculture, construction, power generation and general engineering industries. Southern European markets are recovering more slowly. Revenue in the second half of 2011 was just over 90% of the revenue achieved in the first half of 2008 (pro forma for Foseco), reflecting the strong recovery of this business in the last two years.

Customer demand for the INITEK™ system, launched in June 2011, has been strong with six systems now in operation, six in the process of being commissioned and a further thirty five under negotiation with potential customers. The INITEK™ system is based on a proprietary combination of additives and processes in a purpose-designed converter vessel which significantly improves casting quality and reduces customers' production costs by some 10% through reductions in the consumption of energy and materials.

The manufacturing facility in Chambery, France was closed in the first half of the year with production transferring to existing facilities in Poland and India. Additional production capacity for filters and feeding systems is also being installed in our facilities in the UK and Japan, respectively, for completion in early 2012.

The Chinese foundry castings end-market is expected to grow strongly over the next few years. In anticipation of this growth, it has been decided to build a new production facility in China. A number of locations are currently under evaluation.

Fused Silica

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

Revenue of £81m represented a 6% increase compared to 2010. Solar Crucibles™ revenue, which represents around 50% of total Fused Silica revenue, decreased by 7% compared to 2010. Demand for Solar Crucibles™ was good in the first half of 2011, but fell sharply in the second half of the year as a number of customers cut production in response to excess global inventories of finished solar panels. Revenue in the second half of the year was less than half that of the first half. Some recovery in this market is expected in the second half of 2012, but there is considerable uncertainty as to the timing and rate of that recovery. Steps have been taken to adapt to these market conditions by removing temporary workers and adopting some short-time working arrangements in Europe, and via some permanent workforce reductions in our Chinese operations. In addition, a number of technological innovations have been developed both to improve product quality and also to enable us to significantly reduce production costs, and hence improve competitiveness, in anticipation of a recovery in solar market volumes at some stage in 2012. These initiatives include the doubling of capacity of the line for production of the recently introduced "ready to use"("RTU") Solar Crucibles™ in the facility in Skawina, Poland which was completed in the third quarter of 2011. RTU Solar Crucibles™ are crucibles pre-coated with a patented solution which increases customers' manufacturing productivity. A new raw material processing plant has also recently been completed in China which allows the sourcing of cheaper raw materials from a wider variety of sources and which also enables the supply of processed materials to our European factories.

Whilst the solar industry is currently very depressed, prospects for the medium to long-term remain very promising. Solar panels' costs have reduced significantly in recent years and, as a result, "grid parity" (at which electricity from solar panels is produced at a cost, before government subsidies, which is not more than the price charged by utilities) is being achieved in an increasing number of geographic regions. For glass tempering rollers and other speciality products used in the manufacture of glass, revenue increased 25% compared to 2010 with end-market demand remaining satisfactory throughout the year.

PERFORMANCE MATERIALS

According to estimates from Henderson Ventures, global production of electronic equipment (measured in US dollars at constant currency) grew in 2011 by 1.7%. Global PC unit shipments (both traditional and tablet PCs) were estimated to be 13% higher, with tablet units increasing by more than three times from 20m units in 2010 to 67m units in 2011. Global unit shipments of mobile phones increased by 12% to 1.8bn compared to 2010, with just over one-quarter of these being more technically sophisticated smartphones compared to just under 20% in 2010. Automotive markets have shown good improvement, particularly for higher value vehicles which typically use more of the division's products.

Revenue of £814m was 13% higher than 2010 at both constant and reported exchange rates.

performance materials

The higher revenue largely reflects the "pass through" to customers of higher tin and silver prices, both major raw materials for Joining Technologies, and higher gold and palladium prices in the Surface Chemistries business. In 2011, the average prices of tin, silver and gold were respectively 35%, 83% and 29% higher than 2010, such that approximately £111m of the division's revenue increase was as a result of these higher metal prices. Excluding the impact of these commodity metals and adjusting for a small disposal in December 2010, underlying revenue was 1% higher than 2010. These trends reflect the division's strong market positions in the faster growth market segments within consumer electronics (such as tablets and smartphones), the continuing strategy of exiting more commoditised products (particularly bar solder, where volumes fell by 14%), and the increased market penetration of innovative, higher margin products such as advanced solder pastes and "tape and reel" packaged solder pre-forms. Asia-Pacific, the division's largest region, accounted for just under half of revenue in 2011 (by location of customer).

In 2011, the division's revenue included £206m of tin, £122m of silver, and £68m of gold and palladium. Net sales value (which excludes these amounts from revenue) in 2011 was £418m, 2% higher than 2010 (as reported).

As a result of the improving mix in the profitability of revenue, trading profit for 2011 rose significantly to £99.6m (2011: £71.0m), a 40% increase at both constant and reported exchange rates. The return on sales margin in 2011 was 12.2%, well ahead of the 9.8% reported in 2010. The pass through to customers of the higher tin and precious metals commodity prices discussed above increased revenue by some £111m but had no material impact on trading profit. The return on sales margin in 2011 would have been 14.2% if metal prices had remained at average 2010 levels.

The return on net sales value in 2011 was 23.8%, well ahead of the 17.3% as reported in 2010. Management believes this measure, which eliminates the impact of the pass through of commodity metals, is an important measure of the underlying profitability of the division.

Joining Technologies

Joining Technologies is a leading global supplier of materials to assemblers of printed circuit boards ("PCBs") and the semi-conductor packaging industry and to certain non-electronics markets such as automotive and water treatment. Its principal brand name is Alpha and products include solder (in bar, wire, paste, powder and sphere form) and fluxes, adhesives, cleaning chemicals and stencils.

Revenue of £527m was 17% higher than 2010 (18% at reported exchange rates). Excluding the impact of passing through higher tin and silver prices and adjusting for a small disposal in December 2010, on an underlying basis revenue was 1% higher than 2010. This reflects the growth in the global production of electronic equipment, the continuation of the successful strategy to focus on higher margin, enhanced technology products, and exiting more commoditised products such as bar solder. For solder products, which account for threequarters of Joining Technologies' revenue, sales of higher margin advanced solder pastes were up 8% by weight compared to 2011 while bar solder was down 14%, partially reflecting the continuing shift from wave soldering to surface mount technology for the production of PCBs. Sales of tape-and-reel packaged pre-forms, which are manufactured shapes of solder used in jointing applications requiring high physical strength, have almost doubled in the year driven, in particular, by smartphone applications. The recycling, reclaim business in the US and China, in which scrap solder generated by our customers' production processes is reclaimed for processing back into solder alloys for sale to third parties or for reuse within the business, also benefited from strong growth during the year.

Net sales value (which excludes the value of tin and silver from revenue) in 2011 was £199m, 1% higher than 2010.

The business continues to focus on new product development and on penetrating new markets, including LED, solar and power electronics. These new products include Ready Ribbon™, a pre-fluxed, solder coated, copper ribbon used for connecting solar cells within a solar panel, and nano-silver die attach products for use in the manufacture of LED lights and power electronics. Related new production lines for Ready Ribbon™ were completed towards the end of 2011 in the Netherlands and Singapore, and a further line in the US is nearing completion. The first nano-silver

Operating Review

performance materials

production line in Singapore has also now been successfully commissioned. Both products attracted high levels of customer interest ahead of their recent commercial launch and, once product trials are completed by our customers, commercial sales are expected to commence shortly.

A new solder bar, wire, paste and chemicals factory has been built in Manaus, Brazil, which went into production in December 2011.

Surface Chemistries

The Surface Chemistries product line manufactures speciality electro-plating chemicals under the trade name Enthone. Approximately 45% of sales are to the electronics industry and 55% to industrial and automotive applications.

Revenue of £287m for 2011 was 5% higher than 2010 at both constant and reported exchange rates. Net sales value (which excludes the value of gold and palladium from revenue) in 2011 was £219m, 2% higher than 2010. Compared to 2010, sales of plating-on-plastics and corrosion and wear resistant products for automotive and industrial applications were up 3%. Sales of surface coating products serving the PCB fabrication market were up 1%, with growth of the Immersion Tin PCB surface finish product up over 50%, driven by automotive electronics market share gains. Sales of proprietary Copper Damascene additives into the semi-conductor market were up 18% compared to 2010. The first qualification for Copper Damascene additives for use in the recently launched 22 nanometre semi-conductor wafer node was achieved in the year.

The construction of the new £14m Chemistry facility in Shanghai, to serve China's growing electronic materials, automotive and industrial end-markets, is now expected to be completed in the third quarter of 2012. Currently the Chinese market is served from Cookson facilities in Tianjin and Singapore.

PRECIOUS METALS PROCESSING

The Precious Metals Processing division operated during 2011 in two distinct geographic regions: the US, which constituted 37% of the total net sales value (being revenue excluding the precious metals content), and Europe (focused on the UK, France and Spain). Average precious metal prices in 2011 have been significantly higher than for 2010, being approximately 29% higher for gold, 83% for silver and 9% for platinum.

Net sales value of £132m in 2011 was in line with 2010. The European businesses performed well during the year, benefiting from high levels of precious metal reclaim activity, stimulated by the high price of gold. However, the performance of the US business was unsatisfactory, particularly in the second half of the year.

Trading profit in 2011 at £6.2m was £6.5m below 2010. The division made a trading profit of £6.7m in the first half of 2011 but made a small loss in the second half. Whilst the European businesses maintained a good level of profitability throughout the year, the US business, which had operated at around break-even in the first half, incurred losses in the second half as previously communicated. The return on net sales value for the division in 2011 was 4.7%, below the 9.5% achieved in 2010.

In November 2011, we announced that we had initiated a strategic review and significant downsizing of the US operations. Subsequently we entered into negotiations with Richline Group, Inc. for it to acquire these US operations and on 22 February the parties signed a binding Sale and Purchase agreement, which is subject to normal legal and regulatory closing provisions which we anticipate to be completed in the second quarter of 2012. The net cash consideration is subject to closing balance sheet adjustments, but is expected to be sufficient for the exit from the loss-making US business to be cash neutral, including the restructuring and other costs incurred in preparing the business for sale. The division's profitable European operations are unaffected by the transaction.

Financial Review mike butterworth

group results highlights

	2011	2010	Change
Profit before tax (£m)
— headline	261.5	222.1	39.4
— basic	211.6	189.4	22.2
Earnings per share (p)
— headline	70.4	61.5	8.9
— basic	53.2	53.0	0.2
Dividends per share (p)1
— interim	7.25	—	7.25
— final	14.50	11.50	3.00
Free cash flow (£m)	90.1	63.7	26.4
Net debt (£m)	363.9	329.7	34.2

¹ Dividends are presented on an "as recommended" basis.

As described in detail in the Operating Review, the majority of the Group's businesses experienced improved end-market conditions during 2011 and, as a result, the trading profit in 2011 of £290.2m was 15% higher than in 2010.

After net finance costs (pre-exceptional items) of £28.7m, headline profit before tax was £261.5m. The Group's reported effective tax rate increased in 2011 to 23.5% from 21.1% in 2010; however, the prior year rate reflected a number of non-recurring credits and the underlying tax rate, excluding the benefit of these non-recurring credits, was around 24% in 2010. A tax rate of around 23.5% is anticipated for 2012.

The increase in the Group's trading profit more than offset the increase in the reported effective tax rate, resulting in headline profit after tax of £200.1m, 14% higher than 2010. Similarly, headline earnings per share of 70.4p was 14% higher than the 61.5p in 2010, reflecting the higher headline profit after tax.

The Board is recommending to shareholders a final dividend for 2011 of 14.50p per share, an increase of 26% on the final dividend of 11.50p in 2010. This, together with the interim dividend of 7.25p (2010: nil), gives a total dividend for the year of 21.75p (2010: 11.50p).

Net debt as at 31 December 2011 was £363.9m, £34.2m higher than 31 December 2010, resulting in a leverage ratio (net debt to EBITDA) of 1.1 times.

"Cookson ended 2011 with a strong balance sheet and with ample liquidity headroom under long-term financing arrangements."

Mike Butterworth Group Finance Director

group income statement

Headline profit before tax

Headline profit before tax was £261.5m for 2011, £39.4m higher than for 2010. The increase in headline profit before tax arose as follows:

	2011 2010			Change
	£m	£m	£m	%
Trading profit
— at 2011 exchange rates	290.2	253.3	36.9	+15%
— currency impact	—	(1.2)	1.2
Trading profit
— as reported	290.2	252.1	38.1	+15%
Net finance costs
— ordinary activities	(28.7)	(30.4)	1.7	+6%
Post-tax income from
joint ventures	—	0.4	(0.4)
Headline profit before tax	261.5	222.1	39.4	+18%

Net finance costs (interest) were £1.7m lower than in 2010 principally due to a £1.3m lower charge for pension interest.

Items excluded from headline profit before tax

A net charge of £49.9m was incurred in 2011 (2010: £32.7m) for the following items excluded from headline profit before tax:

Amortisation of intangible assets: costs of £17.8m (2010: £17.7m) were incurred in 2011 relating to intangible assets (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 charges: the £8.9m incurred in 2011 (2010: £17.3m) comprises total costs of £11.7m, less profits of £2.8m arising on the sale of vacant property. Of the costs of £11.7m, £8.2m arose in Engineered Ceramics and £3.5m in Performance Materials, both principally from headcount reductions.

Restructuring charges of between £5m and £10m are expected to be incurred in 2012.

Gains relating to employee benefits plans: the £15.2m credit in 2011 (2010: £5.3m) is principally in respect of the UK defined benefit pension plan ("UK Plan") and principally comprises a credit of £21.5m relating to the change in the UK inflation index (from RPI to CPI) which is used to value deferred pension benefits, less a charge of £8.3m in respect of an enhanced transfer value ("ETV") exercise under which deferred members are being offered the opportunity to transfer their accrued pension benefits out of the UK Plan. This exercise eliminates longevity and investment risk for Cookson in respect of the amounts transferred out of the UK Plan. The cost of the ETV exercise reflected in 2011 is only in respect of transfers agreed prior to

Financial Review

31 December 2011. A further charge of some £5m is expected to be incurred in 2012 in respect of any transfers agreed after 1 January 2012.

Finance costs — exceptional items: costs of £1.9m (2010: £3.0m) were incurred in 2011 arising from the write-off of unamortised borrowing costs relating to the syndicated bank facility which was terminated in April 2011 following the negotiation of a new facility.

Loss on disposal of continuing operations: a net loss of £36.5m (2010: £0.6m) was incurred in 2011, of which £29.0m relates to the US business of the Precious Metals Processing division that was in the process of being disposed of as at 31 December 2011 and was therefore recorded as held for sale at that date. On being classified as held for sale the net assets of the business were written down to their fair value less costs to sell. Subsequent to year-end, an agreement was signed on 22 February 2012 with Richline Group, Inc. (a subsidiary of Berkshire Hathaway Inc.) for it to acquire the Group's interest in this business.

Group profit before tax and after the items noted above was £211.6m for 2011 compared to a profit before tax of £189.4m in 2010.

Taxation

The tax charge on ordinary activities was £61.4m on headline profit before tax of £261.5m, an effective tax rate (before share of post-tax profit from joint ventures) of 23.5%. The effective tax rate in 2010 was 21.1%, although this reflected the benefit of a number of non-recurring credits. The underlying effective tax rate for 2010 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 2012 will be around 23.5%.

A tax credit of £2.5m (2010: £9.4m) arose in relation to all the items excluded from headline profit before tax noted above.

Profit attributable to owners of the parent

Headline attributable profit for 2011 was £194.2m (2010: £169.8m), an increase of 14%. Profit attributable to non-controlling interests of £5.9m was £0.3m higher than for 2010.

After taking account of all items excluded from headline profit before tax noted above (net of the related tax impact), the Group recorded a profit of £146.8m for 2011 (2010: £145.3m).

Return on investment ("ROI")

The Group's post-tax ROI in 2011 was 10.3%, ahead of the 9.6% reported in 2010, reflecting the 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 70.4p per share in 2011, 14% higher than the 61.5p in 2010. 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 attributable to owners of the parent, was 53.2p (2010: 53.0p).

The average number of shares in issue during 2011 was 275.7m, 0.5m lower than for 2010.

Dividend and dividend policy

In the Capital Markets presentation on 26 January 2011, it was stated that one of the financial targets for the three year period to 2013 was that dividends would grow at least in line with earnings growth. It was also noted that the Board's intention is to balance the split of interim and final dividends broadly on a one-third/two-thirds basis.

Given the good trading performance in 2011 and the outlook for 2012, the Board is recommending a final dividend of 14.50p per share (2010: 11.50p) which, together with the interim dividend of 7.25p per share, gives a total dividend for the year of 21.75p per share (2010: 11.50p). The final dividend, if approved at the Annual General Meeting on 17 May 2012, is to be paid on 11 June 2012 to shareholders on the register on 4 May 2012. Any shareholder wishing to participate in the Cookson Dividend Reinvestment Plan ("DRIP") needs to have submitted their election to do so by 24 May 2012.

GROUP CASH FLOW

Net cash inflow from operating activities

In 2011, the Group generated £159.8m of net cash inflow from operating activities, £50.2m higher than in 2010.

	2011	2010	Change
	£m	£m	£m
EBITDA	346.5	306.3	40.2
Working capital	(86.8)	(92.4)	5.6
Assets held for sale	—	(1.6)	1.6
Restructuring paid	(13.2)	(23.8)	10.6
Additional pension contributions	(13.2)	(11.6)	(1.6)
Net interest paid	(17.6)	(19.1)	1.5
Taxation paid	(55.9)	(48.2)	(7.7)
Net operating cash inflow	159.8	109.6	50.2

The cash outflow of £86.8m from trade and other working capital reflects the strong increase in underlying revenue in 2011 and the high level of commodity metal prices at year-end. The higher levels of trade working capital resulted in a ratio of average trade working capital to sales in 2011 of 23.1%, two percentage points higher than for 2010.

Cash outflow for restructuring was £13.2m, of which the majority related to trailing costs from the cost-saving initiatives in the Engineered Ceramics and Performance Materials divisions commenced in prior years. A cash outflow for restructuring of around £10m is expected in 2012. The cash impact of the disposal of the US Precious Metals Processing business, which is expected to complete in the second quarter of 2012, is expected to be broadly neutral.

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

UK Plan: payments totalling £7.0m were made into the UK Plan in 2011 based upon the current agreement with the Trustee. The level of these payments will be reviewed based on the UK Plan's next triennial valuation as of December 2012, which should be available in mid-2013.

US defined benefits pension plans: additional payments totalling £6.2m were made into the US pension plans in 2011, in line with the previously announced intention to make additional "top-up'"payments of approximately £6m per annum into the plans with effect from the beginning of 2011.

Net cash flows from investing activities

Capital expenditure: payments to acquire property, plant and equipment in 2011 were £85.1m, £27.9m higher than 2010 and representing 151% of depreciation (2010: 106%). A cash outflow for capital expenditure of around £75m is expected in 2012 principally reflecting the expansion of production capacity in China, India, Brazil, Eastern Europe, and the Middle East; customer installations in the Engineered Ceramics and Performance Materials divisions; and the expansion of R&D facilities in the Engineered Ceramics division.

Acquisition of subsidiaries and joint ventures: net cash outflow in 2011 was £11.3m (2010: £3.9m), primarily comprising the Engineered Ceramics division's acquisition of SERT for €11m (£9m) on 23 November 2011 and also the division's further investment in the Advanced Refractories joint venture in China with Angang Steel, one of China's largest steel producers.

Free cash flow

Free cash flow is defined as net cash flow from operating activities after net outlays for capital expenditure, dividends received from joint ventures and paid to non-controlling shareholders, but before additional funding contributions to Group pension plans.

Free cash inflow for 2011 was £90.1m, £26.4m higher than 2010, due to the £50.2m increase in net cash flow from operating activities, for the reasons described above, more than offsetting the £27.9m increase in capital expenditure.

The Group normally experiences weaker free cash flows in the first half of the year compared with the second half, due to the seasonality of trade working capital cash flows. In 2011, free cash inflow in the second half of the year was £119.4m compared to a free cash outflow of £29.3m in the first half. This normal trade working capital seasonality is expected to continue in 2012.

Net cash flow before financing

Net cash inflow before financing for 2011 was £56.4m, £4.6m higher than 2010 due principally to the increase in free cash flow described above.

Cash flow from financing activities

Net cash outflow from financing activities (before movement in borrowings) was £92.8m (2010: £6.9m), principally comprising the following:

Settlement of forward foreign exchange contracts: a cash outflow of £27.6m arose relating to the settlement during the year of forward foreign exchange contracts, in particular those relating to the Singapore dollar and US dollar (2010: £3.3m). These forward foreign exchange contracts had been taken out in previous years 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 investments.

Purchase of treasury shares: a cash outflow of £7.8m (2010: £nil) arose in respect of the purchase during 2011 of shares in Cookson Group plc to satisfy the actual and potential vesting of shares under the Group's share-based payment plans.

Dividends paid: a cash outflow of £51.8m (2010: £nil) arose in respect of the payment in June 2011 of the final dividend for 2010 of £31.8m and the payment in October 2011 of the interim dividend for 2011 of £20.0m.

Net cash (outflow)/inflow and movement in net debt

Net cash outflow for 2011 (before movement in borrowings) was £36.4m compared to a net cash inflow of £44.9m in 2010.

With a £1.0m positive foreign exchange adjustment and £1.2m in other non-cash movements, this resulted in an increase in net debt from £329.7m at 31 December 2010 to £363.9m at 31 December 2011, an increase of £34.2m.

Net debt

The net debt of £363.9m as at 31 December 2011 was primarily drawn on available committed facilities of £884m. The Group's net debt comprised the following:

	31 Dec	31 Dec
	2011	2010
	£m	£m
US Private Placement Loan Notes (US\$440m)	283.7	282.2
Committed bank facility	260.5	223.2
Lease financing	4.1	3.8
Other	3.7	7.2
Gross borrowings	552.0	516.4
Cash and short-term deposits	(188.1)	(186.7)
Net debt	363.9	329.7

In December 2010, the Group issued US\$250m of new US Private Placement loan notes. The notes were issued in two series: US\$110m at a fixed interest rate of 4.16% — maturing in December 2017, and US\$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 US\$190m of US Private Placement loan notes are repayable in May 2012 and have an average fixed interest rate of 8.1%.

In April 2011, the Group entered into a new £600m revolving credit facility with a syndicate of banks to replace the existing £511m bank facility which was due to mature in October 2012. The new facility matures in April 2016.

In the Capital Markets presentation on 26 January 2011, it was stated as part of the financial targets for the three year period to 2013 that the Group would maintain a strong financial position with a leverage ratio (net debt to EBITDA ratio) of not more than 1.5 times at year-end and 1.75 times at the half year. The Group is currently operating very comfortably within this limit and, as at 31 December 2011, the net debt to EBITDA ratio was 1.1 times (as compared with not more than 3.25 times for bank covenant purposes). Also as at 31 December 2011, the ratio of EBITDA to interest on borrowings was 15.1 times (as compared with not less than 4.0 times for bank covenant purposes). Based on these covenant ratios, the Group will pay a margin of 95bps over LIBOR on its borrowings under the committed bank facility.

As at 31 December 2011, the Group had undrawn committed debt facilities totalling around £340m.

financial review

Currently around two-thirds of the Group's current gross borrowings are at fixed interest rates for an average period of just under four years from December 2011. This reflects both the fixed interest rate nature of the US Private Placement loan notes and the Group entering into a number of interest rate swaps.

Currency

In 2011, the net translation impact of using 2011 rates to translate 2010 results was not material, i.e. an increase in 2010 revenue of £4m and an increase of 2010 trading profit by £1.2m. Between these years, the average exchange rates for sterling strengthened against the US dollar by 4% and the Polish zloty by 2%, but weakened against both the euro and the Chinese renminbi by 1%, the Brazilian real by 2% and the Czech koruna by 4%.

The Group has a policy of broadly matching the currency of borrowings to the currency of operating activities for its major trading currencies. Currently, just over half of the Group's gross borrowings are non-sterling denominated, principally in US dollars and euros.

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 arrangements, being principally healthcare arrangements in the US. The Group's principal defined benefit pension plans in the UK and the US are closed to new members and to further accruals for existing members.

As at 31 December 2011, there was a net deficit of £58.7m in respect of employee benefits. The reduction of £55.1m from the net deficit as at 31 December 2010 of £113.8m primarily arose in respect of the UK arrangements, as a result of a strong asset performance more than offsetting the impact of the reduction in the applicable discount rate. The deficit in the Group's US pension arrangements increased by £6.9m to £64.8m, due mainly to the reduction in the applicable discount rate. The net deficit in the plans in the remainder of the Group was broadly the same as at the end of 2010.

The total Group net deficit comprises a surplus of £65.6m relating to Cookson's UK defined benefit plan ("the UK Plan"), deficits of £64.8m relating to the Group's defined benefit pension plans in the US, £35.3m to pension plans in Germany, £14.5m to pension arrangements in other countries, and £9.7m to other, unfunded, post-retirement defined benefit arrangements.

The UK government implemented, with effect from 1 January 2011, the use of the Consumer Price Index ("CPI") instead of the Retail Prices Index ("RPI") for the purpose of determining statutory minimum pension increases for private sector pension schemes. During the year, the deferred members of the UK Plan were advised of the change from the use of RPI to value their benefit to the use of CPI, with effect from 1 January 2011. At the same time, deferred members were advised that the Company was to offer them the opportunity to transfer their benefits out of the UK Plan to another arrangement of their choice at an enhanced value, calculated to reflect the retention of RPI to value any deferred benefits so transferred. The offer of enhanced transfer values closes during the first half of 2012. This exercise eliminates the longevity and investment risk for Cookson in respect of the £37m of liabilities transferred out of the UK Plan. The impact on the IAS 19

valuation of UK pension liabilities of the change from RPI to CPI and of the impact of the transfers agreed up to 31 December 2011, result in a net reduction in liabilities of £13.2m, which has been reported in the Group income statement as an exceptional credit. The impact of transfers agreed after 1 January 2012 will be reported as an exceptional charge in 2012.

In accordance with a schedule of contributions agreed between the Company and the UK Plan Trustee, the Company is making 'top-up' payments of £7.0m per annum until February 2016, targeted at eliminating by that date the UK Plan deficit of £54.5m per the 2009 triennial actuarial valuation. 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 assets include a liability-driven investment portfolio of financial derivative contracts which significantly reduces the risk that the UK Plan's assets will fall materially relative to the value of its projected liabilities for meeting future pension payments (the UK Plan's "economic liabilities"). When there is a stable relationship between the swap yields relevant to the UK Plan's derivatives and the corporate bond yields used for the IAS 19 discount rate, 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 2011, the estimated "economic" funding position showed a funding ratio of 97%, whilst the IAS 19 valuation showed a funding ratio of 116%. This represents a valuation difference of around £80m, reflecting the use of more prudent valuation assumptions for deriving the economic funding position, the basis by which the Company continues to fund the UK Plan.

Additional "top-up" payments of approximately £6m per annum are currently being made into the US pension plans. The total charge against trading profit in the income statement in 2011 for all pension plans (including defined contribution plans) was £22.4m, broadly in line with 2010. Included within net finance charges was £2.3m (2010: £3.6m); and reported as exceptional curtailment credits was £15.2m (2010: £5.3m). Total pension cash contributions amounted to £41.1m in 2011 (2010: £40.5m), which included £13.2m (2010: £11.6m) of additional cash funding contributions into the UK and US plans.

Board of Directors

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 and serves as a non-executive director of WH Smith PLC. Jeff is a chartered accountant.

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 nonexecutive director and chairman of the audit committee of St Ives plc. Mike is a chartered accountant.

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 non-executive director and chairman of the audit committees of Cenkos Securities plc; Foreign & Colonial Investment Trust plc and Sweett Group plc. He is also the external chairman of the audit committee of the John Lewis Partnership and the chairman of Electro Components Pension Trustees Limited. Jeff is a chartered accountant.

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 served until March 2011 as a non-executive director of Anglo & Overseas plc.

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.

François Wanecq

Executive Director

Appointed to the Cookson Board in February 2010. François has been the Chief Executive Officer of Cookson's Engineered 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.

Peter Hill cbe a, b

Non-executive Director

Appointed to the Cookson Board in February 2010. Peter served as chief executive of Laird PLC from 2002 until he stepped down from the board in November 2011. He previously held senior management positions with BTR plc (subsequently Invensys plc) and was an executive director of Costain Group plc. He was a non-executive director of Meggitt plc until March 2010.

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.

Dr Emma FitzGerald a, b

Non-executive Director

Appointed to the Cookson Board on 1 August 2011. Emma is Vice President, Global Retail Network for Shell International, a company she joined in 1992. During her career with Shell, Emma has worked in a variety of technical, strategic and general management roles based in Asia and Europe. These included the position of Managing Director of Shell China/Hong Kong Lubricants based in Beijing. She is a Trustee of The Windsor Leadership Trust.

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 a non-executive director and chairman of the remuneration committee of Candover Investments plc and a non-executive corporate director of Barco N.V. He served as chairman of the supervisory board of Crucell N.V. until December 2011. Jan is also a professor at IESE Business School in Barcelona.

a Member of the Audit Committee

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

Corporate Governance Report

This report describes the Company's corporate governance structure and explains how the Company applies the principles of the UK Corporate Governance Code issued by the Financial Reporting Council in May 2010 ("the Code"). The Company has complied with the provisions of the Code throughout the year ended 31 December 2011.

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.

Composition

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 Engineered Ceramics Division, François Wanecq; and five Non-executive Directors. The Board considers each of the Non-executive Directors, namely Emma FitzGerald, Jeff Hewitt, Peter Hill, Jan Oosterveld 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. The Chairman satisfied the independence criteria on his appointment to the Board.

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 Code recommends that all Directors of FTSE 350 companies be subject to annual election by shareholders. The full Board stood for election at the 2011 AGM. All the Directors will again be offering themselves for election at this year's AGM as set out in the Notice of AGM and on page 33.

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 seven formal scheduled occasions during 2011 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; declaration of dividends; 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 maintains overall responsibility for the Group's system of internal control and 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, while the Chief Executive manages the Group and implements the strategy and policies adopted by the Board. The Chairman meets routinely with the Chief Executive and Group Secretary to discuss relevant matters. The Chairman also serves as Chairman of Filtrona plc and, in 2011, joined the board of WH Smith PLC as a non-executive director. 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
Jeff Harris	7(7)	n/a	n/a	3(3)
Executive Directors
Mike Butterworth	7(7)	n/a	n/a	n/a
Nick Salmon	7(7)	n/a	n/a	3(3)
François Wanecq	7(7)	n/a	n/a	n/a
Non-executive Directors
Emma FitzGerald (appointed 1 August 2011)	2(3)	1(2)	1(2)	2(2)
Jeff Hewitt	7(7)	4(4)	3(3)	3(3)
Peter Hill	6(7)	3(4)	2(3)	2(3)
Jan Oosterveld	7(7)	4(4)	3(3)	3(3)
Barry Perry (retired 12 May 2011)	2(2)	1(1)	1(1)	1(1)
John Sussens	7(7)	4(4)	3(3)	3(3)

Non-attendance at meetings is rare and generally only arises if a Director is incapacitated due to serious illness (as was the case for Mr Hill) or where a newly appointed Director has an unavoidable commitment that cannot be rearranged (as was the case for Dr FitzGerald).

Papers are provided to the Directors in advance of the relevant Board or committee meeting to enable them to make further enquiries about any matters prior to the meeting should they so wish. This also allows Directors who are unable to attend to submit views in advance of the meeting. The 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 Nonexecutive Directors. He also keeps the Board apprised of relevant developments in corporate governance.

Additionally, the Chief Executive will, as a matter of routine, provide a written update on important business issues between meetings and invite the views of the Directors on these.

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 Chairman is responsible for, and leads the evaluation process and is assisted by the Group Secretary. In line with best practice, and as it has done in previous years, the Company engaged an external facilitator for the Board evaluation exercise in 2011. EquityCommunications Ltd, an independent organisation which has aided the Company on corporate governance matters, once again performed this role.

As part of the evaluation process, the Chairman undertook a series of one-to-one meetings with each member of the Board and the Group Secretary to discuss their individual participation at and contribution to Board meetings. The Senior Independent Director, having taken soundings from all members of the Board and the Group Secretary, conducted the Chairman's individual evaluation and provided feedback to the Chairman.

The external element of the Board review was completed using a questionnaire specifically designed for Cookson. This focused on the Board structure and functionality, and also covered the strategy review, succession planning and executive development. All the Directors and the Group Secretary completed the document, with the exception of Dr FitzGerald who had only been appointed the month before the external evaluation was undertaken.

The results from the questionnaire were collated and summarised by the external facilitator. Each Director received a copy of the report, which was discussed at the December meeting of the Board. The report summarised and analysed all responses to the questionnaire on a non-attributable basis. The Chairman used early feedback from the questionnaire process to assist in his interviews.

The report concluded that the initial positive reaction from the 2010 evaluation to the appointment of the Chairman had been more than maintained in 2011. Similarly, the strong and united Board dynamic that previously existed, had been preserved and strengthened with the addition of the new appointee. The report also found that the refinement to the Board's

approach to risk evaluation and mitigation identified in the 2010 evaluation had been implemented and was regarded as a valuable supplement to the Group's operations, not least given the heightened risk of recession in some world markets. The report found that the Board was pleased that management had taken swift and early action to ensure that the Group took appropriate steps to counter any potential downturn in its businesses. The greater attention to succession planning, also identified as a priority, had been undertaken — although the new evaluation exercise identified that there was more to address with senior management succession.

Each Chairman of the Audit, Nominations and Remuneration Committees also discussed the performance of their committees. These review discussions concluded that each committee continued to operate effectively and no changes to current procedures were necessary.

The Board agreed a number of specific action items resulting from the evaluation exercise. These included: continuing the emphasis on succession planning, particularly for Non-executive Directors and senior management; increasing the focus on investor relations; continuing the focus on strategy development and providing more updates for the Board on the regulatory environment from external advisers.

Induction and training

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.

The Chairman meets with Directors on an ongoing basis to review any training and development needs. In addition, the 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 2011 training was given to the Board on the new Bribery Act and updates were given on developments in various areas of governance and regulation, including consultation on, and changes to, institutional and regulatory codes on diversity and remuneration. During the year, Directors also attended external seminars and other functions relevant to specific areas of their responsibility.

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 and issues two further trading updates each year with the publication of its Interim Management Statements. In conjunction with these announcements, presentations or teleconference calls are held with institutional investors and analysts. Recordings of these are made available on the Group's website along with hard copies of any presentation materials issued — www.cooksongroup.co.uk.

Corporate Governance Report

The Company maintains a regular dialogue with institutional investors. The majority of meetings with investors are led by the Chief Executive and Group Finance Director, but the Chairman, Senior Independent Director and other Directors are also available to meet with significant shareholders as appropriate. The Senior Independent Director, as Chairman of the Remuneration Committee, meets with key institutional shareholders and their representative bodies each year to discuss the Company's remuneration policy and practice.

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.

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

Members

Jeff Hewitt (Committee Chairman)	Jan Oosterveld
Emma FitzGerald	Barry Perry
(appointed 1 August 2011)	(retired 12 May 2011)
Peter Hill	John Sussens

The Audit Committee members are the Non-executive Directors. The Audit Committee is chaired by Mr Hewitt, a qualified accountant. The Code requires the Board to be satisfied that at least one member of the Committee has recent and relevant financial experience. The Board considers that Mr Hewitt possesses the requisite financial experience to meet this requirement. The Board also considers that the Audit Committee members together possess the necessary commercial, financial and audit expertise to help them assess effectively the complex accounting, audit and risk issues they have to address.

At the invitation of the Audit Committee Chairman, the Chairman, Chief Executive, Group Finance Director, CEO of the Engineered Ceramics Division, Group Financial Controller, Group Head of Internal Audit and the Company's Auditor, KPMG Audit Plc, regularly attend meetings. Other executives are invited to attend as and when appropriate. The Audit Committee meets regularly with the Company's Auditor and the Group Head of Internal Audit without any executives being present.

The Audit Committee operates under formal terms of reference that are reviewed on a regular basis. These terms of reference authorise the Committee to obtain outside legal or other independent professional advice at the cost of the Company and to secure the attendance at Audit Committee meetings of other parties with relevant experience and expertise should it be considered necessary. The Audit Committee did not feel it necessary to seek such outside advice in 2011.

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

Role and Responsibilities

The primary role and responsibilities of the Audit Committee are:

• ❯ monitoring the integrity of the Company's Half-Year and Annual Financial Statements, the Interim Management Statements and any other formal announcements relating to the Company's financial performance;
• ❯ reviewing the process whereby the Board assesses the effectiveness of the Group's internal controls and risk management systems;
• ❯ establishing and reviewing procedures for detecting fraud, and systems and controls for the prevention of bribery, along with overseeing the Company's arrangements for employees to raise concerns about possible wrongdoing in financial reporting or other matters;
• ❯ monitoring and reviewing the effectiveness of the Company's internal audit function;
• ❯ monitoring and reviewing the Auditor's independence, objectivity and effectiveness, taking into account professional and regulatory requirements;
• ❯ making recommendations to the Board on the appointment and dismissal of the Auditor and approving the remuneration and terms of engagement of the Auditor; and
• ❯ helping to strengthen the independent position of the Auditor by providing a direct channel of communication between it and the Non-executive Directors.

Activities

During the year under review, the Audit 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 Audit Committee, it believes that it received sufficient, reliable and timely information from management and the Auditor to enable it to fulfil its responsibilities.

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

• ❯ at its meetings in July 2011 and February 2012, the Audit 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 matters requiring significant management judgement, asset impairment valuation, 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 Audit 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 July 2011 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 2011 meeting, the Committee reviewed and approved the internal audit plan, submitted by the Group Head of Internal Audit for 2012;
• ❯ at each of the four meetings, if relevant, the Audit Committee reviewed the Auditor's control findings;
• ❯ at the July 2011 meeting, the Audit Committee reviewed the results of an assessment which had been undertaken of the performance of the Auditor, based upon feedback received from the Group's corporate and divisional finance management. No significant problems were identified with the relationship and quality of audit by KPMG. Some areas of potential improvement were identified in relation to audit planning and the communication of audit findings to management. These items were taken into account in the implementation of the global audit plan for 2011.
• ❯ also at the July meeting, the Audit Committee 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 October 2011 and February 2012, the Audit 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 2012, the Audit 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 Audit Committee or to the full Board on the identification, management and control of specific areas of risk which impact the Company and the Group; and
• ❯ as a matter of routine, the Audit Committee was presented with information on any significant litigation involving the Group.

Appointment of Auditor

The Audit Committee is responsible for making recommendations to the Board in relation to the appointment, reappointment and removal of the Auditor. In undertaking this duty, the Committee takes into consideration a number of factors concerning the Auditor and the Group's current activity, including:

• ❯ the quality both of reports provided by the Auditor to the Audit Committee and the Board, and of advice given;
• ❯ the level of understanding demonstrated of the Group's businesses;
• ❯ the independence of the Auditor, in light of the provision of non-audit services;
• ❯ 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.

In addition, the Audit Committee considers external reviews of the performance and quality of the Auditor, including:

• ❯ the annual report issued by the Audit Inspection Unit of the Financial Reporting Council on the work of the Auditor; and
• ❯ the Auditor's own annual Transparency Report.

KPMG or its predecessor firms has a long-standing tenure as the Company's Auditor, during which reviews of its performance and the rotation of the senior audit partner designated to the Company's account have been regularly undertaken. Following the completion of his five year term, the Company's current senior audit partner will be rotating off the account in 2012.

Having considered the aforementioned factors in 2011, the Audit 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.

Independence and objectivity of Auditor

The Audit Committee is cognisant of the need to ensure that the independence and objectivity of the Auditor is continually maintained. It has put in place safeguards to ensure that the independence of the external audit is not compromised. These safeguards include:

• ❯ seeking ongoing 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.

Corporate Governance Report

The Audit Committee regularly monitors the other services being provided to the Group by the Auditor. The Company has a policy governing the Group-wide conduct of non-audit work by the Auditor to ensure that this does not impair its independence or objectivity. The Auditor is prohibited from performing services where it:

• ❯ 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.

The policy sets out the categories of work that the Auditor is prohibited from undertaking. Other than these, the Company does not impose an automatic prohibition on the Auditor undertaking non-audit work. The Auditor is eligible for selection to provide non-audit services that are not, or are not perceived to be, in conflict with Auditor independence, provided it has the skill, competence and integrity to carry out the work in the best interests of the Group.

An annual budget for non-audit related fees which the Group is proposing to pay to the Auditor, is presented for pre-approval to the Audit Committee each year. Any individual assignment where the fee is likely to be in excess of £50,000 must be pre-approved by the Audit Committee. Where appropriate, services are tendered prior to awarding work to the Auditor. Details of the amounts paid to the Auditor during the year for audit and other services are set out in note 6 on page 64. The majority of the non-audit related fees paid to the Auditor in 2011 related to tax consultancy advice in respect of a number of small projects, where its knowledge of the business made it effective and cost-efficient for the Auditor to undertake the work.

Internal audit

The Group's internal audit function operates on a global basis. 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. In 2011, 83 audit assignments were undertaken covering 70 businesses. The Group Head of Internal Audit reports directly to the Audit Committee Chairman. 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.

Employee business concern helpline

The Audit Committee has established procedures for the receipt, retention and treatment of complaints received by the Company including accounting, internal controls, auditing matters, harassment and confidential communications from employees. The helpline is operated 24 hours a day, seven days a week, by an organisation that specialises in the provision of such services. It can be contacted by phone, email or via a designated website. Translation facilities are available for those for whom English is not their first or preferred language.

Approach to anti-corruption and bribery training

In response to the UK Bribery Act, the Company's Code of Conduct was revised and recommunicated to all employees in 2011. New policies on anti-bribery & corruption have been developed. Together they require that employees and others working on behalf of the Company do not engage in any form of bribery or corruption.

An anti-bribery and corruption compliance programme has been established throughout the Group, and is being implemented through a targeted face-to-face training programme. An e-learning module has been developed and is being rolled out globally, as local language versions become available, to relevant office-based individuals in 2012. New employees, as relevant, will go through the training as part of their induction process.

The compliance programme includes undertaking risk assessments and engaging with others working on behalf of the Company to ensure that their standards comply with Cookson's policies.

Cookson is a member of the corporate supporters forum of Transparency International UK.

Executive compensation and risk

All the Non-executive Directors serve on both the Audit and Remuneration Committees. They are therefore able to bring their experience and knowledge of the activities of each Committee to bear when considering the critical judgements of the other. This means that the Directors are in a position to consider carefully the impact of incentive arrangements on the Group's risk profile and to ensure the Group's remuneration policy and programme is structured so as to accord with the long-term objectives and risk appetite of the Company.

RISK MANAGEMENT AND INTERNAL CONTROL

The Board has overall responsibility for the establishment and maintenance of the Group's system of risk management and internal control, and for reviewing its effectiveness. This system is designed to manage, rather than eliminate, the risks facing the Group and safeguard assets. No system of internal control can provide absolute assurance against material misstatement or loss. The Group's system is designed to provide the Directors with reasonable assurance that problems are identified on a timely basis and are dealt with appropriately. In accordance with the provisions of the Code, the Directors confirm that they have reviewed the effectiveness of the Group's system of internal control and that the necessary actions have been taken to remedy and control any control weaknesses identified during the year. Since the date of this review there have been no significant changes in internal controls or other matters which could significantly affect them.

The Audit Committee assists the Board in reviewing the effectiveness of the Group's system of internal controls, including financial, operational and compliance controls, and risk management systems. The key features of the Group's system of internal controls include:

Strategy and financial reporting

The Group operates a comprehensive strategic planning and forecasting process, with an annual budget approved by the Board. Monthly operating financial information is reported against this budget and key trends and variances analysed. Action is then taken as appropriate.

Group accounting policies and procedures are formulated and disseminated to all Group operations, covering the application of accounting standards and the maintenance of accounting records and key financial control procedures.

Operational controls

Each operating company, including the Divisional and Corporate offices, maintains internal controls and procedures appropriate to its structure and business environment, whilst complying with Group policies on items such as the authorisation of capital expenditure, treasury transactions and the management of intellectual property.

In addition, the Group's financial reporting process, including the preparation of the Company's consolidated financial statements, incorporates the dissemination and use of common accounting policies and procedures and financial reporting software.

The Board considers significant financing and investment decisions concerning the Group, including the giving of guarantees and indemnities, and monitors policy and control mechanisms for managing treasury risk.

Risk assessment and management

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 Board 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.

Reviewing the effectiveness of internal controls

The internal control system is monitored and supported by the Group's internal audit function. This function assists management and the Board in the effective discharge of their responsibility for internal control by conducting reviews of 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 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 significant 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.

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 selfcertification 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.

REMUNERATION COMMITTEE Members

John Sussens (Committee Chairman)	Peter Hill
Emma FitzGerald	Jan Oosterveld
(appointed 1 August 2011)	Barry Perry
Jeff Hewitt	(retired 12 May 2011)

The Remuneration Committee members are the Non-executive Directors. 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 37 to 49.

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

NOMINATIONS COMMITTEE

Members

Jeff Harris (Committee Chairman), Nick Salmon and any three Nonexecutive Directors.

The Nominations Committee advises the Board on appointments to, and retirements and resignations from, the Board, and reviews the Company's succession plans. The members of the Nominations 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 Nominations 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 Nominations Committee, particularly when a recruitment exercise is taking place.

Corporate Governance Report

During 2011, the Nominations Committee was active in the recruitment of a new Non-executive Director. When considering the appointment of new Directors, the Nominations Committee draws up a specification, taking into consideration the diversity of the Board including the balance of skills, knowledge and experience, the independence of Board members and the ongoing requirements of the Group. The Nominations Committee's foremost priority is to ensure that Cookson continues to have the best possible leadership. Its prime responsibility is the strength of the Board. Board appointments are made on merit against objective criteria, selecting the best candidate for the post. The Nominations Committee utilises the services of executive search firms to identify appropriate candidates and will only use those firms that have adopted the Voluntary Code of Conduct addressing gender diversity and best practice in search assignments. Wherever possible, the Nominations Committee arranges for all Directors to meet with the preferred candidate. The Nominations Committee makes recommendations for each appointment to the full Board. Care is taken to ensure that all proposed appointees have sufficient time available to devote to the role and do not have any conflicts of interest.

The Nominations Committee reviews the Company's succession plans for members of the Board. 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 planning for senior Corporate executives.

The Board actively seeks to meet with key executives throughout the Group so as to gain a greater understanding of the breadth and depth of management talent. This enables members of the Committee to adopt a more informed approach to succession planning.

The Chairman of the Nominations Committee reports the outcome of the Nominations 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, and acquisitions and disposals at certain levels as determined by the Board. Responsibility for day-to-day operational management rests with the divisional Chief Executives.

By Order of the Board

Richard M H Malthouse Group Secretary 27 February 2012

Principal risks and uncertainties

As described in the Corporate Governance Report, there is a continuous process for identifying, evaluating and managing 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 the process of how those risks are being managed. The Board is responsible for the Group's risk management and also reviews the role of insurance and other measures used in managing risks across the Group. The Board 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 Mitigation

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

End-market conditions, and the Group's trading performance, improved markedly during the first half of 2011, reflecting the continuation of the recovery from 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 revenue) for a number of our businesses is still not yet back to pre-crisis levels. However, since midsummer 2011, concerns about the world economy have intensified with growing evidence of a slowdown both in the economies of the developed and developing world. Whilst fears of a "double-dip" recession in the US and a "hard landing" in China seem to have abated in recent months, market commentators are still concerned about slowing global growth rates generally (including in China) and the likelihood of low, or possibly, negative growth in Europe. In addition to clear evidence of slowing worldwide economic growth, concerns about the stability of the Eurozone and the European financial/banking system have not totally receded. It is as yet unclear to what extent the seeming insolvency of Greece and the fiscal weakness of other countries such as Ireland, Spain, Italy and Portugal will impact the euro currency and the banking system. Whilst, for now, a liquidity squeeze in the banking system seems to have been avoided, there can be no certainty that this risk will not return. This is concerning given that this was the catalyst for the severe downturn in the "real" economy in late 2008/early 2009.

Cookson's divisions supply predominantly 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.

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 during the last three years 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 and 2011, the Directors believe that the Group is well positioned financially to sustain a further downturn in end-market activity should this occur.

Principal risks and uncertainties

RISK AND IMPACT Mitigation

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.

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 2011, total research and development spend was £42.1m, equivalent to 1.9% of net sales value.

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.

RISK AND IMPACT Mitigation

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 developing 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 developing 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.

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. 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.

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.

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.

Our Governance

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 2011. The Chairman's Statement, the Chief Executive's Statement, the Operating Review, the Financial Review, the Directors' Remuneration Report, the Corporate Governance Report, and the Principal Risks and Uncertainties, the Corporate Social Responsibility, the Business Model and Strategy, the Key Performance Indicators and Board of Directors sections of the Annual Report, together with the information on financial risk management objectives and policies contained in notes 21 and 27 of the consolidated financial statements, 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 — Engineered Ceramics, Performance Materials and Precious Metals Processing. Trading under the Vesuvius and Foseco brand names, Cookson's Engineered Ceramics division is the world leader in the supply of advanced consumable refractory products and systems to the global steel and foundry industries and a leading supplier of speciality products to the glass and solar industries. The Performance Materials division is a world leading supplier of advanced surface chemistries and joining technologies to the electronics, automotive and electroplating industries. The Precious Metals Processing division is a leading supplier of fabricated precious metals to the jewellery industry in the UK, France and Spain, and also has significant precious metal recycling operations.

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 2011, 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 5 to 7; the Operating Review on pages 11 to 16; the Financial Review on pages 17 to 20; the Corporate Social Responsibility report on pages 8 to 10; the Business Model and Strategy on page 2; the Key Performance Indicators on page 3; this Directors' Report on pages 32 to 36; the Corporate Governance Report on pages 22 to 28; and the Principal Risks and Uncertainties section on pages 29 to 31.

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 29 to 31. The financial position of the Group, its cash flows, liquidity position and debt facilities are described in the Financial Review. In addition, note 27 to the consolidated financial statements sets 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 14, 15 and 27 to the consolidated financial statements.

The Directors have prepared cash flow forecasts for the Group for a period in excess of 12 months from the date of approval of the 2011 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 2011 of 14.50p (2010: 11.50p) per ordinary share which, if approved, will be paid on 11 June 2012 to shareholders on the register at 4 May 2012. An interim dividend of 7.25p per ordinary shares was paid on 17 October 2011 to shareholders on the register at 16 September 2011, making total dividends of 21.75p per ordinary share for the year (2010: 11.50p). No interim dividend was declared for 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 50 and 51 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 they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.

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 37 to 49. 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 2011 to the supplementary fees payable.

The Chairman is paid a fee of £164,000 per annum. 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

Dr FitzGerald and Messrs Butterworth, Harris, Hewitt, Hill, Oosterveld, Perry, Salmon, Sussens and Wanecq all served as Directors of the Company during the year. Mr Perry retired from the Board at the close of the AGM on 12 May 2011 and Dr FitzGerald was appointed as a Director on 1 August 2011. Biographical information for all the current Directors of the Company is given on page 21. All the Directors will retire at the AGM and offer themselves for election. Further information on the contractual arrangements of the executive Directors is given on page 46. 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 (none of whom are Directors of Cookson Group plc) 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

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

The Group's UK defined benefits plan (the "UK Plan") and the main US defined benefits plan are closed to new entrants and have ceased providing future benefits accrual, with all eligible employees instead being provided with benefits through defined contribution arrangements.

For the Group's closed UK Plan 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 the 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 Plan to ensure that both Company and Trustee are apprised of the same financial and other information about the Group and the UK Plan. This is pertinent to each being able to contribute to the effective functioning of the UK Plan. 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 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.

Current active employees in the UK are offered membership of a defined contribution plan, which is operated on a contract basis, with oversight by a governance committee.

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 28.

Donations

Donations of the Company in the UK for charitable purposes each totalled £nil (2010: £nil). In accordance with Company policy, no political donations were made in either 2011 or 2010.

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 2011, the number of days' purchases outstanding was 21 (2010: 18 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 276,438,067 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.

Further information relating to the Company's issued share capital can be found in note 9 to the Company financial statements.

The Company operates a number of share-based incentive plans (further details about these are given in the Directors' Remuneration Report). For 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 and has waived the right to receive any dividends.

In 2011 the Trustee purchased 1.2m £1 ordinary shares in the Company with a nominal value of £1.2m at a cash cost of £7.8m to satisfy the actual and potential vesting of awards under the Group's share-based payment plans (see note 10 to the Company financial statements).

Adjustments were made to outstanding share-based incentives as appropriate following the rights issue in 2009, 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. No ordinary shares have been issued since the year-end in relation to the exercise 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 2011 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.

Directors' Report

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

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:

	31 Dec 2011	Current
	%	%
Cevian Capital II G.P. Ltd	10.76	14.07
Standard Life Investments Ltd	10.80	10.80
AXA S.A.	5.34	5.34
Pelham Capital Management LLP	5.22	5.22
Morgan Stanley Securities Ltd	–	5.12
Ignis Investment Services Limited	5.20	3.99
Lloyds Banking Group plc	4.78	4.78
BlackRock, Inc	4.46	4.46
Fidelity Investments Limited	4.20	4.20
Governance for Owners LLP	3.41	4.05
Legal & General Group Plc	3.94	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 49 and details of the Directors' long-term incentive awards and, where appropriate their deferred share bonus awards, are set out on pages 47 and 48.

By Order of the Board

Richard M H Malthouse Group Secretary 27 February 2012

Directors' Remuneration Report

ROLE AND RESPONSIBILITIES

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.

composition

The current members of the Committee are all the Non-executive Directors, namely Emma FitzGerald, Jeff Hewitt, Peter Hill, Jan Oosterveld and John Sussens, who also chairs the Committee. Messrs Hewitt, Hill, Oosterveld and Sussens served as members of the Committee throughout 2011. Dr FitzGerald joined the Committee upon her appointment to the Board on 1 August 2011. Mr Perry served as a member of the Committee until retiring from the Board on 12 May 2011. 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.

ADVICE PROVIDED TO THE COMMITTEE

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"), New Bridge Street ("NBS") and Towers Watson ("Towers"), and the law firm Clifford Chance LLP ("CC"). Kepler and NBS have been appointed directly by the Committee to provide advice on executive remuneration matters, including remuneration structure and policy, updates on market practices and trends, and guidance on the implementation and operation of long-term incentive plans. CC and Towers have been appointed by the Company on the Committee's behalf. CC provides advice on the operation of executive share plans and Towers has provided the Committee with remuneration benchmarking data for certain executives based outside the UK. Kepler, NBS and Towers are all signatories to the Remuneration Consultants Group Code of Conduct in relation to Executive Remuneration Consulting in the UK.

Aon Hewitt (the parent company of NBS) provides administration and actuarial services in relation to the Group's UK and US pension plans, NBS provides share award valuation advice to the Company, Towers provides remuneration advice to the Engineered Ceramics division and CC provides legal advice to the Company. The Committee does not believe that the provision of any of these services to the Company compromises the independence or integrity of the advice that it receives from Kepler, NBS, Towers and CC.

ACTIVITIES

During the year under review, the Committee met three times. The key matters considered included:

• ❯ salary review proposals for the executive Directors and senior management;
• ❯ reviewing achievement against the performance targets, and approving payouts, in respect of 2010 Annual Incentive;
• ❯ setting performance targets and approving the structure of the 2011 Annual Incentive;
• ❯ considering the Group's performance against the performance conditions applicable to the 2008 Long-Term Incentive Plan, and authorising the vesting of these awards;
• ❯ reviewing the Company's performance against the performance conditions applicable to the 2009 and 2010 Long-Term Incentive Plans;
• ❯ setting the performance conditions and authorising the grant of awards for the 2011 Long-Term Incentive Plan;
• ❯ receiving feedback on the Committee Chairman's meetings with key institutional shareholders regarding the Group's remuneration policy and practice, and in the light of this, advice received from the external advisers regarding trends in remuneration practice and governance, discussing the Group's approach to executive remuneration and reviewing whether any changes should be made;
• ❯ reviewing the Committee's Terms of Reference, and recommending amendments to the Board for approval; and
• ❯ reviewing and approving the 2010 Directors' Remuneration Report.

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.

Directors' remuneration Report

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 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 also obtains information on the remuneration paid for comparable roles at other companies to provide a point of reference for determining remuneration policy.

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. As all the non-executive Directors serve as members of both the Audit and Remuneration Committees, each Committee benefits from the Directors' experience on the other. This is particularly relevant when the Remuneration Committee is considering matters such as the Group's achievement of performance conditions and the implications for the Group's risk profile of the award of incentives under the Group's remuneration programmes. The Committee considers the Group's executive remuneration policy and incentive structure to be compatible with the Group's risk management and internal control systems.

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 2. This strategy is underpinned by the three-year plan which translates the strategy into operational targets. These key operational targets focus on growing annual revenue in excess of global GDP growth, achieving a higher return on sales margin and growing annual headline earnings, so that the Group can grow dividend payments and ensure that its return on investment is increasingly ahead of the Group's weighted average cost of capital. At the same time the Group seeks to maintain a strong financial position with a leverage ratio of not more than 1.5 times at each year-end. The remuneration policy incentivises and rewards executives to deliver their contribution to the achievement of the Group's strategy, with more than half of the executive Directors' total remuneration based on the variable, performance-related elements of the Annual Incentive and the Long-Term Incentive Plan ("LTIP"). The performance conditions under these arrangements support the Group's focus on growth in profit and shareholder returns by targeting key business imperatives such as Headline earnings (represented by Headline profit attributable to owners of the parent, as shown on page 69), 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 in note 4.5). The inclusion of a working capital performance target in the Group's Annual Incentive further supports the Group's objective to maintain a strong financial position by reducing leverage. 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 Committee evaluates the efficacy of the Group's executive remuneration policy each year and commissions more formal reviews as it considers appropriate. The review in 2010 resulted in the implementation of clawback arrangements for the executive Directors, divisional CEOs and Group Secretary to take effect from the 2011 Annual Incentive and LTIP awards, and resulted in an amendment to the mechanism used for setting the EPS targets for the LTIP from a percentage growth target to an absolute EPS target. Further details about these changes are given below. Following the Committee's review in 2011, no further changes were made to the policy and structure of remuneration for the executive Directors. It is anticipated that the Group's existing remuneration policy and structure, as outlined below, will therefore continue in 2012.

Clawback Arrangements

The executive Directors, divisional CEOs and Group Secretary are subject to clawback arrangements. 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.

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 the incentive arrangements of the Company's executive Directors. During the latter part of 2011, the Committee Chairman and Secretary met with the Group's largest shareholders to discuss the Group's remuneration programme. This included soliciting shareholders' views on remuneration proposals for 2012 and providing an update on the operation of the Group's incentive programmes. In addition, the opportunity was taken to discuss governance matters.

FIXED & VARIABLE REMUNERATION

Executive Director Pay Mix

(% of total remuneration)

The following illustrates the balance between fixed and variable remuneration for the executive Directors based on the remuneration policy for 2012:

Note: Maximum vesting assumes the Executive Directors each invest their full annual bonus in the LTIP Matching Share Arrangement.

value of packages for executive directors

(local currency)

The following illustrates the value of the Executive Directors' fixed and variable remuneration at on-target and maximum performance:

Note: Maximum vesting assumes the Executive Directors each invest their full annual bonus in the LTIP Matching Share Arrangement.

Directors' remuneration Report

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, role and contribution within the Group.	n/a		❯ ❯	Paid in cash. Normally reviewed by the Committee annually.
Annual Incentive	❯ ❯	Incentivises executives to achieve specific, pre-defined annual targets. For 2012 Annual Incentives are based on Group Headline Earnings performance with a working capital adjustment target. Half of the Annual Incentive for the CEO of the Engineered Ceramics division is based on divisional trading profit with a working capital adjustment target.	❯ ❯	150% of base salary for the Chief Executive. 100% of base salary for the Group Finance Director and the CEO of the Engineered Ceramics division.	❯ ❯ ❯	Entire bonus amount payable in cash to the Group Finance Director and the CEO of the Engineered Ceramics division. Any bonus award in excess of 100% of base salary earned by the Chief Executive is deferred into shares for three years. Subject to clawback.
Long-Term Incentive Plan ("LTIP")	❯ ❯ ❯	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 of shares worth up to 100% of base salary. Matching Shares: executive Directors can elect to invest in Company shares all or part of their Annual Incentive otherwise payable in cash, 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. (Note: 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).	❯ ❯ ❯ ❯ ❯ ❯ ❯	Participants are eligible to receive annual allocations of Performance and Matching 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 Trusts). Vesting of the remaining half of awards is subject to the growth in the Group's Headline EPS. Prior to any vesting the Committee has also stipulated that, as an additional hurdle, it needs to be satisfied that vesting has been justified by the underlying financial performance of the Group over the performance period. The Remuneration Committee has the discretion to award participants the dividends accrued on any shares that vest. Subject to clawback.
Retirement Benefits	❯ ❯	Helps to recruit and retain key employees. Ensures income in retirement.	❯	Executive Directors are eligible to receive a pension allowance of 30% of their base salaries.	❯	Benefits are provided by way of an allowance which can be delivered in cash or as a payment to a defined contribution arrangement.

The Executive Directors are also eligible to receive certain benefits in kind. These principally comprise company car allowances, life assurance and medical insurance. These benefits are similar to those provided to other Group executives in the UK and Belgium.

KEY FEATURES OF THE EXECUTIVE DIRECTORS' REMUNERATION BASE SALARY

Salary levels are reviewed annually and any increase takes account of the individual's contribution and experience, and the Group's financial performance. The Committee also considers the pay environment for employees within the Group and the level of salaries paid in similar companies.

As reported in last year's Directors' Remuneration Report, in 2011 Messrs Salmon and Wanecq were awarded salary increases of 2.5% in line with increases paid to other Group executives, and Mr Butterworth was awarded an increase of 4.5%. The broad budget for salary increases for 2012, throughout the Group's global operations, ranged between 1.5% and 18%, with the latter figure reflecting the impact of wage inflation in certain countries. The standard UK increase within the Group is expected to be between 2.5% and 4%. In light of the prevailing economic climate, the Committee decided that no salary increases should be awarded to executive Directors in 2012. Accordingly, Messrs Butterworth, Salmon and Wanecq's salaries remain at £334,160, £540,105 and €632,528 respectively.

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.

The annual incentive has a threshold level of performance below which no award is paid, a target level at which executive Directors are entitled to a payment equal to 50% of their base salary and a maximum performance level at which a maximum award is earned. Mr Salmon's maximum Annual Incentive potential is 150% of base salary, and Messrs Butterworth's and Wanecq's is 100% of base salary. Any payout for Mr Salmon over 100% of salary is payable in deferred shares under the rules of Cookson's Deferred Share Bonus Plan (further information about this Plan is given on page 44). These shares 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.

For the financial year 2011, the executive Directors' Annual Incentives were based on Group Headline earnings performance, the calculation of which is shown in note 12 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 Engineered Ceramics division adjusted for performance against a key operating cash flow target. For 2011, the Group's performance was above the Headline earnings threshold, but below the target and the Engineered Ceramics division's performance was below the Headline earnings threshold:

			Target	Achieved	Incentive Paid
Name	Measure	Weighting	Performance	(% of salary)	(% of salary)
Mike Butterworth	Group Headline earnings	100%	£199.6m	36.25%	36.25%
Nick Salmon	Group Headline earnings	100%	£199.6m	36.25%	18.51%
François Wanecq	Group Headline earnings	50%	£199.6m	18.13%	18.13%
François Wanecq	Engineered Ceramics trading profit1	50%	£225.6m	0%	0%

1 Before allocation of central corporate costs.

Note: Any Annual Incentive payable to Mr Wanecq in respect of the trading profit of the Engineered Ceramics division is subject to an adjustment of +/- 5% subject to the achievement of the divisional working capital target.

To put the above performance conditions into perspective, the 2010 Group Headline Earnings was £169.8m and the Engineered Ceramics division's trading profit before allocation of central corporate costs was £184.8m. At the time the performance conditions were set in December 2010, analysts' consensus for 2011 was for Headline earnings of £185.2m.

An Annual Incentive equivalent to 36.25% of base salary will therefore be paid to Mr Butterworth for 2011 and 18.13% of base salary to Mr Wanecq. Given the marked deterioration in the performance of the US Precious Metals Processing business necessitating a substantial headcount reduction ahead of its disposal, Mr Salmon volunteered to waive part of his annual bonus entitlement. Mr Salmon will therefore receive an annual bonus equivalent to 18.51% of base salary for 2011. These annual bonus payments are reported in the Directors' remuneration table on page 47.

Directors' remuneration Report

The Committee has determined that for 2012 Messrs Butterworth's and Salmon's Annual Incentives will again be based on Group Headline earnings, but this year they will also incorporate an adjustment based upon the Group's working capital performance, to focus greater attention on cash flow performance. The effect of this will be to reduce the level of payout that the Directors can achieve by up to 10% if specified working capital targets are not attained. The adjuster can increase the level of payout by up to 10%, but not above the usual plan maximum. Mr Wanecq's Annual Incentive will continue to be based 50% on the aforementioned Group Headline earnings target (adjusted for working capital) and 50% on the Engineered Ceramics division's trading profit (again adjusted for working capital). Their maximum incentive potential will remain unchanged at 150% of salary for Mr Salmon and 100% of salary for Messrs Butterworth and Wanecq.

In the past five years, Messrs Butterworth, Salmon and Wanecq have invested £916,662, £1,496,850 and £1,671,345 respectively of their gross cash Annual Incentive payments, (representing 88%, 83% and 92% respectively of their total Annual Incentive payments) in the Company's shares in order to participate in the Matching Share element of the Group's Long-Term Incentive Plan.

LONG-TERM INCENTIVE PLAN ("LTIP")

The LTIP rewards executives for delivering superior TSR, defined as the increase in the value of a share, including reinvested dividends, and 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 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 2011, each executive Director received an award under the LTIP equal to 100% of salary, as shown on pages 47 and 48. In accordance with the rules of the LTIP, Messrs Butterworth, Salmon and Wanecq chose to use more than three-quarters of their cash based Annual Incentive awards to purchase Investment Shares and received additional Matching Shares in respect of these investments. These Matching Shares may vest after three years, conditional upon the achievement of the performance targets described below.

During the year, the 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 directly comparable 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. The Committee will continue to review the measures as it sees fit to ensure that the LTIP continues to reward 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. Within this 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. The Committee also 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 in both the Long Term Incentive Plan and the Deferred Share Bonus Plan ("DSBP") 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. These dividends can be paid in either cash or shares. The Committee believes that this can be an important step in aligning the interests of senior executives with those of shareholders. The Committee exercised this discretion in 2011, awarding these dividends in respect of the shares that vested under the 2008 LTIP and the 2008 DSBP.

Performance Shares and Matching Share Awards made in 2009, 2010 and 2011 vest after three years. From 2011, LTIP awards for some participants were granted in the form of nil-cost options. These options will become exercisable, subject to the achievement of the applicable performance conditions, three years after their award, and then remain exercisable until the fifth anniversary of their award. This allows 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. LTIP awards made prior to 2011 have a one-off vesting date three years after the date of the award.

Performance conditions

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 constituent companies, the FTSE 250 excluding Investment Trusts, and 50% on Headline EPS (the calculation of which is shown in note 12 to the consolidated financial statements) growth over a three-year period. The two measures operate independently.

Vesting of 50% of Performance Shares and Matching Share Awards under the 2009, 2010, 2011 and 2012 LTIP awards is based on TSR performance in accordance with the following schedule:

TSR ranking relative to FTSE 250	Performance Shares	Matching Shares Vesting Ratio
excluding Investment Trusts	Vesting Percentage	(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%	Pro rata between 0.25 : 1 and 1.125 : 1

Vesting of 50% of Performance Shares and Matching Share Awards under the 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	Performance Shares	Matching Shares Vesting Ratio
EPS Growth above RPI	Vesting Percentage	(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%	Pro rata between 0.25 : 1 and 1.125 : 1

In 2011, the Committee changed the criterion applicable to the Headline EPS element of the performance condition. The new condition is that the Group has to achieve an actual EPS performance target at the end of the three-year performance period. Vesting of 50% of Performance Shares and Matching Share Awards under the 2011 LTIP awards is therefore based on Headline EPS growth in accordance with the following schedule:

	Performance Shares	Matching Shares Vesting Ratio
Headline EPS for 2013 financial year	Vesting Percentage	(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%	Pro rata between 0.25 : 1 and 1.125 : 1

The Group's Headline EPS for 2011 was 70.4p.

The performance criteria and award policy were, once again, reviewed by the Committee during the year. Following this review, the Committee determined that vesting of 50% of Performance Shares and Matching Share Awards for the 2012 LTIP awards will be based on Headline EPS growth in accordance with the following schedule:

	Performance Shares	Matching Shares Vesting Ratio
Headline EPS for 2014 financial year	Vesting Percentage	(Matching Shares: Investment Shares)
Less than 85.0 pence	0%	0
85.0 pence	12.5%	0.25 : 1
105.0 pence or more	50%	1.125 : 1
Between 85.0 pence and 105.0 pence	Pro rata between 12.5% and 50%	Pro 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.

Directors' remuneration Report

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 2009 and 2010 LTIP awards this was expressed as compound annual growth, above the compound annual growth in RPI.

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 also assumed that funds had been borrowed for the purpose of taking up these rights at a borrowing cost of 6% p.a. The TSR of the other companies forming part of the LTIP comparator group which had undertaken a rights issue during the performance period were also adjusted on a similar basis. 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.

Vesting of 2009 LTIP awards

The performance period applicable to the awards made in 2009 ended on 31 December 2011. The Company's TSR performance during this three-year performance period was assessed against the comparator group and it was determined that the Company's performance was above upper quintile. In addition, the Company's annual compound Headline EPS growth was assessed for the three-year performance period as being over 10% above RPI. The 2009 LTIP awards will therefore vest in full. 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 — including the Group's revenue, trading profit, return on sales margins, and profit before tax — the Committee concluded that the vesting of the 2009 LTIP awards is justified by the underlying financial performance of the Group. Accordingly, all of the 2009 LTIP awards will vest on 25 March 2012.

The executive Directors have undertaken that they will not dispose of any of the LTIP shares which vest in March 2012 for a period of 12 months from the date of vesting, other than to sell sufficient shares to meet income tax and social security liabilities arising thereon.

Historic vesting under the LTIP

The table below sets out the vesting levels for the LTIP awards made to executives since the plan commenced in 2004. The awards made in 2004, 2005 and 2006 were assessed solely against a TSR performance condition, whilst awards since this time have been based half on a TSR performance condition and half on a Headline EPS performance condition:

			Vesting under Headline EPS
Year of award	Performance period	Vesting under TSR measure	measure	Total vesting
2004	2004–2006	0%	n/a	0%
2005	2005–2007	100%	n/a	100%
2006	2006–2008	0%	n/a	0%
2007	2007–2009	0%	0%	0%
2008	2008–2010	0%	50%	50%
2009	2009–2011	50%	50%	100%
Average annual vesting			42%

Under the rules of the LTIP the Company has the discretion to satisfy awards either by the transfer of existing shares or by the allotment of newly issued shares. The decision on how to satisfy awards is taken by the Board, which considers the most prudent and appropriate sourcing arrangement for the Company.

OTHER PLANS

Deferred Share Bonus Plan ("DSBP")

The Group's DSBP was implemented in 2007 to provide an alternative long-term incentive arrangement for certain executives. The senior managers who participate in this plan receive an allocation of deferred shares to the value of a percentage of their annual bonus.

In 2010, Mr Salmon's maximum annual incentive entitlement was increased to 150%. Any payout for Mr Salmon over 100% of salary is payable in deferred shares under the DSBP.

Shares awarded under the DSBP are sourced from existing shares and 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.

Executive share option schemes ("ESOS")

Under the ESOS 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 was subject to a Headline 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. 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.

Further details of the awards and options outstanding under these share plans are given in note 29 to the consolidated financial statements and note 13 to the Company financial statements.

SHARE USAGE

As at 31 December 2011, 1,172,698 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 obligations 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 2011 and where granted as options, the associated exercise prices, are given in note 29 to the consolidated financial statements and note 13 to the Company financial statements.

PERFORMANCE GRAPHS

Graph 1 below compares Cookson's TSR calculated for the purposes of the LTIP TSR performance condition against the comparator group over the three year performance period. The methodology is described on page 44.

GRAPH 1 — TOTAL SHAREHOLDER RETURN, LTIP PERFORMANCE MEASURE, 3 YEAR PERIOD

Source: Bloomberg

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 ohter points plotted are the values at intervening financial year ends. ■ Cookson Group plc ■ FTSE 250 Index (excluding Investment Trusts) Graph 2 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. This graph is produced in compliance with the Large & Medium sized Companies and Groups (Accounts & Report) Regulations 2008.

Source: Thomson Reuters Total Shareholder Return

invested in Cookson Group plc on 31 December 2006 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.

• Cookson Group plc
• ◆ FTSE 250 Index (excluding Investment Trusts)

Directors' remuneration Report

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 by the Company and six months by them. 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

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 continued 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/expired	notice period
Current Non-executive Directors
Emma FitzGerald	1 August 2011	2015	Not required
Jeff Hewitt	1 June 2005	2015	Not required
Peter Hill	1 February 2010	2013	Not required
Jan Oosterveld	15 June 2004	2013	Not required
John Sussens	1 May 2004	2013	Not required
Former Non-executive Director
Barry Perry	1 January 2002	2011	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. He is entitled to six months' notice from the Company. Any compensation for loss of office would be based upon his fee. None of the other Non-executive Directors are 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.

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 2011, Mr Salmon received fees of £66,000 for his role as senior independent non-executive director of United Utilities Group plc. Mr Butterworth received fees of £34,000 for his role as non-executive director and chairman of the Audit Committee 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 2011 to enable them to make their own pension provision. Mr Butterworth's pension allowance in 2011 amounted to £100,248 (2010: £95,931), whilst Mr Salmon's pension allowance in 2011 amounted to £162,031 (2010: £158,080).

Mr Wanecq is entitled to a pension allowance of 30% of his base salary. This amounted to £163,661 in 2011 (2010: £145,505). 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.

DIRECTORS' REMUNERATION

The following table details the remuneration payable to each Director in respect of the year ended 31 December 2011, together with comparative totals in respect of the year ended 31 December 2010.

	Base
	salary and		Annual	2011	2010
	Non-executive	Benefits	Incentive	Total	Total
	Directors' fees	in kind1	bonuses2	remuneration	remuneration
	£	£	£	£	£
Chairman (Non-executive)
Jeff Harris	164,000	—	—	164,000	108,730
Executive Directors
Mike Butterworth	334,160	13,507	121,133	468,800	653,039
Nick Salmon	540,105	17,451	100,000	657,556	1,334,728
François Wanecq3	548,974	24,784	99,529	673,287	1,020,159
Non-executive Directors4
Emma FitzGerald5	16,667	—	—	16,667	—
Jeff Hewitt	55,000	—	—	55,000	55,000
Peter Hill	40,000	—	—	40,000	36,667
Jan Oosterveld	40,000	—	—	40,000	40,000
Barry Perry6	14,615	—	—	14,615	40,000
John Sussens	55,000	—	—	55,000	55,000
Director who retired in 20107	—	—	—	—	60,344
Total Directors' remuneration	1,808,521	55,742	320,662	2,184,925	3,403,667

Notes

1. Benefits in kind comprise mainly the assessed benefits arising from the contractual payments of medical insurance, life assurance and company car allowances.

2. The Annual Incentive bonuses awarded to Messrs Butterworth, Salmon and Wanecq for 2011 were based on the Group's achievement of a performance between threshold and target in respect of Group Headline Earnings for 2011.

3. Mr Wanecq's remuneration details are translated into sterling at the average euro:sterling exchange rate for the year.

4. Details of the annual fees payable to Non-executive Directors can be found on page 33.

5. Appointed 1 August 2011.

6. Mr Perry retired from the Board at the close of the AGM on 12 May 2011.

7. Mr Beeston retired from the Board at the close of the AGM on 13 May 2010.

8. In addition to the above, ex gratia pensions of £12,575 (2010: £12,022) were paid to former Directors in 2011.

9. The information in the above table is audited by the Company's Auditor.

LTIP AND DSBP ALLOCATIONS

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

		Total share				Total share	Market
		allocations	Shares	Shares	Shares	allocations	price of
		outstanding	allocated	vested	lapsed	outstanding	shares		Earliest
		as at 31 Dec	during	during	during	as at 31 Dec	on day before		vesting/
Director, grant date		20101	the year1,5	the year1,5	the year1	20111	award1	Performance	exercise
and type of award		No.	No.	No.	No.	No.	(p)	period	date8
Mike Butterworth
LTIP
31/03/086	Performance Shares	32,368	—	(16,184)	(16,184)	—	968.36	01/01/08–31/12/10	31/03/11
	Matching Shares	66,209	—	(33,104)	(33,105)	—	968.36	01/01/08–31/12/10	31/03/11
25/03/097	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
01/04/112	Performance Shares	—	48,464	—	—	48,464	689.50	01/01/11–31/12/13	01/04/14
	Matching Shares	—	91,234		—	91,234	689.50	01/01/11–31/12/13	01/04/14
Total LTIP		701,101	139,698	(49,288)	(49,289)	742,222

Annual Report for the year ended 31 December 2011

Directors' remuneration Report

LTIP AND DSBP ALLOCATIONS (continued)

		Total share				Total share	Market
		allocations	Shares	Shares	Shares	allocations	price of
		outstanding	allocated	vested	lapsed	outstanding	shares		Earliest
		as at 31 Dec	during	during	during	as at 31 Dec	on day before		vesting/
Director, grant date		20101	the year1,5	the year1,5	the year1	20111	award1	Performance	exercise
and type of award		No.	No.	No.	No.	No.	(p)	period	date8
Nick Salmon
LTIP
31/03/086	Performance Shares	53,339	—	(26,669)	(26,670)	—	968.36	01/01/08–31/12/10	31/03/11
	Matching Shares	102,867	—	(51,433)	(51,434)	—	968.36	01/01/08–31/12/10	31/03/11
25/03/097	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
01/04/112	Performance Shares	—	78,332	—	—	78,332	689.50	01/01/11–31/12/13	01/04/14
	Matching Shares	—	133,192	—	—	133,192	689.50	01/01/11–31/12/13	01/04/14
Total LTIP		1,313,687	211,524	(78,102)		(78,104) 1,369,005
DSBP3
01/04/11		—	38,211	—	—	38,211	689.50	N/A	01/04/14
François Wanecq
LTIP
31/03/086	Performance Shares	42,531	—	(21,265)	(21,266)	—	968.36	01/01/08–31/12/10	31/03/11
	Matching Shares	85,990	—	(42,995)	(42,995)	—	968.36	01/01/08–31/12/10	31/03/11
25/03/097	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
01/04/112	Performance Shares	—	78,656	—	—	78,656	689.50	01/01/11–31/12/13	01/04/14
	Matching Shares	—	176,367	—	—	176,367	689.50	01/01/11–31/12/13	01/04/14
Total LTIP		1,567,265	255,023	(64,260)		(64,261) 1,693,767

Notes

1. 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.

2. In 2011 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 2010 Annual Incentive payments to purchase 19,698, 28,757 and 45,850 shares respectively, and received maximum allocations of Matching Share Awards based on these amounts. These had a maximum potential value on the date of award equivalent to circa two times their respective base salaries. The allocations were made to Messrs Butterworth, Salmon and Wanecq on 1 April 2011 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 1 April 2011 was 705p.

3. In 2011 Mr Salmon was awarded an Annual Incentive bonus in respect of 2010 equivalent to 150% of his base salary. One-third of Mr Salmon's Annual Incentive bonus (equivalent to 50% of his base salary) was paid in deferred shares under the DSBP. This allocation of deferred shares was made to Mr Salmon on 1 April 2011, 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 1 April 2011 was 705p. 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.

4. The mid-market closing price of Cookson's shares ranged between 395.8p and 724.5p during 2011 and on 30 December 2011 was 509p.

5. The performance criteria which apply to the vesting of share allocations under the LTIP are summarised on pages 42 to 44.

6. 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 confirmed that it was satisfied that the vesting of awards under the 2008 LTIP was 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 vested on the third anniversary of their award. Messrs Butterworth, Salmon's and Wanecq's awards vested on 31 March 2011. The mid-market closing price of Cookson's shares was 689.5p; the value of shares transferred to Messrs Butterworth, Salmon and Wanecq was £340,076, £538,887 and £443,380 respectively. The total aggregate value of the shares transferred to them was £1,322,343. They each sold sufficient shares on vesting to meet their associated tax liabilities. The Remuneration Committee also exercised its discretion to award participants in the LTIP the dividends that would have accrued during the vesting period on the shares that vested. As a result Messrs Butterworth, Salmon and Wanecq received cash payments of £10,843, £17,182 and £14,137 respectively.

7. The performance period for the LTIP awards made in 2009 ended on 31 December 2011. 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 above the upper quintile. The Company's annual compound Headline EPS growth over RPI was assessed as being greater than 10% during this period. The Remuneration Committee has confirmed that it is satisfied that the vesting of awards under the 2009 LTIP is justified by the underlying financial performance of the Group over the performance period. Accordingly, 100% of the 2009 LTIP awards will vest on the third anniversary of their award. Participants will receive the dividends that would have been earned during the three year vesting period. These dividends will be paid by way of shares.

8. Messrs Butterworth and Salmon's 2011 awards were made in the form of nil-cost options. These options become exerciseable, subject to the achievement of the applicable performance conditions, three years after their award, and then remain exerciseable until the fifth anniversary of their award.

9. The information in the above table is audited by the Company's Auditor.

DIRECTORS' INTERESTS

The beneficial interests of the Directors and their families in the ordinary shares of the Company as at 31 December 2011 were as shown below.

31 Dec	31 Dec
2011	2010
£1 Ordinary	£1 Ordinary
shares	shares
Ordinary shares No.	No.
Mike Butterworth 197,271	147,507
Emma FitzGerald 2,282	—
Jeff Harris 30,000	20,000
Jeff Hewitt 14,737	14,275
Peter Hill 5,000	5,000
Jan Oosterveld 15,684	15,206
Nick Salmon 402,279	335,409
John Sussens 26,000	26,000
François Wanecq 462,162	378,528

Notes

1. There were no changes to the interests of the Directors in the ordinary shares of the Company in the period from 1 January 2012 to 27 February 2012.

2. 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.

3. None of the Directors, nor their spouses nor minor children, held non-beneficial interests in the ordinary shares of the Company during the year.

4. The information in the above table is audited by the Company's Auditor.

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.

As at 31 December 2011, using the Company's share price at 31 December 2011 of £5.09, the executive Directors' shareholdings against this guideline were as follows:

	Actual share ownership as a percentage	Guideline share ownership as a
Director	of salary at 31 December 2011	percentage of salary	Guideline met?
Mike Butterworth	300%	100%	Yes
Nick Salmon	379%	100%	Yes
François Wanecq	429%	100%	Yes

On behalf of the Board

John G Sussens Chairman, Remuneration Committee 27 February 2012

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 European Union and applicable law and have elected to prepare the Company financial statements in accordance with UK Accounting Standards and applicable law ("UK Generally Accepted Accounting Practice").

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and 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 European Union;
• ❯ 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; and
• ❯ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.

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	Chairman
Nick Salmon	Chief Executive
Mike Butterworth	Group Finance Director
François Wanecq	Executive Director
Emma FitzGerald	Non-executive Director
Jeff Hewitt	Non-executive Director and Chairman of the Audit Committee
Peter Hill	Non-executive Director
Jan Oosterveld	Non-executive Director
John Sussens	Non-executive Director, Senior Independent Director and Chairman of the Remuneration Committee

On behalf of the Board

Mike Butterworth 27 February 2012

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 2011 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 European Union. 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 auditor's 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 Auditor

As explained more fully in the Directors' Responsibilities Statement set out on page 50, 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 2011 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 European Union;
• ❯ 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; and
• ❯ the information given in the Directors' Report for the financial year for which the financial statements are prepared 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:

• 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; or
• ❯ 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; or
• ❯ certain disclosures of Directors' remuneration specified by law are not made; or
• ❯ we have not received all the information and explanations we require for our audit.

Under the Listing Rules we are required to review:

• ❯ the Directors' statement, set out on page 32, in relation to going concern;
• ❯ the part of the Corporate Governance Report on pages 22 to 28 relating to the Company's compliance with the nine provisions of the UK Corporate Governance 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 27 February 2012

Our Governance

group income statement

For the year ended 31 december 2011

		2011	2010
	Notes	£m	£m
Revenue	5	2,826.4	2,545.5
Manufacturing costs		(2,083.2)	(1,834.3)
Administration, selling and distribution costs		(453.0)	(459.1)
Trading profit	5	290.2	252.1
Amortisation of intangible assets	17	(17.8)	(17.7)
Restructuring charges	7	(8.9)	(17.3)
Profit relating to non-current assets		—	0.6
Gains relating to employee benefits plans	28	15.2	5.3
Profit from operations	5	278.7	223.0
Finance costs — ordinary activities	10	(67.0)	(67.7)
— exceptional items	10	(1.9)	(3.0)
Finance income	10	38.3	37.3
Share of post-tax profit of joint ventures		—	0.4
Loss on disposal of continuing operations	9	(36.5)	(0.6)
Profit before tax		211.6	189.4
Income tax costs— ordinary activities	11	(61.4)	(46.7)
— exceptional items	11	2.5	9.4
Discontinued operations		—	(1.2)
Profit for the year		152.7	150.9
Profit for the year attributable to:
Owners of the parent		146.8	145.3
Non-controlling interests		5.9	5.6
Profit for the year		152.7	150.9
Earnings per share (pence)	12
From profit from continuing operations attributable to owners of the parent:
Basic		53.2	53.0
Diluted		52.3	52.2
From profit attributable to owners of the parent:
Basic		53.2	52.6
Diluted		52.3	51.7

group statement of comprehensive income

For the year ended 31 december 2011

		2011	2010
	Notes	£m	£m
Profit for the year		152.7	150.9
Other comprehensive (loss)/income for the year
Exchange differences on translation of the net assets of foreign operations		(47.5)	84.5
Exchange translation differences arising on net investment hedges	24	(3.3)	(26.1)
Change in fair value of cash flow hedges	24	(0.2)	(4.2)
Change in fair value of cash flow hedges transferred to profit for the year	24	—	2.4
Actuarial gains on employee benefits plans	28	39.6	34.9
Actuarial losses on employee benefits plans	28	(18.4)	(32.4)
Change in fair value of available-for-sale investments	24	0.1	(1.4)
Change in fair value of available-for-sale investments transferred to profit for the year	24	—	(1.3)
Income tax relating to components of other comprehensive income	11	(11.9)	(0.7)
Other comprehensive (loss)/income for the year, net of income tax		(41.6)	55.7
Total comprehensive income for the year		111.1	206.6
Total comprehensive income for the year attributable to:
Owners of the parent		108.7	198.5
Non-controlling interests		2.4	8.1
Total comprehensive income for the year		111.1	206.6

Group Statement of Cash Flows

For the year ended 31 december 2011

		2011	2010
	Notes	£m	£m
Cash flows from operating activities
Cash generated from operations	13	233.3	176.9
Interest paid		(27.6)	(27.9)
Interest received		10.0	8.8
Income taxes paid		(55.9)	(48.2)
Net cash inflow from operating activities		159.8	109.6
Cash flows from investing activities
Capital expenditure		(85.1)	(57.2)
Proceeds from the sale of property, plant and equipment		2.3	1.6
Proceeds from the sale of investments		—	4.6
Acquisition of subsidiaries and joint ventures, net of cash acquired	33	(11.3)	(3.9)
Disposal of subsidiaries and joint ventures, net of cash disposed of		(4.4)	6.2
Settlement of closed-out interest rate swaps		(4.0)	(6.5)
Dividends received from joint ventures		1.2	0.9
Other investing outflows		(2.1)	(3.5)
Net cash outflow from investing activities		(103.4)	(57.8)
Net cash inflow before financing activities		56.4	51.8
Cash flows from financing activities
Repayment of borrowings		—	(189.3)
Increase in borrowings		41.2	160.6
Settlement of forward foreign exchange contracts		(27.6)	(3.3)
Proceeds from the issue of share capital		—	0.1
Purchase of treasury shares		(7.8)	—
Borrowing facility arrangement costs		(4.3)	(0.9)
Dividends paid to equity shareholders	26	(51.8)	—
Dividends paid to non-controlling shareholders		(1.3)	(2.8)
Net cash outflow from financing activities		(51.6)	(35.6)
Net increase in cash and cash equivalents	15	4.8	16.2
Cash and cash equivalents at 1 January		181.4	157.7
Effect of exchange rate fluctuations on cash and cash equivalents		(2.3)	7.5
Cash and cash equivalents at 31 December	14	183.9	181.4
Free cash flow
Net cash inflow from operating activities		159.8	109.6
Additional funding contributions into Group pension plans		13.2	11.6
Capital expenditure		(85.1)	(57.2)
Proceeds from the sale of property, plant and equipment		2.3	1.6
Dividends received from joint ventures		1.2	0.9
Dividends paid to non-controlling shareholders		(1.3)	(2.8)
Free cash flow		90.1	63.7

group balance sheet

as at 31 december 2011

		2011	2010
	Notes	£m	£m
Assets
Property, plant and equipment	16	399.4	411.3
Intangible assets	17	1,104.7	1,137.1
Employee benefits — net surpluses	28	65.6	4.3
Interests in joint ventures		31.2	28.9
Investments		5.7	5.7
Income tax recoverable		3.4	—
Deferred tax assets	11	20.8	19.9
Other receivables		21.7	12.4
Total non-current assets		1,652.5	1,619.6
Cash and short-term deposits	14	188.1	186.7
Inventories	20	300.2	287.5
Trade and other receivables	19	530.0	522.9
Income tax recoverable		1.9	4.6
Derivative financial instruments	21	3.7	2.4
Assets classified as held for sale	22	28.8	—
Total current assets		1,052.7	1,004.1
Total assets		2,705.2	2,623.7
Equity
Issued share capital	23	276.4	276.4
Share premium account		0.1	0.1
Other reserves	24	131.9	179.3
Retained earnings	25	899.3	797.8
Equity attributable to the owners of the parent		1,307.7	1,253.6
Non-controlling interests		24.6	23.5
Total equity		1,332.3	1,277.1
Liabilities
Interest-bearing borrowings	27	421.3	390.4
Employee benefits — net liabilities	28	124.3	118.1
Other payables	30	19.2	23.1
Provisions	32	55.7	53.2
Derivative financial instruments	21	—	14.1
Deferred tax liabilities	11	106.5	95.7
Total non-current liabilities		727.0	694.6
Interest-bearing borrowings	27	130.7	126.0
Trade and other payables	30	409.4	425.7
Income tax payable		53.6	48.4
Provisions	32	24.9	32.6
Derivative financial instruments	21	19.6	19.3
Liabilities directly associated with assets classified as held for sale	22	7.7	—
Total current liabilities		645.9	652.0
Total liabilities		1,372.9	1,346.6

Jeff Harris, Chairman Mike Butterworth, Group Finance Director

Our Governance Our Financials Our Business

56 Cookson Group plc

Annual Report for the year ended 31 December 2011

group statement of changes in equity

FOR THE YEAR ENDED 31 december 2011

	Issued	Share		Investment				Non
	share	premium	Hedging	revaluation	Translation	Retained	Owners of	controlling	Total
	capital	account	reserve	reserve	reserve	earnings	the parent	interests	equity
	£m	£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January 2010	276.4	—	(0.2)	2.5	125.6	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 11)	—	—	—	—	—	(0.7)	(0.7)	—	(0.7)
Other comprehensive (loss)/income	—	—	(1.8)	(2.7)	55.9	1.8	53.2	2.5	55.7
Total comprehensive (loss)/income	—	—	(1.8)	(2.7)	55.9	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 1 January 2011	276.4	0.1	(2.0)	(0.2)	181.5	797.8	1,253.6	23.5	1,277.1
Profit for the year	—	—	—	—	—	146.8	146.8	5.9	152.7
Exchange differences on translation of the net assets of foreign operations	—	—	—	—	(44.0)	—	(44.0)	(3.5)	(47.5)
Exchange translation differences arising on net investment hedges	—	—	—	—	(3.3)	—	(3.3)	—	(3.3)
Change in fair value of cash flow hedges	—	—	(0.2)	—	—	—	(0.2)	—	(0.2)
Actuarial gains on employee benefits plans	—	—	—	—	—	39.6	39.6	—	39.6
Actuarial losses on employee benefits plans	—	—	—	—	—	(18.4)	(18.4)	—	(18.4)
Change in fair value of available-for-sale investments	—	—	—	0.1	—	—	0.1	—	0.1
Income tax relating to components of other comprehensive income (note 11)	—	—	—	—	—	(11.9)	(11.9)	—	(11.9)
Other comprehensive (loss)/income	—	—	(0.2)	0.1	(47.3)	9.3	(38.1)	(3.5)	(41.6)
Total comprehensive (loss)/income	—	—	(0.2)	0.1	(47.3)	156.1	108.7	2.4	111.1
Purchase of treasury shares	—	—	—	—	—	(7.8)	(7.8)	—	(7.8)
Recognition of share-based payments	—	—	—	—	—	5.0	5.0	—	5.0
Dividends paid (note 26)	—	—	—	—	—	(51.8)	(51.8)	(1.3)	(53.1)
Total transactions with owners	—	—	—	—	—	(54.6)	(54.6)	(1.3)	(55.9)
As at 31 December 2011	276.4	0.1	(2.2)	(0.1)	134.2	899.3	1,307.7	24.6	1,332.3

notes to the consolidated financial statements

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. The nature of the operations and principal activities of the Company and its subsidiary and joint venture companies ("the Group") are set out in the Operating Review on pages 11 to 16 and its registered address is shown on page 107.

2. BASIS OF PREPARATION

2.1 BASIS OF ACCOUNTING

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS") and, with the exception of defined benefits pension plans and derivative financial instruments, under the historical cost convention in accordance with the Companies Act 2006.

2.2 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.

2.3 GOING CONCERN

As discussed in more detail in the Directors' Report on page 32, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and, accordingly, they have continued to adopt the going concern basis in preparing the financial statements for the year ended 31 December 2011.

2.4 FUNCTIONAL AND PRESENTATION CURRENCY

The financial statements are presented in millions of pounds sterling, which is the functional currency of the Company, and rounded to one decimal place. Foreign operations are included in accordance with the policies set out in note 27.1.

2.5 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 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.

notes to the consolidated financial statements

2. BASIS OF PREPARATION (CONTINUED)

2.6 NEW AND REVISED IFRS

During the year a number of amendments to IFRS became effective and were adopted by the Group, none of which had a material impact on the Group's net cash flows, financial position, total comprehensive income or earnings per share. A number of other new and amended IFRS were issued during the year which do not become effective until after 1 January 2012, none of which are likely to have a material impact on the Group's net cash flows, financial position, total comprehensive income or earnings per share.

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

Determining the carrying amount of some assets and liabilities requires estimation of the effect of uncertain future events. The major sources of estimation uncertainty that have a significant risk of resulting in a material adjustment to the carrying amounts of assets or liabilities are noted below.

3.1 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. In the assessment undertaken as at 31 December 2011, further details of which are given in note 18, value in use was derived from discounted five-year cash flow projections, using a growth rate of 2.5% 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.

3.2 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.

3.3 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.

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

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

3.4 TAXATION (continued)

(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 also has losses and other timing differences for which no deferred tax assets have been recognised in these financial statements, relating either to loss-making subsidiaries where the future economic benefit of the timing difference is not probable or to where the timing difference is of such a nature that its value is dependent on certain types of profit being earned, such as capital profits. If 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.

4. 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. The Directors believe that these non-GAAP measures, listed below, are important when assessing the underlying financial and operating performance of the Group and its divisions.

4.1 NET SALES VALUE

Net sales value is calculated as revenue, excluding the amount included therein related to commodity metals.

4.2 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.

4.3 UNDERLYING REVENUE

Underlying revenue is calculated as net sales value adjusted to exclude the effects of changes in exchange rates and business acquisitions, disposals and closures.

4.4 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.

4.5 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.

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

4.7 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.

4.8 EBITDA

EBITDA is calculated as the total of trading profit before depreciation charges.

4.9 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.

notes to the consolidated financial statements

4. NON-GAAP FINANCIAL MEASURES (CONTINUED)

4.10 INTEREST COVER

Interest cover is the ratio of EBITDA to net interest.

4.11 NET DEBT

Net debt comprises the net total of current and non-current interest-bearing borrowings and cash and short-term deposits.

4.12 NET DEBT TO EBITDA

Net debt to EBITDA is the ratio of net debt at the year-end to EBITDA for that year.

4.13 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).

4.14 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 total equity plus net debt, net employee benefits liabilities and goodwill previously written off to, or amortised against, reserves).

5. 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 4.

5.1 ACCOUNTING POLICY

(a) Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for goods supplied and services rendered to customers after deducting rebates, discounts and value-added taxes, and after eliminating sales within the Group. Revenue from the sale of goods is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. A provision for anticipated returns is made based primarily on historical return rates. Revenue from multi-year contractual arrangements, such as equipment installation contracts, is recognised as performance occurs. Where a contractual arrangement consists of two or more separate elements that can be provided to customers either on a stand-alone basis or as an extra, such as the provision of supplementary materials with equipment, revenue is recognised for each element as if it were an individual contractual arrangement.

(b) 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.

5.2 BUSINESS SEGMENTS

For reporting purposes, the Group is organised into three main business segments: Engineered Ceramics, Performance Materials and Precious Metals Processing and the senior executive management of each of these business segments reports to the Chief Executive of the Group. 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, Engineered Ceramics, Performance Materials and Precious Metals Processing. 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 11 to 16.

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 tables below. Segment net operating assets exclude goodwill and other intangible assets, net debt, net employee benefits liabilities, net income 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.

5. SEGMENT INFORMATION (CONTINUED)

5.3 INCOME STATEMENT

			2011
			Precious
	Engineered	Performance	Metals
	Ceramics	Materials	Processing	Unallocated	Group
	£m	£m	£m	£m	£m
Segment revenue	1,685.8	814.4	326.2	—	2,826.4
Segment net sales value	1,685.8	417.7	132.3	—	2,235.8
Segment EBITDA	237.2	108.1	9.9	—	355.2
Segment depreciation	(44.0)	(8.5)	(3.7)	—	(56.2)
Segment result	193.2	99.6	6.2	—	299.0
Corporate costs	—	—	—	(8.8)	(8.8)
Trading profit	193.2	99.6	6.2	(8.8)	290.2
Amortisation of intangible assets	(17.8)	—	—	—	(17.8)
Restructuring charges	(7.0)	(1.9)	—	—	(8.9)
Gains relating to employee benefits plans	—	2.0	—	13.2	15.2
Profit from operations	168.4	99.7	6.2	4.4	278.7
Finance costs— ordinary activities					(67.0)
— exceptional items					(1.9)
Finance income					38.3
Loss on disposal of continuing operations					(36.5)
Profit before tax					211.6

			2010
			Precious
	Engineered	Performance	Metals
	Ceramics	Materials	Processing	Unallocated	Group
	£m	£m	£m	£m	£m
Segment revenue	1,494.9	720.9	329.7	—	2,545.5
Segment net sales value	1,494.9	410.2	134.3	—	2,039.4
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 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 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
Loss on disposal of continuing operations					(0.6)
Profit before tax					189.4

62 Cookson Group plc Annual Report for the year ended 31 December 2011

notes to the consolidated financial statements

5. SEGMENT INFORMATION (CONTINUED)

5.4 BALANCE SHEET

			2011
			Precious
	Engineered	Performance	Metals
	Ceramics	Materials	Processing	Unallocated	Group
	£m	£m	£m	£m	£m
Property, plant and equipment	312.7	75.8	10.4	0.5	399.4
Trade working capital	388.6	120.5	12.4	(2.0)	519.5
Other net operating liabilities	(41.6)	(22.5)	(10.2)	(6.0)	(80.3)
Net operating assets	659.7	173.8	12.6	(7.5)	838.6
Goodwill	599.1	298.8	—	—	897.9
Other intangible assets	206.8	—	—	—	206.8
Net debt	—	—	—	(363.9)	(363.9)
Net employee benefits liabilities	—	—	—	(58.7)	(58.7)
Net income tax liabilities	—	—	—	(134.0)	(134.0)
Other net non-operating liabilities	—	—	—	(54.4)	(54.4)
Total net assets	1,465.6	472.6	12.6	(618.5)	1,332.3

			2010
			Precious
	Engineered	Performance	Metals
	Ceramics	Materials	Processing	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	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 income tax liabilities	—	—	—	(119.6)	(119.6)
Other net non-operating liabilities	—	—	—	(68.5)	(68.5)
Total net assets	1,427.2	444.3	46.8	(641.2)	1,277.1

Average net operating assets (note 4.13)

As at 31 December 2011 [a]	660.5	194.5	59.1	n/a	n/a
As at 31 December 2010 [b]	577.6	150.4	65.9	n/a	n/a

5. SEGMENT INFORMATION (CONTINUED)

5.5 PERFORMANCE MEASURES

			2011
			Precious
	Engineered	Performance	Metals
	Ceramics	Materials	Processing	Unallocated	Group
	£m	£m	£m	£m	£m
Trading profit	193.2	99.6	6.2	(8.8)	290.2
Share of post-tax (loss)/profit of joint ventures	(1.2)	1.2	—	—	—
Profit for RONA calculation [c]	192.0	100.8	6.2	(8.8)	290.2
RONA (%) [c] ÷ [a]	29.1	51.8	10.5	n/a	n/a
Return on sales margin (%)	11.5	12.2	n/a	n/a	10.3
Return on net sales value (%)	11.5	23.8	4.7	n/a	13.0
Capital expenditure additions (£m)	59.0	16.1	2.4	—	77.5
Research and development costs (£m)	23.3	18.8	—	—	42.1
Research and development costs as % of sales	1.4	2.3	—	—	1.5
Research and development costs as % of net sales value	1.4	4.5	—	—	1.9
Number of employees — year-end	11,633	2,570	1,267	39	15,509
— average	12,018	2,582	1,487	41	16,128

			2010
			Precious
	Engineered	Performance	Metals
	Ceramics	Materials	Processing	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 [d]	176.5	72.3	12.7	(9.0)	252.5
RONA (%) [d] ÷ [b]	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 (%)	11.9	17.3	9.5	n/a	12.4
Capital expenditure 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
Research and development costs as % of net sales value	1.4	4.0	—	—	1.9
Number of employees — year-end	11,624	2,571	1,528	43	15,766
— average	11,124	2,699	1,582	43	15,448

notes to the consolidated financial statements

5. SEGMENT INFORMATION (CONTINUED)

5.6 GEOGRAPHIC ANALYSIS

	External revenue			Non-current assets
	2011	2010	2011	2010
	£m	£m	£m	£m
United Kingdom	168.6	158.8	198.2	209.3
Germany	287.9	252.1	126.9	112.6
United States of America	572.1	546.8	335.4	347.3
China	333.7	295.4	122.0	116.7
Brazil	157.6	134.2	70.5	77.4
France	151.2	122.2	18.8	17.7
Rest of the World	1,155.3	1,036.0	680.6	703.7
Continuing operations	2,826.4	2,545.5	1,552.4	1,584.7
Unallocated	—	—	13.7	10.7
Total Group	2,826.4	2,545.5	1,566.1	1,595.4

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.

5.7 PRODUCTS AND CUSTOMERS

Information relating to the Group's products and services is given in the Operating Review on pages 11 to 16. 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.

6. AMOUNTS PAYABLE TO KPMG AUDIT plc AND ITS ASSOCIATES

	2011	2010
	£m	£m
Audit of these financial statements	0.5	0.5
Audit of financial statements of subsidiaries pursuant to legislation	2.0	2.3
Other services pursuant to such legislation	0.1	0.2
Other services relating to taxation	0.3	0.6
Services relating to corporate finance transactions	—	0.1
Total Auditor's remuneration	2.9	3.7

7. RESTRUCTURING CHARGES

The restructuring charge for the year was £8.9m (2010: £17.3m) comprising gross charges of £11.7m offset by £2.8m of profits arising on the sale of vacant properties. The charges arose in connection with initiatives that included redundancy programmes, the downsizing or closure of facilities, the streamlining of manufacturing processes and the rationalisation of product lines. The net tax credit attributable to these restructuring charges was £1.6m (2010: £3.6m).

Cash costs of £13.2m (2010: £23.8m) were incurred in the year in respect of the restructuring initiatives commenced both in 2011 and in prior years, leaving provisions made but unspent of £31.5m (note 32) as at 31 December 2011 (2010: £38.4m), of which £24.4m relates to future lease costs in respect of leases expiring between 2 and 17 years.

8. EMPLOYEES

8.1 EMPLOYEE BENEFITS EXPENSE

	2011	2010
	£m	£m
Wages and salaries	493.5	482.2
Social security costs	58.8	55.2
Share-based payments (note 29)	5.2	6.9
Pension costs — defined contribution pension plans (note 28)	17.7	15.7
— defined benefit pension plans (note 28)	(9.1)	3.8
Other post-retirement benefits (note 28)	0.9	1.0
Total employee benefits expense	567.0	564.8

Of the total employee benefits expense of £567.0m (2010: £564.8m), £579.9m (2010: £566.5m) was charged in arriving at trading profit, £15.2m (2010: £5.3m) was credited within gains relating to employee benefits plans, £34.3m (2010: £36.3m) was charged within ordinary finance costs, and £32.0m (2010: £32.7m) was credited within finance income.

8.2 REMUNERATION OF KEY MANAGEMENT PERSONNEL

The remuneration of the 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 37 to 49.

	2011	2010
	£m	£m
Short-term employee benefits	2.2	3.4
Post-employment benefits	0.4	0.4
Share-based payments	3.1	3.8
Total remuneration of key management personnel	5.7	7.6

9. LOSS ON DISPOSAL OF CONTINUING OPERATIONS

Of the loss of £36.5m (2010: £0.6m) reported in 2011, £29.0m related to the US business of the Precious Metals Processing division that was in the process of being disposed of as at 31 December 2011 and which was classified as held for sale at that date in the Group balance sheet (notes 22 and 38). The remaining £7.5m comprised charges in relation to a number of small business closures in 2011 and trailing costs for some prior year closures. The £0.6m loss in 2010 related to a number of small disposals from the Group's Engineered Ceramics and Performance Materials divisions. A tax credit of £0.4m (2010: £nil) was associated with these losses.

10. FINANCE COSTS AND FINANCE INCOME

10.1 ACCOUNTING POLICY

The ineffective portion of the change in fair value of interest rate swaps designated as cash flow hedges is included within interest payable on loans and overdrafts. 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.

10.2 TOTAL NET FINANCE COSTS

	2011	2010
	£m	£m
Finance costs — ordinary activities	67.0	67.7
— exceptional items	1.9	3.0
Total finance costs	68.9	70.7
Finance income	(38.3)	(37.3)
Total net finance costs	30.6	33.4

notes to the consolidated financial statements

10. FINANCE COSTS AND FINANCE INCOME (CONTINUED)

10.3 ORDINARY FINANCE COSTS AND FINANCE INCOME

	2011	2010
	£m	£m
Interest payable on borrowings
Loans, overdrafts and factoring arrangements	28.9	26.5
Obligations under finance leases	0.2	0.2
Amortisation of capitalised borrowing costs	1.2	1.9
Total interest payable on borrowings	30.3	28.6
Other interest payable
Interest on retirement benefits obligations	34.3	36.3
Unwinding of discounted provisions	2.4	2.8
Total ordinary finance costs	67.0	67.7
Interest receivable	(5.9)	(4.0)
Expected return on retirement benefits assets	(32.0)	(32.7)
Unwinding of discounted receivables	(0.4)	(0.6)
Total finance income	(38.3)	(37.3)

10.4 EXCEPTIONAL FINANCE COSTS

Exceptional finance costs of £1.9m (2010: £3.0m) were incurred in the year resulting from the early write-off of unamortised borrowing costs as a consequence of the Group entering into a new revolving credit facility. The costs written off related to the old facility that had been due to expire in 2012. The exceptional finance costs of £3.0m reported in 2010, resulted from the early repayment of certain committed bank facility borrowings, as a consequence of the issuance of \$250m US Private Placement Loan Notes in December 2010. The tax associated with these exceptional finance costs was £nil (2010: £nil).

11. INCOME TAX

11.1 ACCOUNTING POLICY

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.

11. INCOME TAX (CONTINUED)

11.2 INCOME TAX COSTS

Total current tax	60.7	51.0
Adjustments in respect of prior years	(1.4)	(3.5)
Overseas taxation	62.1	54.5
Current tax
	£m	£m
	2011	2010

Deferred tax

Origination and reversal of temporary taxable differences	(0.3)	(8.7)
Adjustments in respect of prior years	(1.5)	(5.0)
Total deferred tax	(1.8)	(13.7)
Total income tax costs	58.9	37.3
Total income tax costs attributable to:

Ordinary activities	61.4	46.7
Exceptional items	(2.5)	(9.4)
Total income tax costs	58.9	37.3

The Group's total income tax costs of £58.9m (2010: £37.3m) include a credit of £2.5m (2010: £9.4m) relating to exceptional items comprising: a credit of £1.6m (2010: £3.6m) in relation to restructuring charges; a credit of £7.2m (2010: £6.4m) relating to the amortisation of intangible assets; a charge of £2.9m (2010: £0.4m) relating to deferred tax on goodwill; a charge of £3.8m (2010: £nil) in relation to gains relating to employee benefits plans; a credit of £0.4m (2010: £nil) relating to the loss on disposal of continuing operations; and a charge of £nil (2010: £0.2m) relating to non-current assets.

Tax charged in the Group statement of comprehensive income in the year amounted to £11.9m (2010: £0.7m), all of which related to net actuarial gains and losses on employee benefits plans.

The Group operates in a number of countries that have differing tax rates, laws and practices. Changes in any of these areas could, adversely or positively, impact the Group's tax charge in the future. Continuing losses, or insufficiency of taxable profit to absorb all expenses, in any subsidiary could have the effect of increasing tax charges in the future, relative to 2011, as effective tax relief may not be available for those losses or expenses. Other significant factors affecting the tax charge are described in notes 3.4 and 11.1.

11.3 RECONCILIATION OF INCOME TAX COSTS TO PROFIT BEFORE TAX

	2011	2010
	£m	£m
Profit before tax	211.6	189.4
Tax at the UK corporation tax rate of 26.5% (2010: 28.0%)	56.1	53.0
Overseas tax rate differences	4.1	(0.9)
Withholding taxes	3.7	3.4
Amortisation of intangibles	0.4	1.1
Expenses not deductible for tax purposes	2.3	1.6
Deferred tax assets not recognised	(4.0)	(8.3)
Recognition of previously unrecognised tax losses	(0.8)	(4.1)
Adjustments in respect of prior years	(2.9)	(8.5)
Total income tax costs	58.9	37.3

notes to the consolidated financial statements

11. INCOME TAX (CONTINUED)

11.4 DEFERRED TAX

	Accelerated	Other
	capital	operating	Pension	Intangible	Timing
	allowances	losses	costs	assets	differences	Total
	£m	£m	£m	£m	£m	£m
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	—	—	(0.7)	—	—	(0.7)
(Charge)/credit to Group income statement	(0.2)	0.6	1.0	5.9	6.4	13.7
As at 1 January 2011	(3.8)	4.6	5.3	(88.7)	6.8	(75.8)
Exchange adjustments	0.3	(0.3)	—	0.8	(0.6)	0.2
Charge to Group statement of comprehensive income	—	—	(11.9)	—	—	(11.9)
Credit/(charge) to Group income statement	0.2	0.8	(3.8)	4.3	0.3	1.8
As at 31 December 2011	(3.3)	5.1	(10.4)	(83.6)	6.5	(85.7)
					2011	2010
					£m	£m

Recognised in the Group balance sheet as:
Non-current deferred tax assets	20.8	19.9
Non-current deferred tax liabilities	(106.5)	(95.7)
Net total deferred tax liabilities	(85.7)	(75.8)

Tax loss carry-forwards and other temporary differences of £1.6m (2010: £4.9m) were recognised by subsidiaries reporting a loss in 2010 or 2011. On the basis of approved business plans of these subsidiaries and in view of the significant improvement in market conditions in 2011, 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 2011 was £483.7m (2010: £483.0m). This consisted of: £41.9m (2010: £45.4m) relating to capital losses that are available to offset future UK capital gains and may be carried forward without time limit; £230.9m (2010: £232.6m) relating to operating losses; £92.3m (2010: £92.4m) relating to unrelieved interest; £13.1m (2010: £13.1m) relating to UK ACT tax credits, which may be carried forward indefinitely; and £105.5m (2010: £99.5m) relating to other categories. In accordance with the accounting policy in note 11.1, these items have not been recognised as deferred tax assets on the basis that their future economic benefit is not probable. In total, there was an increase of £0.7m (2010: £7.4m) in net unrecognised deferred tax assets during the year.

As at 31 December 2011, the Group had total operating losses carried forward with a tax value of £236.0m (2010: £237.2m). This total includes £103.0m (2010: £97.8m) for losses which are available to offset future taxable US income, of which approximately £7.6m (2010: £7.6m) will expire in 2020 and the remainder will expire between 2022 and 2031. A further £101.5m (2010: £108.4m) 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 £31.5m (2010: £31.0m) include £15.5m (2010: £15.9m) which may be carried forward indefinitely and £11.8m (2010: £9.8m) which will expire within the next five years if not used. The balance of £4.2m (2010: £5.3m) has a maximum life of between five and twenty 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 2011, the Group had unrelieved interest with a tax value of £92.3m (2010: £92.4m), which may be carried forward indefinitely, and US tax credits carried forward with a tax value of £10.2m (2010: £10.1m), comprising £2.8m (2010: £2.7m) of research and experimentation credits, which expire between 2018 and 2031, and £7.4m (2010: £7.4m) of foreign tax credits expiring between 2014 and 2018.

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 (2010: £nil).

From 1 April 2011, the UK corporation tax rate reduced from 28% to 26%. A further UK corporation tax rate reduction to 25% was substantially enacted on 5 July 2011 and will have effect from 1 April 2012. It is the UK Government's intention to enact legislation which will reduce the main rate of UK corporation tax to 23% by 2014, although this has not yet been substantively enacted under IFRS and UK GAAP. Accordingly, the Group's closing UK deferred tax liability has been provided using a tax rate of 25%. The impact of using this lower tax rate was to increase the exceptional tax credit relating to the amortisation of intangible assets from £5.0m to £7.2m.

12. EARNINGS PER SHARE ("EPS")

12.1 PER SHARE AMOUNTS

	Continuing	Discontinued	Total	Continuing	Discontinued	Total
	operations	operations	2011	operations	operations	2010
	pence	pence	pence	pence	pence	pence
Earnings/(loss) per share — basic	53.2	—	53.2	53.0	(0.4)	52.6
— diluted	52.3	—	52.3	52.2	(0.5)	51.7
— headline	70.4	—	70.4	61.5	—	61.5
— diluted headline	69.1	—	69.1	60.4	—	60.4

12.2 EARNINGS FOR EPS

Basic and diluted EPS are based upon profit attributable to owners of the parent, as reported in the Group income statement, of £146.8m (2010: £145.3m); headline and diluted headline EPS are based upon headline profit attributable to owners of the parent of £194.2m (2010: £169.8m). The table below reconciles these different profit measures which, apart from profit attributable to owners of the parent in 2010 (which comprised £146.5m profit from continuing operations and £1.2m loss from discontinued operations) are both derived entirely from continuing operations.

	2011	2010
	£m	£m
Profit attributable to owners of the parent	146.8	145.3
Adjustments for exceptional items:
Amortisation of intangible assets	17.8	17.7
Restructuring charges	8.9	17.3
Profit relating to non-current assets	—	(0.6)
Gains relating to employee benefits plans	(15.2)	(5.3)
Exceptional finance costs	1.9	3.0
Loss on disposal of continuing operations	36.5	0.6
Discontinued operations	—	1.2
Tax relating to exceptional items	(2.5)	(9.4)
Headline profit attributable to owners of the parent	194.2	169.8

12.3 WEIGHTED AVERAGE NUMBER OF SHARES

	2011	2010
	m	m
For calculating basic and headline EPS	275.7	276.2
Adjustment for dilutive potential ordinary shares	5.2	4.7
For calculating diluted basic and diluted headline EPS	280.9	280.9

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 0.2m (2010: 0.5m) 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 anti-dilutive in the years presented.

notes to the consolidated financial statements

13. CASH GENERATED FROM OPERATIONS

	2011	2010
	£m	£m
Profit from operations	278.7	223.0
Adjustments for:
Amortisation of intangible assets	17.8	17.7
Restructuring charges	8.9	17.3
Profit relating to non-current assets	—	(0.6)
Gains relating to employee benefits plans	(15.2)	(5.3)
Depreciation	56.3	54.2
EBIT DA	346.5	306.3
Increase in inventories	(37.7)	(56.1)
Increase in trade receivables	(21.8)	(78.1)
(Decrease)/increase in trade payables	(1.1)	34.0
(Increase)/decrease in other working capital balances	(26.2)	7.8
Net increase in trade and other working capital	(86.8)	(92.4)
Net operating outflow related to assets and liabilities classified as held for sale	—	(1.6)
Outflow related to restructuring charges	(13.2)	(23.8)
Additional funding contributions into Group pension plans	(13.2)	(11.6)
Cash generated from operations	233.3	176.9

14. CASH AND CASH EQUIVALENTS

2011	2010
£m	£m
Short-term deposits 42.1	39.6
Cash at bank and in hand 146.0	147.1
Cash and short-term deposits 188.1	186.7
Bank overdrafts (4.2)	(5.3)
Cash and cash equivalents in the Group statement of cash flows 183.9	181.4

Short-term deposits include 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.

15. RECONCILIATION OF MOVEMENT IN NET DEBT

	Balance				Balance
	as at	Foreign			as at
	1 January	exchange	Non-cash		31 December
	2011	adjustments	movements	Cash flow	2011
	£m	£m	£m	£m	£m
Cash and cash equivalents
Short-term deposits	39.6	(0.5)	—	3.0	42.1
Cash at bank and in hand	147.1	(2.0)	—	0.9	146.0
Bank overdrafts	(5.3)	0.2	—	0.9	(4.2)
				4.8
Borrowings, excluding bank overdrafts
Current	(122.1)	(3.5)	(118.4)	116.3	(127.7)
Non-current	(392.1)	6.8	118.4	(157.5)	(424.4)
Capitalised borrowing costs	3.1	—	1.2	—	4.3
				(41.2)
Net debt	(329.7)	1.0	1.2	(36.4)	(363.9)

Net debt is a measure of 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 borrowings.

16. PROPERTY, PLANT AND EQUIPMENT

16.1 ACCOUNTING POLICY

Freehold land is carried at cost less accumulated impairment losses. Other items of property, plant and equipment are carried at cost less accumulated depreciation and accumulated impairment losses. Costs are capitalised only when it is probable that they will result in future economic benefits flowing to the Group and when they can be measured reliably. All other repairs and maintenance expenditure is charged to the Group income statement in the period in which it is incurred.

Freehold land is not depreciated 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 Group income statement on a straight-line basis so as to write off the cost less residual value of the asset over its estimated useful life as follows:

Asset category	Estimated useful life
Freehold property	between 10 and 50 years
Leasehold property	the term of the lease
Plant and equipment — motor vehicles	between 1 and 5 years
— information technology equipment	between 1 and 5 years
— other	between 5 and 15 years

The depreciation method used, residual values and estimated useful lives are reviewed and changed, if appropriate, at least at each financial year-end. 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. As described in note 18.1, an asset's carrying amount is immediately written down to its recoverable amount if its carrying amount is greater than its estimated recoverable amount. Gains and losses arising on disposals are determined by comparing sales proceeds with carrying amount and are recognised in the Group income statement.

notes to the consolidated financial statements

16. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

16.2 MOVEMENT IN NET BOOK VALUE

	Freehold	Leasehold	Plant and	Construction
	property £m	property £m	equipment £m	in progress £m	Total £m
Cost
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
Capital expenditure additions	3.7	0.1	48.4	11.1	63.3
Disposals	(5.0)	(1.2)	(24.7)	(0.3)	(31.2)
Business disposals	—	(6.5)	(9.8)	—	(16.3)
Reclassifications	2.4	0.2	18.5	(21.1)	—
As at 1 January 2011	215.8	23.5	660.6	44.4	944.3
Exchange adjustments	(5.2)	(2.3)	(17.9)	(0.9)	(26.3)
Capital expenditure additions	5.4	1.5	39.3	31.3	77.5
Business combinations	—	—	0.3	—	0.3
Disposals	(5.6)	(1.1)	(25.0)	—	(31.7)
Business disposals	—	(0.7)	—	—	(0.7)
Reclassifications	(3.3)	0.1	29.4	(26.2)	—
Transferred to assets classified as held for sale (note 22)	(7.1)	—	(43.0)	(0.8)	(50.9)
As at 31 December 2011	200.0	21.0	643.7	47.8	912.5
Accumulated depreciation and impairment losses
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	—	(6.5)	(9.6)	—	(16.1)
Reclassifications	0.5	(0.4)	(0.1)	—	—
As at 1 January 2011	87.6	10.1	435.3	—	533.0
Exchange adjustments	(1.8)	(0.9)	(11.0)	—	(13.7)
Depreciation charge	6.1	1.4	48.8	—	56.3
Impairment charge	0.1	—	0.1	—	0.2
Disposals	(2.3)	(0.5)	(20.3)	—	(23.1)
Business disposals	—	(0.4)	—	—	(0.4)
Reclassifications	(3.2)	0.4	2.8	—	—
Transferred to assets classified as held for sale (note 22)	(3.5)	—	(35.7)	—	(39.2)
As at 31 December 2011	83.0	10.1	420.0	—	513.1
Net book value as at 31 December 2011	117.0	10.9	223.7	47.8	399.4
Net book value as at 31 December 2010	128.2	13.4	225.3	44.4	411.3
Net book value as at 1 January 2010	127.0	13.8	198.3	52.8	391.9

The net book value of assets held under finance leases as at 31 December 2011, 31 December 2010 and 1 January 2010 was not material.

17. INTANGIBLE ASSETS

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

17.1 ACCOUNTING POLICY

(a) Goodwill

Goodwill arising in a business combination is initially recognised as an asset at cost, measured as the excess of the aggregate of the acquisition-date fair value of the consideration transferred and the amount of any non-controlling interest acquired over the net of the acquisition-date fair value amounts of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. Goodwill is subsequently measured at cost less accumulated impairment losses, with impairment testing carried out annually, or more frequently when there is an indication that the cash-generating unit to which the goodwill has been allocated may be impaired. On disposal of a business, the attributable amount of goodwill is included in the calculation of the profit or loss on disposal.

(b) Other intangible assets

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 value can be measured reliably. They 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 and are amortised over their estimated useful lives.

17.2 MOVEMENT IN NET BOOK VALUE

		2011			2010
		Other			Other
		intangible			intangible
	Goodwill	assets	Total	Goodwill	assets	Total
	£m	£m	£m	£m	£m	£m
Cost
As at 1 January	945.1	277.4	1,222.5	909.3	272.5	1,181.8
Exchange adjustments	(17.9)	(4.3)	(22.2)	37.1	4.9	42.0
Business combinations (note 33)	8.3	—	8.3	—	—	—
Business disposals	—	—	—	(1.3)	—	(1.3)
Transferred to assets classified as held for sale (note 22)	(31.5)	—	(31.5)	—	—	—
As at 31 December	904.0	273.1	1,177.1	945.1	277.4	1,222.5
Accumulated amortisation and impairment losses
As at 1 January	36.2	49.2	85.4	35.3	30.9	66.2
Exchange adjustments	—	(0.7)	(0.7)	0.9	0.6	1.5
Amortisation charge for the year	—	17.8	17.8	—	17.7	17.7
Transferred to assets classified as held for sale (note 22)	(30.1)	—	(30.1)	—	—	—
As at 31 December	6.1	66.3	72.4	36.2	49.2	85.4
Net book value as at 31 December	897.9	206.8	1,104.7	908.9	228.2	1,137.1

17.3 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 Engineered Ceramics division, the Surface Chemistries and Joining Technologies product lines of the Performance Materials division and the Precious Metals Processing division. These CGUs represent the lowest level within the Group at which goodwill is monitored. The goodwill attributable to the Precious Metals Processing division CGU has been fully impaired and consequently the amount recognised in the Group balance sheet is £nil (2010: £nil).

	2011	2010
	£m	£m
Engineered Ceramics	599.1	607.9
Surface Chemistries	231.3	233.3
Joining Technologies	67.5	67.7
Total goodwill	897.9	908.9

notes to the consolidated financial statements

17. INTANGIBLE ASSETS (continued)

17.4 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	2011
	years	£m
Foseco — customer relationships (useful life: 20 years)	16.3	97.8
— trade name (useful life: 20 years)	16.3	58.8
— intellectual property rights (useful life: 10 years)	6.3	50.2
Total		206.8

18. IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS

18.1 ACCOUNTING 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 feasible to estimate the recoverable amount of an individual asset, the Directors estimate the recoverable amount of the cash-generating unit ("CGU") to which the asset belongs.

Goodwill acquired in a business combination is allocated to each of the Group's CGUs expected to benefit from the synergies of the combination and the Directors carry out annual impairment testing of the carrying value of its CGUs, to assess the need for any impairment of the carrying value of goodwill and other intangible and tangible assets associated with these CGUs.

For the purpose of impairment testing, the recoverable amount of an asset or CGU is the higher of (i) its fair value less costs to sell and (ii) its value in use. If the recoverable amount of a CGU is less than the carrying amount of that CGU, the resulting impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to the other assets of the CGU pro rata on the basis of the carrying amount of each asset in the CGU. An impairment loss recognised for goodwill is not reversed in a subsequent period. An impairment loss recognised in a prior year for an asset other than goodwill may be reversed where there has been a change in the estimates used to measure the asset's recoverable amount since the impairment loss was recognised. The value in use calculations of the Group's CGUs are based on detailed business plans covering a 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.

18.2 KEY ASSUMPTIONS

The key assumptions used in determining value in use are return on sales, return on net sales value, growth rates and discount rates. Return on sales and return on net sales value 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 endmarkets 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 2.5% (2010: 3%) has been applied based on the long-term growth rates experienced in the Group's end-markets and external forecasts. 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 Engineered Ceramics CGU was 14.9% (2010: 14.5%), for the Surface Chemistries CGU 15.0% (2010: 14.1%) and for the Joining Technologies CGU 13.8% (2010: 12.5%).

18.3 GOODWILL IMPAIRMENT

In assessing goodwill for potential impairment as at 31 December 2011, the Directors made use of detailed calculations of the recoverable amount of the Group's CGUs as at 31 December 2011. Those calculations resulted in recoverable amounts significantly higher than the carrying values of each of the Group's CGUs and consequently no impairment charges were recognised.

19. TRADE AND OTHER RECEIVABLES

19.1 ACCOUNTING POLICY

Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost, using the effective interest method, less impairment losses.

19.2 ANALYSIS OF TRADE AND OTHER RECEIVABLES

		2011			2010
	Gross	Impairment	Net	Gross	Impairment	Net
	£m	£m	£m	£m	£m	£m
Trade receivables — current	325.4	(3.2)	322.2	346.4	(3.5)	342.9
— 1 to 30 days past due	68.4	(0.9)	67.5	63.7	(0.9)	62.8
— 31 to 60 days past due	22.5	(1.0)	21.5	21.7	(0.6)	21.1
— 61 to 90 days past due	11.6	(0.6)	11.0	9.2	(1.0)	8.2
— over 90 days past due	44.3	(22.0)	22.3	38.5	(25.3)	13.2
Trade receivables	472.2	(27.7)	444.5	479.5	(31.3)	448.2
Other receivables			40.8			38.8
Prepayments and accrued income			44.7			35.9
Total trade and other receivables			530.0			522.9

All of the Group's operating companies have policies and procedures in place to assess the creditworthiness of the customers with whom they do business. Where objective evidence exists that a trade receivable balance may be impaired, provision is made for the difference between its carrying amount and the present value of the estimated cash that will be recovered. Evidence of impairment may include such factors as the customer being in breach of contract, or entering bankruptcy or financial reorganisation proceedings. Impairment provisions are assessed on an individual customer basis for all significant outstanding balances and collectively for all remaining balances, based upon historical loss experience. Historical experience has shown that the Group's trade receivable provisions are maintained at levels that are sufficient to absorb actual bad debt write-offs, without being excessive.

19.3 MOVEMENTS ON IMPAIRMENT PROVISIONS

	2011	2010
	£m	£m
As at 1 January	31.3	33.1
Exchange adjustments	(0.9)	0.7
Charge for the year	8.4	6.5
Receivables written off during the year as uncollectable	(4.4)	(6.0)
Unused amounts reversed	(1.1)	(3.0)
Transferred to assets classified as held for sale	(5.6)	—
As at 31 December	27.7	31.3

notes to the consolidated financial statements

19. TRADE AND OTHER RECEIVABLES (CONTINUED)

19.3 MOVEMENTS ON IMPAIRMENT PROVISIONS (continued)

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. Of the total provision for impairment of trade receivables at 31 December 2011 of £27.7m (2010: £31.3m) shown in the table above, £22.8m (2010: £25.9m) related to balances that were impaired on an individual basis. The ageing analysis of these individually impaired balances is shown in the table below.

	2011	2010
	£m	£m
Ageing analysis of individually impaired trade receivable balances
Current	1.1	2.0
1 to 30 days past due	0.5	0.4
31 to 60 days past due	0.7	0.5
61 to 90 days past due	0.5	0.9
Over 90 days past due	20.0	22.1
Total individually impaired trade receivable balances	22.8	25.9

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.

20. INVENTORIES

20.1 ACCOUNTING POLICY

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.

20.2 ANALYSIS OF INVENTORIES

Total inventories	300.2	287.5
Finished goods	156.4	150.1
Work-in-progress	33.4	32.7
Raw materials	110.4	104.7
	£m	£m
	2011	2010

The cost of inventories recognised as an expense and included in cost of sales in the income statement during the year was £1,459.2m (2010: £1,263.7m).

As at 31 December 2011, in addition to the inventory recorded in the balance sheet, the Group held £362.8m (2010: £354.8m) of precious metals on consignment terms and £271.4m (2010: £168.6m) of precious metals 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.

21. DERIVATIVE FINANCIAL INSTRUMENTS

21.1 ACCOUNTING POLICY

The Group uses derivative financial instruments ("derivatives") in the form of forward foreign currency contracts, forward commodity contracts and interest rate swaps to manage the effects of its exposure to foreign exchange risk , commodity price risk and interest rate risk. The way in which derivatives are used to manage the Group's financial risk is detailed in note 27.

Derivatives are measured at fair value. The fair value of forward foreign currency contracts and forward commodity contracts is calculated using market prices at the balance sheet date. The fair value of an interest rate swap 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 counterparty.

The method of recognising the gain or loss on remeasurement to fair value depends on whether the derivative is designated as a hedging instrument for hedge accounting purposes and, if so, the nature of the item being hedged. Strict conditions have to be satisfied in order to qualify for hedge accounting, including a determination both at inception of the hedge and on an ongoing basis that the hedge is expected to be highly effective in achieving offsetting changes in fair values or cash flows attributable to the hedged risk. The change in fair value of a derivative that is not designated as a hedging instrument for hedge accounting purposes is recognised within trading profit in the Group income statement. Wherever possible, the Group avoids the administrative burden of hedge accounting, and does not designate a derivative as a hedge when, in the absence of hedge accounting, the change in fair value of the hedged item is itself recognised within trading profit in the Group income statement in the same period as the change in fair value of the derivative. No derivatives are held for speculative purposes.

Cash flow hedges

The effective part of any gain or loss on a derivative that is designated as a cash flow hedge is recognised in other comprehensive income and presented in the hedging reserve in equity. The ineffective part of any gain or loss is recognised immediately within trading profit, or within finance costs in the case of interest rate swaps designated as cash flow hedges. When the transaction that was being hedged is realised and affects profit or loss, the cumulative gain or loss on the derivative is removed from the hedging reserve and recognised in the income statement in the same period.

Fair value hedges

The change in fair value of a derivative that is designated as a fair value hedge is recognised within trading profit in the Group income statement. The carrying amount of the hedged item is adjusted by the change in its fair value that is attributable to the hedged risk and this adjustment is recognised within trading profit in the Group income statement.

Net investment hedges

The effective part of any gain or loss on a derivative that is designated as a hedge of a net investment in a foreign operation, is recognised in other comprehensive income and presented in the translation reserve in equity and is subsequently recognised in the Group 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 Group income statement.

21.2 ANALYSIS OF DERIVATIVE FINANCIAL INSTRUMENTS

	2011		2010
	Assets	Liabilities	Assets	Liabilities
	£m	£m	£m	£m
Cash flow hedges	0.4	2.5	—	2.0
Fair value hedges	2.5	0.1	2.4	2.6
Net investment hedges	—	15.6	—	26.1
Other derivatives — not designated for hedge accounting purposes	0.8	1.4	—	2.7
Total derivative financial instruments	3.7	19.6	2.4	33.4

All of the fair values shown in the table above have been calculated using quoted prices from active markets. Cash flows in respect of the cash flow hedges shown in the table above will all occur in 2012. All (2010: £19.3m) of the £19.6m (2010: £33.4m) of derivative liabilities reported in the table above will mature within a year of the balance sheet date (2010: £14.1m within two years). The comparative data for 2010 shown in the table above has been reclassified from an analysis based upon the type of financial instrument, as it was presented in the 2010 annual report, to one based upon the type of hedge, which better represents the Group's financial risk management policy.

notes to the consolidated financial statements

21. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

21.2 ANALYSIS OF DERIVATIVE FINANCIAL INSTRUMENTS (continued)

(a) Cash flow hedges

Cash flow hedges in the table above include: floating to fixed interest rate swaps that are used to manage the interest rate profile of the Group's borrowings (note 27.2); forward foreign currency contracts used to hedge the currency risk in forecast sales; and forward purchase contracts used to hedge the cash flow risk relating to future sales arising from fluctuation in commodity metals prices.

(b) Fair value hedges

Fair value hedges in the table above comprise forward sales contracts used to hedge the fair value risk relating to the balance sheet value of inventory arising from fluctuation in commodity metals prices.

(c) Net investment hedges

Net investment hedges in the table above comprise forward foreign exchange contracts used to provide a hedge against the foreign exchange risk associated with the Group's investments in its foreign operations. Of the change in the fair value of these contracts in the year, £10.7m (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 24) and £4.0m (which was associated with the change in forward prices) was credited to the Group income statement within finance income.

(d) Derivatives not designated for hedge accounting purposes

Other derivatives in the table above that are not designated for hedge accounting purposes comprise forward foreign exchange contracts used to hedge the change in fair value of the Group's US Private Placement Loan Notes arising from fluctuation in exchange rates and forward purchase contracts used to hedge against the cash flow risk relating to future commodity metals purchases.

22. ASSETS AND LIABILITIES HELD FOR SALE

Net assets held for sale	21.1	—
Provisions	(3.1)	—
Trade and other payables	(4.6)	—
Total assets held for sale	28.8	—
Trade and other receivables	14.9	—
Inventories	8.8	—
Intangible assets	1.4	—
Property, plant and equipment	3.7	—
	£m	£m
	2011	2010

As at 31 December 2011, the US operations of the Group's Precious Metals Processing division ("US Precious Metals") and a non-core business of the Group's Engineered Ceramics division, were both in the process of being disposed of and were classified as held for sale.

An agreement was signed on 22 February 2012 with Richline Group, Inc. ("Richline") for Richline to acquire the whole of the Group's interest in its US Precious Metals business. Completion of the transaction, which is subject to a number of routine legal and regulatory conditions, is expected in the second quarter of 2012. The assets in the table above are stated after a write-down of £17.4m to bring their carrying value down to their estimated fair value less costs to sell. This write-down, together with a further £11.6m of redundancy and other costs incurred in preparing the business for sale, comprise the £29.0m loss on disposal referred to in note 9.

23. ISSUED SHARE CAPITAL

23.1 ACCOUNTING POLICY

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

23.2 ANALYSIS OF ISSUED SHARE CAPITAL

The issued ordinary share capital of the Company as at 31 December 2011 and 1 January 2011 was 276.4m shares of £1 each (31 December 2010 and 1 January 2010: 276.4m shares of £1 each). Further information relating to the Company's share capital is given in the Directors' Report on page 34.

24. OTHER RESERVES

		Investment
	Hedging	revaluation	Translation
	reserve	reserve	reserve	Total
	£m	£m	£m	£m
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 1 January 2011	(2.0)	(0.2)	181.5	179.3
Exchange differences on translation of the net assets of foreign operations	—	—	(44.0)	(44.0)
Exchange translation differences arising on net investment hedges	—	—	(3.3)	(3.3)
Change in fair value of cash flow hedges	(0.2)	—	—	(0.2)
Change in fair value of available-for-sale investments	—	0.1	—	0.1
As at 31 December 2011	(2.2)	(0.1)	134.2	131.9

The translation reserve in the table above comprises all foreign exchange differences attributable to the owners of the parent. These exchange differences arise from the translation of the financial statements of foreign operations and from the translation of financial instruments that hedge the Group's net investment in foreign operations. 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.

25. RETAINED EARNINGS

		Share	Other	Total
	Treasury	option	retained	retained
	shares	reserve	earnings	earnings
	£m	£m	£m	£m
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 1 January 2011	(2.5)	9.6	790.7	797.8
Profit for the year	—	—	146.8	146.8
Net actuarial gains on employee benefits plans	—	—	21.2	21.2
Purchase of treasury shares	(7.8)	—	—	(7.8)
Disposal of treasury shares	2.5	—	(2.5)	—
Recognition of share-based payments	—	5.0	—	5.0
Release of share option reserve on exercised and lapsed options	—	(4.6)	4.6	—
Income tax on items recognised in other comprehensive income	—	—	(11.9)	(11.9)
Dividends paid (note 26)	—	—	(51.8)	(51.8)
As at 31 December 2011	(7.8)	10.0	897.1	899.3

The treasury shares shown in the table above are ordinary shares of £1 each of the Company and are held by Cookson Investments (Jersey) Limited as Trustee of the Cookson Group ESOP (note 10 to the Company financial statements).

Our Governance Our Financials Our Business

notes to the consolidated financial statements

26. DIVIDENDS

A final dividend for the year ended 31 December 2010 of £31.8m (2009: £nil), equivalent to 11.5p (2009: nil) per ordinary share, was paid in June 2011 and an interim dividend for the year ended 31 December 2011 of £20.0m (2010: £nil), equivalent to 7.25p (2010: nil) per ordinary share, was paid in October 2011.

A proposed final dividend for the year ended 31 December 2011 of £39.9m, equivalent to 14.5p 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 11 June 2012 to ordinary shareholders on the register at 4 May 2012.

27. FINANCIAL RISK MANAGEMENT

27.1 ACCOUNTING POLICY

(a) Non-derivative financial instruments

Loans and borrowings are initially recognised at fair value plus directly attributable transaction costs. After initial recognition they are measured at amortised cost, using the effective interest method.

(b) 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.

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 Group income statement; and
• (ii) Non-monetary items measured at historical cost in a foreign currency are not retranslated.

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 a specific 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.

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 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.

27. FINANCIAL RISK MANAGEMENT (continued)

27.2 FINANCIAL RISK FACTORS

The Group's treasury department, acting in accordance with policies approved by the Board, is principally responsible for managing the financial risks faced by the Group. The Group's activities expose it to a variety of financial risks, the most significant of which are market risk and liquidity risk.

(a) Market risk

Market risk is the risk that either the fair values or the cash flows of the Group's financial instruments may fluctuate because of changes in market prices. The Group is principally exposed to market risk through fluctuations in exchange rates ("currency risk") and interest rates ("interest rate risk").

Currency risk

The Group is exposed to currency risk on its borrowings and financial assets (being cash and short-term deposits) that are denominated in currencies other than pounds sterling. The Group's general policy is proportionally to match the currency profile of its core borrowings with the currency profile of its earnings and net assets achieved, where necessary, by the use of forward foreign exchange contracts ("FX swaps"). The currency profile of the Group's borrowings and financial assets, reflecting the effect of the FX swaps, is shown in the table below.

			2011					2010
	Borrowings		Borrowings			Borrowings		Borrowings
	before		after	Financial		before		after	Financial
	FX swaps	FX swaps	FX swaps	assets	Net debt	FX swaps	FX swaps	FX swaps	assets	Net debt
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Sterling	151.3	100.6	251.9	(44.4)	207.5	174.8	(0.5)	174.3	(24.4)	149.9
United States dollar	287.0	(176.0)	111.0	(13.3)	97.7	285.0	(201.4)	83.6	(13.5)	70.1
Euro	111.8	—	111.8	(13.8)	98.0	49.0	58.3	107.3	(42.0)	65.3
Singapore dollar	—	—	—	(1.9)	(1.9)	1.5	72.5	74.0	(1.0)	73.0
Japanese yen	0.8	75.4	76.2	(2.4)	73.8	1.0	71.1	72.1	(2.9)	69.2
Other	5.4	—	5.4	(112.3)	(106.9)	8.2	—	8.2	(102.9)	(94.7)
Capitalised borrowing costs	(4.3)	—	(4.3)	—	(4.3)	(3.1)	—	(3.1)	—	(3.1)
As at 31 December	552.0	—	552.0	(188.1)	363.9	516.4	—	516.4	(186.7)	329.7

Based upon the currency profile shown in the table above, while not impacting reported profit, the change in net debt arising from a 10% strengthening of sterling would increase reported equity by £14.6m (2010: £16.6m) and a corresponding 10% weakening of sterling would reduce equity by £17.8m (2010: £20.3m).

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

				Net unhedged monetary assets/(liabilities)
	Sterling	US dollar	Euro	Renminbi	Other	Total
	£m	£m	£m	£m	£m	£m
Functional currency
Sterling	—	1.0	1.5	—	0.4	2.9
United States dollar	0.3	—	0.5	—	7.1	7.9
Euro	(0.4)	1.1	—	—	0.4	1.1
Chinese renminbi	—	5.3	(0.9)	—	—	4.4
Other	(1.3)	26.2	10.2	10.0	4.6	49.7
As at 31 December 2011	(1.4)	33.6	11.3	10.0	12.5	66.0

notes to the consolidated financial statements

27. FINANCIAL RISK MANAGEMENT (continued)

27.2 FINANCIAL RISK FACTORS (continued)

		Net unhedged monetary assets/(liabilities)
	Sterling	Other	Total
	£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

Interest rate risk

The Group's interest rate risk principally arises in relation to its borrowings. Where borrowings are held at floating rates of interest, fluctuations in interest rates expose the Group to variability in the cash flows associated with its interest payments and where borrowings are held at fixed rates of interest, fluctuations in interest rates expose the Group to changes in the fair value of its borrowings. The Group's policy is to maintain a mix of fixed and floating rate borrowings, within certain parameters agreed from time to time by the Board, in order to optimise interest cost and reduce volatility in reported earnings.

As at 31 December 2011, the Group had \$440m (£283.7m) of US Private Placement Loan Notes outstanding, which carry a fixed rate of interest, representing just over half of the Group's total borrowings outstanding at that date. The Group had also entered into floating to fixed interest rate swaps in order to increase the level of fixed rate borrowings to around two-thirds. The interest rate profile of the Group's borrowings and net debt, reflecting the effect of these interest rate swaps, is detailed in the tables below.

				Financial liabilities (gross borrowings)
			Notional
		Interest	fixed rate	Floating		Financial
	Fixed rate	rate swaps	debt	rate	Total	assets	Net debt
	£m	£m	£m	£m	£m	£m	£m
Sterling	—	74.0	74.0	77.3	151.3	(44.4)	106.9
United States dollar	283.7	—	283.7	3.3	287.0	(13.3)	273.7
Euro	—	—	—	111.8	111.8	(13.8)	98.0
Chinese renminbi	—	—	—	—	—	(43.5)	(43.5)
Japanese yen	—	—	—	0.8	0.8	(2.4)	(1.6)
Other	—	—	—	5.4	5.4	(70.7)	(65.3)
Capitalised borrowing costs	(0.7)	—	(0.7)	(3.6)	(4.3)	—	(4.3)
As at 31 December 2011	283.0	74.0	357.0	195.0	552.0	(188.1)	363.9

				Financial liabilities (gross borrowings)
			Notional
		Interest	fixed rate	Floating		Financial
	Fixed rate	rate swaps	debt	rate	Total	assets	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)
Japanese yen	—	—	—	1.0	1.0	(2.9)	(1.9)
Other	—	—	—	9.7	9.7	(63.2)	(53.5)
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

27. FINANCIAL RISK MANAGEMENT (continued)

27.2 FINANCIAL RISK FACTORS (continued)

The floating rate financial liabilities shown in the tables above bear interest at the inter-bank offered rate of the appropriate currency, plus a margin. The fixed rate financial liabilities of £357.0m (2010: £380.3m) have a weighted average interest rate of 5.4% (2010: 5.1%) and a weighted average period for which the rate is fixed of 3.7 years (2010: 4.5 years). The financial assets attract floating rate interest at the inter-bank offered rate of the appropriate currency, less a margin.

Based upon the interest rate profile of the Group's financial assets and liabilities shown in the tables above, a 1% increase in market interest rates would increase both the net finance costs charged in the Group income statement and the net interest paid in the Group statement of cash flows by £0.1m (2010: £0.5m decrease) and a 1% reduction in market interest rates would decrease both the net finance costs charged in the Group income statement and the net interest paid in the Group statement of cash flows by £0.1m (2010: £0.5m increase). Similarly, a 1% increase in market interest rates would result in a decrease of £10.9m (2010: £11.5m) in the fair value of the Group's net debt and a 1% decrease in market interest rates would result in an increase of £11.7m (2010: £12.3m) in the fair value of the Group's net debt.

(b) Liquidity risk

Liquidity risk is the risk that the Group might have difficulties in meeting its financial obligations. The Group manages this risk by ensuring that it maintains sufficient levels of committed borrowing facilities and cash and cash equivalents to ensure that it can meet its operational cash flow requirements and any maturing financial liabilities, while at all times operating within its financial covenants. The level of operational headroom provided by the Group's committed borrowing facilities is reviewed at least annually as part of the Group's three year planning process. Where this process indicates a need for additional finance, this is normally addressed 12 to 18 months in advance by means of either additional committed bank facilities or raising finance in the capital markets.

As at 31 December 2011, the Group had committed borrowing facilities of £883.7m (2010: £855.4m), of which £339.5m (2010: £350.0m) were undrawn. These undrawn facilities are due to expire in April 2016. The Group's borrowing requirements are met by US Private Placement Loan Notes ("USPP") and a multi-currency committed syndicated bank facility of £600.0m (2010: £573.2m). The USPP facility was fully drawn as at 31 December 2011 and amounted to £283.7m (\$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 a £600.0m revolving credit facility. The facility is repayable in April 2016.

The maturity analysis of the Group's gross borrowings is shown in the tables below.

		Non-current		Current		Total
	2011	2010	2011	2010	2011	2010
	£m	£m	£m	£m	£m	£m
Loans and overdrafts	421.8	389.9	130.4	125.8	552.2	515.7
Obligations under finance leases	2.6	2.2	1.5	1.6	4.1	3.8
Capitalised borrowing costs	(3.1)	(1.7)	(1.2)	(1.4)	(4.3)	(3.1)
Total interest-bearing borrowings	421.3	390.4	130.7	126.0	552.0	516.4

	2011	2010
	£m	£m
Interest-bearing borrowings repayable
On demand or within one year 131.9		127.4
In the second year	1.4	230.6
In the third year	0.9	0.8
In the fourth year	0.4	0.2
In the fifth year 260.5		—
After five years 161.2		160.5
Capitalised borrowing costs	(4.3)	(3.1)
Total interest-bearing borrowings 552.0		516.4

Capitalised borrowing costs shown in the tables above, which have been recognised as a reduction in borrowings in the financial statements, amounted to £4.3m as at 31 December 2011 (31 December 2010: £3.1m), of which £0.7m (2010: £0.9m) related to the USPP and £3.6m (2010: £2.2m) related to the syndicated bank facility.

notes to the consolidated financial statements

27. FINANCIAL RISK MANAGEMENT (CONTINUED)

27.3 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 4). 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 performance targets (page 2) 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.

28. EMPLOYEE BENEFITS

28.1 ACCOUNTING POLICY

The net surplus or net liability recognised in the Group balance sheet for the Group's defined benefits 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.

The expense for the Group's defined benefits plans is recognised in the Group income statement as shown in note 28.7. Actuarial gains and losses arising on the assets and liabilities of the plans are reported within the Group statement of comprehensive income; and gains and losses arising on settlements and curtailments are recognised in the Group 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.

28.2 GROUP POST-RETIREMENT PLANS

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

(a) Defined benefits pension plans

The Group's principal defined benefits pension plans are in the UK and the US. The assets of these plans are held separately from the Group in trustee-administered funds. The trustees are required to act in the best interests of the plans' beneficiaries. The Group also has defined benefits 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 benefits pension plan in the UK ("the UK Plan") is closed to new members and to future benefit accrual. 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 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 Company and Trustee have agreed a schedule of contributions under which the Company is making "top-up" payments of £7.0m per annum until February 2016, targeted at eliminating the 2009 full actuarial valuation 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 at 31 December 2012, which should be available in mid-2013.

28. EMPLOYEE BENEFITS (CONTINUED)

28.2 GROUP POST-RETIREMENT PLANS (CONTINUED)

In July 2010 the UK Government announced that with effect from 1 January 2011 it would be changing the statutory index used for revaluing future pension benefits from the Retail Price Index ("RPI") to the Consumer Price Index ("CPI"). This change impacted the revaluation of benefits under the UK Plan. The 2,900 deferred members of the UK Plan were therefore notified during the year that, from 1 January 2011, future increases in their accrued benefits would be calculated with reference to changes in CPI rather than RPI, as was previously the case. Increases in pensions in payment remain linked to changes in RPI, as specified by the Trust Deed of the UK Plan.

In addition to notifying the deferred members of this change to the valuation of their accrued benefits, the Company offered those members the opportunity to transfer their benefits from the UK Plan at a valuation enhanced above that normally available, including the retention of RPI as a basis for the valuation of the members' transfer values. As at 31 December 2011, this enhanced transfer value offer was still open, with a total of 276 members having so far accepted the offer, representing the removal of £37.3m of pension liabilities and £43.2m of pension assets from the Group balance sheet as at 31 December 2011.

The revaluation of the liabilities representing deferred member benefits, using growth assumptions based on CPI rather than RPI, resulted in a reduction in the Group's pension liabilities of £21.5m, such amount being recognised in the Group income statement as an exceptional credit, net of the cost of enhancing the transfer payments made to members who, by 31 December 2011, had transferred. When the Company's enhanced transfer value offer closes in 2012, a further adjustment will be made to the Group's balance sheet liabilities and an exceptional charge reported to recognise the cost of the enhancement relating to those deferred members who transfer their accrued benefits after 31 December 2011 under the Group's offer.

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 2011, the estimated funding position (incorporating the UK Plan's economic liabilities) showed a funding ratio of 97%, with the IAS 19 valuation reflecting a funding ratio of 116%. This represents a valuation difference of £80m, reflecting the use of more prudent valuation 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 benefits 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 28.3(b) refers to the assumed minimum guaranteed return on members' accounts. The Retirement Security Plan and the Group's other principal US defined benefits plans are closed to new members and also to future benefit accrual for existing members. Actuarial valuations of the US defined benefits pension plans are carried out every year and the last full valuation was carried out as at 31 December 2010. At that date the market value of the plan assets was £109.4m, representing a funding level of 65% of accrued plan benefits at that date (using the projected unit method of valuation) of £167.3m. Funding levels for the Group's US defined benefits 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 benefits pension arrangements in Germany which are unfunded, as is common practice in that country.

(b) Defined contribution pension plans

The total expense for the Group's defined contribution plans in the Group income statement amounted to £17.7m (2010: £15.7m) and represents the contributions payable for the year by the Group to the plans.

notes to the consolidated financial statements

28. EMPLOYEE BENEFITS (CONTINUED)

28.3 POST-RETIREMENT LIABILITY — VALUATION AND RISK MITIGATION

The assumptions used in calculating the costs and obligations of the Group's defined benefits pension 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 benefits 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 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 published in 2011 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. For the Group's US plans, 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.

			2011			2010
		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		87.3	84.6	84.4	87.1	84.6	84.3
	— Women	89.6	86.9	88.5	89.1	86.9	88.4
Age to which future pensioners are expected to live	— Men	89.1	86.6	87.1	89.0	86.6	87.0
	— Women	91.5	89.1	91.1	91.1	89.1	91.0

(b) Other principal actuarial valuation assumptions

		2011			2010
	UK	US	Germany	UK	US	Germany
	% p.a.	% p.a.	% p.a.	% p.a.	% p.a.	% p.a.
Discount rate	4.80	4.25	4.50	5.40	5.25	4.60
Price inflation — using RPI for UK	3.30	2.50	2.00	3.60	2.50	2.00
— using CPI for UK	2.40	n/a	n/a	2.70	n/a	n/a
Rate of increase in pensionable salaries	n/a	n/a	2.75	n/a	n/a	2.75
Rate of increase to pensions in payment	3.10	n/a	1.90	3.40	n/a	1.90
Cash balance rate	n/a	5.25	n/a	n/a	5.25	n/a
Expected asset return — equities	7.75	7.80	n/a	7.60	8.80	n/a
— bonds	3.40	4.00	n/a	4.50	5.40	n/a

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.

The assumptions for price inflation are set by reference to the difference between yields on longer-term conventional government bonds and index-linked bonds, except for CPI, for which no appropriate bonds exist, which is assumed to be 0.9pts lower than RPI-based inflation.

The expected asset return is the Company's expectation at the valuation date of long-term asset returns: based on the "risk-free" yield available by following a buy and hold investment strategy in government bonds; with returns for other bonds and equities 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.

28. EMPLOYEE BENEFITS (CONTINUED)

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

(c) UK Plan risk mitigation strategy

The Company and the UK Plan Trustee have identified the major risks which could affect the value of the UK Plan's economic liabilities compared to the value of its assets and the Trustee has taken action, as summarised below, to reduce the risk that the UK Plan's economic liabilities would increase materially relative to the value of its assets:

RIS K AND IMPACT	MITIGATION
Interest rate risk
The risk of government bond	An interest rate swap overlay is in place designed, together with the bond portfolio, to mitigate approximately 75%
interest rates falling, leading	of the interest rate risk of the UK Plan liabilities as measured on an ongoing basis. Under these contracts the UK Plan
to an increase in the value of	receives a fixed rate of interest and pays out a variable rate of interest, based on the London Inter Bank Offered Rate.
plan liabilities.	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 following
	three years.
Inflation risk
The risk of inflation rising	Inflation swaps are in place designed, together with the bond portfolio, to mitigate approximately 70% of the
faster than expected, leading	effective inflation risk of the UK Plan liabilities as measured on an ongoing basis. The UK Plan pays out a fixed rate
to an increase in the value of	of interest and receives payments indexed with actual inflation. This is beneficial when inflation increases faster
plan liabilities.	than expected and significantly offsets the adverse impact on the funding ratio.
Investment risk
The risk of significant	The UK Plan Trustee has migrated the UK Plan's asset portfolio to its current allocation, excluding risk-mitigation
financial market falls, leading	derivatives, of 58% bonds and 21% in equities. This structure, together with its liability driven investment
to a fall in the value of plan	portfolio of financial derivative contracts, significantly reduces the risk that the UK Plan's assets would fall
assets.	materially relative to the value of its economic liabilities.

(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	Increase/decrease by 0.1%	Decrease/increase by 1.7%	Decrease/increase by 1.3%	Decrease/increase by 1.4%
Price inflation	Increase/decrease by 0.1%	Increase/decrease by 1.4%	n/a	Increase/decrease by 0.7%
Mortality	Increase by one year	Increase by 3.3%	Increase by 3.5%	Increase by 2.1%

notes to the consolidated financial statements

28 EMPLOYEE BENEFITS (CONTINUED)

28.4 DEFINED BENEFITS OBLIGATION

The liabilities of the Group's defined benefits 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.

				Defined benefits pension plans		Other post retirement benefits
	UK	US	Germany	ROW	Total	plans	Total
	£m	£m	£m	£m	£m	£m	£m
Present value as at 1 January 2010	439.7	167.3	35.0	52.5	694.5	9.7	704.2
Exchange differences	—	1.6	(1.0)	(0.8)	(0.2)	(0.9)	(1.1)
Current service cost	—	0.3	0.8	3.0	4.1	0.6	4.7
Interest cost	22.1	8.2	1.6	2.1	34.0	0.3	34.3
Settlements	(56.4)	—	—	(14.5)	(70.9)	—	(70.9)
Actuarial losses	34.3	19.6	0.5	2.2	56.6	0.3	56.9
Contributions from members	—	—	—	0.1	0.1	—	0.1
Benefits paid	(17.0)	(8.1)	(1.6)	(2.0)	(28.7)	(1.1)	(29.8)
Present value as at 31 December 2011	422.7	188.9	35.3	42.6	689.5	8.9	698.4

				Defined benefits pension plans		Other post retirement benefits
	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
Curtailments and settlements	(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

28.5 FAIR VALUE OF PLAN ASSETS

	2011				2010
	UK	US	ROW	Total	UK	US	ROW	Total
	£m	£m	£m	£m	£m	£m	£m	£m
As at 1 January	443.2	109.4	37.8	590.4	404.1	93.4	34.4	531.9
Exchange differences	—	1.0	0.2	1.2	—	3.3	0.7	4.0
Expected return	23.7	6.7	1.6	32.0	23.9	7.2	1.6	32.7
Settlements	(43.2)	—	(12.5)	(55.7)	—	—	—	—
Actuarial gains/(losses)	73.6	5.0	(0.5)	78.1	29.7	0.5	0.6	30.8
Contributions from:
— employer	7.0	9.2	3.3	19.5	4.5	12.1	3.6	20.2
— members	—	—	0.1	0.1	0.8	—	0.1	0.9
Benefits paid	(16.8)	(7.2)	(1.9)	(25.9)	(19.8)	(7.1)	(3.2)	(30.1)
As at 31 December	487.5	124.1	28.1	639.7	443.2	109.4	37.8	590.4

The Group's pension plans in Germany are unfunded, as is common practice in that country, and accordingly there are no assets associated with these plans. In addition to the assets reported above, £4.1m (2010: £3.9m) of assets were held as at 31 December 2011 to fund certain non-qualified US pension plan obligations. 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. The actual return on all Group pension plan assets was £110.1m (2010: £63.5m).

28. EMPLOYEE BENEFITS (CONTINUED)

28.6 BALANCE SHEET RECOGNITION

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

						Other post retirement
				Defined benefits pension plans		benefits	2011
	UK	US	Germany	ROW	Total	plans	Total
	£m	£m	£m	£m	£m	£m	£m
Equities	84.6	23.0	—	3.3	110.9	—	110.9
Bonds	237.1	80.6	—	9.6	327.3	—	327.3
Risk-mitigation derivatives	78.4	—	—	—	78.4	—	78.4
Other assets	87.4	20.5	—	15.2	123.1	—	123.1
Fair value of plan assets	487.5	124.1	—	28.1	639.7	—	639.7
Present value of funded defined benefit obligations	(421.9)	(173.4)	—	(40.1)	(635.4)	—	(635.4)
	65.6	(49.3)	—	(12.0)	4.3	—	4.3
Present value of unfunded post-retirement benefits plans	(0.8)	(15.5)	(35.3)	(2.5)	(54.1)	(8.9)	(63.0)
Total net surpluses/(liabilities)	64.8	(64.8)	(35.3)	(14.5)	(49.8)	(8.9)	(58.7)
Recognised in the Group balance sheet as:
Net surpluses	65.6	—	—	—	65.6	—	65.6
Net liabilities	(0.8)	(64.8)	(35.3)	(14.5)	(115.4)	(8.9)	(124.3)
Total net surpluses/(liabilities)	64.8	(64.8)	(35.3)	(14.5)	(49.8)	(8.9)	(58.7)

						Other post
				Defined benefits pension plans		retirement benefits	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)

(a) UK Plan asset allocation

As at 31 December 2011, the UK Plan's assets, excluding risk-mitigation derivatives, were allocated 21% in equities (2010: 20%); 58% in bonds (2010: 61%); 10% in global high yield and emerging market debt (2010: nil); and 11% in other investments (2010: 19%). 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) Defined benefit contributions in 2012

In 2012, the Group is expected to make aggregate contributions into its defined benefits pension and other post-retirement benefits plans of around £20m.

notes to the consolidated financial statements

28. EMPLOYEE BENEFITS (CONTINUED)

28.7 INCOME STATEMENT RECOGNITION

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

		2011			2010
		Other			Other
	Defined	post		Defined	post
	benefits	retirement		benefits	retirement
	pension	benefits		pension	benefits
	plans	plans	Total	plans	plans	Total
	£m	£m	£m	£m	£m	£m
Current service cost	4.1	0.6	4.7	5.9	0.6	6.5
Interest on obligation	34.0	0.3	34.3	35.9	0.4	36.3
Expected return on plan assets	(32.0)	—	(32.0)	(32.7)	—	(32.7)
Gains relating to employee benefits plans	(15.2)	—	(15.2)	(5.3)	—	(5.3)
Total net (credit)/charge	(9.1)	0.9	(8.2)	3.8	1.0	4.8

The total net credit of £8.2m (2010: £4.8m charge) recognised in the Group income statement in respect of the Group's defined benefits pension plans and other post-retirement benefits plans is recognised in the following lines:

		2011	2010
		£m	£m
In arriving at trading profit	— within other manufacturing costs	2.0	2.5
	— within administration, selling and distribution costs	2.7	4.0
	In arriving at profit from operations — gains relating to employee benefits plans	(15.2)	(5.3)
In arriving at profit before tax	— within ordinary finance costs	34.3	36.3
	— within finance income	(32.0)	(32.7)
Total net (credit)/charge		(8.2)	4.8

The net gain relating to employee benefits plans of £15.2m in 2011 represents: (i) a £21.5m reduction in liabilities of the UK Plan arising from the use of the Consumer Price Index instead of the Retail Prices Index to value deferred pension benefits; (ii) the impact in 2011 on the UK Plan of £8.3m relating to the enhanced transfer value exercise currently under way; and (iii) a gain of £2.0m arising from the closure of two defined benefits pension plans in the Netherlands.

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 benefits plans in the US, resulted in the recognition of curtailment gains of £5.3m in 2010.

28.8 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 benefits plans
	2011	2010	2009	2008	2007
	£m	£m	£m	£m	£m
Fair value of plan assets	639.7	590.4	531.9	526.4	389.0
Present value of defined benefit obligations	(698.4)	(704.2)	(669.6)	(621.7)	(485.1)
Net plan deficit	(58.7)	(113.8)	(137.7)	(95.3)	(96.1)
Experience (losses)/gains on plan liabilities	(7.4)	9.1	3.8	6.8	(0.4)
Experience gains/(losses) on plan assets	78.1	30.8	3.9	(15.6)	(0.9)

The cumulative amount of actuarial losses recognised in the Group statement of comprehensive income is £64.7m (2010: £85.9m).

29. SHARE-BASED PAYMENTS

In accordance with IFRS 2, Share-based Payment, the disclosures in this note are only in respect of those options granted after 7 November 2002 that had not vested by 1 January 2005.

29.1 INCOME STATEMENT RECOGNITION

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

	2011	2010
	£m	£m
Long-Term Incentive Plan	4.9	6.6
Other plans	0.3	0.3
Total expense	5.2	6.9

The Group operates a number of different share-based payment plans, the most significant of which is the Long-Term Incentive Plan ("LTIP"), details of which can be found on pages 42 to 44 of the Directors' Remuneration Report. Details of the Group's other share-based payment plans, none of which are significant in the context of the Group's results or financial position, can be found on pages 44 and 45 of the Directors' Remuneration Report.

29.2 DETAILS OF OUTSTANDING OPTIONS

					Outstanding awards	Awards Weighted
	As at 1 January 2011 no.	Granted no.	Exercised no.	Forfeited/ lapsed no.	As at 31 December 2011 no.	exercisable as at 31 December 2011 no.	average outstanding contractual life of awards years	Range of exercise prices pence
LTIP	6,220,626	1,057,632	(296,443)		(347,909) 6,633,906	—	0.8
Weighted average exercise price	nil	nil	nil	nil	nil	—		n/a
Other plans	370,455	118,406	(20,601)	(4,070)	464,190	186,386	1.3
Weighted average exercise price	227p	nil	144p	nil	175p	436p		nil-542p

For all the options exercised during 2011, the share price at the date of exercise was 689.5p.

		Outstanding awards		Awards	Weighted
						exercisable	average
	As at				As at	as at	outstanding
	1 January			Forfeited/	31 December	31 December	contractual	Range of
	2010	Granted	Exercised	lapsed	2010	2010	life of awards	exercise prices
	no.	no.	no.	no.	no.	no.	years	pence
LTIP	5,945,891	902,814	—	(628,079)	6,220,626	—	1.3
Weighted average exercise price	nil	nil	—	nil	nil	—		n/a
Other plans	381,272	66,108	(51,752)	(25,173)	370,455	193,113	1.9
Weighted average exercise price	290p	nil	298p	437p	227p	436p		nil-542p

Options were exercised on a regular basis throughout 2010. The average share price during 2010 was 503p.

29.3 OPTIONS GRANTED UNDER THE LTIP DURING THE YEAR

	2011		2010
	EPS	TSR	EPS	TSR
	element	element	element	element
Fair value of options granted (per share)	646p	494p	586p	468p
Share price on date of grant (per share)	705p	705p	586p	586p
Expected volatility	n/a	59.2%	n/a	58.8%
Risk-free interest rate	n/a	1.4%	n/a	1.8%
Exercise price (per share)	nil	nil	nil	nil
Expected term (years)	4	4	3	3
Expected dividend yield	0%	0%	0%	0%

Share price volatility for options granted in 2011 and 2010 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.

notes to the consolidated financial statements

30. TRADE AND OTHER PAYABLES

30.1 ACCOUNTING POLICY

Trade and other payables are initially recognised at fair value and subsequently measured at amortised cost, using the effective interest method.

30. 2 ANALYSIS OF TRADE AND OTHER PAYABLES

	2011	2010
	£m	£m
Non-current
Accruals and other payables	18.7	22.0
Deferred purchase consideration	0.5	1.1
Total non-current other payables	19.2	23.1
Current
Trade payables	225.2	232.2
Other taxes and social security	45.3	46.3
Accruals and other payables	138.0	146.4
Deferred purchase consideration	0.9	0.8
Total current trade and other payables	409.4	425.7

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.

31. LEASES

31.1 ACCOUNTING POLICY

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Rentals payable under operating leases are charged to the income statement on a straight-line basis over the term of the lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.

31.2 OPERATING LEASE COMMITMENTS

	2011	2010
	£m	£m
The future aggregate minimum lease payments under non-cancellable operating leases are payable as follows:
Not later than one year	17.1	17.3
Later than one year and not later than five years	41.4	41.7
Later than five years	44.7	49.2
Total operating lease commitments	103.2	108.2

The Group's property, plant and equipment assets are either purchased outright or held under lease contracts. Where the terms of the lease transfer substantially all the risks and rewards of ownership of the asset to the Group, the asset is capitalised in the Group balance sheet and the corresponding liability to the lessor is recognised as a finance lease obligation. Where all the risks and rewards of ownership are not transferred to the Group, the lease is classified as an operating lease and neither the asset nor the corresponding liability to the lessor is recognised in the Group balance sheet. The net book value of the Group's property, plant and equipment assets held under finance lease contracts at 31 December 2011 and 31 December 2010 was not material.

The cost incurred by the Group in the year in respect of assets held under operating leases, all of which was charged within trading profit, amounted to £25.6m (2010: £25.6m).

32. PROVISIONS

32.1 ACCOUNTING POLICY

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.

32.2 ANALYSIS OF PROVISIONS

	Disposal and	Restructuring
	closure costs	charges	Other	Total
	£m	£m	£m	£m
As at 1 January 2011	34.3	38.4	13.1	85.8
Exchange adjustments	0.2	(0.2)	—	—
Charge/(credit) to Group income statement	13.8	9.8	(0.5)	23.1
Unwind of discount	1.1	1.3	—	2.4
Cash spend	(8.2)	(17.8)	(1.6)	(27.6)
Transferred to liabilities classified as held for sale (note 22)	(3.1)	—	—	(3.1)
As at 31 December 2011	38.1	31.5	11.0	80.6

Of the total provision balance as at 31 December 2011 of £80.6m (2010: £85.8m), £55.7m (2010: £53.2m) is recognised in the Group balance sheet within non-current liabilities and £24.9m (2010: £32.6m) within current liabilities.

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 incurred 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 charges includes the costs of all of the Group's initiatives to rationalise its operating activities. The balance of £31.5m as at 31 December 2011 comprises £24.4m in relation to onerous lease provisions in respect of leases terminating between two and seventeen years, and £7.1m in relation to future expenditure on restructuring initiatives 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 2011, £8.3m (2010: £10.1m) was recorded in receivables in respect of associated insurance reimbursements, of which £6.3m (2010: £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.

notes to the consolidated financial statements

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

During the year, the Group acquired interests in subsidiaries and joint ventures for a total consideration of £13.2m, of which £12.8m was paid in cash and £0.4m is contingent upon future performance. The fair value of net assets acquired was £3.0m (of which £2.3m was cash). Goodwill arising on these acquisitions amounted to £8.3m (note 17). The £11.3m disclosed in the Group statement of cash flows in respect of the acquisition of subsidiaries and joint ventures, net of cash acquired, comprised: £10.9m paid for current year acquisitions; £1.9m invested in joint ventures; £0.8m of deferred consideration paid in respect of prior year acquisitions; less £2.3m of cash acquired with current year acquisitions.

34. OFF-BALANCE SHEET ARRANGEMENTS

In compliance with current reporting requirements, certain arrangements entered into by the Group in its normal course of business are not reported in the Group balance sheet. Of such arrangements, those considered material by the Directors include: inventory held either under precious metal consignment arrangements or on behalf of customers for processing (note 20); future lease payments in relation to assets used by the Group under non-cancellable operating leases (note 31); 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 2011, the Group balance sheet included £41.7m (2010: £39.4m) 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 2011, which are written off to the Group income statement within ordinary finance costs, amounted to £1.8m (2010: £1.5m).

35. CONTINGENT LIABILITIES

Guarantees given by the Group under property leases of operations disposed of amounted to £4.1m (2010: £4.1m). Details of guarantees given by the Company, on behalf of the Group, are given in note 14 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. 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, 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. 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.

36. 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 5 to the Company financial statements.

37. 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.

38. EVENTS AFTER THE BALANCE SHEET DATE

On 22 February 2012, the Group entered into an agreement to sell its US Precious Metals business, a part of its Precious Metals Processing division, to Richline Group, Inc., a subsidiary of Berkshire Hathaway Inc. Completion of the transaction is expected in the second quarter of 2012. As at 31 December 2011, the net assets of the US Precious Metals business were classified as held for sale in the Group balance sheet (note 22) and a loss on disposal of operations of £29.0m was reported in the Group income statement (note 9).

Company Balance Sheet

AS AT 31 december 2011

		2011	2010
	Notes	£m	£m
Fixed assets
Tangible assets		0.4	0.4
Investment in subsidiaries	5	2,641.8	2,615.1
Total fixed assets		2,642.2	2,615.5
Current assets
Debtors — amounts falling due within one year		6.7	4.2
Short-term deposits		37.0	39.6
Cash at bank and in hand		89.7	97.0
Derivative financial instruments	6	0.8	—
Total current assets		134.2	140.8
Creditors: amounts falling due within one year
Interest-bearing borrowings	7	(431.7)	(394.5)
Other creditors	8	(441.5)	(451.7)
Derivative financial instruments	6	(16.5)	(16.7)
Total current liabilities		(889.7)	(862.9)
Net current liabilities		(755.5)	(722.1)
Total assets less current liabilities		1,886.7	1,893.4
Creditors: amounts falling due after more than one year
Interest-bearing borrowings	7	(418.5)	(388.1)
Other creditors	8	(0.1)	(2.0)
Derivative financial instruments	6	—	(14.1)
Provisions for liabilities		(2.2)	(2.9)
Employee benefits		(1.5)	(1.5)
Net assets		1,464.4	1,484.8
Equity capital and reserves
Issued share capital	9	276.4	276.4
Share premium account		0.1	0.1
Retained earnings	10	433.4	453.8
Other reserves	10	754.5	754.5
Shareholders' funds — equity		1,464.4	1,484.8

The Company financial statements were approved and authorised for issue by the Directors on 27 February 2012 and signed on their behalf by:

Jeff Harris, Chairman Mike Butterworth, Group Finance Director

notes to the company financial statements

1. BASIS OF PREPARATION

1.1 BASIS OF ACCOUNTING

The financial statements of Cookson Group plc ("the Company"), a company registered in England and Wales, are prepared in accordance with the Companies Act 2006 and under the historical cost convention and in accordance with UK GAAP. The Company has not presented a separate profit and loss account, as permitted by Section 408(3) of the Companies Act 2006.

1.2 GOING CONCERN

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. EMPLOYEE BENEFITS EXPENSE

The total employee benefits expense for the year comprises:

Total employee benefits expense	20.5	17.4
Other post-retirement benefits	0.1	0.1
— defined contribution pension plans	0.5	0.1
Pension costs — defined benefits pension plans	9.0	4.3
Share-based payments (note 13)	2.9	3.5
Social security costs	1.6	2.0
Wages and salaries	6.4	7.4
	£m	£m
	2011	2010

Details of the Directors' remuneration are disclosed in the Directors' Remuneration Report on pages 37 to 49. Of the total pension costs of £9.5m (2010: £4.4m), £7.0m (2010: £2.9m) related to the Company's additional funding "top-up" payments made in the year.

The average number of employees during the year was 34 (2010: 35).

3. AUDIT AND NON-AUDIT FEES

Amounts payable to KPMG Audit Plc in relation to audit and non-audit fees are disclosed within note 6 to the consolidated financial statements.

4. DIVIDENDS

A final dividend for the year ended 31 December 2010 of £31.8m (2009: £nil) equivalent to 11.5p (2009: nil) per ordinary share was paid in June 2011, and an interim dividend for the year ended 31 December 2011 of £20.0m (2010: £nil) equivalent to 7.25p (2010: nil) per ordinary share was paid in October 2011.

A proposed final dividend for the year ended 31 December 2011 of £39.9m, equivalent to 14.5p 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 11 June 2012 to ordinary shareholders on the register at 4 May 2012.

5. INVESTMENT IN SUBSIDIARIES

5.1 ACCOUNTING POLICY

Shares in subsidiaries are stated at cost less any impairment in value and long-term loans are stated at amortised cost less any impairment in value.

5.2 ANALYSIS OF INVESTMENT IN SUBSIDIARIES

	Shares in	Loans to		Net book
	subsidiaries	subsidiaries	Provisions	value
	£m	£m	£m	£m
As at 1 January 2011	1,489.3	1,188.8	(63.0)	2,615.1
Exchange adjustments	—	(13.5)	—	(13.5)
Additions	—	186.7	—	186.7
Disposals, repayments and other movements	—	(146.5)	—	(146.5)
As at 31 December 2011	1,489.3	1,215.5	(63.0)	2,641.8

The principal subsidiaries and joint ventures of Cookson Group plc and the countries in which they are incorporated are as follows:

Cookson America, Inc., USA * Foseco (Jersey) Ltd, Jersey * Cookson Australia Pty Ltd, Australia * Foseco Ltd, England and Wales * Cookson Ceramics Ltd, England and Wales * Fry's Metals Inc., USA * Cookson Investments, Inc., USA * Vesuvius Advanced Ceramics (Suzhou) Co., Ltd, China * Cookson Investments Ltd, England and Wales * Vesuvius Corporation SA, Switzerland 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 * Foseco International Ltd, England and Wales *

Where marked with an asterisk (*), the ordinary capital of the above companies was owned by a Cookson Group plc subsidiary as at 31 December 2011. 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.

6. DERIVATIVE FINANCIAL INSTRUMENTS

6.1 ACCOUNTING POLICY

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 rates 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.

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.

The fair value of forward foreign currency contracts is calculated using quoted market prices 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.

6.2 ANALYSIS OF DERIVATIVE FINANCIAL INSTRUMENTS

Derivative financial instruments 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 2011 comprised an asset of £0.8m (2010: £nil), which is recognised within current assets, and a liability of £16.5m (2010: £30.8m), recognised within current liabilities (2010: £16.7m recognised within current liabilities, and £14.1m recognised within non-current liabilities).

notes to the company financial statements

7. INTEREST-BEARING BORROWINGS

7.1 ACCOUNTING POLICY

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.

7.2 BORROWING FACILITIES

As at 31 December 2011, the Company had committed borrowing facilities of £883.7m (2010: £855.4m), of which £339.5m (2010: £350.0m) were undrawn. These undrawn facilities are due to expire in April 2016.

The Company's borrowing requirements are met by US Private Placement Loan Notes ("USPP") and a multi-currency committed syndicated bank facility of £600.0m (2010: £573.2m). The USPP facility was fully drawn as at 31 December 2011 and amounted to £283.7m (\$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 a £600.0m revolving credit facility. The facility is repayable in April 2016.

2011

2010

7.3 ANALYSIS OF BORROWINGS

	£m	£m
Amounts falling due within one year
Loans	122.5	115.6
Bank overdrafts	310.4	280.3
Capitalised borrowing costs	(1.2)	(1.4)
Total amounts falling due within one year	431.7	394.5
Amounts falling due after more than one year
Loans	421.6	389.8
Capitalised borrowing costs	(3.1)	(1.7)
Total amounts falling due after more than one year	418.5	388.1
Total interest-bearing borrowings	850.2	782.6
Analysis of interest-bearing borrowings
Loans and overdrafts repayable within five years
Unsecured — senior loan notes	122.5	121.8
— other	570.8	503.5
Loans repayable after five years
Unsecured — senior loan notes	161.2	160.4
Capitalised borrowing costs	(4.3)	(3.1)
Total interest-bearing borrowings	850.2	782.6
The loans and bank overdrafts are repayable as follows
On demand or within one year	432.9	395.9
In the second year	—	229.4
In the fifth year	260.4	—
After five years	161.2	160.4
Capitalised borrowing costs	(4.3)	(3.1)
Total interest-bearing borrowings	850.2	782.6
Less: amount repayable within one year	(431.7)	(394.5)
Amount repayable in more than one year	418.5	388.1

8. OTHER CREDITORS

	2011	2010
	£m	£m
Amounts owed to subsidiary undertakings	429.2	438.3
Other taxes and social security	2.7	2.0
Accruals and other creditors	9.7	13.4
Total other creditors	441.6	453.7
Less: amounts falling due in more than one year — accruals and other creditors	(0.1)	(2.0)
Total amounts falling due within one year	441.5	451.7

9. ISSUED SHARE CAPITAL

9.1 ACCOUNTING POLICY

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

9.2 ANALYSIS OF ISSUED SHARE CAPITAL

The issued ordinary share capital of the Company as at 31 December 2011 and 1 January 2011 was 276.4m shares of £1 each (31 December 2010 and 1 January 2010: 276.4m shares of £1 each). Further information relating to the Company's share capital is given in the Directors' Report on page 34.

10. RESERVES

10.1 ACCOUNTING POLICY

(a) 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.

(b) 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.

100 Cookson Group plc

Annual Report for the year ended 31 December 2011

notes to the company financial statements

10. RESERVES (CONTINUED)

10.2 ANALYSIS OF RESERVES

	Treasury shares £m	Share option reserve £m	Hedging reserve £m	Other retained earnings £m	Total retained earnings £m	Other reserves £m	Total reserves £m
As at 1 January 2011	(2.5)	4.8	(2.0)	453.5	453.8	754.5	1,208.3
Profit recognised in the year	—	—	—	35.4	35.4	—	35.4
Recognition of share-based payments	—	2.8	—	—	2.8	—	2.8
Release of share option reserve on exercised and
lapsed options	—	(2.6)	—	2.6	—	—	—
Purchase of treasury shares	(7.8)	—	—	—	(7.8)	—	(7.8)
Disposal of treasury shares	2.5	—	—	(2.5)	—	—	—
Change in fair value of cash flow hedges	—	—	1.0	—	1.0	—	1.0
Dividends paid (note 4)	—	—	—	(51.8)	(51.8)	—	(51.8)
As at 31 December 2011	(7.8)	5.0	(1.0)	437.2	433.4	754.5	1,187.9

Treasury shares

As at 31 December 2011, 1.2m ordinary shares of £1 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 £1.2m, which were purchased at a gross cost of £7.8m. The purchase of these shares was financed by the Company out of borrowings included in the Company balance sheet as at 31 December 2011. The market value of these shares as at 31 December 2011 was £6.0m (2010: £1.5m). 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 obligations under the Company's share-based payment plans as and when they arise at the discretion of the Company.

As at 31 December 2011, options exercisable over the £1 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	2009–2011		nil 2012–2016	6,633,906
Executive Share Option Schemes	2002–2003		3.77–11.55 2012–2013	356,405
Deferred Share Bonus Plan	2009–2011		nil 2012–2014	277,804
Stock Appreciation Rights	2002–2003		3.77–11.55 2012–2013	34,196

Other reserves

Following the cancellation in 2006 of the Company's deferred shares and share premium account and pursuant to an undertaking given to the High Court of Justice at the time of the cancellation, the Company created a special non-distributable reserve of £1,003.4m, which is reported within other reserves in the table above. This special 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 special 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 special reserve as at 31 December 2011 was £741.4m (2010: £741.4m). The remaining balance on the Company's other reserves of £13.1m (2010: £13.1m) relates to a dividend in specie from one of its subsidiaries, all of which was recognised as a non-distributable reserve.

11. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

					Total
	Share	Share	Retained	Other	shareholders'
	capital	premium	earnings	reserves	equity
	£m	£m	£m	£m	£m
As at 1 January 2010	276.4	—	475.2	741.6	1,493.2
Loss recognised in the year	—	—	(23.4)	—	(23.4)
Actuarial gain on employee benefits plans	—	—	0.3	—	0.3
Recognition of share-based payments (note 13)	—	—	3.5	—	3.5
Arising from issue of shares during the year	—	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 1 January 2011	276.4	0.1	453.8	754.5	1,484.8
Profit recognised in the year	—	—	35.4	—	35.4
Recognition of share-based payments (note 13)	—	—	2.8	—	2.8
Acquisition of treasury shares	—	—	(7.8)	—	(7.8)
Change in fair value of cash flow hedges	—	—	1.0	—	1.0
Dividends paid (note 4)	—	—	(51.8)	—	(51.8)
As at 31 December 2011	276.4	0.1	433.4	754.5	1,464.4

12. EMPLOYEE BENEFITS

12.1 Accounting policy

The amount charged to the profit and loss account represents the contributions payable to each plan for the year. Differences between contributions payable in the year and contributions actually paid are shown as either accruals or prepayments in the balance sheet.

The assets of the Company's closed UK-wide defined benefits pension plan ("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.

12.2 PENSION PLANS

The Company participates in the UK Plan, which provides benefits based on final pensionable salary and also to a UK-wide Group defined contribution pension plan. Details of these plans are given in note 28 to the consolidated financial statements. Costs charged in the year in respect of its contributions payable to the Group's UK pension plans were £9.5m (2010: £4.4m).

notes to the company financial statements

13. SHARE-BASED PAYMENTS

13.1 ACCOUNTING POLICY

The Company principally operates equity-settled share-based payment arrangements for its employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date takes account of the effect of market-based conditions, such as the Total Shareholder Return target upon which vesting for some of the awards is conditional, and is expensed on a straight-line basis over the vesting period with a corresponding increase in equity. The cumulative expense recognised is adjusted for the best estimate of the shares that will eventually vest and for the effect of other non market-based vesting conditions, such as growth in headline earnings per share, which are not included in the fair value determined at the date of grant. 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.

13.2 PROFIT AND LOSS ACCOUNT RECOGNITION

The Company operates a number of different share-based payment schemes, the main features of which are detailed on pages 42 to 45 of the Directors' Remuneration Report. The total expense recognised in respect of share-based payments in the year was £2.9m (2010: £3.5m), of which £2.8m (2010: £3.5m) related to the Long-Term Incentive Plan ("LTIP").

13.3 DETAILS OF OUTSTANDING OPTIONS

						Awards	Weighted
				Outstanding awards		exercisable	average
	As at				As at	as at	outstanding	Range of
	1 January			Forfeited/	31 December	31 December	contractual	exercise
	2011	Granted	Exercised	lapsed	2011	2011	life of awards	prices
	no.	no.	no.	no.	no.	no.	years	pence
LTIP	3,163,271	541,009	(160,726)		(160,732) 3,382,822	—	1.0
Weighted average exercise price	nil	nil	nil	nil	nil	—		n/a
Other plans	39,628	51,386	(7,664)	(4,070)	79,280	3,755	1.7
Weighted average exercise price	51p	nil	nil	nil	25p	536p		nil–542p

Options were exercised on 31 March 2011 when the share price was 689.5p.

						Awards	Weighted
					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
Other plans	37,810	9,426	(7,608)	—	39,628	3,755	1.4
Weighted average exercise price	53p	nil	nil	—	51p	536p		nil–542p

Options were exercised on a regular basis throughout 2010. The average share price during 2010 was 503p.

13.4 OPTIONS GRANTED UNDER THE LTIP DURING THE YEAR

	2011			2010
	EPS	TSR	EPS	TSR
	element	element	element	element
Fair value of options granted (per share)	646p	494p	586p	468p
Share price on date of grant (per share)	705p	705p	586p	586p
Expected volatility	n/a	59.2%	n/a	58.8%
Risk-free interest rate	n/a	1.4%	n/a	1.8%
Exercise price (per share)	nil	nil	nil	nil
Expected term (years)	5	5	3	3
Expected dividend yield	0%	0%	0%	0%

14. 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 2011 in respect of the liabilities of its subsidiary companies amounted to £30.7m (2010: £40.8m), which includes guarantees under property leases of operations disposed of amounting to £4.1m (2010: £4.1m).

In addition, on behalf of its subsidiaries the Company has given guarantees to precious metals consignors amounting to £362.8m (2010: £354.8m), representing all of the value of precious metals held by its subsidiaries on consignment terms as at 31 December 2011. Further details of these consignment arrangements are given in note 20 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.

15. 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.

104 Cookson Group plc

Annual Report for the year ended 31 December 2011

Five Year Summary — Group

	2011	2010	2009	2008	2007
INCOME STATEMENT	£m	£m	£m	£m	£m
Revenue
Continuing operations	2,826.4	2,545.5	1,960.6	2,202.5	1,619.5
Discontinued operations	—	—	—	—	1.5
Total revenue	2,826.4	2,545.5	1,960.6	2,202.5	1,621.0
Trading profit
Continuing operations	290.2	252.1	111.7	216.3	169.6
Discontinued operations	—	—	—	—	(0.2)
Total trading profit	290.2	252.1	111.7	216.3	169.4
Amortisation and impairment of intangible assets	(17.8)	(17.7)	(17.6)	(52.5)	—
Restructuring and integration charges	(8.9)	(17.3)	(75.6)	(39.6)	(5.8)
Inventory fair value adjustment	—	—	—	(2.6)	—
Profit/(loss) relating to non-current assets	—	0.6	(2.8)	3.4	7.0
Gains relating to employee benefits plans	15.2	5.3	9.7	6.0	1.0
Profit from operations	278.7	223.0	25.4	131.0	171.6
Net finance costs — ordinary activities	(28.7)	(30.4)	(37.0)	(40.8)	(21.5)
— exceptional items	(1.9)	(3.0)	(14.0)	(2.2)	—
Share of post-tax profit of joint ventures	—	0.4	1.0	0.7	1.7
Net (loss)/profit on disposal of continuing operations	(36.5)	(0.6)	3.7	0.9	(0.4)
Profit/(loss) before tax	211.6	189.4	(20.9)	89.6	151.4
Income tax costs	(58.9)	(37.3)	(20.4)	(40.2)	(43.4)
Discontinued operations	—	(1.2)	(3.4)	—	(0.1)
Profit/(loss) for the year	152.7	150.9	(44.7)	49.4	107.9

	2011	2010	2009	2008	2007
BALANCE SHEET	£m	£m	£m	£m	£m
Property, plant and equipment	399.4	411.3	391.9	446.6	254.7
Intangible assets	1,104.7	1,137.1	1,115.6	1,187.6	430.8
Other non-current assets	82.8	66.9	56.3	59.3	50.0
Total non-current assets	1,586.9	1,615.3	1,563.8	1,693.5	735.5
Inventories	300.2	287.5	222.0	331.6	201.4
Trade receivables	444.5	448.2	349.5	412.7	299.9
Trade payables	(225.2)	(232.2)	(191.0)	(188.8)	(138.8)
Trade working capital	519.5	503.5	380.5	555.5	362.5
Other net liabilities	(351.5)	(398.2)	(368.8)	(429.8)	(185.4)
Total capital employed	1,754.9	1,720.6	1,575.5	1,819.2	912.6
Equity attributable to the owners of the parent	1,307.7	1,253.6	1,048.2	974.6	754.0
Non-controlling interests	24.6	23.5	18.2	17.6	11.9
Net debt	363.9	329.7	371.4	731.7	50.6
Net employee benefits liabilities	58.7	113.8	137.7	95.3	96.1
Total funding	1,754.9	1,720.6	1,575.5	1,819.2	912.6

Five Year Summary — Group

	2011	2010	2009	2008	2007
STATEMENT OF CASH FLOWS	£m	£m	£m	£m	£m
Profit from operations	278.7	223.0	25.4	131.0	171.6
Adjustments for:
Amortisation and impairment of intangible assets	17.8	17.7	17.6	52.5	—
Restructuring and integration charges	8.9	17.3	75.6	39.6	5.8
Inventory fair value adjustment	—	—	—	2.6	—
(Profit)/loss relating to non-current assets	—	(0.6)	2.8	(3.4)	(7.0)
Gains relating to employee benefits plans	(15.2)	(5.3)	(9.7)	(6.0)	(1.0)
Depreciation	56.3	54.2	53.6	47.2	34.9
EBIT DA	346.5	306.3	165.3	263.5	204.3
Net (increase)/decrease in trade and other working capital	(86.8)	(92.4)	152.5	(8.9)	(44.8)
Net operating outflow related to assets and liabilities classified as held for sale	—	(1.6)	(0.8)	—	(1.5)
Outflow related to restructuring and integration charges	(13.2)	(23.8)	(49.3)	(23.0)	(14.7)
Additional funding contributions into Group pension plans	(13.2)	(11.6)	(8.3)	(25.0)	(28.1)
Cash generated from operations	233.3	176.9	259.4	206.6	115.2
Net interest paid	(17.6)	(19.1)	(35.2)	(34.2)	(19.1)
Income taxes paid	(55.9)	(48.2)	(40.5)	(52.0)	(26.7)
Net cash inflow from operating activities	159.8	109.6	183.7	120.4	69.4
Additional funding contributions into Group pension plans	13.2	11.6	8.3	25.0	28.1
Capital expenditure	(85.1)	(57.2)	(35.0)	(72.8)	(59.9)
Proceeds from the sale of property, plant and equipment	2.3	1.6	1.2	2.2	10.5
Dividends received from joint ventures	1.2	0.9	1.1	0.4	1.3
Dividends paid to non-controlling shareholders	(1.3)	(2.8)	(2.0)	(2.1)	(1.8)
Free cash flow	90.1	63.7	157.3	73.1	47.6
SHAREHOL DER RETURN STATISTICS	2011	2010	2009	2008	2007
Earnings/(loss) per share from continuing operations — headline (pence)	70.4	61.5	18.0	88.5	81.9
— basic (pence)	53.2	53.0	(17.8)	32.7	80.6
Dividends per share (pence)	21.75	11.50	nil	8.80	19.58
Share price — year-end (pence)	509.0	658.5	422.2	190.9	1,049.8
— high (pence)	724.5	659.5	467.5	1,168.8	1,317.9

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.

Shares in issue — weighted average (millions) 275.7 276.2 252.8 140.8 130.6

— low (pence) 395.8 367.4 112.5 112.6 870.6

— year-end (millions) 276.4 276.4 276.4 141.2 141.1

five year sUmmary — Divisional Results from Continuing Operations

		2011	2010	2009	2008	2007
Engineered Ceramics division
Revenue	£m	1,685.8	1,494.9	1,130.8	1,264.3	781.1
Trading profit	£m	193.2	177.4	70.9	167.7	109.4
Return on sales	%	11.5	11.9	6.3	13.3	14.0
Employees: year-end	No.	11,633	11,624	10,519	11,384	8,567
Performance Materials division
Revenue	£m	814.4	720.9	529.9	620.3	558.2
Net sales value	£m	417.7	410.2	340.2	350.2	334.7
Trading profit	£m	99.6	71.0	39.2	51.7	58.0
Return on sales	%	12.2	9.8	7.4	8.3	10.4
Return on net sales value	%	23.8	17.3	11.5	14.8	17.3
Employees: year-end	No.	2,570	2,571	2,711	3,028	3,070
Precious Metals Processing division
Net sales value	£m	132.3	134.3	132.8	117.6	105.1
Trading profit	£m	6.2	12.7	8.9	4.5	9.9
Return on net sales value	%	4.7	9.5	6.7	3.8	9.4
Employees: year-end	No.	1,267	1,528	1,588	1,678	1,887

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: shareholder.information@cookson.co.uk

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 shareholder communications electronically, 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

As at 31 December 2011	Investor Type			Shareholdings
		Institutional			1,001–	50,001–
	Private	and other	Total	1–1,000	50,000	500,000	500,001+
Number of holders	3,943	1,319	5,262	4,070	922	197	73
Percentage of holders	74.93%	25.07%	100%	77.35%	17.52%	3.74%	1.39%
Percentage of shares held	1.08%	98.92%	100%	0.25%	2.44%	11.94%	85.37%

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 number).

FINANCIAL CALENDAR

2012 Annual General Meeting	17 May 2012
Announcement of 2012 half year results	July 2012
Announcement of 2012 full year results	March 2013

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 buy their shares or 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/fsaregister/
• ❯ Report the matter to the FSA by calling 0845 606 1234 (or +44 20 7066 1000 from outside the UK).
• ❯ 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/

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

Stock code: CKSN