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Name | Symbol | Market | Type |
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Chemetall 9%Pf | LSE:CHM | London | Preference Share |
Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
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0.00 | 0.00% | 100.00 | 0 | 01:00:00 |
RNS Number:1103C Chemetall PLC 27 April 2006 Chemetall PLC Report and financial statements 31 December 2005 Company Registration No. 252864 Chemetall PLC Report and financial statements page 1 Officers and professional advisers 2 Chairman's report 3 Directors' report 4 Statement of directors' responsibilities 7 Independent auditors' report - group 8 Consolidated income statement 10 Consolidated statement of recognised income and expense 11 Consolidated balance sheet 12 Consolidated cash flow statement 14 Notes to the accounts 15 Independent auditors' report - company 45 Company balance sheet 46 Notes to the company accounts 47 Chemetall PLC Report and financial statements 2005 Officers and professional advisers page 2 Directors Alec Daly CBE non-executive (age 68) became Chairman in 1996. He was appointed a Director of the Company on 1 March 1993. He resigned on 19 April 2005. Kurt Wenzel (age 56) was appointed as Chairman on 19 April 2005 Matthias Stoermer (age 41). Appointed on 12 August 2004. Bill Jessup (age 53) He was appointed on 8 March 1994 and became a non-executive director on 1 October 2000. He resigned on 19 April 2005. Per Vannerberg (age 44). Appointed on 2 January 2006. Michael Watson (age 51). Appointed on 1 January 2004. He resigned on 2 January 2006. Rob Rydings (age 52). Appointed on 2 January 2006. Secretary Bill Jessup resigned on 19 April 2005 Rob Rydings appointed on 19 April 2005 Registered Office 65 Denbigh Road Bletchley Milton Keynes MK1 1PB Stockbrokers Cazenove & Co. 12 Tokenhouse Yard London EC2R 7AN Principal Bankers Barclays Bank PLC Eagle Point 1 Capability Green Luton LU1 3US Registrars Capita IRG 34 Beckenham Road Beckenham Kent BR3 4TU Solicitors Baker & McKenzie 100 New Bridge Street London EC4V 6JA Auditors Deloitte & Touche LLP Chartered Accountants St Albans Chemetall PLC Chairman's report page 3 Despite the continued challenging trading conditions in the UK manufacturing sector, Chemetall PLC was able to grow its third party sales during 2005. Particularly pleasing was the growth in aerospace business and also the coil business. The Middle East markets achieved their ambitious sales plan and new business in the export sector gives cause for optimism. Results and dividends During the year the Group generated a profit on ordinary activities before taxation of #1.2 million (2004: #1.0 million) with a turnover of #17.3 million (2004: #13.9 million). The Group's loan assets, including any exchange movements and interest accrued thereon, totalled #40.9 million at 31 December 2005 (31 December 2004: #82.8 million). Preference dividends continue to be paid on the normal due dates. Board There have been a few changes in the board during the year. Alec Daly and Bill Jessup after many years with the group decided it was time to resign and I was appointed Chairman in April 2005. Due to reorganisation within the parent group, Chemetall GmbH, Mike Watson was promoted in January 2006 and therefore resigned as a director of Chemetall PLC and Per Vannerberg was appointed as Managing Director . Rob Rydings replaced Bill Jessup as Secretary in April 2005 and was appointed to the board in January 2006. I would like to thank Alec Daly, Bill Jessup and Mike Watson for their strong input over the years. Employees On behalf of the board I would like to thank our employees for their continuing commitment to our business. Chemetall PLC continues to invest in both internal and external training and development of all employees. The company has maintained its Investors in People registration. Outlook We are confident that the third party sales growth trend will continue through to 2006 with significant new business opportunities, particularly in the automotive and aerospace sectors. Price increases will be necessary to maintain profit margins that have come under pressure as the company suffers the impact of significant key raw material price increases. Kurt Wenzel Chairman Chemetall PLC Directors' report page 4 The directors present their annual report and the audited financial statements for the year ended 31 December 2005. Activities The principal activities of the Group are the development, manufacture and marketing of specialised industrial chemicals. A review of the year's operations and significant financial aspects of the year's trading, together with an indication of the Group's future prospects, are included in the Chairman's report. The result for the year and the state of affairs of the Group are shown in the accounts and related notes. Dividends No ordinary dividends were paid during the period (31 December 2004: #nil). Preference dividends of #1,080,000 (31 December 2004: #1,080,000) were payable in the period. Acquisition of company's own preference shares At the end of the year, the directors had the authority to purchase through the market, by tender or by private treaty, at any time the preference shares of the company. The price shall not exceed the average of the middle market quotation during the period of ten business days immediately prior to the purchase, or at the market price provided it is not more than 5% higher than the aforementioned average price. The distributable reserves of the company are sufficient to pay the preference dividends. Policy and practice on payment of creditors The Group has adopted the Confederation of British Industry Code of Practice regarding the payment of suppliers and has a clear and consistent policy to ensure that it honours all its contractual payment terms to suppliers and liaises with suppliers without delay when invoices, or parts of invoices are contested so that a reasonable settlement can be negotiated. Details of the Code of Practice and the Group's policy can be obtained from the Company Secretary at the Company's registered office. At the year end there were 48 days' (31 December 2004: 40 days') purchases in trade creditors. Directors and their interests The directors who held office during the year were as follows: A Daly CBE Resigned 19 April 2005 W Jessup Resigned 19 April 2005 MJ Watson Appointed 1 January 2004 MW Stoermer Appointed 12 August 2004 K Wenzel Appointed 19 April 2005 The directors of the Company are covered by Directors' and Officers' Liability insurance. None of the directors who held office at the end of the financial year had any disclosable interest in the shares and debentures of Group companies (31 December 2004: nil). Chemetall PLC Directors' report page 5 Employees It is the Group's policy not to discriminate against the disabled or racial minorities in recruitment, career development and promotion. There is close consultation between management and other employees on matters of concern. The Group has, over a period of years, established various ways of providing information to its people by the use of regular newsletters and the provision of copies of the annual report and accounts. Political and charitable contributions The Group made no political contributions during the period. Donations to UK charities amounted to #318 (31 December 2004: #470). ISO accreditation Chemetall PLC has achieved accreditation to ISO 14001-2004 the world recognised environmental management system, continuing the process started in 1996. During 2005 Chemetall PLC received their permit from the Environment Agency under IPPC (integrated Pollution, Prevention and Control) regulation. In 2004 Chemetall PLC was accredited to the new automotive industry standard TS16949. Taxation The Group's tax charge on profit is #0.7 million, representing an effective rate of 57.3%. The effective rate is higher than the UK corporation tax rate of 30% mainly due to adjustments and deductions relating to prior years. Details of the tax charge are given in note 9. #6.3 million of tax credits associated with prior year's tax losses continue not to be recognised as indicated in note 17. Treasury Policies The Group's treasury policies, which are approved by the board, seek to eliminate risk from currency movements affecting sales and purchases denominated in foreign currencies. We use instruments such as forward currency sale or purchase contracts where practical and cost effective. Where appropriate, the Group's financial systems are able to transact business denominated in foreign currencies. No forward contracts were used in the year, and the year end exposure is nil. Accounting changes The Group has adopted International Financial Reporting Standards (IFRS) for the year ended 31 December 2005. The restated financial information for the year ended 31 December 2004 and the financial information for the year ended 31 December 2005 have been prepared in accordance with International Financial Reporting Standards (IFRS), adopted for use in the European Union. Exemption from Corporate Governance disclosures As the Group has only debt securities listed on the London Stock Exchange, it has availed itself of an exemption from the financial services authority's requirement to make corporate governance disclosures and from auditor review thereof. Chemetall PLC Directors' report page 6 Auditors Deloitte & Touche LLP have expressed their willingness to continue in office as auditors and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting. Approved by the Board of Directors and signed on behalf of the Board Rob Rydings Director 26.04.2006 Chemetall PLC Statement of directors' responsibilities page 7 The directors are responsible for preparing the Annual Report and the financial statements. The directors are required to prepare accounts for the group in accordance with International Financial Reporting Standards (IFRSs) and have chosen to prepare company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (UK GAAP). In the case of UK GAAP accounts, the directors are required to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgments and estimates that are reasonable and prudent; and state whether applicable accounting standards have been followed. In the case of IFRS accounts, International Accounting Standard 1 requires that financial statements present fairly for each financial year the company's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's 'Framework for the Preparation and Presentation of Financial Statements'. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable International Financial Reporting Standards. Directors are also required to: properly select and apply accounting policies; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and provide additional disclosures when compliance with the specific requirements in International Financial Reporting Standards is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a directors' report which complies with the requirements of the Companies Act 1985. The directors are responsible for the maintenance and integrity of the company website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements differs from legislation in other jurisdictions. Page 8 INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF CHEMETALL PLC We have audited the group financial statements of Chemetall PLC for the year ended 31 December 2005 which comprise consolidated income statement, the consolidated statement of recognised income and expenses, the consolidated balance sheet, the consolidated cash flow statement and the related notes 1 to 30. These group financial statements have been prepared under the accounting policies set out therein. We have reported separately on the individual company financial statements of Chemetall PLC for the year ended 31 December 2005. This report is made solely to the company's members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors' responsibilities for preparing the annual report and the group financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted for use in the European Union are set out in the statement of directors' responsibilities. Our responsibility is to audit the group financial statements in accordance with relevant United Kingdom legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the group financial statements give a true and fair view in accordance with the relevant financial reporting framework and whether the group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation. We report to you if, in our opinion, the directors' report is not consistent with the group financial statements. We also report to you if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' transactions with the company and other members of the group is not disclosed. We read the directors' report and the other information contained in the annual report for the above year as described in the contents section and we consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the group financial statements. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the group financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the group financial statements, and of whether the accounting policies are appropriate to the company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the group financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the group financial statements. Page 9 INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF CHEMETALL PLC (continued) Opinion In our opinion: the group financial statements give a true and fair view, in accordance with IFRSs as adopted for use in the European Union, of the state of the group's affairs as at 31 December 2005 and of its profit for the year then ended; the group financial statements have been properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation; and As explained in Note 1 of the group financial statements, the group, in addition to complying with its legal obligation to comply with IFRSs as adopted for use in the European Union, has also complied with the IFRSs as issued by the International Accounting Standards Board. Accordingly, in our opinion the financial statements give a true and fair view, in accordance with IFRSs, of the state of the group's affairs as at 31 December 2005 and of its profit for the year then ended. Deloitte & Touche LLP Chartered Accountants and Registered Auditors St Albans, United Kingdom 26.04.06 Notes: An audit does not provide assurance on the maintenance and integrity of the website, including controls used to achieve this, and in particular on whether any changes may have occurred to the financial statements since first published. These matters are the responsibility of the directors but no control procedures can provide absolute assurance in this area. Legislation in the United Kingdom governing the preparation and dissemination of financial statements differs from legislation in other jurisdictions. Chemetall PLC Consolidated income statement Year ended 31 December 2005 page 10 Note Year ended Year ended 31 December 2005 31 December 2004 #000 #000 Revenue 3 17,299 13,885 Cost of sales (11,079) (7,710) Gross profit 6,220 6,175 Other operating income - 108 Distribution costs (4,220) (5,397) Administrative expenses (2,601) (1,605) Loss from operations 5 (601) (719) Investment revenue 7 3,062 2,958 Finance costs 8 (1,292) (1,261) Profit before tax 1,169 978 Tax 9 (670) (430) Profit for the year 499 548 The results for the current and preceeding financial period are derived from continuing operations. Under section 230(A) of the Companies Act 1985 the company is exempt from the requirement to present its own income statement. Chemetall PLC Consolidated statement of recognised income and expense Year ended 31 December 2005 page 11 Year ended Year ended 31 December 2005 31 December 2004 #000 #000 Exchange differences on translation of foreign operations (1,103) 47 Actuarial gains/(losses) on defined benefit pension schemes 335 (2,350) Tax on items taken directly to equity (100) 712 Net loss recognised directly in equity (868) (1,591) Profit for the year 499 548 Total recognised income and expense for the year (369) (1,043) Chemetall PLC Consolidated balance sheet 31 December 2005 page12 Note 31 December 2005 31 December 2004 #000 #000 Non-current assets Goodwill 11 2,475 2,475 Other intangible assets 12 413 565 Property, plant and equipment 13 1,250 1,297 Deferred tax assets 17 4,051 3,936 8,189 8,273 Current assets Inventories 14 1,346 1,124 Trade and other receivables 15 44,319 85,515 Cash and cash equivalents 43,201 300 Tax receivable 17 - 88,883 86,939 Total assets 97,072 95,212 Current liabilities Trade and other payables 19 (5,718) (4,466) Tax liabilities (570) (151) Provisions 20 (241) (286) (6,529) (4,903) Net current assets 82,354 82,036 Chemetall PLC Consolidated balance sheet (continued) 31 December 2005 page 13 Note 31 December 2005 31 December 2004 #000 #000 Non-current liabilities Interest bearing loans and borrowings 18 (12,000) (12,000) Retirement benefit obligation 27 (8,709) (8,904) Long-term provisions 20 (1,142) (344) (21,851) (21,248) Net assets 68,692 69,061 Equity Share capital 21 6,889 6,889 Share premium account 22 29,757 29,757 Translation reserve 24 (1,056) 47 Retained earnings 23 33,102 32,368 Total equity 68,692 69,061 The financial statements were approved by the board of directors and authorised for issue on 26.04.06. They were signed on its behalf by: Rob Rydings Director Chemetall PLC Consolidated cash flow statement Year ended 31 December 2005 page 14 Note Year ended 31 December Year ended 31 December 2005 2004 #000 #000 Net cash from operating activities 25 (409) (160) Investing activities Purchases of property, plant and equipment (172) (164) Net cash used in investing activities (172) (164) Financing activities Interest paid (4) (2) Interest received 3,062 1,503 Amounts due from group undertakings 41,504 - Preference dividend paid (1,080) (1,080) Net cash from financing activities 43,482 421 Net increase in cash and cash equivalents 42,901 97 Cash and cash equivalents at beginning of year 300 203 Cash and cash equivalents at end of year 43,201 300 Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 15 1.General information Chemetall PLC is a company incorporated in the United Kingdom under the Companies Act 1985. The address of the registered office is given on page 2. The nature of the group's operations and its principal activities are set out in note 4 and in the directors' report. These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the group operates. Foreign operations are included in accordance with the policies set out in note 2. At the date of authorisation of these financial statements, the following Standards and Interpretations, which have not been applied in these financial statements, were in issue but not yet effective: IFRS 6 Exploration for and Evaluation of Mineral Resources IFRS 7 Financial Instruments: Disclosures and the related amendments to IAS 1 on capital disclosures IFRIC 4 Determining whether an Arrangement contains a Lease IFRIC 5 Right to Interest Arising from Decommissioning, Restoration and Environmental RehabilitationFunds IFRIC 6 Liabilities Arising from Participating in a specific market - Waste electrical and electronic equipment IFRIC 7 Applying the Restatement approach under IAS 29 Financial Reporting in Hyper inflationary economies IFRIC 8 Scope of IFRS 2 IFRIC 9 Reassessment of embedded derivatives The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the company except for additional disclosures on capital and financial instruments when the relevant standards come into effect for periods commencing on or after 1 January 2007. 2.Significant accounting policies Basis of accounting The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs), adopted for use in the European Union, for the first time. The disclosures required by IFRS 1 concerning the transition from UK GAAP to IFRSs are given in note 30. The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments. The principal accounting policies adopted are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 16 2.Significant accounting policies (continued) the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to profit and loss in the period of acquisition. The results of subsidiaries acquired or disposed of during the year are included in the consolidated 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 the accounting policies used into line with those used by the group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Goodwill Goodwill is recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in profit or loss and is not subsequently reversed. Goodwill arising on acquisitions before the date of transition to IFRSs has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes. Sales of goods are recognised when goods are delivered and title has passed. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount. Leasing Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight line basis over the lease term. Foreign currencies The individual financial statements of each group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purposes of the consolidated financial statements, the results and financial position of each group company are expressed in pounds sterling, which is the functional currency of the Company and the presentation currency for the consolidated financial statements. Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Gains and losses arising on retranslation are included in net profit or loss for the period, except for exchange differences arising on Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 17 2.Significant accounting policies (continued) non-monetary assets and liabilities where the changes in fair value are recognised directly in equity. Non monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. On consolidation, the assets and liabilities of the group's overseas operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly. Exchange differences arising, if any, are classified as equity and transferred to the group's translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of. Borrowing costs Borrowing costs are recognised in profit or loss in the period in which they are incurred. Post-retirement benefits The Group accounts for pensions and post-retirement benefits under IAS 19 Employee benefits. For defined benefit plans, obligations are measured at present value, while plan assets are recorded at fair value. The operating and financing costs of such plans are recognised in the income statement. Current service costs are spread systematically over the lives of employees and financing costs are recognised in the periods in which they arise. Actuarial gains and losses are recognised in the period in which they arise in the statement of recognised income and expense. Inventories Inventory and work in progress is valued at the lower of cost, including appropriate overheads, and net realisable value. Provisions are made against excess and obsolete inventories. Intangible assets - patents and trademarks and customer contracts Patents are initially recognised at cost and then amortised in line with the stated life of the patents, between 1 and 20 years. Customer contracts are amortised over 2 years. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and any provision for impairments in value. Depreciation is provided to write off cost less the estimated residual value of property, plant and equipment by equal instalments over their estimated useful economic lives as follows: Short leasehold property - life of the lease Plant, machinery and equipment - 10-33% per annum Fixtures and fittings - 20% per annum The directors regularly consider the carrying value of property, plant and equipment for impairment. Any reduction in value arising from the impairment of the property, plant and equipment is charged to the income statement for the year. Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 18 2.Significant accounting policies (continued) The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised as income immediately, unless the relevant asset is carried at the revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Share capital Preference share capital is classified as a liability as dividend payments are not discretionary. Dividends on the preference shares are disclosed as interest charges and are accounted for on an accrual basis. Other dividends are recognised as a liability only in the period in which they are declared. Interest Interest receivable is recognised in the income statement using the effective interest method as defined in IAS 39 Financial instruments: recognition and measurement. Taxation The tax expense represents the sum of tax currently payable and deferred tax. Provision for taxation is made at the current rate and for deferred taxation at the tax rate expected to apply on all temporary differences between the treatment of certain items for taxation and for accounting purposes. Deferred tax is the tax expected to be payable or recoverable 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 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 goodwill or the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the group is able to control the reversal of the temporary difference and it is probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. 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. Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 19 2.Significant accounting policies (continued) 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. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited to equity, in which case the deferred tax is also dealt with in equity. Provisions A provision is created and recognised as a liability when the Group has a present obligation (legal or constructive) as a result of a past event and it is expected that a transfer of economic benefits will be required to settle that obligation and a reliable estimate of the amount of the transfer can be made. Vacant leasehold properties A provision is maintained in respect of vacant leasehold properties to take account of the net present value of the residual lease commitments over the remaining term of the lease. In determining the net present value, cash flows have been discounted using an appropriate nominal, risk free, pre-tax rate of return. Critical accounting judgements and key sources of estimation uncertainty In the process of applying the company's accounting policies, which are described in Note 2, management has made the following judgements that have the most significant effect on the amounts recognised in the financial statements. Stock and Bad debt provisions The group policy for provisions is noted above. IFRS transitional arrangements When preparing the Group's IFRS balance sheet at 1 January 2004, the date of transition, the following optional exemptions, provided by IFRS 1 First-time adoption of International Financial Reporting Standards from full retrospective application of IFRS accounting policies, have been adopted: Business combinations - the provisions of IFRS 3 have been applied from 1 January 2004. The net carrying value of goodwill at 31 December 2003 under the previous accounting policies has been deemed to be the cost at 1 January 2004; Foreign exchange transactions - IAS 21 requires that cumulative translation differences arising on consolidation of subsidiaries should be held in a separate reserve. This reserve has been deemed to be nil at 1 January 2004 and the IAS 21 requirement has been applied prospectively from 1 January 2004. Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 20 3.Analysis of revenue All activities are derived from the development, manufacture and marketing of specialised industrial chemicals. All revenue recorded represents sale of goods. 4.Business and geographical segments The primary reporting format is deemed to be business segments. All activities are derived from the development, manufacture and marketing of specialised industrial chemicals. As such, the directors deem that there is only one reportable segment. The secondary reporting format is therefore deemed by the directors to be geographical segments. No separate geographical segment consists of more than 10% of total revenue or total assets, therefore no further analysis of geographical segments is presented. 5.Loss from operations Loss from operations has been arrived at after charging: 2005 2004 #000 #000 Depreciation of property, plant and equipment 218 310 Amortisation of intangible assets 152 116 Staff costs (see note 6) 4,832 4,898 Auditors' remuneration for audit services 34 - The audit fee in the prior year was borne by another group company. Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 21 6.Staff costs The average monthly number of employees (including executive directors) analysed by category was: 2005 2004 Number Number Specialised industrial chemicals 94 96 #000 #000 Their aggregate remuneration comprised: Wages and salaries 3,624 3,106 Social security costs 367 341 Other pension costs 841 1,451 4,832 4,898 Remuneration of directors Year ended 31 Year ended 31 December 2005 December 2004 #000 #000 Wages and salaries 122 126 Social security costs 13 10 Other pension costs 22 20 157 156 Retirement benefits are accruing to one director (31 December 2004:none). 7.Investment Revenue 2005 2004 #000 #000 Interest on loans to group undertakings 1,653 2,957 Interest on cash balances 1,409 1 3,062 2,958 Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 22 8.Financial costs 2005 2004 #000 #000 Interest on bank overdrafts 4 10 Dividends on preference shares 1,080 1,080 Retirement benefit net interest cost 208 171 1,292 1,261 9.Tax 2005 2004 #000 #000 Current tax: UK corporation tax 910 631 Adjustments related to earlier years (24) (204) 886 427 Deferred tax (note 17): Current year (216) 3 (216) 3 670 430 Corporation tax is calculated at 30% (2004:30%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. The charge for the year can be reconciled to the profit per the income statement as follows: 2005 2005 2004 2004 #000 % #000 % Profit before tax 1,169 n/a 978 n/a Tax at the UK corporation tax rate of 30% (2004: 30%) 351 30 293 30 Tax effect of expenses that are not deductible in determining taxable profit (mainly dividend on preference shares) 615 52 346 33 Tax effect of utilisation of items previously disallowed for tax (272) (23) (24) (2) Adjustments related to earlier years (24) (1) (185) (20) Tax expense and effective tax rate for the year 670 58 430 41 Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 23 10.Dividends The dividend distributed to the equity holders is nil (2004: nil). The dividend paid at interim to the holders of 9% redeemable preference shares was #540,000 (2004: #540,000). The final dividend proposed is #540,000(2004: #540,000). Dividends on the 9% redeemable preference shares are presented as financial costs in the income statement in accordance with IAS 32 "Presentation of financial instruments". 11.Goodwill #000 Cost At 1 January 2004, 1 January 2005 and 31 December 2005 2,475 No impairment losses have been recognised on the above goodwill balance. The cost at 1 January 2004 represents the carrying value of goodwill under UK GAAP which was brought onto the IFRS balance sheet at 1 January 2004 as allowed by IFRS1 "First time adoption of IFRS" (see note 30). All of the goodwill shown above relates to a single CGU. The group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amounts from the CGU are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates using pre tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU. The growth rates are based on industry growth forecasts. Changes in selling process and direct costs are based on past practices and expectations of future changes in the market. Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 24 12. Other intangible assets Customer Patents Total contracts and trademarks #000 #000 #000 Cost At 1 January 2004 - 1,108 1,108 Additions 250 - 250 At 1 January 2005 250 1,108 1,358 At 31 December 2005 250 1,108 1,358 Amortisation At 1 January 2004 - 677 677 Charge for the year 10 106 116 At 1 January 2005 10 783 793 Charge for the year 120 32 152 At 31 December 2005 130 815 945 Carrying amount At 31 December 2005 120 293 413 At 31 December 2004 240 325 565 The amortisation period for customer contracts is 2 years. Patents and trademarks are amortised over their estimated useful lives, until expiry of legal rights. Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 25 13.Property, plant and equipment Leasehold Plant and Fixtures Total improvements machinery and equipment #000 #000 #000 #000 Cost At 1 January 2004 2,357 2,168 770 5,295 Additions 99 56 9 164 At 1 January 2005 2,456 2,224 779 5,459 Additions 25 146 - 171 At 31 December 2005 2,481 2,370 779 5,630 Accumulated depreciation and impairment At 1 January 2004 (1,264) (1,872) (716) (3,852) Charge for the year (153) (109) (48) (310) At 1 January 2005 (1,417) (1,981) (764) (4,162) Charge for the year (145) (66) (7) (218) At 31 December 2005 (1,562) (2,047) (771) (4,380) Carrying amount At 31 December 2005 919 323 8 1,250 At 31 December 2004 1,039 243 15 1,297 14.Inventories 31 December 31 December 2005 2004 #000 #000 Raw materials and consumables 355 348 Work in progress 13 32 Finished goods and goods for resale 978 744 1,346 1,124 Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 26 15.Trade and other receivables 31 December 31 December 2005 2004 #000 #000 Trade receivable 3,183 2,557 Amounts due from group undertakings 40,857 82,733 Prepayments and accrued income 279 185 44,319 85,515 Amounts due from group undertakings are due on or before 31 December 2006 (2004: 31 December 2005) unless those parties agree to extend the terms. An allowance has been made for estimated irrecoverable amounts from the sale of goods of #159,000 (2004: #138,000). This allowance has been determined by reference to past default experience. The average credit period taken on sales of goods/services is 60 days (2004: 58 days). The directors consider that the carrying amount of trade and other receivables approximates to their fair value. 16.Other financial assets Bank balances and cash Bank balances and cash comprise cash held by the group and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value. Credit risk The group's principal financial assets are bank balances and cash and trade and other receivables, which represent the group's maximum exposure to credit risk in relation to financial assets. The group's credit risk is primarily attributable to its trade and amounts from group undertakings receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the group's management based on prior experience and their assessment of the current economic environment. The group has no significant concentration of credit risk, with exposure spread over a large number of customers. Any new customers are subject to credit checks (in many cases through Dun & Bradstreet credit reports). Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 27 17.Deferred tax The following are the major deferred tax assets recognised by the group and the company during the current and prior reporting period. Accelerated Short term Retirement Tax Total capital timing benefit losses allowance differences obligations #000 #000 #000 #000 #000 Cost or valuation At 1 January 2004 124 208 1,945 951 3,228 Credit/(charge) to income (9) (15) 21 - (3) Credit/(charge) to equity - 6 705 - 711 At 1 January 2005 115 199 2,671 951 3,936 Credit/(charge) to income (53) 226 43 - 216 Credit/(charge) to equity - - (101) - (101) At 31 December 2005 62 425 2,613 951 4,051 At balance sheet date, the group has unused tax losses of #9,447,000 (2004: #10,353,000) available for offset against future profits. A deferred tax asset has been recognised in respect of #3,171,000 (2004: #3,171,000) of such losses. No deferred tax has been recognised in respect of the remaining #6,276,000 (2004: #7,183,000) due to unpredictability of future profit streams. Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 28 18.Interest bearing loans and borrowings 31 December 2005 31 December 2004 No. #000 No. #000 Authorised Non-equity: 9% redeemable preference shares of #1 15,000,000 15,000 15,000,000 15,000 each Allotted, called up and fully paid Non equity: 9% redeemable preference shares of #1 12,000,000 12,000 12,000,000 12,000 each The Company issued 12,000,000 9% redeemable preference shares of #1 each. These preference shares entitle their holders to a fixed cumulative preference dividend at a rate of 9% per annum, per share. On a winding up the preference shareholders are entitled to a sum equal to the nominal capital paid up or credited as paid up, on the preference shares held by them, together with all arrears (if any) of the preference dividend. They carry the right to receive notice of, or attend, or vote at General Meetings only in special circumstances such as when the preference dividend is six months or more in arrears or if redemption has not been made on the due date, or in such cases as a winding up of the Company or a reduction in its share capital. The preference shares have to be redeemed at par on 3 July 2008. The 9% redeemable preference shares are presented as non-current liabilities in the balance sheet and the associated dividend payable as interest expense in the income statement in order to comply with IAS 32 "Presentation of financial instruments". 19.Other financial liabilities Trade and other payables 31 December 31 December 2005 2004 #000 #000 Trade creditors 1,181 1,082 Amounts owed to group undertakings 1,977 1,820 Social security - 66 Accruals and deferred income 2,020 958 Preference dividend payable 540 540 5,718 4,466 The directors consider that the carrying amount of trade and other payables approximates to their fair value. Policy and practice on the payment of creditors is disclosed in the directors report. Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 29 20.Provisions Vacant Other Total property provision provision #000 #000 #000 Cost At 1 January 2005 412 218 630 Additional provision 900 - 900 Provision utilised (68) (79) (147) At 31 December 2005 1,244 139 1,383 31 December 31 December 2005 2004 Included in current liabilities 241 286 Included in non current liabilities 1,142 344 1,383 630 The vacant property provision represents management's best estimate of the Group's liability to take account of the residual lease commitments over the remaining term of the lease. 21.Share Capital 31 December 2005 31 December 2004 No. #000 No. #000 Authorised Equity: Ordinary shares of 10p each 91,948,000 9,195 91,948,000 9,195 Issued and fully paid Equity: Ordinary shares of 10p each 68,888,817 6,889 68,888,817 6,889 The company has one class of ordinary shares which carry no right to fixed income. 22.Share Premium account Share premium #000 29,757 Balance at 1 January 2004, 31 December 2004 and 31 December 2005 Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 30 23. Retained Earnings #000 Balance at 1 January 2004 33,458 Actuarial (loss) on defined benefit pension scheme (1,638) Net profit for the year 548 Balance at 1 January 2005 32,368 Actuarial gain on defined benefit pension scheme 235 Net profit for the year 499 Balance at 31 December 2005 33,102 24.Translation reserve #000 Balance at 1 January 2005 47 Exchange difference on translation of overseas operations (1,103) Balance at 31 December 2005 (1,056) 25.Notes to the cash flow statement 31 31 December December 2005 2004 #000 #000 Profit before taxation 1,169 978 Adjustments for: Depreciation of property, plant and equipment 218 310 Amortisation of intangible assets 152 116 Movement in provisions 754 - Interest income (3,062) (2,958) Interest expense 1,084 1,090 Operating cash flows before movements in working capital 315 (464) Movement in inventories (222) (42) Movement in receivables (1,813) 579 Movement in payables 1,795 377 Cash generated by operations 75 450 Income taxes paid (484) (610) Net cash from operating activities (409) (160) Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank. Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 31 26.Commitments 31 December 31 December 2005 2005 Land and Buildings Other #000 #000 Minimum lease payments under operating leases 234 325 recognised in income for the year At the balance sheet date, the group had outstanding commitments for future minimum lease payments under non cancellable operating leases, which fall due as follows: Within one year 456 262 In the second to fifth years inclusive 1,813 236 After five years 2,795 - 5,064 498 27. Retirement benefit schemes The Group operates two funded defined benefit schemes which provide for their liabilities through trustee operated funds. In July 2004, the remaining active members of the Metallgesellschaft Group Pension Scheme were transferred to the Chemetall UK Pension Scheme, which provides benefits based on final pensionable pay, at a cost of #800,000. The Process Ink Scheme is a closed scheme. The assets of both schemes are held separately from those of the Group in a trustee administered fund. The trustees comprise senior group employees and the assets are managed by Legal & General Assurance (Pensions Management ) Limited. Contributions to the scheme are charged to the income statement so as to spread the costs of pensions over employees working lives within the Group. The Group does not have any health and medical plans providing post-retirement benefits. The pension costs relating to the Chemetall UK and Process Ink schemes are assessed in accordance with the advice of Aon Limited, the independent actuaries, using, in the case of the Chemetall UK scheme, the projected unit method. Scheme Last Assumed Average Total Funding actuarial Investment salary market level value valuation Return per increase value of of assets as annum per annum assets percentage of at latest liabilities* valuation dates Chemetall UK Pension scheme 1 January 2003 6% 4% #14.9m(3) 92% Process Ink Company Limited Pension and Death Benefits Plan 1 January 2002 9%(1) 4%(2) #2.9m 102% Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 32 27.Retirement benefit schemes (continued) (1) The rate of return is assumed to reduce to 8% per annum from each member's normal retirement age. (2) This is the assumed rate of revaluation of deferred pensions up to normal retirement date. (3) The market value of the assets includes additional voluntary contributions. The pension increases were assumed to be equal to those specified in the rules of the schemes. Pension increases in payment in line with retail prices but capped at 5% were assumed to be 3% per annum (31/2% for the Process Ink Scheme) and pensions increasing in line with retail prices without a cap were assumed to be 3% per annum (4% for the Process Ink Scheme). *For the Chemetall UK scheme, this gives an indication of the extent to which the actuarial value of the assets secure the benefits that have been accrued to members allowing for expected future statutory revaluations to deferred pensions. The most recent actuarial valuation of plan assets and the present value of the defined benefit obligation were carried out at 31 December 2004 and updated to 31 December 2005 by AON Consulting. The estimated amount of contributions expected to be paid to the scheme during the current financial year is #701,000. 31 December 31 December 31 December 30 September 2005 2004 2003 2002 #000 #000 #000 #000 Rate of increase in salaries Rate of increase in pensions in 4.5% 4.5% 4.25% 3.75% payment - Ex Brent members pre '97 Nil Nil Nil Nil - Ex Winnets members pre '97 3.0% 3.0% 3.0% 3.0% - Process directors 8.5% 8.5% 8.5% 8.5% - All post '97 3.0% 3.0% 2.75% 2.25% Discount rate 4.75% 5.25% 5.75% 5.75% Inflation 3.0% 3.0% 2.75% 2.25% The rates used have been chosen from a range of possible amounts determined using actuarial assumptions which due to the timescale covered may not necessarily be borne out in practice. Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 33 27.Retirement benefit schemes (continued) Scheme assets The fair value of the assets in the schemes (which are not intended to be realised in the short term and may be subject to significant change) and the present value of the schemes liabilities (which are derived from cash flow projections over long periods and thus inherently uncertain) were: Value at 31 Value at 31 Value at 31 December 2005 December 2004 December 2003 Chemetall Process Chemetall Process Chemetall Process Ink Ink Ink #000 #000 #000 #000 #000 #000 Market value of assets 22,014 3,020 19,016 2,777 15,604 2,543 Present value of scheme liabilities (29,737) (4,006) (27,156) (3,541) (21,520) (3,110) Deficit in the scheme (7,723) (986) (8,140) (764) (5,916) (567) Related deferred tax asset 2,317 296 2,442 229 1,775 170 Net pension liability (5,406) (690) (5,698) (535) (4,141) (397) Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 34 27.Retirement benefit schemes (continued) Operating results and other disclosures Chemetall Process 31 UK Ink December Pension Scheme 2005 Scheme Total #000 #000 #000 Analysis of the amount charged to operating loss Service cost (567) (10) (577) Past service cost - - - Total operating charge (567) (10) (577) Analysis of the net return: Expected return on the pension scheme assets 1,231 168 1,399 Interest on pension scheme liabilities (1,420) (187) (1,607) Net charge (189) (19) (208) Actuarial gain recognised in the statement recognised income and expense 540 (205) 335 Changes in the present value of the defined benefit obligation are as follows: Opening defined benefit obligation 27,156 3,541 30,697 Service Cost 567 10 577 Interest Cost 1,420 187 1,607 Contributions by members 108 2 110 Actuarial (gains) and losses 1,231 391 1,622 Benefits paid (745) (125) (870) Closing defined benefit obligation 29,737 4,006 33,743 Changes in the fair value of Scheme assets are as follows: Opening fair value of Scheme assets 19,016 2,777 21,793 Expected return 1,231 164 1,395 Actuarial gains and (losses) 1,771 192 1,963 Contributions by employer 633 10 643 Contributions by members 108 2 110 Benefits paid (745) (125) (870) Closing fair value of Scheme assets 22,014 3,020 25,034 Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 35 27.Retirement Pension Schemes (continued) Operating results and other disclosures Chemetall Process 31 UK Ink December Pension Scheme 2004 Scheme Total #000 #000 #000 Analysis of the amount charged to operating loss: Service cost (419) (9) (428) Past service cost - - - Total operating charge (419) (9) (428) Analysis of the net return: Expected return on the pension scheme assets 1,127 156 1,283 Interest on pension scheme liabilities (1,278) (176) (1,454) Net charge (151) (20) (171) Analysis of amount recognised in the statement of recognised income and expense Actual return less expected return on assets 1,042 189 1,231 Experience gains and losses on liabilities (168) (36) (204) Acquisitions (193) - (193) Changes in assumptions (2,856) (328) (3,184) Actuarial gain recognised in the statement of recognised income and expense (2,175) (175) (2,350) Changes in the present value of the defined benefit obligation are as follows: Opening defined benefit obligation 21,520 3,110 24,630 Service Cost 419 9 428 Interest Cost 1,278 176 1,454 Contributions by members 89 2 91 Actuarial (gains) and losses 4,571 364 4,935 Benefits paid (721) (120) (841) Closing defined benefit obligation 27,156 3,541 30,697 Changes in the fair value of Scheme assets are as follows: Opening fair value of Scheme assets 15,604 2,543 18,147 Expected return 1,127 156 1,283 Actuarial gains and (losses) 2,396 189 2,585 Contributions by employer 89 7 96 Contributions by members 521 2 523 Benefits paid (721) (120) (841) Closing fair value of Scheme assets 19,016 2,777 21,793 Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 36 27.Retirement benefit schemes (continued) Details of experience gain and losses in the 31 31 31 period: December December December 2005 2004 2003 #'000 #'000 #'000 Difference between the expected and actual return on assets 1,042 189 1,231 Percentage of Assets 5% 7% 7% Experience gains and losses on liabilities (168) (36) (204) Percentage of present value of liabilities (1)% (1)% (1)% Total amount recognised in statement of recognised income and expense (1,982) (175) (2,157) Until July 2004 the Group participated in a defined benefit scheme operated by its parent company the Metallgesellschaft Group Pension Scheme (MGPS). From July 2004 the remaining active group members were transferred to the Chemetall UK pension scheme. The Group charge for the period to the MGPS was #nil (31 December 2004: #49,918). The analysis of the scheme assets and expected return at the balance sheet date were as follows: Chemetall UK Pension Scheme Return at 31 Value at 31 Return at 31 Value at 31 Return at 31 Value at 31 December 2005 December 2005 December 2004 December 2004 December 2003 December 2003 #000 #000 #000 Equities 7.95% 9,446 7.75% 9,463 8.00% 8,327 Corporate bonds 4.75% 7,496 5.25% 5,716 5.75% 4,205 Government bonds 4.10% 3,225 4.50% 2,451 5.00% 1,797 Property 7.95% 1,704 7.75% 1,220 8.00% 1,107 Cash 4.10% 143 4.50% 166 5.00% 168 Overall rate of 6.25% 22,014 6.50% 19,016 7.00% 15,604 return Process Ink Scheme Return at 31 Value at 31 Return at 31 Value at 31 Return at 31 Value at 31 December 2005 December 2005 December 2004 December 2004 December 2003 December 2003 #000 #000 #000 Equities 7.95% 1,322 7.75% 1,188 8.00% 1,024 Corporate bonds 4.75% - 5.25% - 5.75% - Government bonds 4.10% 1,684 4.50% 1,622 5.00% 1,505 Property 7.95% - 7.75% - 8.00% - Cash 4.10% 14 4.50% (33) 5.00% 14 Overall rate of 5.75% 3,020 6.00% 2,777 6.25% 2,543 return Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 37 27.Retirement benefit schemes (continued) Overall expected return on assets The overall expected return on assets is calculated as the weighted average of the expected returns on each individual asset class. Gilts 4.1% pa This is equal to the Gross Redemption Yield on Government Bonds at the end of 2005 at the duration relevant for the liabilities. Bonds 4.75% pa This is equal to the Gross Redemption Yield on AA rated bonds at the end of 2005 at the duration relevant for the liabilities. Cash 4.1% pa This is equal to the long-term return on Gilts which is, in theory, an accumulation of short-term interest rates. Equities 7.95% pa Aon have assumed the long-term return on UK equities by considering the income and capital appreciation elements of total return separately. At 31 December 2005, the net dividend yield on the FTSE all-share index was 2.95%. This provides the estimate of the income element. Aon have estimated the capital appreciation by assuming that UK equity prices will rise 2% pa faster than price inflation (which we assumed to be 3% pa). This reflects the fact that UK equity prices tend to increase in line with GDP growth over the long-term and this has historically been some 2%-2.5% pa in excess of price inflation. This leads to an overall assumption of 7.95% pa. Overseas equities and property 7.95% pa This reflects the fact that these assets are usually held to provide some diversification from holding exclusively UK equities. In fact, the expectations of return (in sterling terms) might be slightly higher in some markets (e.g. emerging markets) but due to the fact that the scheme doesn't hold a significant amount in such assets we have assumed the same return for overseas equities as for UK equities. 28.Related party transactions Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the group and other related parties are disclosed below. Trading transactions During the year, group companies entered into the following transactions with related parties who are not members of this group: Sale of goods Purchase of goods Amounts owed by Amounts owed to related parties related parties 2005 2004 2005 2004 2005 2004 2005 2004 #000 #000 #000 #000 #000 #000 #000 #000 Fellow subsidiary 701 770 3,070 904 495 412 1,977 1,820 undertakings Sales and purchases of goods to related parties were made at the parent group's usual list prices. The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties. During the year, other services such as licences, IT services and insurance were purchased from Chemetall GmbH in the amount of #387,000 (31 December 2004: #287,000). Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 38 28.Related party transactions (continued) Non-trading transactions The group has lent money to the following fellow subsidiaries undertakings. The outstanding loan balances and the interest charged on these loan balances are presented in the table below: Loans to Interest charged to 2005 2004 2005 2004 #000 #000 #000 #000 Fellow subsidiary undertakings 40,362 82,361 1,653 2,957 Remuneration of key management personnel The remuneration of the directors who are the key management personnel of the group in Note 6 29.Ultimate parent company and parent undertaking of larger group The Company is controlled by Chemetall GmbH, the immediate parent Company incorporated in Germany. The ultimate parent undertaking and controlling party is Rockwood Holding Inc, incorporated in USA. The largest group in which the results of the Group are consolidated is that headed by the ultimate parent undertaking. The smallest group in which they are consolidated is that headed by Chemetall GmbH. The consolidated accounts of Chemetall GmbH are available to the public and may be obtained from Bockenheimer Landstrasse 73-77, 60325 Frankfurt am Main. The consolidated accounts of Rockwood Holding Inc are available to the public and may be obtained from 100 Overlook Centre, Princeton, New Jersey, 08450, USA. Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 39 30.Explanation of transition to IFRSs The reconciliations of equity at 1 January 2004 (date of transition to IFRS) and at 31 December 2004 (date of last UK GAAP financial statements) and the reconciliation of profit for 2004, as required by IFRS 1, including the significant accounting policies, have been included below to enable a comparison of the 2005 figures with those published in the corresponding period of the previous financial year. Reconciliation of equity at 1 January 2004 UK GAAP Effect of IFRSs transition to IFRSs #000 #000 #000 Property, plant and equipment 1,443 - 1,443 Goodwill 2,475 - 2,475 Intangible assets 431 - 431 Deferred tax assets 1,289 1,945 3,234 Total non-current assets 5,638 1,945 7,583 Trade and other receivables 84,211 - 84,211 Inventories 1,082 - 1,082 Cash and cash equivalents 203 - 203 Total current assets 85,496 - 85,496 Total assets 91,134 1,945 93,079 Interest-bearing loans - (12,000) (12,000) Trade and other payables (3,485) - (3,485) Employee benefits - (6,470) (6,470) Provisions (667) - (667) Current tax liability (353) - (353) Total liabilities (4,505) (18,470) (22,975) Total assets less total liabilities 86,629 (16,525) 70,104 Issued capital 18,889 (12,000) 6,889 Share premium 29,757 29,757 Retained earnings 37,983 (4,525) 33,458 Translation reserve - - - Total equity 86,629 (16,525) 70,104 Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 40 30.Explanation of transition to IFRSs (continued) Reconciliation of equity at 31 December 2004 UK GAAP Effect of IFRSs transition to IFRSs #000 #000 #000 Property, plant and equipment 1,297 - 1,297 Goodwill 2,325 150 2,475 Intangible assets 565 - 565 Deferred tax assets 1,285 2,651 3,936 Total non-current assets 5,472 2,801 8,273 Trade and other receivables 85,515 - 85,515 Inventories 1,124 - 1,124 Cash and cash equivalents 300 - 300 Total current assets 86,939 - 86,939 Total assets 92,411 2,801 95,212 Interest-bearing loans - (12,000) (12,000) Trade and other payables (4,466) - (4,466) Employee benefits (69) (8,835) (8,904) Provisions (630) - (630) Current tax liability (151) - (151) Total liabilities (5,316) (20,835) (26,151) Total assets less total liabilities 87,095 (18,034) 69,061 Issued capital 18,889 (12,000) 6,889 Share premium 29,757 - 29,757 Retained earnings 38,449 (6,081) 32,368 Translation reserve - 47 47 Total equity 87,095 (18,034) 69,061 Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 41 30.Explanation of transition to IFRSs (continued) Reconciliation of profit for the year ended 31 December 2004 UK GAAP Effect of IFRSs transition to IFRSs #000 #000 #000 Revenue 13,885 - 13,885 Cost of sales (7,710) - (7,710) Gross profit 6,175 - 6,175 Other operating income 108 - 108 Distribution costs (5,397) - (5,397) Administrative expenses (1,905) 300 (1,605) Investment revenue 2,948 10 2,958 Finance costs - (1,261) (1,261) Profit before tax 1,929 (951) 978 Tax expense (430) - (430) Net profit 1,499 (951) 548 Dividends (1,080) 1,080 - Retained profit 419 129 548 Pensions and other post-retirement benefits UK GAAP: Pension costs were accounted for under SSAP 24 'Accounting for pension costs', whereby the costs of providing pensions were charged to the profit and loss account based on a percentage of employees' pay, with any variations in regular costs, interest and changes to actuarial gains and losses amortised over the expected average remaining service lives of current employees. Any differences between the amounts charged to the profit and loss account and cash payments made to the pension schemes were recognised in the balance sheet. IFRS (as required by IAS 19 revised, but closely in line with the disclosures already made in the notes to the accounts under FRS 17): Current and past service costs of the Group's pension schemes, the expected return on the scheme's assets and any interest costs relating to the present value of the scheme's liabilities are charged to the income statement, with any actuarial gains and losses being recognised through the statement of recognised income and expense (SORIE). Any surplus in the fair value of the pension scheme assets over the present value of the liabilities is recorded as an asset in the balance sheet, and any deficit as a liability. The change in the accounting treatment of the Group's pension arrangements will have no impact on their funding. The EU has not yet endorsed the revisions to IAS 19 which allows actuarial gains or losses to be recognised through the SORIE. Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 42 30.Explanation of transition to IFRS (continued) Amortisation of purchased goodwill UK GAAP: Goodwill was amortised over a period of 20 years and was subject to testing for impairment when circumstances indicated that the carrying value may not be recoverable. IFRS (as required by IFRS 3 and also by concession under IFRS1 ):Goodwill is not amortised but is tested annually for impairment. This applies to all goodwill arising on acquisitions after 1 January 2004. IFRS 1 'First time adoption' of IFRS, permits goodwill on acquisitions made before this date to be brought on to the balance sheet at 1 January 2004 at its carrying value under UK GAAP. Accounting impact in 2004: Income statement: Profit before tax increased by #150,000 in 2004, being the amount amortised in 2004 under UK GAAP. Balance sheet: An increase to shareholders' funds of #150,000 as purchased goodwill remains at its 1 January 2004 carrying value. Preference shares UK GAAP: Preference shares were treated as capital and associated servicing charges were treated as dividends. IFRS (as required by IAS 32): Preference shares with an obligation to transfer economic benefit are treated as financial liabilities (debt) and not as capital. The costs of servicing preference shares are disclosed as interest. Accounting impact in 2004: Income statement: A decrease to reported profit before tax of #1,080,000. At a retained profit level, there is no change. Balance sheet: Net assets and equity decrease by #12,000,000 and net debt increases by the same amount. Deferred tax UK GAAP: Deferred tax was provided on timing differences between accounting and tax profits. No provision for the tax effect on the potential disposal of revalued properties was accounted for. IFRS (as required by IAS 12): Deferred tax is provided on all temporary differences between accounting and tax book values, including the requirement to account for the tax effect of any future property disposals. In addition there have been deferred tax adjustments to account for the tax effect of other IFRS changes, including product development, pensions and share-based payments. Accounting impact in 2004: Income statement: No impact. Balance sheet: Net assets and equity increase by #2,651,000 which is mainly attributable to the creation of a deferred tax asset on the IAS 19 pension liability. Other adjustments Smaller adjustments have also been made to reflect IFRS reclassifications, including reclassification of income tax payable and deferred tax from creditors and debtors, respectively in order to be separately shown on the face of the balance sheet. Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 43 30.Explanation of transition to IFRSs (continued) Summarised reconciliations from UK GAAP to IFRS 2004 income statement #000 Retained profit under UK GAAP 419 Pensions (21) Goodwill - amortisation 150 Profit after tax under IFRS 548 2004 net assets #000 Net assets under UK GAAP 87,095 Pensions and post-retirement benefits (net of (6,184) deferred tax) Goodwill - amortisation 150 Preference shares (12,000) Net assets under IFRS 69,061 2003 net assets (at 1 January 2004) #000 Net assets under UK GAAP 86,629 Pensions and post-retirement benefits (net of (4,525) deferred tax) Preference shares (12,000) Net assets under IFRS 70,104 Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 44 30.Explanation of transition to IFRSs (continued) Transitional arrangements The rules for first time adoption of IFRS are set out in IFRS 1. In general a company is required to determine its IFRS accounting policies and apply these retrospectively to determine its opening balance sheet under IFRS. IFRS 1 allows a number of exceptions to this general requirement. The accounting for goodwill, share-based payments and property at market value has already been noted above. In addition, the Group has adopted the exemption that IAS 32 and IAS 39, both relating to financial instruments, need not be applied to the comparative periods. Under IAS 21 The effects of changes in foreign exchange rates, cumulative translation differences arising on consolidation of subsidiaries should be held in a separate reserve, rather than included in the profit and loss reserve; the Group has applied the exemption not to adopt this retrospectively and the reserve has been deemed to be #nil on 1 January 2004. Presentation of financial statements The Group's financial statements have been presented in accordance with IAS 1 Presentation of financial statements. Except for the reclassification of preference dividends as interest, there is no impact on reported profit before tax as a consequence of IAS 1. Where IAS 1 does not provide definitive guidance on presentation, for example in relation to aspects of the income statement, the Group has adopted a format consistent with UK GAAP requirements. This assists with comparing results with prior years. The format of the balance sheet has been amended to include items required by IAS 1 to be presented on the face of the balance sheet, including the requirement to analyse all assets and liabilities, including provisions, between current and non-current, and present deferred tax assets separately from deferred tax liabilities, rather than as a single net amount. Explanation of material adjustments to the cash flow statement for the year ended 31 December 2004 There are no material adjustments to the cash flow statement for the year ended 31 December 2004. All adjustments made are for presentation only. page 45 INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF CHEMETALL PLC We have audited the individual company financial statements of Chemetall PLC for the year ended 31 December 2005 which comprise the balance sheet and the related notes 1 to 16. These individual company financial statements have been prepared under the accounting policies set out therein. This report is made solely to the company's members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors' responsibilities for preparing the annual report and the individual company financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the statement of directors' responsibilities. Our responsibility is to audit the individual company financial statements in accordance with relevant United Kingdom legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the individual company financial statements give a true and fair view in accordance with the relevant financial reporting framework and whether the individual company financial statements have been properly prepared in accordance with the Companies Act 1985. We report to you if, in our opinion, the directors' report is not consistent with the individual company financial statements. We also report to you if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed. We read the directors' report and the other information contained in the annual report for the above year as described in the contents section and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the individual company financial statements. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the individual company financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the individual company financial statements, and of whether the accounting policies are appropriate to the company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the individual company financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the individual company financial statements. Opinion In our opinion: the individual company financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the company's affairs as at 31 December 2005; and the individual company financial statements have been properly prepared in accordance with the Companies Act 1985. Deloitte & Touche LLP Chartered Accountants and Registered Auditors St Albans, United Kingdom Date Chemetall PLC Company balance sheet Year ended 31 December 2005 page 46 Note 31 December 2005 31 December 2004 (restated) #000 #000 #000 #000 Fixed assets Intangible assets 4 2,588 2,890 Tangible assets 5 1,250 1,297 Investments 6 33,022 33,022 36,860 37,209 Current assets Stocks 7 1,346 1,124 Debtors 8 5,717 43,373 Cash at bank and in hand 43,194 293 50,257 44,790 Creditors: amounts falling due 9 (6,841) (4,923) within one year Net current assets 43,416 39,867 Total assets less current liabilities 80,276 77,076 Creditors: amounts falling due 10 (12,000) (12,000) after one year Provisions for liabilities and charges 11 (1,383) (629) Retirement benefit obligation 16 (5,640) (6,233) Net assets 61,253 58,214 Capital and reserves Called up share capital 12 6,889 6,889 Share premium account 13 29,757 29,757 Revaluation reserve 13 28,582 28,582 Profit and loss account 13 (3,975) (7,014) Shareholders' funds 14 61,253 58,214 These financial statements were approved by the Board of Directors on 26.04.2006. Signed on behalf of the Board of Directors Rob Rydings Director Chemetall PLC Notes to the company accounts Year ended 31 December 2005 page 47 1.Accounting policies The financial statements are prepared under the historical cost convention and in accordance with applicable United Kingdom accounting standards. The particular accounting policies adopted are described below. The company balance sheet at 31 December 2004 has been restated following the implementation of the following: FRS 17 Retirement Benefits, which requires the pension deficit to be recognised on the balance sheet; and FRS 25 Financial Instruments: Disclosure And Presentation, which requires the preference shares to be reclassified as financial liabilities. Turnover Turnover comprises the amounts receivable for the supply during the year of speciality chemicals and ancillary equipment, excluding value added tax and overseas sales taxes. Foreign Currencies Transactions denominated in foreign currencies are translated at the rate of exchange on the day the transaction occurs or at the contracted rate if the transaction is covered by a forward exchange rate contract. Assets and liabilities denominated in a foreign currency are translated at the exchange rate ruling on the balance sheet date or if appropriate at a forward contract rate. Exchange differences are included in the profit and loss account except that, where foreign currency borrowings have been used to finance equity investments in foreign currencies, exchange differences arising on the borrowings are dealt with through reserves to the extent that they are covered by exchange differences arising on the net assets represented by the equity investments. The accounts of overseas subsidiary and associated undertakings are translated into sterling in the consolidated accounts on the following basis: Profit and loss account items are translated at the average rate of exchange for the financial year. Assets and liabilities are translated at the rate of exchange ruling on the balance sheet date. Chemetall PLC Notes to the accounts (continued) Year ended 31 December 2005 page 48 1.Accounting policies (continued) Leases Operating lease rentals are charged to the profit and loss account on a straight line basis over the period of the lease. Provisions A provision is created and recognised as a liability only when the Company has a present obligation (legal or constructive) as a result of a past event and it is expected that a transfer of economic benefit will be required to settle that obligation and a reliable estimate of the amount of that transfer can be made. Vacant leasehold properties A provision is maintained in respect of vacant leasehold properties to take account of the net present value of the residual lease commitments over the long term planning period of five years or, if earlier, the period until which the Directors expect the properties to be sub-let. In determining the net present value, cash flows have been discounted using an appropriate nominal, risk-free, pre-tax rate of return (UK gilt for a 5 year period). Capitalisation of software Purchased software costs are capitalised and included within fixtures, fittings and equipment and depreciated in equal instalments over their estimated useful lives. Tangible fixed assets and depreciation Depreciation is provided to write off the cost less the estimated residual value of tangible fixed assets by equal instalments over their estimated useful economic lives as follows: Short leasehold property - Life of the lease Plant, machinery and equipment - 10-33% per annum Fixtures and fittings - 20% per annum No depreciation is provided on freehold land. Intangible fixed assets - patents and concessions Patent costs are amortised in line with the stated life of the patents, between 1 and 20 years. Goodwill On acquisition, the fair value of net assets is assessed and adjustments are made to bring the accounting policies of businesses acquired into alignment with those of the Company. The difference between the price paid for new interests and the fair value of identifiable net assets acquired is capitalised and amortised over its useful economic life, depending on the nature of the acquisition for a period not exceeding twenty years. Any costs of integrating the acquired business are taken to the profit and loss account. Goodwill relating to acquisitions prior to 5 April 1998, the date that Financial Reporting Standard No 10: Goodwill and Intangible Assets (FRS 10) became applicable to the company, has been written off to reserves. Goodwill previously eliminated against reserves is charged to the profit and loss account in so far as it relates to disposals in the year. Shares in subsidiary undertakings and fixed asset investments Shares in subsidiary undertakings are included in the Company's balance sheet at directors' valuation. Chemetall PLC Notes to the accounts (continued) Year ended 31 December 2005 page 49 1.Accounting policies (continued) Impairment of fixed assets and goodwill Fixed assets and goodwill are reviewed for impairment if events or changes in circumstances indicate that the carrying value of the fixed assets or goodwill may not be recoverable. The carrying amount is compared to the recoverable amount, defined as the higher of net realisable value and value in use. If the carrying amount exceeds the recoverable amount, the asset is written down accordingly. Pension The company operates pension schemes providing benefits based on final pensionable pay. The assets of the scheme are held separately from those of the company. FRS 17 Retirement Benefits has been adopted during the year and as a result the defined benefit pension liability is now recognised on the balance sheet. Research and development expenditure Expenditure on research and development is written off to the profit and loss account in the year in which it is incurred. Stocks Stocks are stated at the lower of cost and net realisable value. For work in progress and finished goods, cost is taken as production cost, which includes an appropriate proportion of attributable overheads. Work in progress is stated after deduction of any progress payments received. Deferred taxation Deferred taxation is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted. 2.Profit of the company The company has taken advantage of Section 230 of the Companies Act 1985 and consequently the profit and loss account of the parent company is not presented as part of these financial statements. The profit of the parent company for the financial year amounted to #2,317,000 (2004: loss #421,000). Chemetall PLC Notes to the accounts (continued) Year ended 31 December 2005 page 50 3.Staff numbers and costs The average number of persons employed by the company (including directors) during the period, analysed by category, was as follows: Number of employees Year ended 31 Year ended 31 December 2005 December 2004 94 96 Specialised Industrial Chemicals The aggregate payroll costs of these persons were as follows: Year ended 31 Year ended 31 December 2005 December 2004 #000 #000 Wages and salaries 3,624 3,106 Social security costs 367 341 Other pension costs 801 1,451 4,792 4,898 Chemetall PLC Notes to the accounts (continued) Year ended 31 December 2005 page 51 4.Intangible fixed assets Customer Patents and Goodwill Total contracts concessions #000 #000 #000 #000 Cost At 1 January 2005 and 31 December 2005 250 1,108 3,000 4,358 Amortisation At 1 January 2005 (10) (783) (675) (1,468) Charged in year (120) (32) (150) (302) At 31 December 2005 (130) (815) (825) (1,770) Net book value at 31 December 2005 120 293 2,175 2,588 Net book value at 31 December 2004 240 325 2,565 2,890 Patents and trademarks are amortised over their estimated useful lives, until expiry of legal rights. Historically, #10,597,000 of goodwill has been written off directly to the profit and loss reserve as a matter of accounting policy. 5. Tangible fixed assets Leasehold Plant and Fixtures, Total land and fittings, buildings machinery tools and equipment #000 #000 #000 #000 Cost At 1 January 2005 2,456 2,224 779 5,459 Additions 25 146 - 171 At 31 December 2005 2,481 2,370 779 5,630 Depreciation At 1 January 2005 (1,417) (1,981) (764) (4,162) Charge for the year (145) (66) (7) (218) At 31 December 2005 (1,562) (2,047) (771) (4,380) Net book value At 31 December 2005 919 323 8 1,250 At 31 December 2004 1,039 243 15 1,297 Chemetall PLC Notes to the accounts (continued) Year ended 31 December 2005 page 52 6.Fixed asset investments Shares in Group Undertaking #000 Company Cost or valuation and net book value At beginning and end of year 33,022 Investments are carried at directors' valuation. The original cost of the investments was #4,440,000 with the revaluation surplus of #28,582,000 being taken to the revaluation reserve. The undertakings in which the Company's interest at the period end is more than 20% are as follows: Country of Principal Class and percentage incorporation activity of shares held Company Subsidiary undertakings AM Craig Ltd England Holding 100% company ordinary Brent International BV The Investment 100% Netherlands company ordinary 7.Stocks 31 31 December December 2005 2004 #000 #000 Raw materials and consumables 355 348 Work in progress 13 32 Finished goods and goods for resale 978 744 1,346 1,124 Chemetall PLC Notes to the accounts (continued) Year ended 31 December 2005 page 53 8.Debtors 31 31 December December 2005 2004 #000 #000 Amounts falling due within one year: Trade debtors 3,183 2,566 Amounts due from group undertakings 822 39,342 Prepayments and accrued income 274 180 Deferred tax (see below) 1,438 1,285 5,717 43,373 Amounts due from group undertakings are due on or before 31 December 2006 (2004: 31 December 2005), unless those parties agree to extend the terms. Deferred taxation The amounts provided for deferred taxation and the amounts not provided are set out below: 31 December 2005 31 December 2004 Recognised Unrecognised Recognised Unrecognised #000 #000 #000 #000 Accelerated capital allowances 62 - 115 - Short-term timing differences 425 - 219 - Tax losses carried forward 951 2,155 951 2,155 1,438 2,155 1,285 2,155 Retirement benefit obligations * 2,418 - 2,671 - Deferred tax asset 3,856 2,155 3,956 2,155 *The deferred tax asset in respect of retirement benefit obligations has been offset against liability. 9.Creditors: amounts falling due within one year 31 31 December December 2005 2004 #000 #000 Trade creditors 1,181 1,082 Amounts owed to group undertakings 2,764 2,202 Taxation 343 12 Social security - 66 Accruals and deferred income 2,013 1,021 Preference dividend 540 540 6,841 4,923 Chemetall PLC Notes to the accounts (continued) Year ended 31 December 2005 page 54 10. Creditors: amounts falling due after one year 31 December 2005 31 December 2004 No. #000 No. #000 Authorised Non-equity: 9% redeemable preference shares of #1 each 15,000,000 15,000 15,000,000 15,000 Allotted, called up and fully paid Non equity: 9% redeemable preference shares of #1 each 12,000,000 12,000 12,000,000 12,000 The Company issued 12,000,000 9% redeemable preference shares of #1 each. These preference shares entitle their holders to a fixed cumulative preference dividend at a rate of 9% per annum, per share. On a winding up the preference shareholders are entitled to a sum equal to the nominal capital paid up or credited as paid up, on the preference shares held by them, together with all arrears (if any) of the preference dividend. They carry the right to receive notice of, or attend, or vote at General Meetings only in special circumstances such as when the preference dividend is six months or more in arrears or if redemption has not been made on the due date, or in such cases as a winding up of the Company or a reduction in its share capital. The preference shares have to be redeemed at par on 3 July 2008. The 9% redeemable preference shares are presented as "Creditors: amounts falling due after one year" in the balance sheet to comply with FRS 25 "Financial Instruments: Disclosure And Presentation". 11.Provision for liabilities and charges Vacant Other Total property provision provision #000 #000 #000 At 1 January 2005 412 217 629 Charge for the year 900 - 900 Utilisation in the year (68) (78) (146) At 31 December 2005 1,244 139 1,383 12. Called up share capital 31 December 2005 31 December 2004 No. #000 No. #000 Authorised Equity: Ordinary shares of 10p each 91,948,000 9,195 91,948,000 9,195 Allotted, called up and fully paid Equity: Ordinary shares of 10p each 68,888,817 6,889 68,888,817 6,889 The 9% redeemable preference shares are presented as "Creditors: amounts falling due after one year" in the balance sheet to comply with FRS 25 "Financial Instruments: Disclosure And Presentation". Chemetall PLC Notes to the accounts (continued) Year ended 31 December 2005 page 55 13.Share premium and reserves Revaluation Share Profit reserve premium and loss account account #000 #000 #000 At 1 January 2005 28,582 29,757 (7,014) Retained profit for the year - - 2,317 Retirement benefit obligations - - 722 At 31 December 2005 28,582 29,757 (3,975) Cumulative goodwill resulting from acquisitions made prior to 31 December 1998 of #10,597,000 has been written off to the profit and loss account reserve of the Company as at 31 December 2004 and 31 December 2003. At 31 December 2005, the realised distributable reserves of the company amounted to #1,510,000 (2004: #4,694,000). 14.Reconciliation of movements in shareholder funds 31 31 December December 2005 2004 (restated) #000 #000 At 1 January (as previously stated) 76,447 76,868 Reclassification of preference shares as a financial liability (12,000) (12,000) Retirement benefit obligations (6,233) (4,538) At 1 January (as restated) 58,214 60,330 Profit for the year 2,317 41 Retirement benefit obligations 722 (2,157) At 31 December 2005 61,253 58,214 15.Commitments Annual commitments under non-cancellable operating leases are as follows 31 31 31 31 December December December December 2005 2005 2004 2004 Land and Land and Buildings Other Buildings Other #000 #000 #000 #000 Operating leases which expire: Within one year 4 263 - 226 In the second to fifth years inclusive 35 236 20 330 Over five years 441 - 453 - 480 499 473 556 Chemetall PLC Notes to the accounts (continued) Year ended 31 December 2005 page 56 16.Pension scheme The company operated two funded defined benefit schemes which provide for their liabilities through trustee operated funds. In July 2004, the remaining active members of the Metallgesellschaft Group Pension Scheme were transferred to the Chemetall UK Pension Scheme, which provides benefits based on final pensionable pay, at a cost of #800,000. The assets of the scheme are held separately from those of the company in a trustee administered fund. The trustees comprise senior group employees and the assets are managed by Legal & General Assurance (Pensions Management ) Limited. Contributions to the scheme are charged to the profit and loss account so as to spread the costs of pensions over employees working lives within the company. The company does not have any health and medical plans providing post-retirement benefits. The pension costs relating to the Chemetall UK and Process Ink schemes are assessed in accordance with the advice of Aon Limited, the independent actuaries, using, in the case of the Chemetall UK scheme, the projected unit method. The table below illustrates that, under the Minimum Funding Requirement (MFR), the Process Ink Scheme (which is a paid-up scheme from 30 June 1999, with the exception of one member who is in receipt of ill health benefits and as a result continues to accrue pension benefits) has deficits in relation to current accrued benefits. This deficit is being funded by monthly contributions (up to 19 November 2012) of #300. The Chemetall UK scheme was sufficiently funded under the MFR. Scheme Last Assumed Average Total Funding actuarial Investment salary market level value valuation Return per increase value of of assets as annum per annum assets percentage of at latest liabilities* valuation dates Chemetall UK Pension scheme 1 January 6% 4% #14.9m(3) 92% 2003 Process Ink Company Limited Pension and Death Benefits Plan 1 January 9%(1) 4%(2) #2.9m 102% 2002 (1) The rate of return is assumed to reduce to 8% per annum from each member's normal retirement age. (2) This is the assumed rate of revaluation of deferred pensions up to normal retirement date. (3) The market value of the assets includes additional voluntary contributions. The pension increases were assumed to be equal to those specified in the rules of the schemes. Pension increases in payment in line with retail prices but capped at 5% were assumed to be 3% per annum (31/2% for the Process Ink Scheme) and pensions increasing in line with retail prices without a cap were assumed to be 3% per annum (4% for the Process Ink Scheme). *For the Chemetall UK scheme, this gives an indication of the extent to which the actuarial value of the assets secure the benefits that have been accrued to members allowing for expected future statutory revaluations to deferred pensions. Chemetall PLC Notes to the accounts (continued) Year ended 31 December 2005 page 57 16.Pension scheme (continued) Included in the balance sheet at 31 December 2005 is a pension accrual of #nil (31 December 2004: #69,000). Included in the balance sheet at 31 December 2005 is a pension accrual of #126,000 (31 December 2004: #137,000) in respect of a deferred pensioner who, under the terms of the severance agreement, has the option to retire before the normal retirement dates on enhanced benefits. The major assumptions used in the FRS 17 valuation were: 31 31 31 December December December 2005 2004 2003 #000 #000 #000 Rate of increase in salaries 4.5% 4.5% 4.25% Rate of increase in pensions in payment - Ex Brent members pre '97 Nil Nil Nil - Ex Winnets members pre '97 3.0% 3.0% 3.0% - Process directors 8.5% 8.5% 8.5% - All post '97 3.0% 3.0% 2.75% Discount rate 4.75% 5.25% 5.75% Inflation assumptions 3.0% 3.0% 2.75% The rates used have been chosen from a range of possible amounts determined using actuarial assumptions which due to the timescale covered may not necessarily be borne out in practice. Scheme assets The fair value of the assets in the schemes (which are not intended to be realised in the short term and may be subject to significant change) and the present value of the schemes liabilities (which are derived from cash flow projections over long periods and thus inherently uncertain) were: Value at 31 Value at 31 Value at 31 December 2005 December 2004 December 2003 Chemetall Process Chemetall Process Chemetall Process Ink Ink Ink #000 #000 #000 #000 #000 #000 Market value of assets 22,014 3,020 19,016 2,777 15,604 2,543 Present value of scheme liabilities (29,086) (4,006) (27,156) (3,541) (21,520) (3,110) Deficit in the scheme (7,072) (986) (8,140) (764) (5,916) (567) Related deferred tax asset 2,122 296 2,442 229 1,775 170 Net pension liability (4,950) (690) (5,698) (535) (4,141) (397) Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 58 16.Pension scheme (continued) Operating results and other disclosures Chemetall Process 31 UK Ink December Pension Scheme 2005 Scheme Total #000 #000 #000 Analysis of the amount charged to operating loss: Service cost (554) (10) (564) Past service cost - - - Total operating charge (554) (10) (564) Analysis of the net return: Expected return on the pension scheme assets 1,231 164 1,395 Interest on pension scheme liabilities (1,420) (183) (1,603) Net charge (189) (19) (208) Analysis of amount recognised in the statement of total recognised gains and losses: Actual return less expected return on assets 1,913 192 2,105 Experience gains and losses on liabilities 1,405 (57) 1,348 Changes in assumptions (2,140) (338) (2,478) Actuarial gain/(loss) recognised in the statement of total recognised gains and losses 1,178 (203) 975 Movement in deficit during the period: Deficit at 31 December 2004 (8,140) (764) (8,904) Movement in the period: Current service cost (554) (10) (564) Contributions 633 10 643 Net interest cost 189 19 208 Acquisitions - - - Actuarial gain/(loss) 1,178 (203) 975 Deficit at 31 December 2005 (7,072) (986) (8,058) Details of experience gain and losses in the period: Difference between the expected and actual return on assets 1,913 192 2,105 Percentage of Assets 9% 6% 10% Experience gains and losses on liabilities 1,405 (57) 1,348 Percentage of present value of liabilities 5% (1)% 4% Total amount recognised in statement of total recognised gains and losses 1,178 (203) 975 Percentage of present value of liabilities 4% (5)% 3% Chemetall PLC Notes to the accounts Year ended 31 December 2005 page 59 16.Pension scheme (continued) Operating results and other disclosures Chemetall Process 31 UK Ink December Pension Scheme 2004 Scheme Total #000 #000 #000 Analysis of the amount charged to operating profit: Service cost (419) (9) (428) Past service cost - - - Total operating charge (419) (9) (428) Analysis of the net return: Expected return on the pension scheme assets 1,127 156 1,283 Interest on pension scheme liabilities (1,278) (176) (1,454) Net charge (151) (20) (171) Analysis of amount recognised in the statement of total recognised gains and losses: Actual return less expected return on assets 1,042 189 1,231 Experience gains and losses on liabilities (168) (36) (204) Changes in assumptions (2,856) (328) (3,184) Actuarial loss recognised in the statement of total recognised gains and losses (1,982) (175) (2,157) Movement in deficit during the period: Deficit at 31 December 2003 (5,916) (567) (6,483) Movement in the period: Current service cost (419) (9) (428) Contributions 521 7 528 Net interest cost (151) (20) (171) Acquisitions (193) - (193) Actuarial loss (1,982) (178) (2,157) Deficit at 31 December 2004 (8,140) (764) (8,904) Details of experience gain and losses in the period: Difference between the expected and actual return on assets 1,042 189 1,231 Percentage of Assets 5% 7% 7% Experience gains and losses on liabilities (168) (36) (204) Percentage of present value of liabilities (1)% (1)% (1)% Total amount recognised in statement of total recognised gains and losses (1,982) (175) (2,157) Percentage of present value of liabilities (7)% (5)% (7)% Chemetall PLC Notes to the accounts (continued) Year ended 31 December 2005 page 60 16.Pension scheme (continued) Chemetall Process 31 UK Ink December Pension Scheme 2003 Scheme Total #000 #000 #000 Analysis of the amount charged to operating profit: Service cost (434) (11) (445) Past service cost - - - Total operating charge (434) (11) (445) Analysis of the net return: Expected return on the pension scheme assets 1,073 165 1,238 Interest on pension scheme liabilities (1,413) (246) (1,659) Net charge (340) (81) (421) Analysis of amount recognised in the statement of total recognised gains and losses: Actual return less expected return on assets 417 7 424 Experience gains and losses on liabilities 290 112 402 Changes in assumptions (955) 302 (653) Actuarial (loss)/gain recognised in the statement of total recognised gains and losses (248) 421 173 Movement in deficit during the period: Deficit at 31 December 2002 (5,371) (907) (6,278) Movement in the period: Current service cost (434) (11) (445) Contributions 477 11 488 Net interest cost (340) (81) (421) Actuarial (loss)/gain (248) 421 173 Deficit at 31 December 2003 (5,916) (567) (6,483) Details of experience gain and losses in the period: Difference between the expected and actual return on assets 417 7 424 Percentage of Assets 3% 0% 2% Experience gains and losses on liabilities 290 112 402 Percentage of present value of liabilities 1% 4% 2% Total amount recognised in statement of total recognised gains and losses (248) 421 173 Percentage of present value of liabilities (1)% 14% 1% Chemetall PLC Notes to the accounts (continued) Year ended 31 December 2005 page 61 16.Pension scheme (continued) Until July 2004 the Group participated in a defined benefit scheme operated by its parent company the Metallgesellschaft Group Pension Scheme (MGPS). From July 2004 the remaining active group members were transferred to the Chemetall UK pension scheme. The Group charge for the period to the MGPS was #nil (31 December 2004: #49,918). Chemetall UK Pension Scheme Return at 31 Value at 31 Return at 31 Value at 31 Return at 31 Value at 31 December 2005 December 2005 December 2004 December 2004 December 2003 December 2003 #000 #000 Equities 7.95% 9,446 7.75% 9,643 8.00% 8,327 Corporate bonds 4.75% 7,496 5.25% 5,716 5.75% 4,205 Government bonds 4.10% 3,225 4.50% 2,451 5.00% 1,797 Property 7.95% 1,704 7.75% 1,220 8.00% 1,107 Cash 4.10% 143 4.50% 166 5.00% 168 Overall rate of 6.25% 22,014 6.50% 19,016 7.00% 15,604 return Process Ink Scheme Return at 31 Value at 31 Return at 31 Value at 31 Return at 31 Value at 31 December 2005 December 2005 December 2004 December 2004 December 2003 December 2003 #000 #000 #000 Equities 7.95% 1,322 7.75% 1,188 8.00% 1,024 Corporate bonds 4.75% - 5.25% - 5.75% - Government bonds 4.10% 1,684 4.50% 1,622 5.00% 1,505 Property 7.95% - 7.75% - 8.00% - Cash 4.10% 14 4.50% (33) 5.00% 14 Overall rate of 5.75% 3,020 6.00% 2,777 6.25% 2,543 return This information is provided by RNS The company news service from the London Stock Exchange END FR BDGDSLSDGGLR
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