89
Annual Report and Accounts 2014
COMMENTARY ON THE CONSOLIDATED BALANCE SHEET
Net debt
Net debt at the year-end was £200m compared to £199m at the end of the
previous year (including net cash of £27m shown as held for sale in 2013).
The net debt is composed of a cash balance of £44m (2013: £100m), a bank
overdraft of £23m (2013: £9m) and interest-bearing loans and borrowings of
£221m (2013: £290m). The year-end net debt to EBITDA ratio was 0.5 times
(2013: 0.5 times) based on continuing net debt and EBITDA and was 0.6 times
excluding disposal gains and one-off pension gains from the continuing EBITDA.
Following the repayment of US$30m during the year, at the end of 2014 the US
loan notes totalled £218m (2013: £225m), with a weighted average maturity
of 3.4 years (2013: 4.1 years) and other loans including bank overdrafts totalled
£26m (2013: £74m). Total committed bank loan facilities available to the Group at
the year-end were £272m (2013: £275m), of which £nil (2013: £60m) was drawn.
Intangible assets
The value of the Group’s intangible assets decreased to £368m at 31 December
2014 (2013: £430m). Additions to intangible assets were £18m (2013: £8m),
including £10m of IT related capital expenditure which partly offset the continuing
amortisation charge, foreign exchange movements and disposals. The impairment
charge for the year was £43m.
Property, plant and equipment (‘PPE’)
The net book value of the Group’s PPE at 31 December 2014 was £227m
(2013: £223m). Capital expenditure on PPE amounted to £53m (2013: £42m),
with significant capital expenditure on our new sites in Korea and Houston in the
Critical Engineering division. Including capitalised intangible assets, total capital
expenditure was £71m (2013: £53m) and was 1.9 times (2013: 1.2 times) the
depreciation and amortisation charge (excluding acquired intangible amortisation)
for the year of £38m (2013: £44m).
Working capital
The working capital movements during the year are discussed in the narrative
opposite the consolidated cash flow statement, where the cash movements in
these balances are shown, including movements on the components of working
capital included in assets and liabilities held for sale.
Pensions
The Group has 64 (2013: 74) defined benefit obligations in existence as at 31
December 2014. The main cause of the movement in the year is the ten schemes
divested with the Retail Dispense businesses on 1 January 2014. The Group
recognises there is a funding and investment risk inherent within defined benefit
arrangements and seeks to continue its programme of closing overseas defined
benefit plans where they are neither mandatory nor an operational necessity and
providing in their place appropriate defined contribution arrangements.
The net liability for defined benefit obligations at 31 December 2014 was £35m
(2013: £158m). The UK surplus was £60m as at 31 December 2014 (2013: deficit
of £63m) and constituted 84% (2013: 83%) of the total defined benefit liabilities
and 90% (2013: 89%) of the total defined benefit assets. The improvement in the
UK Funds in 2014 principally arose from additional cash contributions of £70m,
actuarial gains of £50m and a one-off reduction in the defined benefit obligation
as a result of splitting the scheme.
The deficit in the overseas funds as at 31 December 2014 was unchanged at
£95m (2013: £95m).
Details of movements in actuarial assumptions are discussed in section 4.5.
Foreign exchange and interest rate risk
Further information on how the Group manages its exposure to these financial
risks is shown in section 4.4 of the financial statements on page 114. The most
important foreign currencies for the Group remain the euro and the US dollar
and the relevant closing rates of exchange for the balance sheet were:
As at 31 December
2014
2013
Euro
1.29
1.20
US dollar
1.56
1.65
Economic value added
Economic value added (‘EVA’) is defined as segmental operating profit (before
exceptional items) after tax less a capital charge. The capital charge is arrived
at by applying the after-tax weighted average cost of capital to the average
invested capital. Invested capital is defined as net assets plus net debt,
accumulated acquired intangible amortisation previously written off, the IAS19
pension deficit (net of deferred tax) and exceptional items in the balance sheet
(being restructuring provisions and net derivative liabilities).
For 2014 the segmental operating profit was £298m (2013: £322m), and after
applying the effective tax rate on pre-exceptional profits of 22% (2013: 22%) the
net operating profit after tax (‘NOPAT’) was therefore £233m (2013: £251m).
The Group’s invested capital at the end of 2014 was £1,268m (2013: £1,271m)
comprising £577m (2013: £574m) of adjusted net assets, £491m (2013:
£471m) of acquired intangible amortisation and goodwill previously written off
to reserves and £200m (2013: £226m) net debt. The average invested capital
was £1,269m (2013: £1,276m). Applying the 2014 WACC of 9.0% (2013:
8.0%) to the average invested capital gives a charge of £114m (2013: £102m).
The economic value added in 2014 was therefore £118m (2013: £149m) a
reduction of 21%.
Return on invested capital
Post tax return on invested capital (‘ROIC’) from continuing operations was
18.3% compared to 19.7% in 2013.
Share price and shareholder return
The share price at 31 December 2014 was £12.63 (2013: £15.25) and the
average for the year was £14.02 (2013: £13.47) representing a decrease of
17% and an increase of 4% respectively. Based on the 2014 average share
price, the proposed total dividend of 37.6p represents a yield of 2.7%.
