Avecia currently has six manufacturing facilities in three countries. The sites are principally organic chemistry facilities and formulation facilities. The table below lists the main characteristics of Avecia’s significant sites, based on net book value of land and buildings:
Avecia’s manufacturing capabilities operate at many different levels of scale, depending on the nature of the business and the product. Consequently no meaningful comparatives of production capacity can be derived. All of Avecia’s manufacturing assets are in use, except for certain Chemicals assets relating to Pharmaceutical Intermediates at Grangemouth, UK, and the DNA facility at Grangemouth, UK. Of the assets in use, nearly all have sufficient spare capacity to satisfy expected customer demand in the near term.
The site at Seal Sands, UK, was disposed of as part of the Biocides disposal in April 2004 and the site at Waalwijk Netherlands was disposed as part of the NeoResins disposal in February 2005.
Following divestments of certain of its businesses since 1999, the company presently has six principal operating sites, at Grangemouth, Billingham and Huddersfield in the UK; New Castle, Delaware, USA; Milford, Massachusetts, USA; and Toronto, Canada. In addition the group owns a combined research & development, process technology and headquarters establishment at Blackley, UK. All of these sites are freehold or long leasehold (or local equivalent) and, at Grangemouth, Blackley and New Castle, some parts of the sites not required for the purposes of the company’s continuing business have been leased to purchasers of businesses divested from the group or to site utility providers, or other third party leases or occupation have been established. At Grangemouth where the company’s title is freehold (or local equivalent), Syngenta Group businesses also occupy part of the site under long leases from the company and, at Huddersfield where the company’s title is long leasehold, Syngenta retains the freehold interest in the site. These long leases where Avecia or Syngenta is the tenant provide that the leases will come to an end if the relevant property ceases to be used for the manufacture of chemicals in commercial quantities. In this event, the tenant is obliged to clear the site by demolishing buildings and to carry out environmental remediation works. In the case of Grangemouth, Syngenta also has options to re-acquire part of the property if the site ceases to be used for the manufacture of chemicals in commercial quantities.
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Avecia Group plc
20-F
Year ended December 31, 2004
Following divestments, Avecia no longer holds any interest in sites at Saint Clair du Rhone, France; Mount Pleasant, Tennessee (save in respect of a small part of the site occupied under lease by Image Polymers Corporation in which the company has a 50% interest); Wilmington, Massachusetts, USA; Waalwijk, The Netherlands; or Parets, Spain. Avecia’s lease of the east site at Huddersfield, which related exclusively to the Biocides business, was also transferred to the buyer of that business in April 2004.
Environmental matters
Avecia’s Safety, Health and Environmental Policy and Management System is applicable to all sites and businesses wherever they are located and Avecia’s operations are experienced and effective in containing and handling a range of aggressive chemicals. The business units have procedures covering matters such as waste management, safety systems, soil and groundwater protection, emergency plans and product stewardship. Performance is monitored internally and reviewed to facilitate the achievement of continuous improvement in this area.
Production and marketing of chemical substances are regulated by national and international laws. Although almost every country has its own legal procedures for chemical registration and import, laws and regulations in the European Union, the United States and Japan are most significant to the business, including the European inventory of existing commercial chemical substances, the European list of notified chemical substances, the United States Toxic Substances Control Act and the chemical list of the Japanese Ministry of Trade and Industry. Chemicals which are on one or more of the above lists can usually be registered and imported without additional testing in any other country, although additional administrative hurdles may exist.
Avecia will continue to invest in plant and equipment so as to ensure compliance with relevant environment regulations. However there are no current major planned projects relating to environmental control facilities which would result in any material capital expenditure.
Avecia has, since 1999, made a number of divestments of businesses and assets. Notably, as a result of such disposals, Avecia no longer has ownership of its former sites at St Clair du Rhone, France; Mount Pleasant, Tennessee, USA (except for its interest in Image Polymers Corporation at part of that site); Wilmington, Massachusetts, USA; Frankfort, Indiana, USA; Waalwijk, The Netherlands; Parets, Spain; and part of its site at Huddersfield, UK. Its remaining principal operational sites are at Grangemouth, UK; Billingham, UK; Huddersfield, UK (being the remaining part of the site originally acquired by Avecia in 1999); New Castle, Delaware, USA; Milford, Massachusetts, USA; and Toronto, Canada. In addition, Avecia has ownership of its site at Blackley, UK, where its corporate offices are located together with certain business headquarters and research & development activities.
As part of the acquisition of Zeneca Specialties, Avecia entered into an Environmental Deed of Covenant with AstraZeneca. Under the Environmental Deed, AstraZeneca agreed, amongst other things, to indemnify Avecia against certain environmental liabilities, or to bear part of remediation costs incurred in soil and groundwater contamination, subject to time limits and maximum caps on claims in certain cases. Where applicable, at the end of the relevant time limit during which potential claims may be brought against AstraZeneca under the Environmental Deed, AstraZeneca will cease to have further liability to Avecia under the Environmental Deed and Avecia will be responsible for such matters. The general time limit for potential claims under the Environmental Deed in respect of sites which Avecia continues to own is June 2009 but there is no time limit applicable in respect of possible environmental matters associated with sites not acquired by Avecia in 1999 but which had previously been part of AstraZeneca’s Specialty Chemicals business. When it has made a divestment of its businesses, purchasers have generally assumed liability for environmental matters occurring prior to the date of disposal and there has been assigned to the relevant purchaser part of benefit of the Environmental Deed relating to the operations it has acquired and assumed Avecia’s obligations under the Environmental Deed in respect of those operations.
The ultimate requirement for remediation work and its cost are difficult to estimate. However, where such costs are not within the scope of the indemnities provided by the deed of covenant referred to above, and where such costs are deemed probable and identifiable, provision has been made in the financial statements.
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| Registered number: 3768265 | 23 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Intellectual property
Avecia’s business is dependent to a large extent on intellectual property rights, principally patents, trade marks, domain names and accumulated technical know-how.
Where appropriate, new technology is protected, particularly active ingredients and formulations ingredients, their applications and their manufacturing processes, by seeking patent protection, typically through patent registration in major markets. In addition to patent protection, the business also relies on the know-how and technical expertise in many of the manufacturing processes for developing and maintaining market position. Trade-marks are a valuable means for associating goods with Avecia as manufacturer, in particular the trade mark ‘Avecia’ provides a uniform trading name for Avecia companies to operate under.
Although Avecia disposed of its Biocides and Additives businesses in 2004, Avecia still has over 2,100 patents and patent applications grouped in over 370 patent families, each representing a distinct invention, 82 percent of which have been filed since 1993. These patent families support, in particular, Electronic Materials (221),Chemicals, and Biotechnology (150). Avecia has over 200 pending and registered trade-marks in nearly 30 trade-mark families. In addition, Avecia has a number of valuable licenses in intellectual property owned by AstraZeneca and Syngenta, although these licenses could be terminated upon certain trigger events such as patent validity challenges or insolvency.
Avecia believes that its intellectual property rights, in particular its patent portfolio, is an important factor in protecting its businesses from price erosion. The loss of such intellectual property rights would be expected to have a material adverse effect on profitability. However, given the number of patents in Avecia’s portfolio, their diverse nature and their remaining lifetimes, such a loss is not likely on a concerted basis.
Item 5 Operating and financial review and prospects
Overview
Avecia is a global group of focused specialty chemicals businesses that develops, manufactures and sells high quality, technologically advanced, value-added chemical products to customers in a wide range of industries. For the year ended December 31, 2004, Avecia businesses generated turnover of £407.2 million.
The three main business segments of the group as at December 31, 2004 were:
| • | Discontinued operations (including Specialty products and NeoResins) |
In 2004, 34.7% of group sales were in the Americas, 50.5% were in Europe, and 14.8% were in the rest of the world. In addition, Avecia also has an “other” business segment that consists of the provision of non-manufacturing services to third parties in the UK, and central costs.
Currency fluctuation
Our business operations are geographically diversified, with sales in 2004 to over 70 countries and six manufacturing facilities located in three countries. In 2004, 72% of sales were made outside the United Kingdom and over 60% of the fixed production and cost base was in the United Kingdom. Results of operations and financial position are therefore significantly impacted by the fluctuation of the pound sterling against the other major currencies in which the group transacts business, primarily the US Dollar, the Japanese Yen, and Euro.
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| Registered number: 3768265 | 24 |
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Avecia Group plc
20-F
Year ended December 31, 2004
The following table illustrates the fluctuations of the pound sterling against the group’s principal trading currencies since 2001 and the percentage of our turnover and costs in pound sterling and the other major currencies in which the group transacts business:
| | | Pound appreciation/ (depreciation)
| | % Turnover (a)
| | % Costs (b)
| |
| | | 2004-2003 | | 2003-2002 | | 2002-2001 | | 2004 | | 2003 | | 2002 | | 2004 | | 2003 | | 2002 | |
| | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| US Dollar | | 12% | | 9% | | 4% | | 30% | | 37% | | 42% | | 27% | | 33% | | 33% | |
| Euro/equivalent | | 1% | | (9% | ) | (1% | ) | 33% | | 27% | | 21% | | 27% | | 23% | | 17% | |
| Japanese Yen | | 4% | | 1% | | 8% | | 5% | | 6% | | 6% | | 4% | | 5% | | 4% | |
| Pound Sterling | | — | | — | | — | | 28% | | 27% | | 28% | | 39% | | 37% | | 44% | |
| | |
| (a) | percentage of group turnover in each of the currencies. |
| (b) | percentage of group fixed and variable costs in each of the currencies. |
In order to manage currency exposure not absorbed by debt service, the group uses forward foreign exchange contracts and other appropriate hedging instruments to further mitigate group currency exposure.
Divested operations
In July 2001, the Novacote business, which formed part of the Stahl class of business, was sold. Subsequently the disposal of the remainder of the Stahl business was completed in January 2002. On July 31, 2003 Metal Extraction Products and Intermediates and Stabilizers were sold. Additives was sold on January 31, 2004 and the Biocides sale was completed on April 2, 2004. Special Drug Mixtures was sold on 22 November 2004. NeoResins was sold on February 2, 2005, and Displays was sold on February 28, 2005.
Financial results
Set forth below is a discussion of the financial condition and results of operations for the company. This discussion should be read in conjunction with our consolidated financial statements and notes included herein, which have been prepared in accordance with UK GAAP.
Year ended December 31, 2004 compared to the year ended December 31, 2003
The following table sets forth turnover for each of 2004 and 2003.
| | | Year ended
December 31,
2004 | | Year ended
December 31,
2003 | | Actual %
change | |
| | |
| |
| |
| |
| | | £ million | | £ million | | | |
| Businesses | | | | | | | |
| Continuing operations: | | | | | | | |
| Biotechnology | | 55.7 | | 30.5 | | 82.6 | |
| Chemicals | | 77.8 | | 92.0 | | (15.4 | ) |
| Electronic Materials | | 61.5 | | 63.0 | | (2.4 | ) |
| Central | | 5.1 | | 0.1 | | n/a | |
| |
| |
| |
| |
| Turnover from continuing operations | | 200.1 | | 185.6 | | 7.8 | |
| Discontinued operations: | | 207.1 | | 299.6 | | (30.9 | ) |
| |
| |
| |
| |
| Total historical turnover | | 407.2 | | 485.2 | | (16.1 | ) |
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| Registered number: 3768265 | 25 |
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Avecia Group plc
20-F
Year ended December 31, 2004
The following table sets forth operating (loss)/ profit for each of 2004 and 2003:
| | | Year ended
December 31,
2004 | | Year ended
December 31,
2003 | | Change in
Operating
Profit | | Change in
Depreciation
& Amortization | |
| | |
| |
| |
| |
| |
| | | £ million | | £ million | | £ million | | £ million | |
| Businesses | | | | | | | | | |
| Continuing operations: | | | | | | | | | |
| Biotechnology | | (9.6 | ) | (17.2 | ) | 7.6 | | (2.6 | ) |
| Chemicals | | (31.3 | ) | (70.1 | ) | 38.8 | | 41.9 | |
| Electronic Materials | | 5.8 | | 3.8 | | 2.0 | | 1.7 | |
| Other including unallocated cost | | (31.0 | ) | (46.4 | ) | 15.4 | | 19.4 | |
| Restructuring and site closure costs | | (17.6 | ) | — | | (17.6 | ) | — | |
| | |
| |
| |
| |
| |
| Operating (loss)/profit from continuing operations | | (83.7 | ) | (129.9 | ) | 46.2 | | 60.4 | |
| Discontinued operations | | 33.3 | | 48.8 | | (15.5 | ) | 2.1 | |
| | |
| |
| |
| |
| |
| Total operating (loss)/profit | | (50.4 | ) | (81.1 | ) | 30.7 | | 62.5 | |
| | |
| |
| |
| |
| |
In Biotechnology sales were significantly improved in 2004 in DNA medicines by manufacture and supply for a customer’s phase III clinical trial and potential launch program, whereas in 2003 an extensive validation program had precluded manufacture and supply to that customer. Sales also improved as more customer manufacturing programs were completed in 2004 in our small-scale Biologics manufacturing facility than in 2003.
These increased sales helped to significantly reduce the operating losses in the Biotechnology business, despite a significant increase in operating costs in Biologics as resource was increased to operate the new large scale manufacturing plant, which commenced operating in 2004.
In Chemicals, sales in 2004 were reduced by the impact of the disposal of the Intermediates and Stabilizers business in July 2003. Increased sales of Agrochemical Intermediates due to increased customer demand in 2004 was offset by reduced customer demand in Pharmaceutical Intermediates in 2004, primarily due to cessation of supply to one major customer during 2003.
Operating losses in Chemicals were significantly lower in 2004 due to the reduced impairment changes taken against assets (£22.3 million in 2004 compared with £55.9 million in 2003), and the consequent reduction in annual depreciation charges in 2004. Reduced margins arising from the reductions in sales described above were offset by reductions in fixed costs arising from restructuring initiatives commenced in mid 2004.
Reductions in sales in Electronic Materials in 2004 were primarily attributable to the effect of the significant weakening of the US Dollar against £ Sterling during 2004, offset by increased customer demand for new Electronic Materials products.
At operating profit level, the improvements in margins arising from the increased sales described above and reductions in fixed costs from efficiency improvements and restructuring outweighed the adverse impacts of foreign currency changes.
Sales arising from our discontinued operations were reduced in 2004 due to the impacts of the disposal of the Specialty Products business early in 2004. These disposals had a similar impact on operating profits. Within this group of businesses, NeoResins managed to increase its sales by 3% despite adverse currency impacts due to increased demand for its products from coatings and graphic arts customers. This improvement in sales translated into improved operating profits for the NeoResins business despite adverse price pressure on raw materials.
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| Registered number: 3768265 | 26 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Analysis of other items and net losses
| | | 2004 | | 2003 | | £m change | |
| | |
| |
| |
| |
| Share of profit from JV | | (6.9 | ) | 1.7 | | (8.6 | ) |
| Profit on disposal of business | | 98.6 | | 15.4 | | 83.2 | |
| Net interest and finance costs | | (20.5 | ) | (29.6 | ) | 9.1 | |
| Taxation | | (1.9 | ) | (0.9 | ) | (1.0 | ) |
| | | | | | | | |
| Net profit/(loss) | | 18.9 | | (94.5 | ) | 113.4 | |
Share of operating profits from our Joint Venture, Image Polymers, reduced in 2004 due to an impairment change taken against goodwill relating to the Joint Venture.
The profit on disposal represents the profits realized through the sale of Additives and Biocides in 2004. In 2003 the profit on disposal represents the profits realized through the sale of the Metal Extraction Products and Intermediates & Stabilizers businesses to Cytec.
Analysis of net interest and finance costs
| | | 2004 | | 2003 | | £m change | |
| | |
| |
| |
| |
| Net interest payable on Bank loans | | (6.0 | ) | (10.6 | ) | 4.6 | |
| Interest on other loans | | (34.2 | ) | (39.5 | ) | 5.3 | |
| Net exchange gains and losses | | 32.1 | | 28.1 | | 4.0 | |
| Amortization of finance fees | | (10.2 | ) | (4.8 | ) | (5.4 | ) |
| FRS 17 | | (2.1 | ) | (2.4 | ) | 0.3 | |
| Other finance costs | | (0.3 | ) | (0.4 | ) | 0.1 | |
| | |
| |
| |
| |
| | | (20.7 | ) | (29.6 | ) | 8.9 | |
| | |
| |
| |
| |
Net interest payable on bank loans decreased in 2004 due to the reduction in bank debt arising from term debt repaid from the disposals in 2003 and 2004.
Interest on other loans represents interest paid in US Dollars on the 11% senior notes, and the reduction in 2004 reflects the weakening of the US Dollar to Sterling exchange rate in 2004.
Under UK GAAP the finance fees associated with raising debt in 1999 were capitalized at that time and are written back against profit over the lifetime of the loans. With the early repayment of debt, the relevant amount of unamortized fees was written off and this increased the charge to profit in 2004.
Taxation increased in 2004 due to the impact of the improvement in net profits in jurisdictions where there were no tax losses to offset these profits.
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| Registered number: 3768265 | 27 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Year ended December 31, 2003 compared to the year ended December 31, 2002
The following table sets forth turnover for each of 2003 and 2002.
| | | Year ended
December 31,
2003 | | Year ended
December 31,
2002 | | Actual %
change | |
| | |
| |
| |
| |
| | | £ million | | £ million | | | |
| Businesses | | | | | | | |
| Continuing operations: | | | | | | | |
| Biotechnology | | 30.5 | | 49.4 | | (38.3 | ) |
| Chemicals | | 92.0 | | 136.3 | | (32.5 | ) |
| Electronic Materials | | 63.0 | | 63.8 | | (1.3 | ) |
| Other | | 0.1 | | 0.6 | | (83.3 | ) |
| |
| |
| |
| |
| Turnover from continuing operations | | 185.6 | | 250.1 | | (25.8 | ) |
| Discontinued operations | | 299.6 | | 325.6 | | (8.0 | ) |
| |
| |
| |
| |
| Total historical turnover | | 485.2 | | 575.7 | | (15.7 | ) |
| | |
| |
| |
| |
The following table sets forth operating (loss)/ profit for each of 2003 and 2002:
| | | Year ended
December 31,
2003 | | Year ended
December 31,
2002 | | Change in
Operating
Profit | | Change in
Depreciation &
Amortization | |
| | |
| |
| |
| |
| |
| | | £ million | | £ million
Restated | | £ million | | £ million | |
| Businesses | | | | | | | | | |
| Continuing operations: | | | | | | | | | |
| Biotechnology | | (17.2 | ) | (3.5 | ) | (13.7 | ) | 1.8 | |
| Chemicals | | (70.1 | ) | (0.1 | ) | (70.0 | ) | (44.9 | ) |
| Electronic Materials | | 3.8 | | 2.1 | | 1.7 | | (0.2 | ) |
| Other including Unallocated cost | | (46.4 | ) | (62.7 | ) | 16.3 | | 9.4 | |
| Restructuring and site closure costs | | — | | (11.1 | ) | 11.1 | | — | |
| | |
| |
| |
| |
| |
| Operating loss from continuing operations | | (129.9 | ) | (75.3 | ) | (54.6 | ) | (33.9 | ) |
| Discontinued operations | | 48.8 | | 58.1 | | (9.3 | ) | 0.5 | |
| | |
| |
| |
| |
| |
| Total operating loss | | (81.1 | ) | (17.2 | ) | (63.9 | ) | (33.4 | ) |
| | |
| |
| |
| |
| |
In Biotechnology, sales were significantly reduced in 2003 by lower volumes manufactured for both DNA medicine customers and pharmaceutical companies. In 2002 significant volumes of DNA medicine were manufactured and supplied for a customers phase III clinical trial program. In 2003 there was an extensive program to validate this manufacturing process up to the cGMP standard required for registration of the customer product, and this validation process precluded manufacture until completion. The validation process was completed to the customers’ satisfaction in December 2003, when manufacture of product commenced for the expected launch of the product by the customer in 2004. This reduction in sales led to a significant reduction in profits, as operating costs remained high due to the need for manufacturing resource to conduct the process validation, thus reducing the opportunity for cost savings.
In Chemicals, custom manufacture of pharmaceutical products was reduced in 2003, because demand for two intermediates from one customer was reduced due to delays in the launch of their product and the extent of the intermediates already stockpiled. In addition, due to a worldwide decline in demand from pharmaceutical companies for custom intermediates, it was not possible to secure volumes of new products for manufacture in the assets that were consequently under-occupied.
Sales in Chemicals were also reduced by the disposal of the Intermediates and Stabilizers business in July 2003.
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| Registered number: 3768265 | 28 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Operating losses in Chemicals were significantly increased in 2003 by the impact of the lower volumes of pharmaceutical intermediates manufactured in 2003. Although variable costs of raw material also decreased in line with the lower manufacture, other operating cost remained at or near 2002 levels. In Pharmaceuticals Intermediates, assets were mothballed and staff surplus to requirements removed under the voluntary severance program announced at the end of 2002. Although these measures saved some costs, they were only able to partly offset the lost margin from the Intermediates not supplied.
As a consequence of the reduction in utilization for Chemicals assets, and the consequent generation of profit, there was a significant charge of £55.3 million taken against the tangible assets utilized in the Chemicals businesses.
Electronic material sales were more than 1% lower in 2003 than 2002. However, the reduction was caused mainly by the significant weakening of the US Dollar against Sterling between the two years.
The main component of this growth is increased demand from customers for our Inkjet dyes and inks, which in part represents a recovery from the period of destocking pursued by our customers during 2002.
As a consequence of this increase in sales volumes operating profit in the Electronic Materials segment improved in 2003, despite the adverse effects of currency.
In discontinued operations, NeoResins increased its sales by over 5% over 2002, although over 3% of this increase was caused by the relative strength of the Euro over Sterling. The business attained this growth through moderate improvement in demand from its coatings customers in Europe, and high increases in volume sales to both coating and graphic arts customers in the Asia-Pacific region, reflecting both increased demand in that region through high levels of economic growth in China, and through the businesses improvement in its share of markets in the region.
NeoResins profit was reduced in 2003 compared to 2002 as the volume gains noted above were offset by the impact of raw material prices caused by the increased price of oil, and supply imbalance for key acrylic raw materials. In addition many of the volume gains came in product segments with lower than average margins, while temporary increase in freight costs caused by planned production changes across different manufacturing sites also held back profit growth.
Specialty Product sales in 2003 at a headline level fell by nearly 22% from 2002 levels. Although business divestments and closures contributed to this the main impact on the fall was due to the effect of adverse currency (a weaker US Dollar).
All businesses in the segment managed to improve volumes through improved customer demand for their products. In the Biocides Protection and Hygiene business, price decreases made in the US market, in response to a competitor’s policy of aggressive price reductions, negated these volume improvements.
This segment’s operating profits fell between 2002 and 2003 by £6.8 million. All of the decrease is attributable to the adverse impact of currency, the effect of disposing of the Metal Extraction Products businesses in July 2003, and the adverse selling price movements noted above.
Analysis of other items and net losses
| | | 2003 | | 2002 | | £m change | |
| | |
| |
| |
| |
| Share of profit from JV | | 1.7 | | 2.2 | | (0.5 | ) |
| Profit on disposal of business | | 15.4 | | 9.4 | | 6.0 | |
| Net interest and finance costs | | (29.6 | ) | (30.9 | ) | 1.3 | |
| Taxation | | (0.9 | ) | (6.5 | ) | 5.6 | |
Share of operating profits from our Joint Venture, Image Polymers, reduced in 2003 due to lower sales in the joint venture, caused by reduced customer demand for its toner products.
The profit on disposal represents the profits realized through the sale of the Metal Extraction Products and Intermediates & Stabilizers businesses to Cytec in July 2003. In 2002 the profit represented that realized on the disposal of the Stahl business.
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| Registered number: 3768265 | 29 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Liquidity and capital resources
The group’s consolidated statements of cash flows for the years ended December 31, 2004, 2003 and 2002 are set out below.
| | | Avecia Group plc Consolidated
| |
| | | For the
year ended
December 31,
2004 | | For the
year ended
December 31,
2003 | | For the
year ended
December 31,
2002 | |
| | |
| |
| |
| |
| | | £ million | | £ million | | £ million | |
| | | | | | | | |
| Cash inflow from operating activities | | 11.2 | | 47.3 | | 107.8 | |
| Dividends from joint ventures | | 2.5 | | 3.0 | | 5.5 | |
| Returns on investments and servicing of finance | | (38.4 | ) | (47.0 | ) | (56.9 | ) |
| Taxation | | (0.2 | ) | (0.1 | ) | (4.1 | ) |
| Capital expenditure | | (13.3 | ) | (49.6 | ) | (43.1 | ) |
| Acquisitions and disposals | | 186.9 | | 76.6 | | 196.2 | |
| | |
| |
| |
| |
| Cash inflow before financing | | 148.7 | | 30.2 | | 205.4 | |
| | | | | | | | |
| Financing | | (133.8 | ) | (40.6 | ) | (201.2 | ) |
| | |
| |
| |
| |
| Increase/(decrease) in cash in the period | | 14.9 | | (10.4 | ) | 4.2 | |
| | |
| |
| |
| |
Operating activities
Cash generated from operating activities declined to £11.2 million in 2004. The decrease was due to lower earnings before depreciation, amortization and an outflow from increased working capital of £17.0 million, compared with an inflow from reduced working capital of £6.1 million in 2003. The significant increase in working capital in 2004 arose from increased debtors due to the higher sales in ongoing businesses and the timing of the sale of the Pool and Spa business when working capital was approaching its seasonal peak.
Investing Activities
Capital expenditures in 2004 were £13.3 million compared with £49.6 million in 2003 and £43.1 million in 2002. Capital expenditure is authorized on a project by project basis, and during 2004 we authorised projects totalling £17.6 million compared with £18.8 million in 2003 and £67.4 million in 2002. There were no significant individual projects in 2004. In 2005 we are planning for capital expenditure totalling £14.5 million. As at December 31, 2004, commitments relating to this capital expenditure totaled £5.3 million. This expenditure will be funded from proceeds of business disposals.
In January 2004 Avecia completed the disposal of the Additives business to the Lubrizol Corporation for a consideration of £69m. In April 2004 Avecia completed the sale of the Protection & Hygiene and Pool & Spa businesses to Arch Chemicals for cash proceeds of $200m together with consideration in the form of shares valued at $15m. In November the Special Drug Mixtures business was sold to Copperhead Chemicals Company for £6 million.
In July 2003 the group completed the disposal of the Metal Extraction Products and Intermediates and Stabilizers businesses to Cytec Industries Inc. The group proceeds arising on the disposal were $81.8million (£58.5 million), which was received on July 31, 2003. This resulted in the repayment of £52.3 million of Term Debt as required by the bank facilities agreement.
In January 2002 the Group completed the disposal of the Stahl business to Luxembourg 101 S.A. and its affiliates. The gross proceeds arising on the disposal were Euros 378.7 million (£234.9 million), of which Euros 346.8 million (£215.1 million) was received as cash in January 2002, with the remainder received in January 2003. This resulted in the repayment of £187.3 million Term Debt as required by the bank facilities agreement. The net assets of the Stahl business at 31 December 2001 were £95.7 million, plus
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| Registered number: 3768265 | 30 |
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Avecia Group plc
20-F
Year ended December 31, 2004
£124.1 million of associated goodwill, and during 2001 the business had delivered cash from operating activities of £24.4 million. The sale of the Stahl business in 2002, combined with the sale of the Novacote business in 2001, represented the disposal of the entire class of business previously reported as Stahl in the segmental analysis of the Group’s results.
Financing
| | | February 28,
2005 | | December 31,
2004 | | December 31,
2003 | |
| | |
| |
| |
| |
| Bank loans and overdrafts | | — | | 75.0 | | 211.0 | |
| | | | | | | | |
| High Yield Bonds | | 64.1 | | 278.8 | | 306.2 | |
| | |
| |
| |
| |
| Total debt | | 64.1 | | 353.8 | | 517.2 | |
| | |
| |
| |
| |
| Cash at bank and in hand | | 67.6 | | 22.7 | | 8.0 | |
| | |
| |
| |
| |
The group finances its operations by a mixture of bank borrowings and high yield bonds. The group’s long-term loans are raised centrally by group finance companies which fund operating subsidiaries, on commercial terms, all of which are included in the consolidated financial statements. The group borrows in the major global debt markets in a range of currencies at both fixed and floating rates of interest, using derivatives where appropriate to generate the desired interest rate profile. The derivatives used for this purpose are principally interest rate swaps and interest rate caps, although none of these were in place as at 31 December 2004.
Following the successful disposal of its Additives and Biocides businesses in 2004, the group used the proceeds of these disposals to prepay all term debt outstanding under the banking facilities in April 2004 leaving only outstanding the drawn down amounts under the Revolving Credit Facility. This financing structure was considered no longer appropriate for the needs of the group in the medium term and the group secured amended bank financing to replace the revolving credit drawn down. This amended financing provided for term debt of £100 million, repayable at 31 December 2005, together with a Revolving Credit Facility of £50 million. £75 million of this term debt available was drawn down in 2004.
Cash used in financing activities in 2004 was £133.8 million, which includes term debt prepaid from the proceeds of the business disposals amounting to £160.5 million. This compares with scheduled debt prepaid from disposal proceeds of £57.8 million in 2003.
During 2004 the business increased cash balances by £14.9 million and repaid £44.0 million under the revolver facility drawn down in 2003. At December 31, 2004 the group had outstanding external borrowings of £353.8 million, comprising £75 million of secured bank debt and $540 million of 11% Senior Notes due 2009.
The group also had available to it an undrawn £50 million Senior Secured Revolving Credit Facility until 2006. During the year ended December 31, 2004 Avecia repaid amounts totaling £19 million over several separate occasions under this facility, with a maximum drawing during the period of £13 million.
Following the successful disposal of its NeoResins and Displays businesses after 31 December 2004, the Group used the proceeds of these disposals to repay all outstanding term debt (£75 million) and redeemed $415,912,000 (77%) of the 11% Senior Notes. Following these transactions the group had outstanding external borrowings of $124 million of 11% Senior Notes due 2009 with no secured bank debt.
The Directors annually review the Group’s budget for the year and outline projections for the subsequent year, including cash flows and forecasts of headroom available against debt covenants. Following this review the Directors have formed a judgement that working capital is sufficient for the Group’s present requirements.
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| Registered number: 3768265 | 31 |
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Avecia Group plc
20-F
Year ended December 31, 2004
As part of the group’s ongoing strategy the group will continue to effect further divestments at such times as the directors believe will generate appropriate value. For details on the maturity profile of debt, currency and interest rate structure, see note 19 to the consolidated financial statements.
Research, development and process technology
Avecia’s research, development and process technology base has a long history of achievement in organic chemistry and color science and has significant expertise in polymer science, colloid science and microbial fermentation. A total of £45.4 million in 2004, £57.7 million in 2003 and £58.5 million in 2002 has been spent in research, development and process technology.
Over the years, the group’s technological abilities and continuous high levels of research, development and process technology investment have enabled it to achieve significant milestones. For example in the 1980s, Electronic Materials helped pioneer non-smudging inks for ink jet printers, and today the business is developing novel products for color copiers, laser printers and flat panel display products. Other research, development and process technology efforts have allowed Chemicals to establish a strong position in the market for pharmaceutical intermediates and Biotechnology has established a leading position in the emerging DNA medicines market.
The research, development and process technology efforts are driven by the specific requirements and market trends in each of the businesses. Where appropriate, research, development and process technology efforts are managed in cross-functional teams, which include commercial and manufacturing personnel. This structure supports clear business and customer focus.
Most of the research and development activities across all businesses are driven by specific customer programs and in many cases are carried out through collaborative arrangements. The largest research centre in Avecia is located at Blackley, near Manchester, with 94 scientists. In addition, Biotechnology has specialist research, development and process technology operations in Billingham and Chemicals has process technology departments at Grangemouth and Huddersfield. Blackley now supports the research, development and process technology functions of Electronic Materials.
The process technology groups, responsible for process research and development, are principally located at the main manufacturing sites, with substantial groups at Huddersfield, Grangemouth and Billingham in the United Kingdom.
A substantial number of technical service personnel work in customer service laboratories close to the customers and the markets in which the individual businesses operate. For more complex problems requiring in-depth investigation, the laboratories refer to the research and process technology groups. Electronic Materials, Biotechnology and Chemicals’ research, development and process technology is organized into customer-focused teams. This organization structure enables scientists and technicians to be in close contact with major customers in order to provide rapid solutions to customer problems and needs. The business strives to support innovation by devoting significant resources and managerial support to project management and rigorous stage-gate processes to reduce lead times and facilitate market entry for products.
Biotechnology, Chemicals and Electronic Materials have been identified as the principal sources of growth in the future, and Avecia therefore intends to devote additional amounts to research, development and process technology to support these businesses.
The following table sets forth the current focus areas in each of the businesses:
| Business | Targeted applications |
| | |
| Chemicals | • | Asymmetric hydrogen transfer catalysis and biotransformations (for chiral compounds) |
| Biotechnology | • | Solid phase/solution phase oligonucleotide assembly technology, microbial fermentation for protein production. |
| | • | Dye materials, ink and pigment materials for ink jet printers. |
| Electronic Materials | • | Chemically produced toners, charge transport materials and infra-red absorbers in electrophotography. |
| | |
| Registered number: 3768265 | 32 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Critical accounting policies
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. We believe that our critical accounting policies are those described below:
Revenue recognition – Revenue is recognized when services have been rendered and significant risks and rewards in respect of ownership of the products are passed to the customer. Open market sales form the basis of most of Avecia’s turnover, and are recognized when legal title on manufactured product passes to the customer. Within Biotechnology and Chemicals, our dealings with customers are often governed by detailed contracts, which can have a significant bearing on determining when revenue should be recognized. Avecia evaluates the terms contained in such contracts in accordance with UK GAAP, using judgment to determine whether the risks and rewards of ownership have transferred to the customer, in arriving at the amounts to be recognized as revenue in each period. In the twelve months to December 31, 2004 the value of sales where contractual terms were a factor in determining revenue amounted to approximately £83 million.
Goodwill, impairment and amortisation – Purchased goodwill is capitalised and amortized over its estimated useful life, which is currently estimated to be 15 years. In addition goodwill is reviewed for impairment. The need for an impairment write down is assessed with reference to discounted cash flow estimates. As at December 31, 2004, Avecia held £199.6 million of unamortized goodwill in its balance sheet, having amortized £22.4 million of goodwill in the twelve months to December 31, 2004. A change in the estimated life of goodwill, or a change in circumstances which may lead to an impairment of goodwill, would impact both the value of goodwill in the balance sheet and the amount of amortisation charged to operating profit in the period. We estimate that a reduction of one year in the estimated useful life of goodwill would increase the annual amortisation charge by £3.0 million.
Fixed Assets, depreciation and impairment – The book value of each fixed asset is written off evenly over its estimated remaining life. Reviews are made periodically of the estimated remaining lives of individual productive assets, taking account of commercial and technological obsolescence as well as normal wear and tear. A change in the estimated remaining useful life of an asset may lead to a material impairment, reducing the asset value in the balance sheet and resulting in an increased depreciation charge in the profit and loss account. At December 31, 2004, Avecia held £198.6 million of tangible fixed assets at net book value in the balance sheet. During the year ended 2004 Avecia charged £26.7 million of depreciation, and charged a further impairment of £22.3 million in respect of under-utilized assets in the Chemicals business.
Post Retirement Benefits – Avecia operates both Defined Benefit and Defined Contribution schemes, and has adopted FRS17 in full for the year ended December 31, 2004. In the case of defined benefit schemes, assets are measured using market values. Liabilities are measured using a projected unit method and discounted at the current rate of return of a high quality corporate bond of equivalent term and currency. Costs and liabilities are assessed in accordance with the advice of independent qualified actuaries using certain assumptions, for example rate of inflation, rate of salary increases, etc (see Note 26 : Pensions). Variations in investment returns or assumptions will have a material impact on the value of pension assets and liabilities.
Financial instruments – Receipts and payments on interest rate instruments are recognized on an accrual basis over the lives of the instruments, whilst gains and losses on contracts hedging forecast transaction cash flows are recognized in the same hedged periods. At December 31, 2004 the group had £16.2 million of outstanding gross foreign exchange contracts as a result of the transaction exposure cover outlined above. At December 31, 2004 the difference between book value and fair value of all financial instruments was an additional £44.0 million liability. Financial instruments were discounted at the current market yield rates.
US GAAP
The net US GAAP result for the year ended December 31, 2004 was a loss of £22.2 million. The corresponding figure under UK GAAP was a profit of £18.9 million. The most significant differences compared to UK GAAP were the removal of goodwill amortization according to SFAS 142 (£23.3 million profit) the additional purchase accounting adjustments charged under US GAAP on disposal of businesses (£44.7 million loss) and the additional goodwill impairment charged under US GAAP (£4.6 million loss). A full reconciliation of the differences is included in Item 18 Financial Statements, note 33.
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| Registered number: 3768265 | 33 |
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Avecia Group plc
20-F
Year ended December 31, 2004
New accounting standards
UK GAAP
Urgent Issues Task Force abstract 38 – “Accounting for ESOP trusts” is effective for accounting periods ending on or after 22 June 2004. Avecia has fully adopted UITF38 for the year ended December 31, 2004. The comparative figures have been restated accordingly. The adoption of UITF38 has no effect on the profit and loss account but has reduced the total recognised gains and losses and the profit and loss reserves by £0.3m (2003: £0.5m).
US GAAP
SFAS No. 151 “Inventory Costs” was issued in November 2004 and is effective for accounting periods beginning on or after June 15, 2005. SFAS 151 amends the guidance in ARB No.43, Chapter 4, “Inventory Pricing” to clarify the accounting treatment of abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). The adoption of SFAS 151 is not expected to have a material impact on the financial statements.
SFAS No. 123(revised 2004) Share-Based payment” was issued in December 2004 and is effective for accounting periods beginning on or after June 15, 2005. SFAS 123 (revised) eliminates the alternative to use. Opinion 25’s intrinsic value method of accounting as permitted in Statement 123 as originally issued. SFAS 123 (revised) now requires entities, when issuing stock options to employees, to recognize the cost of employee services granted in exchange for awards of equity instruments based on the grant-date fair value of those awards. The adoption of SFAS 123 (revised) is not expected to have a material impact on the financial statements.
SFAS No. 153 “Exchanges of Nonmonetary Assets” was issued in December 2004 and is effective for accounting periods beginning on or after June 15, 2005. SFAS 153 amends the guidance in APB Opinion No.29, Accounting for Nonmonetary Transactions by eliminating the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The adoption of SFAS 153 is not expected to have a material impact on the financial statements.
Recent trends
A major part of our production and revenues in Biotechnology and Chemicals arises from the manufacture and supply of DNA medicines, complex microbial fermentation of produced active ingredients, and pharmaceutical intermediates manufactured according to customers’ specific requirements. The lack of demand from Chemicals customers for our manufacturing services of pharmaceutical intermediates experienced during 2004 has continued, and consequently a large part of our manufacturing capacity for these products remains underutilized. Demand for the more advanced healthcare molecules has in general remained steady across the industry, with isolated customer product withdrawals having a greater impact on demand than the general level of development within the industry. General economic growth in 2004 helped improve customer demand in industries such as coatings and electronic consumables, and these industry trends have continued since 31 December 2004.
Off-balance sheet arrangements
The group has unrecognised gains and losses of £ 33.2 and £ 22.8m respectively, in respect of financial instruments at 31 December 2004. For further disclosures with regard to financial instruments, see note 19 of the consolidated financial statements.
Save as disclosed above there are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
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| Registered number: 3768265 | 34 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Aggregate Contractual Arrangements
The following table sets out the group’s contractual cash obligations under debt arrangements, leases, and other non-cancellable purchase commitments.
| | | Payments due by period
| |
| | | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years | |
| | |
| |
| |
| |
| |
| |
| Long term debt obligations | | 353.8 | | 75.0 | | — | | 278.8 | | — | |
| Fixed Interest obligations | | 73.8 | | 13.5 | | 27.0 | | 27.0 | | 6.3 | |
| Capital lease obligations | | 4.3 | | 0.7 | | 1.2 | | 1.4 | | 1.0 | |
| Operating lease obligations | | 2.7 | | 0.7 | | 0.8 | | 0.8 | | 0.4 | |
| Purchase obligations | | 5.3 | | 5.3 | | — | | — | | — | |
| | |
| |
| |
| |
| |
| |
| Total | | 439.9 | | 95.2 | | 29.0 | | 308.0 | | 7.7 | |
Purchase obligations represent purchase commitments in respect of capital expenditure. The above liabilities exclude pensions, post-retirement and other non-contractual liabilities. Liabilities relating to pensions and post-retirement benefits are set out in Note 25 to the Financial Statements. In addition the group has £3.5 million of contingent obligations relating to guarantees and standby letter of credit issued in the ordinary course of business to financial institutions and suppliers to secure short term support for a variety of commercial and operational transactions.
Item 6 Directors, senior management and employees
Directors and senior management
The following table sets forth information regarding the directors and executive officers of Avecia Group plc.
| Name | Position | Term of office | Period of service in this capacity |
| | | | |
| Mr Jeremy P Scudamore | Chief Executive Officer, Director | Ongoing | Appointed June 23, 1999 |
| Mr David C Greensmith | Chief Operating Officer, Director | Ongoing | Appointed June 23, 1999 |
| Mr Derrick A Nicholson | Chief Financial Officer, Director | Ongoing | Appointed June 23, 1999 |
All of the Directors set out above are directors of Avecia Holdings plc and Avecia Finance plc.
Jeremy Scudamore is aged 58. He joined ICI’s (subsequently Zeneca’s) agrochemical businesses in 1970, culminating in appointment as Business Director for Zeneca Agrochemicals in 1994. He was appointed Chief Executive Office of Zeneca Specialties (the predecessor business to Avecia) in 1997, and Chief Executive Officer of Avecia in 1999. He is on the board of the Chemical Industries Association, and on the editorial board of European Chemical News, and the advisory board of Chemical and Engineering News. He is also a non-executive Director of ARM Holdings plc.
David Greensmith is aged 52. He joined ICI (subsequently Zeneca) in 1976 and held a variety of commercial roles in different chemicals businesses prior to being appointed Business Director for Zeneca Specialties in 1997, and subsequently Chief Operating Officer for Avecia in 1999.
Derrick Nicholson is aged 55. He joined ICI (subsequently Zeneca) in 1975 and held a range of financial positions in a number of different international chemical businesses within the group, culminating in his appointment as the Zeneca Group Corporate Finance Manager in 1997. He was appointed Chief Financial Officer for Avecia in 1999.
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| Registered number: 3768265 | 35 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Compensation
None of the directors or executive officers of Avecia Group plc had interests in options or ordinary shares of Avecia Group plc or its subsidiaries at the end of the financial period.
During the year ended December 31, 2004, the aggregate amount of compensation paid by group companies to all directors and officers of Avecia Group plc was £1,178,840.
The executive directors have service contracts, on indefinite terms, with an appropriate group company, which are capable of termination on 12 months notice by the company. The directors’ service contracts provide for specified benefits upon termination of employment: where termination is by reason of redundancy or unfair dismissal the benefit is 175% of annual base salary, and where by any other reason (other than for cause) is 125% of monthly base salary for the unexpired period of notice up to 12 months maximum.
The directors are contributing members of the Avecia UK Pension Fund. Refer to note 26 to the financial statements included herein for further details.
Board practices
The board of the parent company, Avecia Holdings plc has established the following standing committees, each with defined terms of reference, procedures, responsibilities and powers. The minutes of committee meetings are made available to all directors.
Audit committee: The audit committee comprises all the non-executive directors of Avecia Holdings plc. The names of the committee members are : M Askari, JGG Clarke, RD Lapthorne, M Coyne, D Barker, T de Boysson.
The Chief Executive and Chief Financial Officer, together with the external auditors, Group Controller, Head of Internal Audit and Company Secretary, attend all meetings of the Committee but are not members of the Committee. The committee also meets the external auditors without management present. The audit committee is charged with monitoring the adequacy and effectiveness of the systems of internal control and audit function, appointing, reviewing the scope and results of the work of the external auditors and reviewing the annual and interim financial statements of the group and related policies and assumptions.
Remuneration committee: The remuneration committee comprises all the members of the Audit Committee, and is chaired by the Chairman of Avecia Holdings plc. The Chief Executive attends meetings of the committee (save when his own remuneration is under consideration). The functions of the committee are to determine remuneration policy (including share option and incentive arrangements) for the executive directors and senior managers in the group and determine the amount of remuneration to be paid.
During the year ended December 31, 2004, the aggregate amount set aside or accrued by Avecia Group plc to provide pension, retirement or similar benefits for directors and officers of Avecia Group plc, who are members of the Avecia Group pension scheme, pursuant to any existing plan provided or contributed to by the company was £59,460.
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| Registered number: 3768265 | 36 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Employees
The following tables set out employee figures by business and by geographic region.
| | | Avecia Group plc Consolidated
| |
| Period end number of employees | | For the
year ended
December 31,
2004 | | For the
year ended
December 31,
2003 | | For the
year ended
December 31,
2002 | |
| | |
| |
| |
| |
| United Kingdom | | 1,312 | | 1,766 | | 1,934 | |
| Continental Europe | | 564 | | 604 | | 605 | |
| The Americas | | 483 | | 673 | | 843 | |
| Asia, Africa and Australasia | | 24 | | 58 | | 58 | |
| | |
| |
| |
| |
| | | 2,383 | | 3,101 | | 3,440 | |
| | |
| |
| |
| |
| | | Avecia Group plc Consolidated
| |
| Period end number of employees | | For the
year ended
December 31,
2004 | | For the
year ended
December 31,
2003 | | For the
year ended
December 31,
2002 | |
| | |
| |
| |
| |
| Biotechnology | | 554 | | 558 | | 459 | |
| Chemicals | | 698 | | 667 | | 922 | |
| Electronic materials | | 410 | | 487 | | 517 | |
| NeoResins | | 636 | | 666 | | 678 | |
| Specialty products | | — | | 508 | | 591 | |
| Other | | 85 | | 215 | | 273 | |
| | |
| |
| |
| |
| | | 2,383 | | 3,101 | | 3,440 | |
| | |
| |
| |
| |
Following the disposal of the NeoResins and Displays businesses, the number of employees has reduced to approximately 1,670. Of the current employees approximately 300 work in research and development and technical services, 1,000 are employed in manufacturing and 400 are employed in the marketing and selling of products and administration of the businesses. Approximately 900 of these employees are members of trade unions.
Responsibility for employees rests with the separate businesses and functional departments. The human resources function is partly centralized at Manchester for the UK and Wilmington, Delaware for the US, from where employee-related matters such as salaries and benefits, training and development, health and safety and communications issues are coordinated.
Most of the employees are on full-time permanent contracts. As most operations are relatively complex and require advanced skills and knowledge, the level of employee commitment is highly valued. Extensive training programs exist at all locations covering all levels of workforce, including senior management.
Historically, the business has enjoyed good labor relationships and is committed to maintaining these relationships. There has been no significant labor dispute in any of the business’s sites since the formation of Avecia. A constructive approach to union relationships is taken where there are unionized sites and the business has been able to secure the co-operation of both unions and the workforce with regard to significant changes and the process of continuous improvement.
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| Registered number: 3768265 | 37 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Share ownership
None of the directors or executive officers of Avecia Group plc who served during the period own or have options to purchase securities from the registrant or its subsidiaries.
Item 7 Major shareholders and related party transactions
Major shareholders
Avecia Group plc is a wholly owned subsidiary of Avecia Finance plc, which is itself a wholly owned subsidiary of Avecia Holdings plc. Avecia Holdings plc is owned by Avecia (Jersey) Limited. Avecia (Jersey) Limited is controlled by the affiliates of Investcorp SA and Cinven Limited.
| Investcorp | Cinven |
| Investcorp House | Warwick Court |
| 48 Grosvenor Street | Paternoster Square |
| London | London |
| W1Y 6DH | EC4M 7AG |
The major shareholders do not have different voting rights. The voting rights of preference shareholders are described in Item 10. Avecia does not know of any arrangements, the operation of which might result in a change in control of the company.
Related party transactions
In June 1999, Cinven and Investcorp S.A. jointly directed the formation of Avecia, and its acquisition of the Zeneca Specialties business. Cinven and Investcorp S.A. continue to provide consulting services to the Group, for which they may receive payments of up to £400,000 per annum. In January 2002 Avecia completed the sale of its Stahl business to Luxembourg 101 S.A. and its affiliates. The final cash payment was received in January 2003. The purchase of Stahl from Avecia was managed by Investcorp S.A. on behalf of Luxembourg 101 SA and its affiliates, which under the terms of the Bond Indenture means that Luxembourg 101 SA is considered a related party. The sale of the Stahl business was therefore conducted under the terms of the bond indenture relating to related party transactions.
Other than with respect to employment agreements and compensation arrangements, there have been no material transactions between the company and management during the period covered by this 2004 20-F (or in any previous year in the last three years), nor are there presently proposed to be any material transactions, to which the company or any of its subsidiaries was or is a party and in which any director or executive officer, or ten per cent shareholder, or any relative or spouse thereof had or is to have a direct or indirect material interest.
During such periods there has been no, and at present there is no, material outstanding indebtedness to the company owed or owing by an director or executive officer of the company or any associate thereof.
Item 8 Financial information
Consolidated financial statements and other financial information
Refer to item 18 for details of the financial statements included in this annual report.
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| Registered number: 3768265 | 38 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Legal proceedings
The company is involved from time to time in various claims and law suits incidental to the ordinary course of the business, such as contract disputes, product liability, personal injury claims and workers’ compensation claims. The company maintains insurance and in certain circumstances has recourse to AstraZeneca and, to the extent that the amounts in dispute may not be covered by such insurance, maintains provisions in those situations where management deems it appropriate.
Although we believe our insurance coverage is adequate, we could, however, be required to pay a material amount if a claim is made against us that is not covered by insurance or for which we are not otherwise indemnified. Any such claim could have a material adverse effect on our financial condition and results of operations.
Export sales
Turnover by geographic destination is shown in Note 3 ‘Segmental Information’ for the years ended December 31, 2004 and 2003. The percentage and amount of export sales in the total amount of sales volume for the year ended December 31, 2004 is summarized below:
| Sales destination | | | Sales value £million | | | Percentage of
total sales value | |
| | | | | | | | |
| Europe | | | £205.5 million | | | 50.5% | |
| The Americas | | | £141.4 million | | | 34.7% | |
| Asia, Africa and Australasia | | | £60.3 million | | | 14.8% | |
Dividends
Avecia Group plc is obliged to pay dividends to its preference shareholders at a fixed rate per annum of 16% of the issue price.
Significant changes
On February 2, 2005, Avecia completed the sale of the NeoResins business to DSM for a consideration of €515 million. The business’ operating subsidiaries together with the principal manufacturing sites are included in the sale. Approximately 635 employees transferred to DSM on completion.
On February 28, 2005, Avecia completed the sale of the Displays and Organic Semiconductors business to Merck KgaA for a consideration of €50 million. The principal research and manufacturing site of the business at Frankfurt in Germany is included in the sale. Approximately 74 employees have transferred to Merck KgaA on completion.
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| Registered number: 3768265 | 39 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Item 9 The offer and listing
Price history
Avecia Group plc is a wholly owned subsidiary of Avecia Holdings plc and accordingly, shares in Avecia Group plc are not publicly traded. The table below sets out for the year ended December 31, 2004 and for the quarters and months indicated, the reported high and low market values for the 11% senior notes due 2009, based on financial information provided by Datastream:
| | | | Luxembourg Stock Exchange per 11% senior note due 2009 | |
| | | | | | | | |
| | | | High | | | Low | |
| Annual high and low market prices | | | | | | | |
| Year ending December 31, 2002 | | | 104.0 | | | 79.4 | |
| Year ending December 31, 2003 | | | 93.0 | | | 79.4 | |
| Year ending December 31, 2004 | | | 102.6 | | | 70.3 | |
| | | | | | | | |
| Quarterly high and low market prices | | | | | | | |
| Quarter ending March 31, 2003 | | | 84.1 | | | 79.4 | |
| Quarter ending June 30, 2003 | | | 89.5 | | | 87.0 | |
| Quarter ending September 30, 2003 | | | 90.0 | | | 88.0 | |
| Quarter ending December 31, 2003 | | | 93.0 | | | 85.0 | |
| Quarter ending March 31, 2004 | | | 94.3 | | | 85.0 | |
| Quarter ending June 30, 2004 | | | 87.8 | | | 70.3 | |
| Quarter ending September 30, 2004 | | | 86.9 | | | 72.6 | |
| Quarter ending December 31, 2004 | | | 102.6 | | | 87.4 | |
| Quarter ending March 31, 2005 | | | 105.4 | | | 101.9 | |
| | | | | | | | |
| Monthly high and low market prices | | | | | | | |
| October 2004 | | | 94.5 | | | 87.4 | |
| November 2004 | | | 94.4 | | | 92.6 | |
| December 2004 | | | 102.6 | | | 93.1 | |
| January 2005 | | | 105.4 | | | 101.9 | |
| February 2005 | | | 105.4 | | | 104.1 | |
| March 2005 | | | 105.1 | | | 103.0 | |
Markets
The outstanding exchange 11% senior notes due 2009 are listed on the Luxembourg Stock Exchange. The 16% redeemable pay-in-kind preference shares due 2010 are not registered for trading on any exchange.
The ordinary shares, preference shares and deferred shares of the company are not listed for trading on any exchange.
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| Registered number: 3768265 | 40 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Item 10 Additional information
Memorandum and articles of association
General
Avecia Group plc was incorporated under the Companies Acts of England and Wales 1985 to 1989 as a public company limited by shares, registered under company number 3768265. The object for which the company was established can be found in Section IV of its Memorandum of Association, being to carry on business as a general commercial company.
Directors
Directors’ interests
Provided that a director who is interested in a contract declares the nature of his interest at a meeting of the directors, that director may vote in respect of any contract or proposed contract or arrangement in which he is interested, and if he does vote his vote shall be counted and he will be counted in the quorum for the meeting.
Directors’ remuneration
The aggregate remuneration (if any) of the directors is determined by an ordinary resolution of the company. The aggregate remuneration is divided among the directors as they may agree. The directors may not vote compensation to themselves or any member of their body. The directors, without the approval of any resolution of the company, may establish and contribute to an employee’s share scheme, option or incentive schemes and pension and life assurance funds.
Directors’ powers
The directors may borrow and raise money, including the giving of any guarantee, contract of indemnity or suretyship and the grant of any security, mortgage, charge or discharge for any debt or obligation of the company in any manner or way in which the company itself is empowered so to raise, give or grant.
Directors’ term of office and shareholding requirements
The directors are not required to retire by rotation and there is no age limit at which a director must retire. A director need not hold shares in the company in order to qualify for office as a director.
Share rights
Avecia Group plc has issued both US dollar denominated preference shares and sterling ordinary shares. The preference shares have a nominal value of US$1 each and were issued with a premium of US$24 each, giving an issue price of US$25. The ordinary shares have a nominal value of £1 each. The ordinary shares rank pari passu among themselves. The preference shareholders have certain income, redemption and repayment rights in priority to the holders of the ordinary shares.
Dividends
The preference shareholders have the right to receive dividends in priority to the ordinary shareholders at a fixed rate per annum of 16% of the issue price together with any arrears or accruals of dividends. There is provision for the payment of additional dividends to the preference shareholders if there is a default in the registration rights attaching to the preference shares. After July 1, 2004, to the extent that the company is unable to pay the dividends upon the preference shares in cash, the liability for the unpaid dividend will accrue interest at 18% per annum, until such time as the unpaid dividend and accrued interest are paid. Ordinary shareholders are entitled to dividends only as and when declared by the company.
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Avecia Group plc
20-F
Year ended December 31, 2004
Capital
The preference shareholders have priority of repayment of capital on a winding up or other return of capital. Capital must be applied first in repayment of the issue price of the preference shares plus any unpaid arrears and accruals of dividends. Any balance is returned to the holders of the ordinary shares.
Redemption
The company may redeem all or any of the preference shares after January 1, 2005 at a redemption price per share equal to 108% of the liquidation preference ($25 per share). After January 1, 2006 this redemption premium reduces to 105.333%. All outstanding preference shares must be redeemed on July 1, 2010 at 100% of the issue price.
Board representation
The holders of the preference shares may appoint one person to be a non-executive director of the company in certain circumstances, including the failure by the company to redeem the preference shares when it is obliged to do so and if, after July 1, 2004, three or more instalments of the fixed dividend on the preference shares are not paid in full.
Variation of rights
The rights attaching to each class of shares may only be varied with the consent in writing of more than three quarters of the issued shares of that class or with the sanction of an extraordinary resolution passed at a separate general meeting of the holders of that class.
Voting
The preference shares do not carry voting rights in respect of general meetings of the company. However in the event that a resolution is proposed affecting the rights of the preference shareholders in relation to the repayment of capital, the variation of the rights attaching to the preference shares or for the winding up or liquidation of the company, then the holders of the preference shares shall be entitled to receive notice of, attend and vote at such general meetings. Ordinary shares carry full voting rights.
Annual and extraordinary general meetings
The annual general meeting of the company, and any extraordinary general meeting called for passing a special resolution, require twenty-one clear days’ notice. Other extraordinary general meetings may be convened by fourteen clear days’ notice. Shorter notice periods may be given if in the case of an annual general meeting, all members entitled to attend and vote agree and, in the case of an extraordinary general meeting, ninety-five percent of members entitled to attend and vote agree. Any notice of a general meeting of the company must specify the time and place of the meeting and state the general nature of the business to be transacted.
The quorum at a general meeting is generally set at one member.
Transfers of shares and change of control
There are provisions regulating the sale and transfer of ordinary shares in the event that such a sale and transfer would result in less than 50% of the issued ordinary shares of the company being held by Avecia Finance plc. No such transfer of shares will be permitted unless all the holders of the preference and ordinary shares are entitled to sell their shares to the proposed purchaser on the same terms and conditions as the original offer was made.
If a sale and transfer of shares is proposed which would result in certain changes in the beneficial ownership of the company, an offer must be made by the company to redeem all the preference shares.
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Avecia Group plc
20-F
Year ended December 31, 2004
Disclosure requirements
The Companies Act 1985 applies to the disclosure of share ownership in the company. The initial threshold for disclosure of shareholding is that any person having a material interest in 3% or more of the ordinary shares of the company will be required to notify the company of his holding. A person having an interest, material or otherwise, in 10% or more of the ordinary shares of the company will also be required to notify the company of his holding. The requirements of the City Code of Takeovers and Mergers will apply to any shareholder seeking to increase his holdings in the company above certain thresholds.
Material contracts
The company has not entered into any material contracts outside the ordinary course of the business.
Exchange controls
There are no UK foreign exchange controls currently in force that restrict the export or import of capital or which affect the remittance of interest, dividends or other payments to non UK resident holders of the company’s securities (except as otherwise detailed in Taxation section below).
There are no limitations imposed by UK law or the company’s memorandum and articles of association which restrict the right of non UK resident or non UK citizen owners to hold or vote the securities of the company.
Taxation
11% senior notes due 2009
UK tax considerations
The following summary describes the principal United Kingdom tax consequences of the ownership of the 11% senior notes due 2009 (hereinafter referred to as ‘the notes’). Except where stated otherwise, this description deals only with the position of persons who are the absolute beneficial owners of their notes.
Avecia does not address all the tax consequences that may be relevant to a note holder. Nor do they address any of the tax consequences to holders that may be subject to special tax treatment, such as dealers in securities. The discussion below is generally based upon current United Kingdom tax laws and United Kingdom Inland Revenue practice in effect as at the date of this document which may be subject to change possibly on a retroactive basis.
Prospective investors are advised to consult their own tax advisers concerning United Kingdom tax consequences in the light of their particular situations as well as any consequences arising under the law of any other relevant tax jurisdiction. Avecia make no representations with respect to the tax consequences to any particular holder of notes.
Interest on the global notes and definitive notes
The global notes and definitive notes constitute “quoted Eurobonds” within the meaning of section 349(4) of the Income and Corporation Taxes Act 1988 (“ICTA”) as long as they continue to be listed on a “recognized stock exchange” within the meaning of section 841 of ICTA. The Luxembourg Stock Exchange is currently recognized for these purposes. Payments of interest on the global notes may be made without withholding on account of United Kingdom income tax.
If a UK collecting agent receives interest on the notes on your behalf and pays it on to you, the collecting agent may be required to make a return of information to the Inland Revenue under section 18 TMA1970.
Interest on the notes may be subject to income tax by direct assessment even where paid without withholding as it will be United Kingdom source income for United Kingdom tax purposes. If you are a holder who is not resident in United Kingdom and UK source interest is received without deduction or withholding of UK tax you will not be chargeable to UK tax unless you carry on a trade, profession or vocation in the United Kingdom through a United Kingdom branch or agency in connection with which the interest is received or to which the notes are attributable. There are exemptions for interest received by certain categories of agent (such as some brokers and investment managers).
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Avecia Group plc
20-F
Year ended December 31, 2004
United Kingdom corporate taxpayers
If you are a corporate note holder within the charge to United Kingdom corporation tax you will in general be charged to tax on all returns on and fluctuations in value of the notes (whether attributable to currency fluctuations or otherwise) broadly in accordance with your statutory accounting treatment. You will generally be charged to tax in each accounting period by reference to interest accrued in that period and any profit or loss which, in accordance with your authorized accounting method, is applicable to that period.
Other United Kingdom taxpayers
Taxation of chargeable gains. The notes do not constitute “qualifying corporate bonds” within the meaning of section 117 of the Taxation of Chargeable Gains Act 1992. If you are a note holder resident or ordinarily resident in the United Kingdom or carry on a trade, profession or vocation in the United Kingdom to which the notes are attributable, you may, depending on your circumstances, realize a chargeable gain or an allowable loss for the purposes of the United Kingdom taxation of chargeable gains upon a disposal of the notes.
Accrued income scheme. If you are a note holder who is resident or ordinarily resident in the United Kingdom or carries on a trade in the United Kingdom through a branch or agency to which the notes are attributable, who sells redeems or otherwise disposes of your notes, any interest which has accrued since the last interest payment date (or where no interest payment date has accrued, the issue of the notes) may be chargeable to tax as income.
Stamp duty and stamp duty reserve tax
You will not be subject to United Kingdom stamp duty or stamp duty reserve tax on the issue to you or the transfer by delivery of notes.
EU withholding tax directive
In June 1998, the European Commission presented to the Council of Ministers of the European Union a proposal for a Council Directive to ensure a minimum of effective taxation of savings income in the form of interest payments within the Community. The European Union has released a draft proposed European Union Savings Directive following agreement reached by Member States at the Feira European Council in June 2000 and the EU’s Council of Finance Ministers in November 2000.
Under Section 199 Finance Act 2003, the UK Treasury has made regulations to implement this directive into UK law (I 2003/3297). It came into force on 1 January 2005.
Under the directive, prescribed UK paying agents will have to report details of the income and the payee to the Inland Revenue, who will then pass on the information to the corresponding tax authority in the payee’s country of residence. Similar information regarding UK resident payees will flow in the other direction. Austria, Belgium and Luxembourg are expected to impose, for a transitional period, a withholding tax as an alternative to exchanging information.
US Federal income tax considerations
The following discussion describes the material US federal income tax consequences of the ownership and disposition of the notes by US holders (as defined below). This discussion applies to you only if you hold the notes as capital assets within the meaning of section 1221 of the Internal Revenue Code of 1986, as amended, (the ‘Internal Revenue Code’) and purchased the notes for cash pursuant to the original offering at their initial issue price. This description is based on the Internal Revenue Code, Treasury regulations promulgated thereunder, IRS rulings and pronouncements and judicial decisions all as in effect on the date of this annual report. All of these authorities are subject to change, possibly with retroactive effect. This discussion does not include any description of any state, local, estate or foreign tax consequences.
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Avecia Group plc
20-F
Year ended December 31, 2004
A “ US Holder” is a beneficial owner of a note that for US federal income tax purposes is a citizen or individual resident of the United States; a corporation (or any other entity taxable as a corporation for US federal income tax purposes) created or organized in or under the laws of the United States or any state thereof (including the District of Columbia); an estate the income of which is subject to US federal income taxation regardless of its source; or a trust if a US court can exercise primary supervision over its administration, and one or more US persons have the authority to control all of its substantial decisions.
This discussion does not address all of the tax consequences that may be relevant to you. This discussion also does not address any of your tax consequences if you are subject to special tax treatment because you are a bank or other financial institution, United States expatriate, tax-exempt organization, regulated investment company, insurance company, dealer or trader in securities or currencies, or otherwise, your functional currency is not the US dollar, or you hold the notes as part of a position in a straddle or as part of a hedging, conversion or other integrated transaction, among others. If a partnership holds notes, the tax treatment of a partner generally will depend upon the status of the partners and the activities of the partnership. A partner in a partnership that holds the notes is urged to consult its own tax advisor regarding the specific tax consequences of owning and disposing of the notes.
You are advised to consult your own tax advisors to determine the US federal tax consequences of owning and disposing of the notes in light of your own particular circumstances, as well as to determine the effect of any state, local, estate or foreign tax laws on you.
Interest on the notes
You will be taxed either when you receive interest or as you accrue interest, depending on your method of accounting for tax purposes. If you use the cash method of accounting, you are required to include the interest in your income when it is paid or payable. If you use the accrual method of accounting, you are required to include the interest in your income when it is earned, even though you may not actually receive a payment of interest at that time.
You will have to treat the interest that you include in income as foreign source income. In computing your foreign tax credit, with certain exceptions, you will have to treat the interest you include in income as “ passive” or “ financial services” income, which you treat separately from your other types of income. Under recently enacted legislation, for taxable years beginning after December 31, 2006, interest income generally will constitute “passive category” income or in the case of certain US Holders, “general category” income.
Disposition of notes
When you sell or otherwise dispose of a note, including when, if ever, the group redeems or retires a note that you hold, you will recognize taxable gain or loss equal to the difference between the amount you realize on your disposition of your note and your adjusted tax basis in your note. For this calculation, you should exclude from the amount you realize the amount that is attributable to your accrued but unpaid interest, which you must treat as taxable ordinary interest income. Your adjusted tax basis in a note generally will be your purchase price for the note.
Pay-in-kind preference shares
UK tax considerations
The following discussion summarizes certain UK tax consequences of the ownership of pay-in-kind preference shares. Except where stated, it deals only with a holder of pay-in-kind preference shares who holds pay-in-kind preference shares as capital assets and does not deal with special situations such as that of dealers in securities or where the dividends on the pay-in-kind preference shares are, for tax purposes, deemed to be the income of any other person.
Taxation of dividends
UK holders of pay-in-kind preference shares
Under current UK taxation legislation, no withholding tax will be deducted from dividends paid by us.
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Avecia Group plc
20-F
Year ended December 31, 2004
Dividends paid in cash
A UK holder who is a UK resident individual who receives a cash dividend on the pay-in-kind preference shares will be entitled to a tax credit of an amount equal to 10% of the combined amount of the cash dividend and tax credit.
An individual so resident whose income is within the lower or basic rate tax bands will be liable to tax at 10% on the total of the cash dividend and the related tax credit and the tax credit will satisfy his income tax liability on the cash dividend. If the tax credit exceeds the individual’s liability to income tax on the total cash dividend and tax credit, the individual will not be able to claim payment of the excess. Higher rate taxpayers will be liable to tax on the dividend at the rate of 32.5% of the aggregate of the cash dividend received and the tax credit.
Subject to certain exceptions (inter alia particularly applicable to financial traders), a UK holder of pay-in-kind preference shares which is a UK resident company and which receives a dividend paid by the group will not be taxable on the dividend. The dividend and related tax credit will be treated as franked investment income. Such tax credit will be an amount equal to one ninth of the dividend. Pension providers and most UK resident companies are not entitled to the payment of tax credits in respect of dividends paid to them.
US holders of pay-in-kind preference shares
A new US – UK income tax treaty came into force during 2003. US holders are no longer entitled to receive from the Inland Revenue payments equal to the amount of tax credits, as reduced by withholding taxes. Under the terms of the new tax treaty, withholding taxes on dividends are reduced in certain circumstances. However under UK domestic tax law, no withholding taxes are deducted from dividends paid by UK companies.
Dividends paid by the issuance of additional pay-in-kind preference shares
UK holders of pay-in-kind preference shares
The issuance of additional pay-in-kind preference shares paid up out of share premium account by Avecia to a UK holder of pay-in-kind preference shares should not give rise to a liability upon the holder to UK income tax or, in respect of corporate shareholders, corporation tax unless treated as a capital distribution for the purposes of corporation tax on chargeable gains, see “ – Taxation of Capital Gains” .. As such additional pay-in-kind preference shares will be paid up out of the share premium account, they will be deemed to be issued for new consideration for UK tax purposes and therefore the receipt of such shares by existing pay-in-kind preference shareholders will not give rise to a tax charge.
UK taxation of capital gains
UK capital gains tax (or, for companies, corporation tax on chargeable gains) applies to a UK holder on the disposal (including on redemption) of preference shares, ordinary pay-in-kind preference shares, if held as a capital asset.
On such disposal the capital gain or allowable loss is calculated by reference to the difference between the acquisition cost for UK tax purposes and the net proceeds realized. The issue price of each unit was allocated between the pay-in-kind preference share and the warrant based on a reasonable estimate of the relative fair market value of the warrants and the pay-in-kind preference shares on the issue date. £13.79 was allocated to each of the pay-in-kind preference shares. It is assumed that the Inland Revenue will accept such allocation for the purposes of the base cost of the warrants and the pay-in-kind preferred shares.
For disposals by holders of pay-in-kind preference shares other than companies subject to UK corporation tax, the amount of any gain brought into charge to tax will be reduced by reference to tapering relief depending on the period of ownership.
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Avecia Group plc
20-F
Year ended December 31, 2004
Capital gains realized by UK holders who are individuals are currently taxed at the highest marginal tax rate applicable to the individual’s income (subject to exemptions and relieves including the annual exemption which is currently £8,200). Chargeable gains of UK holders who are companies are taxed at 30% for the financial year 1999 (subject to lower rates for small companies).
If a holder of pay-in-kind preference shares who is resident or ordinarily resident in the United Kingdom receives additional pay-in-kind preference shares his existing pay-in-kind preference shares and the additional pay-in-kind preference shares will be treated for the purposes of UK taxation of chargeable gains as the same asset acquired at the same time as his existing pay-in-kind preference shares. The exchange of pay-in-kind preference shares for exchange preference shares should not normally give rise to a liability to capital gains tax in respect of UK holders.
If a holder of pay-in-kind preference shares who is so resident disposes (including upon redemption) of the whole or part of his enlarged holding of pay-in-kind preference shares, he may, depending upon his individual circumstances, incur a liability to United Kingdom taxation of the chargeable gain.
A US holder that is not resident or ordinarily resident for tax purposes in the UK will not be liable for UK tax on capital gains on the disposal of the pay-in-kind preference shares unless the US holder carries on a trade, profession or vocation in the UK through a branch or agency and such shares are or have been used by, held by, or acquired for use by or for the purpose of such trade, profession, vocation, branch or agent.
UK stamp duty and stamp duty reserve tax
Stamp duty reserve tax, generally at a rate of 1/2 % on the consideration, is currently payable on any agreement to transfer shares or any interest therein unless: (i) an instrument transferring the shares is executed; and (ii) stamp duty, generally at a rate of 1/2 % is paid. The duty will, however, be refundable if within six years the agreement is completed by an instrument which has been duly stamped, generally at the rate of 1/2 %. Generally, however, neither stamp duty or stamp duty reserve tax should be payable on the transfer of interests in shares under the applicable procedures of a clearing agency.
Stamp duty is currently payable at the rate of 1 1/2 % on the transfer or issue of shares to the custodian of a depository or the nominee of a clearing agency on the value of such shares. Avecia has agreed to pay any tax or duty arising pursuant to the arrangements relating to the deposit of the pay-in-kind preference shares and the additional pay-in-kind shares, in a clearing agency as described in this prospectus.
US Federal income tax considerations
The following discussion is a summary of the material US federal income tax considerations relevant to the ownership and disposition of the pay-in-kind preference shares by holders who purchased the pay-in-kind preference shares for cash at their original “ issue price” pursuant to the units offering. For this purpose, the “ issue price” is the first price to the public (not including bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers) at which a substantial amount of the pay-in-kind preference shares is sold for money. This summary does not purport to be a complete analysis of all potential tax effects, and pertains only to a holder or beneficial owner of pay-in-kind preference shares who is a “ US Holder” as defined above under “ The Notes – US Federal Income Tax Considerations” ..
The discussion is based upon US and UK tax laws, including the Internal Revenue Code, Treasury regulations promulgated thereunder, IRS rulings and pronouncements and judicial decisions and the US-UK double tax convention relating to income and capital gains which entered into force on March 31, 2003 and the protocols there to (the “New Treaty”) and the prior US-UK double tax convention relating to income and capital gains (the “Prior Treaty”) which no longer is in force, all as in effect on the date of this annual report, all of which are subject to change at any time, possibly with retroactive effect.
The discussion does not address all of the US federal income tax consequences that may be relevant to a US Holder in light of such Holder’s particular circumstances or to US Holders subject to special rules, such as banks and other financial institutions, insurance companies, dealers in securities, tax-exempt entities, regulated investment companies US expatriates and persons holding the pay-in-kind preference shares as part of a “ straddle” , “ hedge” or “ conversion transaction” .. Moreover, the effect of any applicable state, local or foreign tax laws is not discussed. The discussion deals only with pay-in-kind preference shares held as “ capital assets” within the meaning of section 1221 of the Internal Revenue Code. If a partnership holds pay-in-kind preference shares, the tax treatment of a partner generally will depend upon the status of the partners and the activities of the partnership. A partner in a partnership that holds such shares is urged to consult its own tax advisor regarding the specific tax consequences of owning and disposing of the pay-in-kind preference shares.
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Avecia Group plc
20-F
Year ended December 31, 2004
Avecia has not sought and will not seek any ruling from the IRS with respect to its position discussed below. There can be no assurance that the IRS or a US court will not take a different position concerning the tax consequences of the ownership or disposition of the pay-in-kind preference shares.
Allocation of unit purchase price between pay-in-kind preference shares and warrants
The issue price of each unit was allocated between the pay-in-kind preference share, the preference warrant and the ordinary warrant based on a reasonable estimate of the relative fair market values of each such component of the unit on the issue date. With respect to each unit, Avecia intends to allocate approximately £13.79 to each pay-in-kind preference share and approximately £1.41 to each ordinary warrant and approximately £0.33 to each preference warrant. Each US Holder of pay-in-kind preference shares will be bound by such allocation for US federal income tax purposes unless such US Holder discloses on a statement attached to its tax return for the taxable year that includes the acquisition date of such unit that its allocation differs from this allocation. No assurance can be given that the IRS will accept this allocation. If this allocation were successfully challenged by the IRS, the issue price, the amount of redemption premium accrual on the pay-in-kind preference shares, and gain or loss on the sale or other disposition of a pay-in-kind preference share or warrant would be different from that resulting under the allocation determined by Avecia.
Distributions
Distributions on the pay-in-kind preference shares, whether paid in cash or in additional pay-in-kind preference shares (and including any deemed distributions resulting either from a redemption premium on the pay-in-kind preference shares or upon a redemption of the pay-in-kind preference shares, all as discussed below), will be taxable as foreign source ordinary dividend income to a US holder to the extent paid (or deemed paid) out of Avecia’s current or accumulated earnings and profits (as determined for US federal income tax purposes). To the extent that the amount of a distribution exceeds current and accumulated earnings and profits, the distribution will be treated as a return of capital, thus reducing the US Holder’s adjusted tax basis in such pay-in-kind preference shares. The amount of any such excess distribution that is greater than the US Holder’s adjusted basis in the pay-in-kind preference shares will be taxed as capital gain. For purposes of the remainder of this discussion, the term “ dividend” refers to a distribution paid out of allocable earnings and profits, unless the context indicates otherwise. Dividends received by corporate US Holders will not be eligible for the dividends-received deduction allowed under section 243 of the Internal Revenue Code.
There currently is no withholding tax on dividends paid by UK companies under UK tax legislation or under the New Treaty. Accordingly, Avecia is not required to withhold tax at source from dividend payments it makes or from any amount (including any amounts in respect of any accrued dividends) distributed by Avecia. Before May 1, 2004, if a US Holder would have been entitled to greater benefits under the Prior Treaty, that US Holder could have elected to continue to apply the Prior Treaty to dividend payments on the pay-in-kind preference shares made before that date. Because payments of dividends by Avecia to US Holders are not subject to UK withholding tax, it is not necessary to apply the New Treaty in order to receive a reduced rate of withholding. Since there is no UK withholding tax on payments of dividends to US Holders, US Holders will not be entitled to a foreign tax credit for foreign taxes paid as a result of any dividend payments made with respect to the pay-in-kind preference shares.
If a US Holder is a non-corporate US Holder, any dividends paid to it with respect to the pay-in-kind preference shares prior to January 1, 2009 that constitute “qualified dividend income” generally will be taxable at a maximum rate of 15%, provided that the US Holder satisfies certain holding period and other requirements, and Avecia also meets certain requirements, including that either (i) the pay-in-kind preference shares with respect to which the dividend has been paid are readily tradable on an established securities markets in the United States or (ii) Avecia is eligible for the benefits of the New Treaty. Avecia currently believes that dividends paid with respect to its pay-in-kind preference shares should constitute qualified dividend income for US federal income tax purposes, however, this is a factual matter and may be subject to change. The US Treasury and the US Internal Revenue Service have announced their intention to promulgate rules pursuant to which US Holders of shares, among others, will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. Non-corporate US Holders are urged to consult their own tax advisors regarding the availability to them of the reduced dividend rate in light of their own particular situations. Non-corporate US Holders also should be aware that if the IRS took a different position concerning the tax characterization of the pay-in-kind preference shares, any dividends paid to them by Avecia with respect to the pay-in-kind preference shares would not be eligible for the reduced tax rate.
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Avecia Group plc
20-F
Year ended December 31, 2004
Distributions of additional pay-in-kind preference shares
Pursuant to section 305(b) of the Internal Revenue Code, a distribution in the form of additional pay-in-kind preference shares will be treated as a taxable distribution, and therefore will be a dividend to the extent paid out of Avecia’s current or accumulated earnings and profits. See “ – Distributions” .. The amount of the distribution will be equal to the fair market value of the distributed pay-in-kind preference shares on the date of distribution (which generally will equal the related amount of the cash distribution that would have been payable by Avecia had the distribution not been paid in kind). A US Holder’s initial tax basis in any additional pay-in-kind preference shares distributed by Avecia will be equal to the amount that the US Holder is required to include in income in respect of such shares, which generally will be equal to the fair market value thereof on the date of distribution. The US Holder’s holding period for any such additional shares will begin on the day following the date of their distribution.
Redemption Premium
The redemption price of the pay-in-kind preference shares issued in the units offering exceeds their issue price by more than a de minimis amount. As a result, under section 305(c) of the Internal Revenue Code, such excess (the “ redemption premium” ) will be treated as a constructive distribution of additional pay-in-kind preference shares on pay-in-kind preference shares, which is required to be included in income by a US Holder as a distribution over the term of the pay-in-kind preference shares using a constant yield method similar to that used for accruing original issue discount on debt instruments.
For this purpose, the issue price of a pay-in-kind preference share acquired in the units offering will be equal to the portion of the issue price of a unit properly allocable to the pay-in-kind preference share, as described above in “ – Allocation of unit purchase price between pay-in-kind preference shares and warrants” .. As a result, a US Holder will recognize taxable income before receiving cash payments to which such income is attributable.
US Holders are advised to consult their own tax advisors regarding the application of the redemption premium rules to the pay-in-kind preference shares.
Redemption
If a redemption of the pay-in-kind preference shares for cash is treated as a sale or exchange under section 302 of the Internal Revenue Code, the redemption would result in capital gain or loss equal to the difference between the amount of cash and the fair market value of any other proceeds received in such redemption and the US Holder’s adjusted tax basis in the pay-in-kind preference shares redeemed in the manner described below under “ – Sale or Other Disposition” .. Alternatively, if a redemption of pay-in-kind preference shares is treated as a distribution, the redemption distribution will be taxable as a dividend to the extent of Avecia’s current or accumulated earnings and profits (as determined for federal income tax purposes). See “ – Distributions” ..
A redemption of pay-in-kind preference shares for cash generally will be treated as a sale or exchange under section 302 of the Internal Revenue Code only if:
i. after the redemption the US Holder does not own, actually or constructively within the meaning of section 318 of the Internal Revenue Code, any of Avecia’s shares,
ii the redemption is “ substantially disproportionate” with respect to the redeeming US Holder as such term is defined in section 302(b)(2) of the Internal Revenue Code, or,
iii the redemption is “ not essentially equivalent to a dividend” with respect to the redeeming US Holder under section 302(b)(1) of the Internal Revenue Code. Whether a redemption qualifies as “substantially disproportionate” or as “ not essentially equivalent to a dividend” as to a US Holder will depend upon all the relevant facts and circumstances at the time of the redemption.
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Avecia Group plc
20-F
Year ended December 31, 2004
In particular, although a redemption of any preferred shares (such as pay-in-kind preference shares) from a US shareholder who does not own (directly or indirectly) any ordinary shares in the same company generally would be treated for US tax purposes as “ not essentially equivalent to a dividend” , there is a risk that the IRS may take the position that a redemption of pay-in-kind preference shares from a US Holder who also owns ordinary shares of Avecia Group plc or of Avecia Holdings plc (or warrants to acquire any such ordinary shares) that are not also redeemed or contemporaneously disposed of cannot qualify as a sale or exchange and instead must be treated as a distribution taxable as a dividend. US Holders of both pay-in-kind preference shares and ordinary warrants (or ordinary shares of the company or Holdings) should consult their own tax advisors on whether any particular redemption of pay-in-kind preference shares would be treated as a sale or exchange or alternatively as a distribution taxable as a dividend.
Sale or other disposition
Upon the sale, exchange or other disposition of pay-in-kind preference shares, a US Holder generally will recognize gain or loss for US federal income tax purposes in an amount equal to the difference between the amount realized and the US Holder’s adjusted tax basis in the pay-in-kind preference share. In general, a US Holder’s adjusted tax basis in a pay-in-kind preference share is the portion of the issue price of a unit properly allocable to the pay-in-kind preference share (as described above in “ – Allocation of unit purchase price between pay-in-kind preference shares and warrants” ) plus any amount included in gross income as a constructive distribution of redemption premium taxable as a dividend (as described above in “ – Redemption Premium” ), less the amount of any prior distribution treated as a nontaxable return of capital. Such gain or loss will be a capital gain or loss and will be long-term capital gain or loss if the pay-in-kind preference share was held for more than one year. Gain or loss from the sale or exchange of pay-in-kind preference shares generally will be treated as US source gain or loss for foreign tax credit purposes. In the case of individual US Holders, capital gains are subject to US federal income tax at preferential rates if the prescribed minimum holding periods are met. The deductibility of capital losses is subject to certain limitations.
If a US Holder receives pounds sterling (or another foreign currency) on a redemption, sale or exchange of pay-in-kind preference shares, such holder may recognize ordinary income or loss as a result of currency fluctuations between the date of such redemption, sale or exchange and the date the proceeds are converted into US dollars.
Passive foreign investment company status
Avecia currently believes that it did not qualify as a Passive Foreign Investment Company (a “PFIC”) for the 2004 taxable year for US federal income tax purposes. PFIC status is a factual determination that must be made at the end of the close of each taxable year of the company, and therefore is subject to change. If Avecia were to become a PFIC for any taxable year, the tax on distributions on the pay-in-kind preference shares and on any gains realized upon the disposition of such shares may be less favorable than as described herein. Furthermore, dividend payments made by Avecia in respect of the pay-in-kind preference shares would not be eligible for “qualified dividend income” status and would be taxed at the higher rates applicable to other items of ordinary income. US Holders should consult their own tax advisors regarding the application of the PFIC rules to their ownership of the pay-in-kind preference shares.
US Information reporting and backup withholding
A US Holder of notes or pay-in-kind preference shares may be subject to US information reporting and possible backup withholding at a rate of 28% with respect to payments of principal and interest on the notes or dividends paid on the pay-in-kind preference shares or gross proceeds upon a sale or other disposition of any of such securities. Certain exempt recipients (such as corporations) are not subject to these information reporting requirements. Backup withholding will not apply to a holder who furnishes a correct taxpayer identification number or certificate of foreign status and makes any other required certification, or who is otherwise exempt from backup withholding. Any US persons required to establish their exempt status generally must furnish IRS Form W-9 (‘Request for Taxpayer Identification Number and Certification’). Non-US holders generally will not be subject to US information reporting or backup withholding. However, such holders may be required to provide certification of non-US status in connection with payments received in the United States or through certain US-related financial intermediaries.
| Registered number: 3768265 | 50 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Backup withholding is not an additional tax; Amounts withheld as backup withholding may be credited against a Holder's US federal income tax liability, and a Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS in a timely manner and furnishing any required information.
Documents on display
Documents referred to in this document are retained at the company’s registered office at:
PO Box 42
Hexagon House
Blackley
Manchester M9 8ZS
United Kingdom
Telephone (+ 44) 161 740 1460
Subsidiary information
Details of the subsidiaries of Avecia Group plc are disclosed in ‘Item 4 – Information on the company’ under the title ‘Organizational structure’.
Item 11 Quantitative and qualitative disclosures about market risk
All of the figures in Item 11 have been prepared under UK GAAP.
Risk management
The group’s funding, liquidity and exposure to interest rate and foreign exchange rate risks are managed by the group’s treasury department. Treasury operations are conducted within a framework of policies reviewed and agreed by the board.
The group holds or issues financial instruments for two main purposes:
| • | to finance operations; and |
| • | to manage the interest rate and currency risk arising from its operations and from its sources of finance. |
These are transacted by specialist treasury personnel and the internal control environment is reviewed regularly.
Excluding risks arising from changes in the market for and prices of individual raw materials, the principal market risks to which Avecia is exposed are:
| • | interest rates on debt; and |
The following risk management discussion and the estimated amounts generated from the analytical techniques are forward-looking statements of market risk assuming certain market conditions occur. Actual results in the future may differ materially from these projected results due to actual developments in the global financial markets. The analysis methods used by Avecia to assess and mitigate the risks discussed above should not be considered projections of future events or losses.
Interest rate risk
During 2004, the group had an exposure to interest rate risk and, within this category of market risk was most vulnerable to changes in US dollar, sterling and euro interest rates. To manage interest rate risk, the group manages its proportion of fixed to variable rate borrowings within limits approved by the board, primarily through issuing long term fixed rate and deep discount bonds and variable rate term loans, and by utilizing interest rate swaps and interest rate caps. The group’s policy is to manage its exposure to interest rate fluctuations on its borrowings and deposits by using interest rate swaps and interest rate caps. The group’s policy is to keep at least 50 per cent of net external debt at fixed or capped rates of interest for the period of the borrowing. At the year end and after taking account of interest rate swaps, the proportion of the group’s borrowings at fixed rates was 100% (2003:72%).
| Registered number: 3768265 | 51 |
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Avecia Group plc
20-F
Year ended December 31, 2004
See note 19 of the UK GAAP consolidated financial statements for additional information on interest rate risks.
On June 30, 1999 the company issued 11% senior notes with a gross value of $540 million which represents £278.8 million at December 31, 2004 gross of fees. Net of fees the carrying value of the notes was £272.6 million at December 31, 2004. The company also issued variable rate senior debt of £470 million (out of a total facility of £485 million) with variable interest rates between LIBOR plus 2% and LIBOR plus 3% which on July 6, 1999 was redenominated into $229 million (with a variable interest rate initially set at 7.7% on $95 million and 8.2% on $134 million) and €497 million with a variable interest rate initially set at 4.6% on €436 million and 5.1% on €61 million. Effective on August 2, 1999 the interest rates of a portion of these variable rate loans ($58 million and €131 million) were swapped for fixed rates of 6.53% on the US Dollar loan and 3.83% on the Euro loan, and the interest rates of a further $58 million and €131 million were capped at rates of 6.5% and 4%, respectively and were effective on August 2, 1999 and June 30, 1999, respectively. On October 1, 1999 the final £15 million was issued and denominated into €24 million. On 14th May 2004, all outstanding $ and € senior debt was repaid and £75m drawn in sterling with interest rates fixed six-monthly. On 30th June 2004 all outstanding interest swaps and caps matured.
Currency risk
The group publishes its financial statements in pounds sterling and conducts businesses in many foreign currencies. As a result, it is subject to foreign currency exchange risk due to exchange rate movements which will affect the group’s transaction costs and revenues and the translation of the results and underlying net assets of its subsidiaries.
Exchange differences arising on the retranslation of foreign currency net borrowings and foreign exchange swaps are recognized in the statement of total recognized gains and losses to match exchange differences on foreign equity investments, in accordance with the UK accounting standard SSAP 20 – Foreign Currency Translation.
For the year ended December 31, 2004, 72% of Avecia’s sales were made outside of the United Kingdom and 60% of the fixed production and cost base was in the UK. Avecia’s results of operations and financial position are thus significantly impacted by the fluctuation of the pound sterling against the major currencies in which the group transacts, namely the US Dollar, the Euro and the Japanese Yen.
In order to manage Avecia’s currency exposure, part of the debt is denominated in those currencies where the group has positive cash flow. The Avecia board’s policy is to hedge at least 50% of its projected foreign currency net cash flow after interest and tax. For those currencies not absorbed by debt service, the group hedges, on a rolling 12 month basis, the translation of a proportion of its forecast future net cash flows denominated in US dollars and Japanese yen with forward foreign currency contacts. This limits in part the transactional exposure of the group’s net cash flows to movements in exchange rates. The gain or loss on the hedge is recognized at the same time as the underlying transaction.
In respect of its debt at December 31, 2004, Avecia is exposed to the fluctuation of the US Dollar with regard to the recorded balance sheet amount of such debt. The fixed rate notes of $540 million are denominated in US Dollars which translated at December 31, 2004 rate equate to £278.8 million gross value (£271.2 million net of unamortized fees); A 10% strengthening compared with the December 31, 2003 rates in the US Dollar exchange rate would result in an overall increase in the recorded amount of the debt of approximately £25.3 million.
Sensitivity analysis
For financial instruments held, the group has used a sensitivity analysis technique that measures the change in the fair value of the group’s financial instruments from hypothetical changes in market rates. Assuming December 31, 2004 fixed rate debt levels, using December 31, 2003 exchange rates, a one per cent fall in interest rates would adversely impact the fair value of the fixed rate debt by £14.5 million.
The 16% preference shares of $84.5 million, which were issued on June 30, 1999 are classified within shareholders’ equity for UK GAAP purposes and have been excluded from the above sensitivity analysis.
| Registered number: 3768265 | 52 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Liquidity risk
Group policy is to match currency cash expenditure with currency cash income subject to the existence of a free market for that debt and differences in funding costs between markets. Net group borrowings comprise bank debt (£72.9 million; 2003: £160 million), which is due to be repaid by November 2005 and a High Yield Bond (£271.2 million; 2003: £297 million) due 2009. 21% (2003: 6%) of the group’s total borrowings at the year end will become due in the next 12 months, 79% (2003: 87%) in more than two years and 0% (2003: 67%) will become due in more than five years.
At 31 December 2004, the group also had undrawn committed borrowing facilities of £71.8 million (2003: £31.0 million).
Credit risk
Avecia contains credit risk by ongoing review procedures. Counterparties to foreign exchange contracts are all commercial banks with a long term credit rating of A1- or better.
Exchange rates
Exchange rate movements during the year adversely impacted profit before exceptional items and tax by £13.9 million. The adverse impact of exchange rate movements on the translation of overseas operating profit was £2.0 million and on transactions in the year was £11.9 million, giving a total impact on operating profit of £13.9 million. Exchange rate movements also favorably affected the interest charge by £1.0 million.
Item 12 Description of securities other than equity securities
Not applicable to annual reports filed on Form 20-F.
| Registered number: 3768265 | 53 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Part II
Item 13 Defaults, dividend arrearages and delinquencies
No matters to report.
Item 14 Material modifications to the rights of security holders and use of proceeds
No matters to report.
Item 15 Controls and Procedures
Disclosure Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this Form 20-F, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in United States Securities Exchange Act of 1934, as amended, Rule 13a-15(e)). Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in timely identifying material information potentially required to be included in our SEC filings.
Internal Control Over Financial Reporting. There were no changes in the Group’s internal control over financial reporting that occurred during the year ended December 31, 2004 that have materially affected, or are reasonably likely to materially affect, the Group’s internal control over financial reporting.
Item 16 [Reserved]
Item 16A. Audit Committee Financial Expert
Avecia Holdings plc, the parent company of the group, has established an Audit Committee to act on behalf of that company and for its subsidiaries, including Avecia Group plc. The members of this Audit Committee are the non-executive directors of Avecia Holdings plc. Avecia Group plc does not itself have its own audit committee. The Board of Directors has therefore determined that Avecia Group plc does not have an “audit committee financial expert” as defined in Item 16-A of Form 20F serving on its audit committee. It is the Board’s opinion that the members of the audit committee of Avecia Holdings plc collectively have sufficient experience and expertise, to be able to provide appropriate independent review and oversight of Avecia Group plc's financial reporting processes, internal controls and independent auditors.
Item 16B. Code of Ethics
We have adopted a code of ethics that applies to all employees. A copy of the code of ethics is filed as Exhibit 11 to this Form 20-F.
| | |
| Registered number: 3768265 | 54 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Item 16C. Accountant’s Fees and Services
KPMG Audit Plc has served as Avecia’s independent public accountants for each of the fiscal years in the three year period ended December 31, 2004, for which audited financial statements appear in this annual report on Form 20-F. The auditors are elected annually by the Annual General Meeting.
The following table presents the aggregate fees for professional services and other services rendered by KPMG to Avecia in 2004 and 2003.
| | | | 2004
| | 2003
| |
| | | |
| |
| |
| | | | £m | | £m | |
| Audit Fees (1) | | | 0.4 | | 0.4 | |
| Audit-related Fees (2) | | | 0.2 | | — | |
| Tax Fees (3) | | | 0.3 | | 0.3 | |
| | |
| |
| |
| Total | | | 0.9 | | 0.7 | |
| | | | | | | |
| 1 | Audit Fees consist of fees billed for the annual audit services engagement and other audit services, which are those services that only the external auditor reasonably can provide, and include the Group audit; statutory audits; comfort letters and consents; attest services; and services associated with the filing of documents with the SEC. |
| | |
| 2 | Audit-related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements or that are traditionally performed by the external auditor, and include consultations concerning financial accounting and reporting standards; due diligence related to acquisitions; and employee benefit plan audits. |
| | |
| 3 | Tax Fees include fees billed for tax compliance services, advice on original and amended tax returns and claims for refund, tax consultations (such as assistance in connection with tax audits and appeals), tax advice related to mergers and acquisitions, transfer pricing, tax planning services and expatriate tax planning and services. |
Audit Committee Pre-approval Policies and Procedures
The Audit Committee has adopted the following pre-approval policies and procedures to govern the arrangements by which audit and non-audit services are approved:
| | (i) The Audit Committee will approve, at its first meeting in each calendar year, those categories of service which are pre-approved for the following 12 month period. |
| | |
| | (ii) The pre-approved categories of service are defined as Audit Services, Audit Related Services, and Tax Services. |
| | |
| | (iii) Additions to the schedule of pre-approved categories of service may be approved at any time by the Chairman of the Audit Committee. Any such changes will be notified to the Audit Committee at its next quarterly meeting. |
| | |
| | (iv) Engagement of the external auditors to provide services not on the schedule of pre-approved categories of service, must be approved in advance of the engagement by the Chairman of the Audit Committee. Any such pre-approvals will be notified to the Audit Committee at its next quarterly meeting. |
| | |
| Registered number: 3768265 | 55 |
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Avecia Group plc
20-F
Year ended December 31, 2004
| | (v) Not withstanding paragraphs i) to iv) above: |
| | | – any audit or non-audit assignment in excess of £250,000 requires specific pre-approval by Chairman of the Audit Committee. |
| | | – the Chairman of the Audit Committee will notify the Audit Committee at its next quarterly meeting of any approvals granted. |
| | | – any individual audit or non audit assignment below the limit above is notified to the Group Controller. |
Item 16D. Exemptions from the listing standards for audit committees
Not applicable.
Item 16E. Purchases of equity securities by the issuer and affiliated purchasers
Not applicable.
| | |
| Registered number: 3768265 | 56 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Part III
Item 17 Financial statements
Not applicable.
Item 18 Financial statements
Index to Consolidated and Combined financial statements
| Report of independent auditors | 59 | |
| | | |
| Consolidated profit and loss accounts for the years ended December 31 2004, 2003 and 2002. | 60 | |
| | | |
| Consolidated balance sheets at December 31 2004 and 2003 | 61 | |
| | | |
| Consolidated cash flow statements for the years ended December 31 2004, 2003 and 2002. | 62 | |
| | | |
| Consolidated statements of total recognized gains and losses for the years ended December 31 2004, 2003 and 2002. | 63 | |
| | | |
| Reconciliation of consolidated movements in shareholders’ funds for the years ended December 31 2004, 2003 and 2002. | 63 | |
| | | |
| Notes to the consolidated financial statements | 64 | |
Item 19 Exhibits
| Exhibit number | Description |
| | |
| 1.1 | Avecia’s Memorandum of Association |
| 1.2 | Avecia’s Articles of Association |
| 8 | List of significant subsidiaries |
| 11 | Code of Ethics |
| 12.1 | Certification of Jeremy P. Scudamore, Chief Executive Officer of Avecia Group plc, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 12.2 | Certification of Derrick A. Nicholson, Chief Financial Officer of Avecia Group plc, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 13 | Certification pursuant to 18 U.S.C section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |
Please refer to item 10 – Additional information for Avecia’s Memorandum and Articles of Association.
| | |
| Registered number: 3768265 | 57 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Signatures
The registrant hereby certifies that it meets all the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Avecia Group plc
Registrant
/s/ D A NICHOLSON\
D A Nicholson
Chief Financial Officer
Dated May 9, 2005
| | |
| Registered number: 3768265 | 58 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholder of Avecia Group plc
We have audited the accompanying consolidated balance sheets of Avecia Group plc and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of profit and loss, cash flow, total recognized gains and losses and reconciliations of consolidated movements in shareholders’ funds for each of the years in the three-year period ended December 31, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Avecia Group plc and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with generally accepted accounting principles in the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 33 to the consolidated financial statements.
| KPMG Audit Plc | |
Chartered Accountants
Registered Auditor | |
| | |
Manchester, England
May 9, 2005 | |
| | |
| Registered number: 3768265 | 59 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Consolidated profit and loss account
| Avecia Group plc | | | | For the
year ended December 31, 2004 | | For the
year ended December 31, 2004 | | For the
year ended December 31, 2003 | | For the
year ended December 31, 2003 | | For the
year ended December 31, 2002 | | For the year ended December 31, 2002 | |
| | | | |
| |
| |
| |
| |
| |
| |
| | | | | | | | | Restated | | Restated | | Restated | | Restated | |
| | | Note | | £ million | | £ million | | £ million | | £ million | | £ million | | £ million | |
| | | | | | | | | | | | | | | | |
| Turnover: group & share of joint ventures | | | | | | 416.0 | | | | 497.6 | | | | 589.2 | |
| Less share of joint ventures’ turnover | | | | | | (8.8 | ) | | | (12.4 | ) | | | (13.5 | ) |
| Group turnover | | 3 | | | | | | | | | | | | | |
| Continuing operations | | | | 200.1 | | | | 185.6 | | | | 250.1 | | | |
| Discontinued operations | | | | 207.1 | | | | 299.6 | | | | 325.6 | | | |
| | | | |
| | | |
| | | |
| | | |
| | | | | | | 407.2 | | | | 485.2 | | | | 575.7 | |
| | | | | | | | | | | | | | | | |
| Operating costs | | 4 | | | | (426.8 | ) | | | (501.1 | ) | | | (559.3 | ) |
| Exceptional operating costs | | 4 | | | | (39.9 | ) | | | (69.3 | ) | | | (41.2 | ) |
| Other operating income | | 4 | | | | 9.1 | | | | 4.1 | | | | 7.6 | |
| | | | | | |
| | | |
| | | |
| |
| Group operating (loss)/profit | | | | | | | | | | | | | | | |
| Continuing operations | | 4 | | (83.7 | ) | | | (129.9 | ) | | | (75.3 | ) | | |
| Discontinued operations | | 4 | | 33.3 | | | | 48.8 | | | | 58.1 | | | |
| | | | |
| | | |
| | | |
| | | |
| | | | | | | (50.4 | ) | | | (81.1 | ) | | | (17.2 | ) |
| Share of operating (loss)/profit of joint ventures | | | | | | (6.9 | ) | | | 1.7 | | | | 2.2 | |
| Profit on disposal of businesses | | 5 | | | | 98.6 | | | | 15.4 | | | | 9.4 | |
| | | | | | |
| | | |
| | | |
| |
| Profit/(loss) on ordinary activities before interest and taxation | | | | | | 41.3 | | | | (64.0 | ) | | | (5.6 | ) |
Other interest receivable & similar income
Income from current asset investments | | 9 | | | | 32.9
| | | | 34.3 | | | | 34.5 | |
| | | | | | 0.2 | | | | — | | | | — | |
| Interest payable and similar charges | | 10 | | | | (51.5 | ) | | | (61.5 | ) | | | (65.4 | ) |
| Other finance costs | | | | | | (2.1 | ) | | | (2.4 | ) | | | — | |
| | | | | | |
| | | |
| | | |
| |
| Profit/(loss) on ordinary activities before taxation | | | | | | 20.8 | | | | (93.6 | ) | | | (36.5 | ) |
| Taxation on profit/(loss) on ordinary activities | | 11 | | | | (1.9 | ) | | | (0.9 | ) | | | (6.5 | ) |
| | | | | | |
| | | |
| | | |
| |
| Profit/(loss) on ordinary activities after taxation | | 3-10 | | | | 18.9 | | | | (94.5 | ) | | | (43.0 | ) |
| Attributable to minority interests | | | | | | (6.6 | ) | | | (6.4 | ) | | | (6.0 | ) |
| | | | | | |
| | | |
| | | |
| |
| Retained profit/(loss) for the financial period | | | | | | 12.3 | | | | (100.9 | ) | | | (49.0 | ) |
| | | | | | |
| | | |
| | | |
| |
2003 & 2002 have been restated to reflect the change in continuing/discontinued operations.
The accompanying notes are an integral part of these financial statements.
| | |
| Registered number: 3768265 | 60 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Consolidated balance sheet
| | | | | Avecia Group plc Consolidated
Balance Sheet as at
| |
| | | | | December 31, 2004 | | December 31, 2003 | |
| | | | |
| |
| |
| | | | | | | Restated | |
| | | Note | | £ million | | £ million | |
| Fixed assets | | | | | | | |
| Intangible assets | | 12 | | | | | |
| Goodwill | | | | 199.6 | | 277.7 | |
| Other intangible assets | | | | 8.5 | | 10.1 | |
| | | | |
| |
| |
| | | | | 208.1 | | 287.8 | |
| Tangible assets | | 13 | | 198.6 | | 263.2 | |
| Investments | | | | | | | |
| Investments in joint ventures | | 14 | | | | | |
| Share of gross assets and goodwill | | | | 9.6 | | 20.4 | |
| Share of gross liabilities | | | | (1.7 | ) | (1.6 | ) |
| | | | |
| |
| |
| | | | | 7.9 | | 18.8 | |
| | | | |
| |
| |
| | | | | 414.6 | | 569.8 | |
| Current assets | | | | | | | |
| Stocks | | 15 | | 50.2 | | 74.9 | |
| | | | | | | | |
| Debtors within one year | | 16 | | 69.7 | | 75.1 | |
| Debtors after one year | | 16 | | 15.0 | | 17.2 | |
| | | | |
| |
| |
| | | | | 84.7 | | 92.3 | |
| | | | | | | | |
| Cash at bank and in hand | | | | 22.7 | | 8.0 | |
| | | | |
| |
| |
| | | | | 157.6 | | 175.2 | |
| Creditors: amounts falling due within one year | | 17 | | (155.6 | ) | (165.5 | ) |
| | | | |
| |
| |
| Net current assets | | | | 2.0 | | 9.7 | |
| | | | | | | | |
| Total assets less current liabilities | | | | 416.6 | | 579.5 | |
| | | | | | | | |
| Creditors: amounts falling due after more than one year | | 18 | | (278.4 | ) | (440.6 | ) |
| Provisions for liabilities and charges | | 20 | | (17.0 | ) | (7.5 | ) |
| Net assets excluding pension liability | | | | 121.2 | | 131.4 | |
| Pension liability | | 26 | | (105.7 | ) | (113.2 | ) |
| | | | |
| |
| |
| Net assets including pension liability | | | | 15.5 | | 18.2 | |
| | | | |
| |
| |
| Capital and reserves | | | | | | | |
| Called up share capital | | 22 | | 330.7 | | 330.6 | |
| Share premium account | | 23 | | 14.9 | | 13.4 | |
| Profit and loss account | | 23 | | (330.1 | ) | (328.8 | ) |
| Shares to be issued | | 23 | | — | | 3.0 | |
| | | | |
| |
| |
| Shareholders’ funds | | | | 15.5 | | 18.2 | |
| | | | |
| |
| |
| of which: equity shareholders’ funds | | | | (22.1 | ) | (19.5 | ) |
| of which: non-equity shareholders’ funds | | | | 37.6 | | 37.7 | |
| | | | |
| |
| |
| | | | | 15.5 | | 18.2 | |
| Minority interests | | | | — | | — | |
| | | | |
| |
| |
| Shareholders’ funds and minority interests | | | | 15.5 | | 18.2 | |
| | | | |
| |
| |
2003 has been restated to reflect the adoption of UITF 38.
The accompanying notes are an integral part of these financial statements
| | |
| Registered number: 3768265 | 61 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Consolidated cash flow statement
| | | | | Avecia Group plc Consolidated
| |
| | | | | For the
year ended
December 31, | | For the
year ended
December 31, | | For the
year ended
December 31, | |
| | | | | 2004 | | 2003 | | 2002 | |
| | | | |
| |
| |
| |
| | | Note | | £ million | | £ million | | £ million | |
| | | | | | | | | | |
| Cash inflow from operating activities | | 27 | | 11.2 | | 47.3 | | 107.8 | |
| Dividends from joint ventures | | 28 | | 2.5 | | 3.0 | | 5.5 | |
| Returns on investments and servicing of finance | | 28 | | (38.4 | ) | (47.0 | ) | (56.9 | ) |
| Taxation | | | | (0.2 | ) | (0.1 | ) | (4.1 | ) |
| Capital expenditure and financial investment | | 28 | | (13.3 | ) | (49.6 | ) | (43.1 | ) |
| Acquisitions and disposals | | 28 | | 186.9 | | 76.6 | | 196.2 | |
| | | | |
| |
| |
| |
| Cash inflow before financing | | | | 148.7 | | 30.2 | | 205.4 | |
| | | | | | | | | | |
| Financing | | 28 | | (133.8 | ) | (40.6 | ) | (201.2 | ) |
| | | | |
| |
| |
| |
| Increase/(decrease) in cash in the period | | | | 14.9 | | (10.4 | ) | 4.2 | |
| | | | |
| |
| |
| |
| Reconciliation of net cash flow to movement in net debt | |
| | | | | Avecia Group plc Consolidated
| |
| | | | | For the
Year ended
December 31, | | For the
Year ended
December 31, | | For the
Year ended
December 31, | |
| | | | | 2004 | | 2003 | | 2002 | |
| | | | |
| |
| |
| |
| | | Note | | £ million | | £ million | | £ million | |
| | | | | | | | | | |
| Increase/(decrease) in cash in the period | | | | 14.9 | | (10.4 | ) | 4.2 | |
| | | | | | | | | | |
| Cash inflow from increase in debt and lease financing | | | | (117.5 | ) | (64.0 | ) | (39.0 | ) |
| Cash outflow from decrease in debt and lease financing | | | | 251.3 | | 104.7 | | 240.3 | |
| | | | |
| |
| |
| |
| Change in net debt resulting from cash flows | | | | 148.7 | | 30.3 | | 205.5 | |
| | | | | | | | | | |
| Cash/(loans and finance leases) disposed with subsidiary | | | | (0.2 | ) | — | | — | |
| Translation differences | | | | 33.6 | | 26.8 | | 41.2 | |
| Non-cash items | | | | (8.7 | ) | (4.2 | ) | (5.1 | ) |
| | | | |
| |
| |
| |
| Movement in net debt in the period | | | | 173.4 | | 52.9 | | 241.6 | |
| Net debt at the start of the period | | | | (498.4 | ) | (551.3 | ) | (792.9 | ) |
| | | | |
| |
| |
| |
| Net debt at the end of the period | | 29 | | (325.0 | ) | (498.4 | ) | (551.3 | ) |
| | | | |
| |
| |
| |
The accompanying notes are an integral part of these financial statements.
| | |
| Registered number: 3768265 | 62 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Consolidated statement of total recognized gains and losses
| | | Avecia Group plc Consolidated
| |
| | | For the year ended
December 31, | | For the year ended
December 31, | | For the year ended
December 31, | |
| | | 2004 | | 2003 | | 2002 | |
| | |
| |
| |
| |
| | | £ million | | £ million | | £ million | |
| Profit/(loss) for the financial period | | | | | | | |
| Group | | 25.8 | | (96.2 | ) | (45.2 | ) |
| Share of joint ventures | | (6.9 | ) | 1.7 | | 2.2 | |
| | |
| |
| |
| |
| | | 18.9 | | (94.5 | ) | (43.0 | ) |
| Net exchange differences on the retranslation of net investments and related borrowings | | (5.9 | ) | 1.6 | | (9.0 | ) |
| Actuarial loss relating to pensions liability | | (10.5 | ) | (29.2 | ) | — | |
| |
| |
| |
| |
| Total recognized gains/(losses) relating to the financial year | | 2.5 | | (122.1 | ) | (52.0 | ) |
| Prior year adjustment (UITF38) | | (0.5 | ) | | | | |
| | |
| | | | | |
| Total recognized gains/(losses) since last annual report | | 2.0 | | | | | |
| | |
| | | | | |
Reconciliation of consolidated movements in shareholders’ funds
| | | | | Avecia Group plc Consolidated
| |
| | | | | For the year ended
December 31,
2004 | | For the year ended
December 31,
2003 | | For the year ended
December 31,
2002 | |
| | | | |
| |
| |
| |
| | | | | | | Restated | | Restated | |
| | | Notes | | £ million | | £ million | | £ million | |
| | | | | | | | | | |
| Profit/(loss) for the financial period | | | | 18.9 | | (94.5 | ) | (43.0 | ) |
| Appropriation of profit relating to non equity shares | | | | (6.6 | ) | (6.4 | ) | (6.0 | ) |
| | | | |
| |
| |
| |
| | | | | 12.3 | | (100.9 | ) | (49.0 | ) |
| Other recognized gains and losses relating to the period (net) | | 23 | | (18.4 | ) | (25.2 | ) | (52.8 | ) |
| New share capital subscribed | | 22 | | 0.2 | | 0.2 | | 0.2 | |
| Premium on share issues (net of issue costs) | | 23 | | 6.0 | | 5.6 | | 5.3 | |
| Shares to be issued | | 23 | | (3.1 | ) | 0.3 | | 0.2 | |
| Amortization of share issue costs | | 23 | | 0.3 | | 0.3 | | 0.4 | |
| | | | |
| |
| |
| |
| Net addition to shareholders’ funds | | | | (2.7 | ) | (119.7 | ) | (95.7 | ) |
| | | | | | | | | | |
| Opening shareholders’ funds as previously stated | | | | 18.2 | | 138.2 | | 234.1 | |
| Prior year adjustment – UITF38 | | | | — | | (0.3 | ) | (0.2 | ) |
| | | | |
| |
| |
| |
| Opening shareholders funds restated | | | | 18.2 | | 137.9 | | 233.9 | |
| | | | |
| |
| |
| |
| Closing shareholders’ funds | | | | 15.5 | | 18.2 | | 138.2 | |
| | | | |
| |
| |
| |
The accompanying notes are an integral part of these financial statements.
| | |
| Registered number: 3768265 | 63 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements
General
The financial statements have been prepared in accordance with generally accepted accounting standards in the United Kingdom (‘UK GAAP’), and under the historical cost accounting rules. These accounting standards differ in certain significant aspects from generally accepted accounting principles in the United States (‘US GAAP’) (see note 34).
The information set out in these accounts does not constitute the company’s statutory accounts for the years ended December 31, 2004, 2003 and 2002. Those accounts have been reported on by the company’s auditors; their reports were unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The accounts for 2003 have been delivered to the registrar of companies and those for 2004 will be delivered in due course.
Consolidated financial statements
The consolidated financial statements include the financial position of the company and its subsidiary undertakings for the years ended December 31, 2004 and December 31, 2003 and the financial results of the company and its subsidiary undertakings for the years ended December 31, 2004, December 31, 2003 and December 31, 2002. The acquisition method of accounting has been adopted. Under this method, the results of subsidiary undertakings acquired or disposed of in the year are included in the consolidated profit and loss account from the date of acquisition or up to the date of disposal. All significant inter company accounts and transactions have been eliminated.
A joint venture is an undertaking in which the group has a long-term interest and over which it exercises joint control. The group’s share of the profits less losses of joint ventures is included in the consolidated profit and loss account, and its interest in their net assets is included in investments in the consolidated balance sheet.
Going Concern
The financial statements have been prepared on the assumption that the Group remains a going concern. The following paragraphs summarise the issues and basis on which the directors have reached their conclusion.
At 31 December 2004 the Group had debt under its Banking Facilities secured by a fixed and floating charge over its properties, assets and undertakings.
Following the successful disposal of its NeoResins and Displays businesses after 31 December 2004, the Group used the proceeds of these disposals to repay all term debt outstanding under the bank facilities and 77% of the High Yield Bonds in issue. In addition the Group has currently retained circa. £60 million of the net proceeds after transaction costs, which will be utilised to manage liquidity, re-invest in the Group or make further repayments of debt.
As part of the Group’s ongoing strategy the Group will continue to effect further divestments at such times as the directors believe will generate appropriate value.
The directors have reviewed the Group’s budget for the current year and outline projections for the subsequent year, including cash flows and forecasts of liquidity available. Following this review, the directors have formed a judgement that, at the time of approval of the financial statements, the Group has sufficient resources to continue operating for the foreseeable future. For these reasons the directors continue to prepare the financial statements on a going concern basis.
| | |
| Registered number: 3768265 | 64 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial statements.
Own Shares Held
UITF Abstract 38 ‘Accounting for ESOP trusts’ is effective for accounting periods ending on or after 22 June 2004. As a result the Group’s own shares held by employee trusts, which are held at the lower of purchase cost and net realisable value and have previously been shown in debtors, are now deducted in arriving at shareholders’ funds. There has been no profit and loss effect from this change. The net effect on shareholders funds was a deduction of £0.5m (2003: £0.3m).
Goodwill
On the acquisition of a business, fair values are attributed to the net assets acquired. Purchased goodwill, representing the excess of the fair value of the consideration given over the fair value of the separable net assets acquired, is capitalized and is amortized to nil by equal annual installments over its estimated useful life.
Goodwill arising on the acquisition of the Specialty Chemicals division of AstraZeneca plc is being amortized over 15 years. Goodwill arising on subsequent acquisitions is also being amortized over 15 years.
On the subsequent disposal or termination of a business acquired, the profit or loss on disposal or termination is calculated after charging/crediting the unamortized amount of any related goodwill/negative goodwill.
Goodwill is reviewed for impairment whenever events or changes in circumstances indicate that the full carrying amount may not be recoverable.
Investments
A joint venture is an entity in which an interest is held on a long term basis and which is jointly controlled with one or more other venturers under a contractual agreement.
The group’s share of the profits and losses of all significant joint ventures is included in the consolidated profit and loss account using the equity accounting method. The holding value of significant joint ventures in the group balance sheet is calculated by reference to Avecia’s equity in the net assets of such joint ventures, as shown by the most recent accounts available, adjusted where appropriate.
Depreciation and amortization
The book value of each tangible fixed asset is written off evenly over its estimated remaining life. Reviews are made periodically of the estimated remaining lives of individual productive assets, taking account of commercial and technological obsolescence as well as normal wear and tear. The total asset lives approximate to 15 years for buildings and 10 years for plant and equipment. Depreciation of assets qualifying for grants is calculated on their full cost.
Intangible assets acquired, including patents and intellectual property rights, are capitalized and amortized on a straight line basis over their estimated useful lives (not exceeding 20 years). Internally developed intangible assets are not capitalized.
Impairment of long-lived assets
Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of such an asset to discounted future net cash flows expected to be generated by them. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed their fair value. Assets to be disposed of are reported at the lower of their carrying amount or fair value less costs to sell.
| | |
| Registered number: 3768265 | 65 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
| 2 | Accounting policies (continued) |
Environmental liabilities
The group is exposed to environmental liabilities relating to operations, principally in respect of soil and groundwater remediation costs. Provisions for these costs are made when the group has a present obligation as a result of a past event, expenditure on remedial work is probable and the cost can be estimated within a reasonable range of possible outcomes.
Foreign currencies
Profit and loss accounts of overseas operations recorded in foreign currencies are translated into sterling at average rates for the relevant accounting periods. Assets and liabilities are translated at rates prevailing at the balance sheet date.
Exchange differences on short-term foreign currency borrowings and deposits are included within net interest payable. Exchange differences on all other transactions, except relevant foreign currency loans, are taken to operating profit. In the consolidated financial statements exchange differences arising from the translation of the net investments of overseas subsidiaries, joint ventures and associates are taken directly to reserves via the consolidated statement of total recognized gains or losses. Differences on relevant foreign currency loans, together with related tax, are taken to reserves via the statement of total recognized gains and losses and offset against the differences on net investments, as they are considered to be a hedge against movements on the net investments. To the extent that foreign currency loans are not considered to be a hedge the foreign exchange difference is booked to the profit and loss account.
Government grants
Government grants made as a contribution towards revenue expenditure, or for an objective with an associated revenue cost (such as job creation) are included on the balance sheet as deferred income and released to the profit and loss account in line with the costs being incurred.
Capital based government grants are included within accruals and deferred income in the balance sheet and credited to operating profit over the estimated useful economic lives of the assets to which they relate.
Where grants comprise capital and revenue elements, these elements are split out on a reasonable basis and each element is treated as described above.
Leases
Assets held under finance leases are capitalized and included in tangible fixed assets at fair value. Each asset is depreciated over the shorter of the lease term or its useful life. The obligations related to finance leases, net of finance charges in respect of future periods, are included as appropriate under creditors due within, or creditors due after, one year. The interest element of the rental obligation is allocated to accounting periods during the lease term to reflect a constant rate of interest on the remaining balance of the obligation for each accounting period.
Rentals under operating leases are charged to the profit and loss account on a straight-line basis over the lease term.
| | |
| Registered number: 3768265 | 66 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
| 2 | Accounting policies (continued) |
Post-retirement benefits
Avecia operates both Defined Benefit and Defined Contribution schemes. The assets of the pension schemes are held separately from those of the Group. In the case of defined benefit schemes, assets are
measured using market values. Liabilities are measured using a projected unit method and discounted at the current rate of return of a high quality corporate bond of equivalent term and currency. Costs and liabilities are assessed in accordance with the advice of independent qualified actuaries. The pension scheme surplus (to the extent that it is recoverable) or deficit is recognised in full. The movement in the scheme surplus/deficit is split between operating charges, finance items and, in the statement of total recognised gains and losses, actuarial gains and losses.
In the case of Defined Contribution schemes, the amount charged to the profit and loss account represents the contributions payable to the scheme in the period.
Research and development and advertising expenditure
Research and development and advertising expenditure is charged to the profit and loss account in the period in which it is incurred.
Stocks
Stocks are stated at the lower of cost and net realisable value. The first in, first out or an average method of valuation is used. In determining cost, depreciation is included but selling expenses and certain overhead expenses (principally central administration costs) are excluded. Net realisable value is determined as selling price less costs of disposal.
Taxation
The charge for taxation is based on the profits for the period and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and for accounting purposes. Deferred tax assets are recognized, without discounting, to the extent that, on the basis of all available evidence, it can be regarded as more likely than not that there would be suitable profits from which the future reversal of the underlying timing differences can be deducted.
Turnover and revenue recognition
The company generates revenue through sales of specialty chemicals in the open market, through raw material conversion and supply and development contracts. Turnover excludes inter-segment turnover and value added taxes.
Revenue is recognized when services have been rendered and significant risks and rewards in respect of ownership of the products are passed to the customer. Where multiple-element sales arrangements exist, this entails the company recognizing revenue on individual contract elements for work performed or services rendered during the period.
Cash and liquid resources
Cash, for the purpose of the cash flow statement, comprises cash in hand and deposits repayable on demand, less overdrafts payable on demand.
Liquid resources are current asset investments which are disposable without curtailing or disrupting the business and are either readily convertible into known amounts of cash at or close to their carrying values or traded in an active market. Liquid resources comprise term deposits of less than one year (other than cash), government securities and investments in money market managed funds.
Financial instruments
Financial instruments are used to hedge exposures to fluctuations in interest and foreign exchange rates. Instruments accounted for as hedges are structured so as to reduce the market risk associated with the underlying transaction being hedged and are designated as a hedge at the inception of the contract.
| | |
| Registered number: 3768265 | 67 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
2 Accounting policies (continued)
Receipts and payments on interest rate instruments are recognized on an accrual basis over the lives of the instruments. Gains and losses on contracts hedging forecast transaction cash flows are recognized in the same hedged periods. Cash flows associated with derivative financial instruments are classified in the cash flow statement in a manner consistent with those of the transactions being hedged. Finance costs associated with debt issuances are netted against the carrying value of the related debt and charged to the profit and loss account over the lives of the issue. If the underlying transaction to a hedge ceases to exist, the hedge is terminated and the profits and losses on termination are recognized in the profit and loss account immediately.
If the hedge transaction is terminated, the profits and losses on termination are held on the balance sheet and amortized over the life of the original underlying transaction.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
3 Segmental information
Classes of business
Avecia is a global group of specialized chemical businesses, which develop, manufacture and market chemical products to customers in a wide range of industries. Avecia operates through three main businesses which report to the central management team. Inter segment sales are minimal. The group continues to re-evaluate its segments and has re-stated its disclosure to conform to these new segments.
The following is a brief description of each business segment:
Chemicals– produces chemical intermediates for pharmaceutical, agrochemical products and other chemical products;
Biotechnology– manufacturing and process development services for advanced medicines;
Electronic Materials– supplier of color and black ink for ink jet printers, consumables for color photocopiers and laser printers; and organic light emitting polymers for flat panel displays.
Discontinued Operations– comprises of i. the Stahl business (sold in January 2002), ii. the entire Specialty Products business segment (the final parts of the segment, the Additives and Biocides businesses, having been sold in January and April 2004 respectively), and iii. the NeoResins business (supplier of water-borne resins used as binders and additives in the paint, coating, adhesives and printing ink industries) that was sold subsequent to the year end (see note 31, Post Balance Sheet Events).
The following tables analyze certain profit and loss and net asset items by business segment. No segment allocation has been shown for interest and taxation as they have not been allocated to these businesses. The accounting policies for each segment are the same as those for the consolidated/combined business. Central costs and overheads are not allocated to individual segments. The Group’s policy is to transfer products internally at external market prices.
| | |
| Registered number: 3768265 | 68 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
3 Segmental information (continued)
The tables below set out information for each of the industry segments and geographic areas of operation.
Avecia Group plc consolidated
| | | For the year ended December 31, 2004 | |
| | |
|
| |
| | | Chemicals | | | Biotechnology | | | Electronic
Materials | | | Discontinued Operations | | | Other | | | Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
| Turnover | | | | | | | | | | | | | | | | | | | |
| Total sales | | | 77.8 | | | 55.8 | | | 70.3 | | | 207.3 | | | 5.1 | | | 416.3 | |
| Inter-segmental sales | | | — | | | (0.1 | ) | | — | | | (0.2 | ) | | — | | | (0.3 | ) |
| Joint venture sales | | | — | | | — | | | (8.8 | ) | | — | | | — | | | (8.8 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Sales to third parties | | | 77.8 | | | 55.7 | | | 61.5 | | | 207.1 | | | 5.1 | | | 407.2 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Segment operating (loss)/profit before: | | | (31.3 | ) | | (9.6 | ) | | 5.8 | | | 33.3 | | | (1.2 | ) | | (3.0 | ) |
| Share of operating profit in joint ventures | | | — | | | — | | | (6.9 | ) | | — | | | — | | | (6.9 | ) |
| Profit on disposal of business | | | — | | | — | | | — | | | — | | | 98.6 | | | 98.6 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Segment (loss)/profit before interest, taxation and minority interests | | | (31.3 | ) | | (9.6 | ) | | (1.1 | ) | | 33.3 | | | 97.4 | | | 88.7 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | | |
| Unallocated costs | | | | | | | | | | | | | | | | | | (47.4 | ) |
| | | | | | | | | | | | | | | | | |
|
| |
| Group profit before interest, taxation and minority interests | | | | | | | | | | | | | | | | | | 41.3 | |
| | | | | | | | | | | | | | | | | |
|
| |
| Net assets as at December 31, 2004 | | | 37.2 | | | 80.6 | | | 56.2 | | | 73.3 | | | (0.7 | ) | | 246.6 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | | |
| Unallocated net liabilities | | | | | | | | | | | | | | | | | | (239.0 | ) |
| Share of joint ventures’ net assets | | | — | | | — | | | 7.9 | | | — | | | — | | | 7.9 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| | | | |
| | | | | | | | | | | | | | | | | |
|
| |
| Total net assets as at December 31, 2004 | | | | | | | | | | | | | | | | | | 15.5 | |
| | | | | | | | | | | | | | | | | |
|
| |
Unallocated costs relate to amortization, depreciation, UK & US head office costs, exceptional operating items and restructuring costs.
Unallocated net liabilities relate to goodwill less corporate liabilities and external loans.
| | |
| Registered number: 3768265 | 69 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
3 Segmental information (continued)
Avecia Group plc consolidated
| | | For the year ended December 31, 2003 (restated) | |
| | |
| |
| | | | Chemicals | | | Biotechnology | | | Electronic
Materials | | | Discontinued Operations | | | Other | | | Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
| Turnover | | | | | | | | | | | | | | | | | | | |
| Total sales | | | 92.0 | | | 30.5 | | | 75.4 | | | 300.2 | | | 0.1 | | | 498.2 | |
| Inter-segmental sales | | | — | | | — | | | — | | | (0.6 | ) | | — | | | (0.6 | ) |
| Joint venture sales | | | — | | | — | | | (12.4 | ) | | — | | | — | | | (12.4 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Sales to third parties | | | 92.0 | | | 30.5 | | | 63.0 | | | 299.6 | | | 0.1 | | | 485.2 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Segment operating (loss)/profit before: | | | (70.1 | ) | | (17.2 | ) | | 3.8 | | | 48.8 | | | (0.1 | ) | | (34.8 | ) |
| Share of operating profit in Joint ventures | | | — | | | — | | | 1.7 | | | — | | | — | | | 1.7 | |
| Profit on disposal of business | | | — | | | — | | | — | | | — | | | 15.4 | | | 15.4 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Segment (loss)/profit before interest, taxation and minority interests | | | (70.1 | ) | | (17.2 | ) | | 5.5 | | | 48.8 | | | 15.3 | | | (17.7 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | | |
| Unallocated costs | | | | | | | | | | | | | | | | | | (46.3 | ) |
| Group (loss) before interest, taxation and minority interests | | | | | | | | | | | | | | | | | | (64.0 | ) |
| | | | | | | | | | | | | | | | | |
|
| |
| Net assets as at December 31, 2003 | | | 54.1 | | | 85.7 | | | 60.6 | | | 122.2 | | | 9.2 | | | 331.8 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | | |
| Unallocated net liabilities | | | | | | | | | | | | | | | | | | (323.1 | ) |
| Share of joint ventures’ net assets | | | — | | | — | | | 9.5 | | | — | | | — | | | 9.5 | |
| Total net assets as at December 31, 2003 | | | | | | | | | | | | | | | | | | 18.2 | |
| | | | | | | | | | | | | | | | | |
|
| |
Unallocated costs relate to amortization, depreciation, UK & US head office costs, exceptional operating items and restructuring costs.
Unallocated net liabilities relate to goodwill less corporate liabilities and external loans.
| | |
| Registered number: 3768265 | 70 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
3 Segmental information (continued)
Avecia Group plc consolidated
| | | For the year ended December 31, 2002 (restated) | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | Chemicals | | | Biotechnology | | | Electronic
Materials | | | Discontinued Operations | | | Other | | | Total | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
| Turnover | | | | | | | | | | | | | | | | | | | |
| Total sales | | | 136.3 | | | 49.4 | | | 77.3 | | | 326.1 | | | 0.6 | | | 589.7 | |
| Inter-segmental sales | | | — | | | — | | | — | | | (0.5 | ) | | — | | | (0.5 | ) |
| Joint venture sales | | | — | | | — | | | (13.5 | ) | | — | | | — | | | (13.5 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Sales to third parties | | | 136.3 | | | 49.4 | | | 63.8 | | | 325.6 | | | 0.6 | | | 575.7 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Segment operating (loss)/ profit before: | | | (0.1 | ) | | (3.5 | ) | | 2.1 | | | 58.1 | | | — | | | 56.6 | |
| Share of operating profit in joint ventures | | | — | | | — | | | 2.2 | | | — | | | — | | | 2.2 | |
| Profit on disposal of business | | | — | | | — | | | — | | | — | | | 9.4 | | | 9.4 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Segment (loss)/profit before interest, taxation and minority interests | | | (0.1 | ) | | (3.5 | ) | | 4.3 | | | 58.1 | | | 9.4 | | | 68.2 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | | |
| Unallocated costs | | | | | | | | | | | | | | | | | | (73.8 | ) |
| | | | | | | | | | | | | | | | | |
|
| |
| Group (loss) before interest, taxation and minority interests | | | | | | | | | | | | | | | | | | (5.6 | ) |
| | | | | | | | | | | | | | | | | |
|
| |
| Net assets as at December 31, 2002 | | | 151.1 | | | 59.7 | | | 61.6 | | | 145.2 | | | 10.6 | | | 428.2 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | | |
| Unallocated net liabilities | | | | | | | | | | | | | | | | | | (299.8 | ) |
| Share of joint ventures’ net assets | | | — | | | — | | | 10.1 | | | — | | | — | | | 10.1 | |
| | | | | | | | | | | | | | | | | |
|
| |
| Total net assets as at December 31, 2002 | | | | | | | | | | | | | | | | | | 138.5 | |
| | | | | | | | | | | | | | | | | |
|
| |
Unallocated costs relate to amortization, depreciation, UK & US head office costs, exceptional operating items and restructuring costs.
Unallocated net liabilities relate to goodwill less corporate liabilities and external loans.
| | |
| Registered number: 3768265 | 71 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
3 Segmental information (continued)
Avecia Group plc consolidated
| | | For the year ended December 31, 2004 | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | UK | | | Continental
Europe | | | The
Americas | | | Asia, Africa
and
Australasia | | | Total | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
| Turnover | | | | | | | | | | | | | | | | |
| Sales by destination | | | | | | | | | | | | | | | | |
| Total sales | | | 50.2 | | | 158.8 | | | 146.8 | | | 60.5 | | | 416.3 | |
| Inter-segmental sales | | | (0.2 | ) | | (0.1 | ) | | — | | | — | | | (0.3 | ) |
| Sales to joint ventures | | | (0.5 | ) | | (2.7 | ) | | (5.4 | ) | | (0.2 | ) | | (8.8 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Sales to third parties | | | 49.5 | | | 156.0 | | | 141.4 | | | 60.3 | | | 407.2 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Sales by origin | | | | | | | | | | | | | | | | |
| Total sales | | | 119.8 | | | 133.6 | | | 128.5 | | | 34.4 | | | 416.3 | |
| Inter-segmental sales | | | (0.3 | ) | | — | | | — | | | — | | | (0.3 | ) |
| Joint venture sales | | | (3.6 | ) | | — | | | (5.2 | ) | | — | | | (8.8 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Sales to third parties | | | 115.9 | | | 133.6 | | | 123.3 | | | 34.4 | | | 407.2 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Segment operating (loss)/profit before: | | | (54.2 | ) | | (9.2 | ) | | 11.3 | | | 1.7 | | | (50.4 | ) |
| Share of operating profit/(loss) in joint ventures | | | 0.4 | | | — | | | (7.3 | ) | | — | | | (6.9 | ) |
| Profit/(loss) on disposal of business | | | 127.8 | | | (0.3 | ) | | (29.2 | ) | | 0.3 | | | 98.6 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Segment/group profit/(loss) before interest, taxation and minority interests | | | 74.0 | | | (9.5 | ) | | (25.2 | ) | | 2.0 | | | 41.3 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Net (liabilities)/assets as at December 31, 2004 | | | (67.4 | ) | | 118.2 | | | (50.1 | ) | | 6.9 | | | 7.6 | |
| Joint ventures | | | 5.1 | | | — | | | 2.8 | | | — | | | 7.9 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Total net assets as at December 31, 2004 | | | | | | | | | | | | | | | 15.5 | |
| | | | | | | | | | | | | | |
|
| |
| | |
| Registered number: 3768265 | 72 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
3 Segmental information (continued)
Avecia Group plc consolidated
| | | For the year ended December 31, 2003 | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | UK | | | Continental
Europe | | | The
Americas | | | Asia, Africa
and
Australasia | | | Total | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
| Turnover | | | | | | | | | | | | | | | | |
| Sales by destination | | | | | | | | | | | | | | | | |
| Total sales | | | 51.9 | | | 175.6 | | | 192.2 | | | 78.5 | | | 498.2 | |
| Inter-segmental sales | | | (0.1 | ) | | (0.4 | ) | | (0.1 | ) | | — | | | (0.6 | ) |
| Sales to joint ventures | | | (0.4 | ) | | (3.1 | ) | | (8.9 | ) | | — | | | (12.4 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Sales to third parties | | | 51.4 | | | 172.1 | | | 183.2 | | | 78.5 | | | 485.2 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Sales by origin | | | | | | | | | | | | | | | | |
| Total sales | | | 135.5 | | | 131.2 | | | 186.0 | | | 45.5 | | | 498.2 | |
| Inter-segmental sales | | | (0.4 | ) | | (0.1 | ) | | (0.1 | ) | | — | | | (0.6 | ) |
| Joint venture sales | | | (4.6 | ) | | — | | | (7.8 | ) | | — | | | (12.4 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Sales to third parties | | | 130.5 | | | 131.1 | | | 178.1 | | | 45.5 | | | 485.2 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Segment operating (loss)/profit before: | | | (48.2 | ) | | (11.7 | ) | | (23.1 | ) | | 1.9 | | | (81.1 | ) |
| Share of operating profit in joint ventures | | | 1.0 | | | — | | | 0.7 | | | — | | | 1.7 | |
| Profit/(loss) on disposal of business | | | 6.1 | | | 0.6 | | | 8.9 | | | (0.2 | ) | | 15.4 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Segment/group (loss)/profit before interest, taxation and minority interests | | | (41.1 | ) | | (11.1 | ) | | (13.5 | ) | | 1.7 | | | (64.0 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Net (liabilities)/assets as at December 31, 2003 | | | (86.3 | ) | | 124.5 | | | (35.1 | ) | | 5.6 | | | 8.7 | |
| | | | | | | | | | | | | | | | | |
| Joint ventures | | | 5.8 | | | — | | | 3.7 | | | — | | | 9.5 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Total net assets as at December 31, 2003 | | | | | | | | | | | | | | | 18.2 | |
| | | | | | | | | | | | | | |
|
| |
| | |
| Registered number: 3768265 | 73 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
3 Segmental information (continued)
Avecia Group plc consolidated
| | | For the year ended December 31, 2002 | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | UK | | | Continental
Europe | | | The
Americas | | | Asia, Africa
and
Australasia | | | Total | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
| Turnover | | | | | | | | | | | | | | | | |
| Sales by destination | | | | | | | | | | | | | | | | |
| Total sales | | | 91.6 | | | 163.3 | | | 254.5 | | | 80.3 | | | 589.7 | |
| Inter-segmental sales | | | (0.2 | ) | | (0.3 | ) | | — | | | — | | | (0.5 | ) |
| Sales to joint ventures | | | — | | | (3.2 | ) | | (10.3 | ) | | — | | | (13.5 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Sales to third parties | | | 91.4 | | | 159.8 | | | 244.2 | | | 80.3 | | | 575.7 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Sales by origin | | | | | | | | | | | | | | | | |
| Total sales | | | 168.7 | | | 123.0 | | | 251.1 | | | 46.9 | | | 589.7 | |
| Inter-segmental sales | | | (0.3 | ) | | (0.1 | ) | | (0.1 | ) | | — | | | (0.5 | ) |
| Joint venture sales | | | (4.4 | ) | | — | | | (9.1 | ) | | — | | | (13.5 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Sales to third parties | | | 164.0 | | | 122.9 | | | 241.9 | | | 46.9 | | | 575.7 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Segment operating (loss)/profit before: | | | (10.5 | ) | | (14.3 | ) | | 5.7 | | | 1.9 | | | (17.2 | ) |
| Share of operating profit in joint ventures | | | 0.9 | | | — | | | 1.3 | | | — | | | 2.2 | |
| (Loss)/Profit on disposal of business | | | (15.9 | ) | | 34.0 | | | (10.6 | ) | | 1.9 | | | 9.4 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Segment/group (loss)/profit before interest, taxation and minority interests | | | (25.5 | ) | | 19.7 | | | (3.6 | ) | | 3.8 | | | (5.6 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Net (liabilities)/assets as at December 31, 2002 | | | (82.6 | ) | | 221.0 | | | (11.6 | ) | | 1.6 | | | 128.4 | |
| Joint ventures | | | 6.0 | | | — | | | 4.1 | | | — | | | 10.1 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Total net assets as at December 31, 2002 | | | | | | | | | | | | | | | 138.5 | |
| | | | | | | | | | | | | | |
|
| |
| | |
| Registered number: 3768265 | 74 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
3 Segmental information (continued)
| | | Avecia Group plc Consolidated | |
| | |
|
|
|
|
| |
| | | | As at
December 31,
2004 | | | As at
December 31,
2003
Restated | |
| | |
|
| |
|
| |
| | | | £ million | | | £ million | |
| Total assets | | | | | | | |
| Chemicals | | | 54.6
| | | 73.8
| |
| Biotechnology | | | 98.6 | | | 101.3 | |
| Electronic Materials | | | 73.3 | | | 80.9 | |
| Discontinued Operations | | | 103.4 | | | 159.1 | |
| Other | | | 242.3 | | | 329.9 | |
| | |
|
| |
|
| |
| | | | 572.2 | | | 745.0 | |
| | |
|
| |
|
| |
Other includes all goodwill.
| | | Avecia Group plc Consolidated | |
| | |
|
|
|
|
|
|
|
| |
| | | | For the
Year ended
December 31,
2004 | | | For the
Year ended
December 31,
2003 | | | For the
year ended
December 31,
2002 | |
| | |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | |
| Capital expenditure on tangible and intangible fixed assets | | | | | | | | | | |
| Chemicals | | | 1.8 | | | 2.1 | | | 13.6 | |
| Biotechnology | | | 4.7 | | | 36.7 | | | 21.3 | |
| Electronic Materials | | | 2.4 | | | 3.3 | | | 4.7 | |
| Discontinued Operations | | | 5.6 | | | 7.6 | | | 5.8 | |
| Other | | | 0.8 | | | 0.3 | | | 0.6 | |
| | |
|
| |
|
| |
|
| |
| Total | | | 15.3 | | | 50.0 | | | 46.0 | |
| | |
|
| |
|
| |
|
| |
| | |
| Registered number: 3768265 | 75 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
3 Segmental information (continued)
| | | Avecia Group plc Consolidated | |
| | |
|
|
|
|
|
|
|
| |
| | | | For the
year ended
December 31,
2004 | | | For the
year ended
December 31,
2003
Restated | | | For the
year ended
December 31,
2002
Restated | |
| | |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | |
| Depreciation and amortization | | | | | | | | | | |
Chemicals
| | | 28.8
| | | 70.7
| | | 25.8
| |
| Biotechnology | | | 6.2 | | | 3.6 | | | 5.4 | |
| Electronic Materials | | | 7.0 | | | 6.7 | | | 6.5 | |
| Discontinued Operations | | | 6.9 | | | 11.0 | | | 11.5 | |
| Other | | | 32.0 | | | 44.2 | | | 53.6 | |
| | |
|
| |
|
| |
|
| |
| Total | | | 80.9 | | | 136.2 | | | 102.8 | |
| | |
|
| |
|
| |
|
| |
Included in the year ended 31 December, 2004 is £22.2 million of fixed asset impairment charge in Chemicals (2003: £55.2 million; 2002:£8.6 million). Other includes amortization of all goodwill.
| | |
| Registered number: 3768265 | 76 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
3 Segmental information (continued)
Geographic areas
| | | Avecia Group plc Consolidated | |
| | |
|
|
|
|
| |
| | | | As at
December 31,
2004 | | | As at
December 31,
2003 | |
| | | | £ million | | | £ million | |
| | |
|
| |
|
| |
| Net assets | | | | | | | |
| United Kingdom | | | (62.3 | ) | | (80.5 | ) |
| Continental Europe | | | 118.2 | | | 124.5 | |
| The Americas | | | (47.3 | ) | | (31.4 | ) |
| Asia, Africa and Australasia | | | 6.9 | | | 5.6 | |
| | |
|
| |
|
| |
| | | | 15.5 | | | 18.2 | |
| | |
|
| |
|
| |
| | | Avecia Group plc Consolidated | |
| | |
|
|
|
|
| |
| | | | As at
December 31,
2004 | | | As at
December 31,
2003 | |
| | | | £ million | | | £ million | |
| | |
|
| |
|
| |
| Tangible fixed assets | | | | | | | |
| United Kingdom | | | 118.3 | | | 171.1 | |
| Continental Europe | | | 38.2 | | | 39.2 | |
| The Americas | | | 42.0 | | | 52.6 | |
| Asia, Africa and Australasia | | | 0.1 | | | 0.3 | |
| | |
|
| |
|
| |
| | | | 198.6 | | | 263.2 | |
| | |
|
| |
|
| |
| | | Avecia Group plc Consolidated | |
| | |
|
|
|
|
|
|
|
| |
| | | | For the
year ended | | | For the
year ended | | | For the
year ended | |
| | | | December 31, | | | December 31, | | | December 31, | |
| | | | 2004 | | | 2003 | | | 2002 | |
| | |
|
| |
|
| |
|
| |
| Average number of employees | | | | | | | | | | |
| United Kingdom | | | 1,453 | | | 1,842 | | | 1,934 | |
| Continental Europe | | | 570 | | | 603 | | | 599 | |
| The Americas | | | 479 | | | 649 | | | 759 | |
| Asia, Africa and Australasia | | | 25 | | | 72 | | | 72 | |
| | |
|
| |
|
| |
|
| |
| | | | 2,527 | | | 3,166 | | | 3,364 | |
| | |
|
| |
|
| |
|
| |
| | |
| Registered number: 3768265 | 77 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
4 Group operating profit
| | | Avecia Group plc Consolidated | |
| | |
|
|
|
|
|
|
|
|
|
| |
| | | | For the year ended December 31, 2004 | | | For the year ended December 31, 2003 | |
| | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | Continuing operations | | | Discontinued operations | | | 2004
Total | | | Continuing operations | | | Discontinued operations | | | 2003
Total | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
| Operating costs before exceptionals | | | | | | | | | | | | | | | | | | | |
| Cost of sales | | | (140.0 | ) | | (130.1 | ) | | (270.1 | ) | | (173.7 | ) | | (173.8 | ) | | (347.5 | ) |
| Distribution costs | | | (4.7 | ) | | (17.5 | ) | | (22.2 | ) | | (3.2 | ) | | (19.6 | ) | | (22.8 | ) |
| Research and development | | | (34.9 | ) | | (10.5 | ) | | (45.4 | ) | | (41.8 | ) | | (15.9 | ) | | (57.7 | ) |
| Selling, general and administrative expenses | | | (73.8 | ) | | (15.3 | ) | | (89.1 | ) | | (30.7 | ) | | (42.4 | ) | | (73.1 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | (253.4 | ) | | (173.4 | ) | | (426.8 | ) | | (249.4 | ) | | (251.7 | ) | | (501.1 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Exceptional operating costs | | | | | | | | | | | | | | | | | | | |
| Restructuring and site closure (net of pension curtailment gains | | | (15.9 | ) | | — | | | (15.9 | ) | | — | | | — | | | — | |
Impairment of Goodwill, Intangible and Tangible Assets
| | | (22.3)
| | | —
| | | (22.3)
| | | (69.3 | ) | | —
| | | (69.3 | ) |
| Onerous contract | | | (1.7 | ) | | — | | | (1.7 | ) | | — | | | — | | | — | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | (39.9 | ) | | — | | | (39.9 | ) | | (69.3 | ) | | — | | | (69.3 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Other operating income | | | | | | | | | | | | | | | | | | | |
| Royalty income | | | — | | | — | | | — | | | 0.2 | | | — | | | 0.2 | |
| Other income | | | 9.5 | | | (0.4 | ) | | 9.1 | | | 3.0 | | | 0.9 | | | 3.9 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | 9.5 | | | (0.4 | ) | | 9.1 | | | 3.2 | | | 0.9 | | | 4.1 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Total charge for depreciation and amortization included above | | | (65.9 | ) | | (6.9 | ) | | (72.8 | ) | | (124.4 | ) | | (10.9 | ) | | (135.3 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | |
| Registered number: 3768265 | 78 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
4 Group operating profit (continued)
| | | Avecia Group plc Consolidated | |
| | |
|
| |
| | | | For the year ended December 31, 2002 Restated | |
| | |
|
|
|
|
|
|
|
| |
| | | | Continuing
Operations | | | Discontinued operations | | | Total | |
| | |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | |
| Operating costs before exceptionals | | | | | | | | | | |
| Cost of sales | | | (178.4) | | | (183.3) | | | (361.7) | |
| Distribution costs | | | (3.1) | | | (23.8) | | | (26.9) | |
| Research and development | | | (42.3) | | | (16.5) | | | (58.8) | |
| Selling, general and administrative expenses | | | (66.3) | | | (45.6) | | | (111.9) | |
| | |
|
| |
|
| |
|
| |
| | | | (290.1) | | | (269.2) | | | (559.3) | |
| | |
|
| |
|
| |
|
| |
| Exceptional operating costs | | | | | | | | | | |
| Restructuring and site closure | | | (11.1) | | | — | | | (11.1) | |
| Impairment of Goodwill, Intangible and Tangible Assets | | | (30.1) | | | — | | | (30.1) | |
| Onerous contract | | | — | | | — | | | — | |
| | |
|
| |
|
| |
|
| |
| | | | (41.2) | | | — | | | (41.2) | |
| | |
|
| |
|
| |
|
| |
| Other operating income | | | | | | | | | | |
| Royalty income | | | 0.8 | | | — | | | 0.8 | |
| Other income | | | 5.1 | | | 1.7 | | | 6.8 | |
| | |
|
| |
|
| |
|
| |
| | | | 5.9 | | | 1.7 | | | 7.6 | |
| | |
|
| |
|
| |
|
| |
| Total charge for depreciation and amortization included above | | | (90.3) | | | (11.5) | | | (101.8) | |
| | |
|
| |
|
| |
|
| |
| | |
| Registered number: 3768265 | 79 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
5 Profit on disposal of businesses
In January 2004 the Group completed the sale of the Additives business to The Lubrizol Corporation. The principal effects on the reported results are as follows:
| | | | 2004
| |
| | |
|
| |
| | | | £m | |
| Cash flow | | | | |
| Working capital settlement | | | — | |
| Cash disposed | | | (0.1 | ) |
| Sale of business | | | 69.0 | |
| | | | | |
| Profit on disposal | | | | |
| Goodwill written off on disposal | | | 25.0 | |
| Net assets disposed (net of pension fund curtailment gain) | | | 6.7 | |
| Disposal costs | | | 3.5 | |
| Profit on disposal | | | 33.8 | |
| |
|
| |
| | | | 69.0 | |
| | |
|
| |
| Consideration | | | | |
| Cash | | | 69.0 | |
| Working capital settlement | | | — | |
| |
|
| |
| | | | 69.0 | |
| | |
|
| |
In April 2004 the Group completed the sale of the Biocides business to Arch Chemicals, Inc. The principal effects on the reported results are as follows:
| | | | 2004
| |
| | |
|
| |
| | | | £m | |
| Cash flow | | | | |
| Working capital settlement | | | 4.1 | |
| Cash disposed | | | (0.1 | ) |
| Sale of business | | | 119.4 | |
| | | | | |
| Profit on disposal | | | | |
| Goodwill written off on disposal | | | 23.4 | |
| Net assets disposed (net of pension fund curtailment gain) | | | 31.6 | |
| Disposal costs | | | 4.8 | |
| Profit on disposal | | | 63.7 | |
| |
|
| |
| | | | 123.5 | |
| | |
|
| |
| Consideration | | | | |
| Cash | | | 110.2 | |
| Shares in Arch Chemicals, Inc. (initial consideration) | | | 8.3 | |
| Shares in Arch Chemicals, Inc. (deferred consideration) | | | 0.9 | |
| Working capital settlement | | | 4.1 | |
| |
|
| |
| | | | 123.5 | |
| | |
|
| |
| | |
| Registered number: 3768265 | 80 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
5 Profit on disposal of businesses (continued)
The shares in Arch Chemicals, Inc. received as part of the initial consideration were held as a current asset investment and were disposed of later in the year at a profit of £1.8 million which is included within operating profit. The shares in Arch Chemicals, Inc. received as deferred consideration were received in January 2005.
In November 2004 the Group completed the sale of the Special Drug Mixtures business to the Copperhead Chemical Company .
The principal effects on the reported results are as follows:
| | | | 2004
| |
| | |
|
| |
| | | | £m | |
| Cash flow | | | | |
| Sale of business | | | 6.3 | |
| | |
|
| |
| Profit on disposal | | | | |
| Goodwill written off on disposal | | | 2.7 | |
| Net assets disposed | | | 2.4 | |
| Disposal costs | | | 0.1 | |
| Profit on disposal | | | 1.1 | |
| |
|
| |
| | | | 6.3 | |
| | |
|
| |
| Consideration | | | | |
| Cash | | | 6.3 | |
| | |
|
| |
Additionally, during the year the group reported £0.1m loss relating to the sale of Stahl which took place in 2002.
| | |
| Registered number: 3768265 | 81 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
6 Profit/(loss) on ordinary activities before taxation
| | | Avecia Group plc Consolidated | |
| | |
|
| |
| | | | For the year ended | | | For the year ended | | | For the year ended | |
| | | | December 31, | | | December 31, | | | December 31, | |
| | | | 2004 | | | 2003 | | | 2002 | |
| | |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | |
| Profit/(loss) on ordinary activities before taxation is stated | | | | | | | | | | |
| | | | | | | | | | | |
| – after charging | | | | | | | | | | |
| | | | | | | | | | | |
| Auditors’ remuneration: | | | | | | | | | | |
| – group audit | | | 0.4 | | | 0.4 | | | 0.4 | |
| – fees paid to the auditors and their associates in respect of other services | | | 0.6 | | | 0.3 | | | 0.1 | |
| Depreciation and other amounts written off tangible fixed assets: | | | | | | | | | | |
| Owned | | | 25.6 | | | 33.1 | | | 39.1 | |
| Leased | | | 1.1 | | | 1.1 | | | 0.3 | |
| Impairment of tangible and intangible fixed assets | | | 22.3 | | | 55.9 | | | 8.6 | |
| Impairment of goodwill | | | — | | | 13.4 | | | 21.5 | |
| Amortization of goodwill | | | 22.4 | | | 29.6 | | | 30.7 | |
| Amortization of goodwill for joint ventures | | | 0.9 | | | 0.9 | | | 1.0 | |
| Impairment of goodwill for joint ventures | | | 7.2 | | | — | | | — | |
| Amortization of intellectual property rights | | | 1.5 | | | 2.1 | | | 1.6 | |
| Exchange losses | | | — | | | 5.1 | | | 1.4 | |
| Operating leases: | | | | | | | | | | |
| Land & buildings | | | 0.3 | | | 0.3 | | | 0.3 | |
| Other | | | — | | | 0.2 | | | 0.4 | |
| Research and development expenditure | | | 45.4 | | | 57.7 | | | 58.8 | |
| | | | | | | | | | | |
| – after crediting | | | | | | | | | | |
| | | | | | | | | | | |
| Exchange gains | | | 32.1 | | | 34.8 | | | 33.1 | |
| Government grants | | | 1.2 | | | 1.0 | | | 0.1 | |
| | |
| Registered number: 3768265 | 82 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
7 Remuneration of directors
| | | Avecia Group plc | |
| | |
|
|
|
|
|
|
|
| |
| | | For the year ended
December 31, 2004 | | For the year ended
December 31, 2003 | | For the year ended
December 31, 2002 | |
| | |
|
| |
|
| |
|
| |
| | | | £’000 | | | £’000 | | | £’000 | |
| | | | | | | | | | | |
| Directors’ emoluments | | | 1,179 | | | 820 | | | 801 | |
| | |
|
| |
|
| |
|
| |
| Included in the above amounts paid to third parties in respect of directors’ services | | | — | | | — | | | — | |
| | |
|
| |
|
| |
|
| |
The aggregate of emoluments of the highest paid director were £522,313 for the year ended December 31, 2004, (2003: £366,253) and company pension contributions of £12,240 (2003: £11,880) were made to a money purchase scheme on his behalf.
| | | | Number of directors | |
| | |
|
|
|
|
|
|
|
| |
| | | | 2004 | | | 2003 | | | 2002 | |
| |
|
| |
|
| |
|
| |
| Retirement benefits are accruing to the following number of directors under: | | | | | | | | | | |
| | | | | | | | | | | |
| Money purchase schemes | | | 2 | | | 2 | | | 2 | |
| Defined benefit schemes | | | 1 | | | 1 | | | 1 | |
| | |
|
| |
|
| |
|
| |
| | |
| Registered number: 3768265 | 83 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
8 Staff numbers and costs
The average number of persons employed (including directors) during the period, analyzed by business segment, was as follows:
| | | | Number of employees | |
| | | | | |
| | | | Avecia Group plc Consolidated | |
| | |
|
|
|
|
|
|
|
| |
| | | For the year ended | | For the year ended | | For the year ended | |
| | | December 31, 2004 | | December 31, 2003 | | December 31, 2002 | |
| |
|
| |
|
| |
|
| |
| Biotechnology | | | 562 | | | 513 | | | 411 | |
| Chemicals | | | 696 | | | 846 | | | 917 | |
| Electronic Materials | | | 461 | | | 543 | | | 542 | |
| Discontinued | | | 668 | | | 1,050 | | | 1,255 | |
| Other | | | 140 | | | 214 | | | 239 | |
| |
|
| |
|
| |
|
| |
| | | | 2,527 | | | 3,166 | | | 3,364 | |
| |
|
| |
|
| |
|
| |
The employee numbers for 2003 and 2002 have been amended to show the average number of persons employed during those periods. These periods previously showed the number of persons employed at the end of each period.
The aggregate payroll costs were as follows:
| | | | Avecia Group plc Consolidated | |
| | |
|
|
|
|
|
|
|
| |
| | | For the year ended | | For the year ended | | For the year ended | |
| | | December 31, 2004 | | December 31, 2003 | | December 31, 2002 | |
| | |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | |
| Wages and salaries | | | 89.6 | | | 105.6 | | | 114.0 | |
| Social security costs | | | 9.4 | | | 11.6 | | | 11.6 | |
| Other pension costs | | | 11.2 | | | 14.9 | | | 12.5 | |
| | |
|
| |
|
| |
|
| |
| | | | 110.2 | | | 132.1 | | | 138.1 | |
| Other employment costs: | | | | | | | | | | |
| Severance costs | | | 10.1 | | | 10.8 | | | 2.5 | |
| Post retirement costs | | | 0.8 | | | 0.5 | | | 0.5 | |
| Other | | | — | | | — | | | 0.5 | |
| | | | | | | | | | | |
| | | | 10.9 | | | 11.3 | | | 3.5 | |
| |
|
| |
|
| |
|
| |
| | | | 121.1 | | | 143.4 | | | 141.6 | |
| |
|
| |
|
| |
|
| |
| | |
| Registered number: 3768265 | 84 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
9 Other interest receivable and similar income
| | | | Avecia Group plc Consolidated | |
| | |
|
|
|
|
|
|
|
| |
| | | For the year ended | | For the year ended | | For the year ended | |
| | | December 31, 2004 | | December 31, 2003 | | December 31, 2002 | |
| | |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | |
| Net exchange gains | | | 32.1 | | | 33.3 | | | 32.6 | |
| On bank deposits | | | 0.7 | | | 1.0 | | | 1.9 | |
| Other | | | 0.1 | | | — | | | — | |
| |
|
| |
|
| |
|
| |
| | | | 32.9 | | | 34.3 | | | 34.5 | |
| |
|
| |
|
| |
|
| |
10 Interest payable and similar charges
| | | | Avecia Group plc Consolidated | |
| | |
|
|
|
|
|
|
|
| |
| | | For the year ended | | For the year ended | | For the year ended | |
| | | December 31, 2004 | | December 31, 2003 | | December 31, 2002 | |
| | |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | |
| Net exchange losses | | | — | | | 5.2 | | | 1.5 | |
| On bank loans and overdrafts | | | 6.8 | | | 11.6 | | | 15.1 | |
| On all other loans | | | 34.2 | | | 39.5 | | | 41.9 | |
| Amortization of finance fees | | | 10.2 | | | 4.8 | | | 6.4 | |
| Finance charges payable in respect of finance leases and hire purchase contracts | | | 0.3 | | | 0.4 | | | 0.4 | |
| Losses on early repayments of debt | | | — | | | — | | | 0.1 | |
| |
|
| |
|
| |
|
| |
| | | | 51.5 | | | 61.5 | | | 65.4 | |
| |
|
| |
|
| |
|
| |
| | |
| Registered number: 3768265 | 85 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
11 Taxation
The provision for tax is as follows:
| | | | Avecia Group plc Consolidated | |
| | |
|
|
|
|
|
|
|
| |
| | | For the year ended | | For the year ended | | For the year ended | |
| | | December 31, 2004 | | December 31, 2003 | | December 31, 2002 | |
| | |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | |
| UK taxation charge at United Kingdom corporation tax rate of 30% for year ended December 31, 2004 (30% for year ended December 31, 2003; 30% for year ended December 31, 2002) | | | — | | | — | | | — | |
| Deferred taxation | | | 0.6 | | | 0.2 | | | 4.4 | |
| Overseas taxation | | | 1.3 | | | 0.7 | | | 2.1 | |
| |
|
| |
|
| |
|
| |
| | | | 1.9 | | | 0.9 | | | 6.5 | |
| |
|
| |
|
| |
|
| |
At December 31, 2004 there were £86.9m of UK tax losses to be carried forward with no expiration date (2003: £159.2 m). In addition, at that date, the group had US$ 30.7 million of US federal tax net operating losses which expire in years 2020 to 2023 (2003: $41.2 m). No deferred tax asset was recognized in respect of these losses which results in the high effective tax rate for the group. There is £5.2m non current and £0.5m current deferred tax (see note 20).
| | |
| Registered number: 3768265 | 86 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
11 Taxation (continued)
Factors affecting tax charge for year
The tax assessed for the period is lower than the standard rate of corporation tax in the UK (30%). The differences are explained below:
| | | For the year ended December 31, 2004 | | For the year ended December 31, 2003 | | For the year ended December 31, 2002 | |
| | |
|
| |
|
| |
|
| |
| | | | £m | | | £m | | | £m | |
| | | | | | | | | | | |
| Profit/(loss) on ordinary activities before tax | | | 20.8 | | | (93.6 | ) | | (36.5 | ) |
| | |
|
| |
|
| |
|
| |
| Profit/(loss) on ordinary activities multiplied by standard rate of corporation tax in the UK of 30% | | | 6.2 | | | (28.1 | ) | | (10.8 | ) |
| Effects of: | | | | | | | | | | |
| Expenses not deductible for tax : | | | | | | | | | | |
| Goodwill amortisation | | | 21.3 | | | 6.4 | | | 12.6 | |
| Depreciation for the period in excess of capital allowances | | | 1.6 | | | 14.7 | | | (8.2 | ) |
| Disposal of assets | | | 0.3 | | | — | | | 7.9 | |
| Non taxable income | | | (9.0 | ) | | (3.9 | ) | | (0.3 | ) |
| Gain on disposal of subsidiary not taxable | | | — | | | — | | | (2.8 | ) |
| Adjustment of depreciation and goodwill on business disposals | | | — | | | 0.8 | | | — | |
| Generation of additional tax losses in the year | | | 1.1 | | | 21.6 | | | 2.6 | |
| Higher rates on overseas earnings | | | 3.2 | | | — | | | 0.4 | |
| Pension fund payment | | | — | | | — | | | (2.3 | ) |
| Tax losses utilised | | | (19.7 | ) | | (10.7 | ) | | — | |
| State taxes | | | 0.2 | | | 0.2 | | | 0.9 | |
| Profit in inventory | | | (1.8 | ) | | (0.3 | ) | | 2.1 | |
| Previous year adjustment | | | (2.2 | ) | | — | | | — | |
| R&D tax credits | | | (0.3 | ) | | — | | | — | |
| Dividends not taxable | | | 0.4 | | | — | | | — | |
| |
|
| |
|
| |
|
| |
| Total current taxes | | | 1.3 | | | 0.7 | | | 2.1 | |
| Deferred tax charge for the period | | | 0.6 | | | 0.2 | | | 4.4 | |
| |
|
| |
|
| |
|
| |
| Deferred taxes | | | | | | | | | | |
| Profit in inventory | | | 0.2 | | | — | | | 2.8 | |
| Unremitted earnings | | | 0.6 | | | — | | | 2.3 | |
| Other timing differences | | | (0.2 | ) | | 0.2 | | | (0.7 | ) |
| | |
|
| |
|
| |
|
| |
| Total deferred taxes | | | 0.6 | | | 0.2 | | | 4.4 | |
| | |
|
| |
|
| |
|
| |
| Taxes on income from ordinary activities | | | 1.9 | | | 0.9 | | | 6.5 | |
| |
|
| |
|
| |
|
| |
All current and deferred income tax expense for the year is attributable to foreign operations.
Analysis of loss on ordinary activities before taxation :
| | | For the year ended December 31, 2004 | | For the year ended December 31, 2003 | | For the year ended December 31, 2002 | |
| | |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | |
| UK activities | | | 0.3 | | | (63.5 | ) | | (46.9 | ) |
| Non UK activities | | | 22.8 | | | (30.1 | ) | | 10.4 | |
| | |
|
| |
|
| |
|
| |
| Total | | | 23.1 | | | (93.6 | ) | | (36.5 | ) |
| |
|
| |
|
| |
|
| |
| | |
| Registered number: 3768265 | 87 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
12 Intangible fixed assets
| | | | Avecia Group plc
Consolidated as at December 31, 2004 | |
| | |
|
| |
| | | | Goodwill | | Intellectual property rights | | | Total | |
| | |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | |
| Cost or valuation | | | | | | | | | | |
| At beginning of year | | | 443.6 | | | 16.7 | | | 460.3 | |
| Additions | | | — | | | 0.1 | | | 0.1 | |
| Disposals | | | (106.7 | ) | | (0.1 | ) | | (106.8 | ) |
| Translation adjustments | | | (6.3 | ) | | (0.2 | ) | | (6.5 | ) |
| |
|
| |
|
| |
|
| |
| At end of year | | | 330.6 | | | 16.5 | | | 347.1 | |
| |
|
| |
|
| |
|
| |
| Amortization | | | | | | | | | | |
| At beginning of year | | | 165.9 | | | 6.6 | | | 172.5 | |
| Charge for year | | | 22.4 | | | 1.5 | | | 23.9 | |
| Impairment | | | — | | | 0.1 | | | 0.1 | |
| Disposals | | | (55.6 | ) | | — | | | (55.6 | ) |
| Translation adjustments | | | (1.7 | ) | | (0.2 | ) | | (1.9 | ) |
| |
|
| |
|
| |
|
| |
| At end of year | | | 131.0 | | | 8.0 | | | 139.0 | |
| |
|
| |
|
| |
|
| |
| Net book value | | | | | | | | | | |
| At December 31, 2004 | | | 199.6 | | | 8.5 | | | 208.1 | |
| |
|
| |
|
| |
|
| |
| | |
| Registered number: 3768265 | 88 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
12 Intangible fixed assets (continued)
| | | | Avecia Group plc
Consolidated as at December 31, 2003 | |
| | |
|
| |
| | | | Goodwill | | Intellectual property rights | | | Total | |
| | |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | |
| Cost or valuation | | | | | | | | | | |
| At beginning of year | | | 444.2 | | | 15.4 | | | 459.6 | |
| Acquisition of subsidiaries | | | — | | | 0.2 | | | 0.2 | |
| Additions | | | — | | | 0.3 | | | 0.3 | |
| Disposals | | | (1.6 | ) | | — | | | (1.6 | ) |
| Translation adjustments | | | 1.0 | | | 0.8 | | | 1.8 | |
| |
|
| |
|
| |
|
| |
| At end of year | | | 443.6 | | | 16.7 | | | 460.3 | |
| |
|
| |
|
| |
|
| |
| Amortization | | | | | | | | | | |
| At beginning of year | | | 125.9 | | | 3.7 | | | 129.6 | |
| Charge for year | | | 29.6 | | | 2.1 | | | 31.7 | |
| Impairment | | | 13.4 | | | 0.7 | | | 14.1 | |
| Disposals | | | (1.6 | ) | | — | | | (1.6 | ) |
| Translation adjustments | | | (1.4 | ) | | 0.1 | | | (1.3 | ) |
| |
|
| |
|
| |
|
| |
| At end of year | | | 165.9 | | | 6.6 | | | 172.5 | |
| |
|
| |
|
| |
|
| |
| Net book value | | | | | | | | | | |
| At December 31, 2003 | | | 277.7 | | | 10.1 | | | 287.8 | |
| |
|
| |
|
| |
|
| |
The acquisition values of intellectual property rights acquired as part of the business represent the fair value at the acquisition date. Goodwill is being amortized evenly over the directors’ estimate of the weighted average useful life of 15 years, following a detailed review of the factors affecting its durability, including the estimated life span of the group’s products and technology, the stability of the industry and the group’s competitive position within it.
The goodwill impairment of £13.4 million charged during the year ending December 31, 2003 relates to Chemicals, mainly goodwill created on the acquisition of Torcan. The £13.4 million impairment charged during 2003 was calculated with reference to value in use of the income generating units using a discount rate of 16.6%.
| | |
| Registered number: 3768265 | 89 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
13 Tangible fixed assets
| | | | Avecia Group plc Consolidated as at December 31, 2004 | |
| | |
|
| |
| | | Land and buildings | | Plant and equipment | | Assets in course of construction | | | Total | |
| | |
|
| |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | | | £ million | |
| Cost or valuation | | | | | | | | | | | | | |
| At beginning of year | | | 54.8 | | | 315.8 | | | 59.9 | | | 430.5 | |
| Additions | | | 0.1 | | | 3.0 | | | 12.1 | | | 15.2 | |
| Disposals | | | (3.6 | ) | | (31.7 | ) | | (0.6 | ) | | (35.9 | ) |
| Transfers | | | 2.6 | | | 50.1 | | | (52.7 | ) | | — | |
| Translation adjustments | | | (2.4 | ) | | (5.8 | ) | | (0.8 | ) | | (9.0 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
| At end of year | | | 51.5 | | | 331.4 | | | 17.9 | | | 400.8 | |
| | |
|
| |
|
| |
|
| |
|
| |
| Depreciation | | | | | | | | | | | | | |
| At beginning of year | | | 7.8 | | | 159.5 | | | — | | | 167.3 | |
| Charge for year | | | 2.8 | | | 23.9 | | | — | | | 26.7 | |
| Impairment | | | 1.1 | | | 21.1 | | | — | | | 22.2 | |
| Disposals | | | (0.2 | ) | | (9.2 | ) | | — | | | (9.4 | ) |
| Translation adjustments | | | (1.0 | ) | | (3.6 | ) | | — | | | (4.6 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
| At end of year | | | 10.5 | | | 191.7 | | | — | | | 202.2 | |
| | |
|
| |
|
| |
|
| |
|
| |
| Net book value | | | | | | | | | | | | | |
| At December 31, 2004 | | | 41.0 | | | 139.7 | | | 17.9 | | | 198.6 | |
| | |
|
| |
|
| |
|
| |
|
| |
| | |
| Registered number: 3768265 | 90 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
13 �� Tangible fixed assets (continued)
| | | | Avecia Group plc Consolidated as at December 31, 2003 | |
| | |
|
| |
| | | | Land and buildings | | | Plant and equipment | | | Assets in course of construction | | | Total | |
| | |
|
| |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | | | £ million | |
| Cost or valuation | | | | | | | | | | | | | |
| At beginning of year | | | 61.7 | | | 329.3 | | | 37.0 | | | 428.0 | |
| Additions | | | 0.1 | | | 8.5 | | | 41.2 | | | 49.8 | |
| Disposals | | | (8.2 | ) | | (34.9 | ) | | (0.4 | ) | | (43.5 | ) |
| Transfers | | | 1.6 | | | 16.4 | | | (18.0 | ) | | — | |
| Translation adjustments | | | (0.4 | ) | | (3.5 | ) | | 0.1 | | | (3.8 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
| At end of year | | | 54.8 | | | 315.8 | | | 59.9 | | | 430.5 | |
| | |
|
| |
|
| |
|
| |
|
| |
| Depreciation | | | | | | | | | | | | | |
| At beginning of year | | | 2.9 | | | 89.0 | | | — | | | 91.9 | |
| Charge for year | | | 6.0 | | | 28.3 | | | — | | | 34.3 | |
| Impairment | | | — | | | 55.2 | | | — | | | 55.2 | |
| Disposals | | | (0.9 | ) | | (11.6 | ) | | — | | | (12.5 | ) |
| Translation adjustments | | | (0.2 | ) | | (1.4 | ) | | — | | | (1.6 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
| At end of year | | | 7.8 | | | 159.5 | | | — | | | 167.3 | |
| | |
|
| |
|
| |
|
| |
|
| |
| Net book value | | | | | | | | | | | | | |
| At December 31, 2003 | | | 47.0 | | | 156.3 | | | 59.9 | | | 263.2 | |
| | |
|
| |
|
| |
|
| |
|
| |
| | |
| Registered number: 3768265 | 91 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
13 Tangible fixed assets (continued)
The net book value of land and buildings comprises:
| | | | Avecia Group plc
Consolidated | |
| | |
|
| |
| | | December 31, 2004 | | December 31, 2003 | |
| | |
|
| |
|
| |
| | | | £ million | | | £ million | |
| | | | | | | | |
| Freehold | | | 39.3 | | | 46.7 | |
| Long leasehold | | | 1.7 | | | 0.3 | |
| Short leasehold | | | — | | | — | |
| | |
|
| |
|
| |
| | | | 41.0 | | | 47.0 | |
| | |
|
| |
|
| |
The cost of land and buildings includes £43.5million of depreciable assets at December 31, 2004 (2003: £40.6 million).
Included in the total net book value of land and buildings is £0.7 million in respect of assets held under finance leases at December 31, 2004 (2003: £0.4 million). Depreciation for the year ended December 31, 2004 on these assets was £0.1 million (2003: £0.3 million). In respect of plant and equipment the net book value of assets held under finance leases is £3.9 million (2003: £5.4 million). Depreciation on these assets was £3.9 million (2003: £3.3 million).
Depreciation was not charged on land with a cost of £7.7 million included in land and buildings during the year ended December 31, 2004 (2003: £6.4 million).
Where applicable, the impairment charged during the year was calculated with reference to value in use of the assets using a discount rate of 16.0%.
| | |
| Registered number: 3768265 | 92 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
14 Fixed asset investments
| | | Avecia Group plc
Consolidated as at December 31, 2004 | |
| | |
|
| |
| | | Investments in
joint ventures | |
| | |
|
| |
| | | | £ million | |
| Cost | | | | |
| At beginning of year | | | | |
| Goodwill | | | 14.1 | |
| Exchange movements on goodwill | | | (1.3 | ) |
| Share of net assets | | | 9.8 | |
| Translation adjustments | | | (0.3 | ) |
| Capital contributions | | | (0.3 | ) |
| |
|
| |
| At end of year | | | 22.0 | |
| |
|
| |
| Share of post acquisition reserves | | | | |
| At beginning of year | | | (0.3 | ) |
| Retained profits less losses | | | 1.1 | |
| Dividends received | | | (2.0 | ) |
| |
|
| |
| At end of year | | | (1.2 | ) |
| |
|
| |
| Amortization | | | | |
| At beginning of year | | | (4.8 | ) |
Charged for the year
| | | (0.9
| ) |
| Impairment | | | (7.2 | ) |
| |
|
| |
| At end of year | | | (12.9 | ) |
| |
|
| |
| Net book value | | | | |
| At December 31, 2004 | | | 7.9 | |
| |
|
| |
| At December 31, 2003 | | | 18.8 | |
| |
|
| |
Net book value of £7.9 million comprises net assets of £7.9 million and goodwill of £Nil.
| | |
| Registered number: 3768265 | 93 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
14 Fixed asset investments (continued)
| | | Avecia Group plc
Consolidated as at December 31, 2003 | |
| | |
|
| |
| | | Investments in
joint ventures | |
| | |
|
| |
| | | | £ million | |
| Cost | | | | |
| At beginning of year | | | | |
| Goodwill | | | 15.5 | |
| Exchange movements on goodwill | | | (1.3 | ) |
| Share of net assets | | | 10.6 | |
| Translation adjustments | | | (0.5 | ) |
| Capital contributions | | | (0.4 | ) |
| |
|
| |
| At end of year | | | 23.9 | |
| |
|
| |
| Share of post acquisition reserves | | | | |
| At beginning of year | | | (0.4 | ) |
| Retained profits less losses | | | 2.7 | |
| Dividends received | | | (2.6 | ) |
| |
|
| |
| At end of year | | | (0.3 | ) |
| |
|
| |
| Amortization | | | | |
| At beginning of year | | | (3.8 | ) |
| Charged for the year | | | (1.0 | ) |
| |
|
| |
| At end of year | | | (4.8 | ) |
| |
|
| |
| Net book value | | | | |
| At December 31, 2003 | | | 18.8 | |
| |
|
| |
| At December 31, 2002 | | | 21.8 | |
| |
|
| |
| | | | | |
| | |
| Registered number: 3768265 | 94 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
14 Fixed asset investments (continued)
The principal undertakings of Avecia Group plc are as follows.
| | | Country of incorporation | | Principal Activity | | Percentage of equity owned | |
| |
|
| |
|
| |
|
| |
| Subsidiary undertakings | | | | | | | | | | |
| | | | | | | | | | | |
| Avecia Corporation Limited | | | UK | | | Holding company | | | 100%* | |
| Avecia Investments Limited | | | UK | | | Holding company | | | 100%* | |
| Avecia UK Holdings Limited | | | UK | | | Holding company | | | 100%* | |
| Avecia Limited | | | UK | | | Chemical manufacture | | | 100%* | |
| Avecia Holdings BV (#) | | | The Netherlands | | | Holding company | | | 100%* | |
| Avecia BV (#) | | | The Netherlands | | | Chemical manufacture | | | 100%* | |
| Avecia Inc. | | | USA | | | Chemical manufacture | | | 100%* | |
| Avecia Holdings Inc. | | | USA | | | Holding company | | | 100%* | |
| Torcan Chemical Limited | | | Canada | | | Chemical manufacture | | | 100%* | |
| NeoResins Inc. (#) | | | USA | | | Chemical manufacture | | | 100%* | |
| Avecia Biotechnology Inc. | | | USA | | | Chemical manufacture | | | 100%* | |
| Avecia Spain SL (#) | | | Spain | | | Chemical manufacture | | | 100%* | |
| | | | | | | | | | | |
| Joint ventures | | | | | | | | | | |
| | | | | | | | | | | |
| Image Polymers Europe | | | UK | | | Chemical manufacture | | | 50%* | |
| Image Polymers Company | | | USA | | | Chemical manufacture | | | 50%* | |
* All ordinary shares held.
# Sold as part of the NeoResins disposal on February 2, 2005
Under the terms of certain financing agreements, distribution by subsidiary undertakings beyond Avecia Investments Limited are restricted to specific purposes.
| | |
| Registered number: 3768265 | 95 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
(1) 14 Fixed asset investments (continued)
The following information is relevant to an understanding of the investments in joint ventures.
The amounts included in respect of joint ventures comprise the following:
| | | | Avecia Group plc Consolidated | |
| | |
|
|
|
|
|
|
|
| |
| | | | As at/period ended December 31, 2004 | | | As at/period ended December 31, 2003 | | | As at/period ended December 31, 2002 | |
| | |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | |
| Share of turnover of joint ventures | | | 8.8 | | | 12.4 | | | 13.5 | |
| |
|
| |
|
| |
|
| |
| Share of assets | | | 9.6 | | | 20.4 | | | 23.3 | |
| Share of liabilities | | | (1.7 | ) | | (1.6 | ) | | (1.5 | ) |
| |
|
| |
|
| |
|
| |
| Share of net assets | | | 7.9 | | | 18.8 | | | 21.8 | |
| |
|
| |
|
| |
|
| |
The net book value of joint ventures as disclosed on the balance sheet includes goodwill of £nil at December 31, 2004 (2003: £9.4 million).
15 Stocks
| | | | Avecia Group plc Consolidated | |
| | |
|
| |
| | | December 31, 2004 | | December 31, 2003 | |
| | |
|
| |
|
| |
| | | | £ million | | | £ million | |
| | | | | | | | |
| Raw materials and consumables | | | 24.4 | | | 30.5 | |
| Work in progress | | | 7.0 | | | 8.8 | |
| Finished goods and goods for resale | | | 18.8 | | | 35.6 | |
| | |
|
| |
|
| |
| | | | 50.2 | | | 74.9 | |
| |
|
| |
|
| |
Stock is stated net of provisions of £5.4 million at December 31, 2004, (2003: £3.8 million).
| | |
| Registered number: 3768265 | 96 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
16 Debtors
| | | | Avecia Group plc Consolidated | |
| | |
|
| |
| | | December 31, 2004 | | December 31, 2003 | |
| | | | | | | Restated | |
| | |
|
| |
|
| |
| | | | £ million | | | £ million | |
| Debtors due within one year | | | | | | | |
| Trade debtors (net of provisions for bad debts) | | | 59.1 | | | 61.0 | |
| Other debtors | | | 5.7 | | | 7.4 | |
| Prepayments and accrued income | | | 4.5 | | | 5.9 | |
| Amounts receivable from joint ventures | | | 0.4 | | | 0.8 | |
| | |
|
| |
|
| |
| | | | 69.7 | | | 75.1 | |
| | |
|
| |
|
| |
| | | | | | | | |
| | | | £ million | | | £ million | |
| Debtors due after more one year | | | | | | | |
| Amounts owed by parent undertakings | | | 15.0 | | | 17.2 | |
| | |
|
| |
|
| |
Total debtors include trade debtors of £nil, other debtors of £0.8 million, prepayments and accrued income of £Nil and pensions prepayments of £nil million due after more than one year at December 31, 2004. At December 31, 2003 the comparative amounts were £nil million, £0.8 million, £nil million and £nil million respectively. Amounts owed by parent undertakings are due after more than one year and do not bear interest.
2003 other debtors and total debtors were restated and reduced by £0.5m for the UITF38 prior period adjustment. At December 31, 2004, debtors of £9.0 million (2003: £12.5 million) were in respect of sales made by the US businesses.
Provision for bad and doubtful debts
| | | | Avecia Group plc Consolidated | |
| | |
|
| |
| | | December 31, 2004 | | December 31, 2003 | | December 31, 2002 | |
| | |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | |
| Provision for bad and doubtful debts | | | | | | | | | | |
| At beginning of year | | | 1.8 | | | 4.3 | | | 7.6 | |
| (Credit)/charge for period | | | 1.2 | | | (2.3 | ) | | 2.5 | |
| Amount utilized and other movements | | | (0.5 | ) | | (0.2 | ) | | (5.8 | ) |
| | |
|
| |
|
| |
|
| |
| At end of year | | | 2.5 | | | 1.8 | | | 4.3 | |
| | |
|
| |
|
| |
|
| |
| | | | | | | | | | | |
| | |
| Registered number: 3768265 | 97 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
17 Creditors: amounts falling due within one year
| | | | | | | | | | Avecia Group plc Consolidated | |
| | | | | | | | |
|
| |
| | | | | | | | | | December 31, | | | December 31, | |
| | | | | | | | | | 2004 | | | 2003 | |
| | | | | | | | |
|
| |
|
| |
| | | | | | | | | | £ million | | | £ million | |
| | | | | | | | | | | | | | |
| Bank loans and overdrafts (see note 19) | | | | | | | | | 72.8 | | | 70.0 | |
| Obligations under finance leases and hire purchase contracts (see note 19) | | | 0.8 | | | 0.7 | |
| Trade creditors | | | | | | | | | 50.2 | | | 55.5 | |
| Taxation and social security | | | | | | | | | 5.7 | | | 4.3 | |
| Other creditors | | | | | | | | | 4.0 | | | 9.4 | |
| Accruals and deferred income | | | | | | | | | 22.1 | | | 25.6 | |
| | | | | | | | |
|
| |
|
| |
| | | | | | | | | | 155.6 | | | 165.5 | |
| | | | | | | | |
|
| |
|
| |
The weighted average interest rate for short-term borrowings, before interest hedging, at December 31, 2004 was 7.7% (2003: 5.4%).
The analysis of the 2003 comparative figures for the group has been reclassified in order to maintain consistency of presentation with the current year. Taxation and social security has been reclassified as £4.3m from £8.8m and other creditors have been reclassified as £9.4m from £4.9. There is no change to total creditors. Bank loans at December 31, 2004 are shown net of finance costs of £3.9 million (2003: £4.2 million) which are being amortized over the life of the debt.
18 Creditors: amounts falling due after more than one year
| | | | Avecia Group plc Consolidated | |
| | |
|
| |
| | | | December 31, | | | December 31, | |
| | | | 2004 | | | 2003 | |
| | |
|
| |
|
| |
| | | | £ million | | | £ million | |
| | | | | | | | |
| Bank loans and overdrafts (see note 19) | | | — | | | 132.7 | |
| Other loans (see note 19) | | | 272.6 | | | 298.3 | |
| Amounts owed to related undertakings | | | — | | | 2.2 | |
| Obligations under finance leases and hire purchase contracts (see note 19) | | | 3.7 | | | 4.7 | |
| Other creditors | | | 0.9 | | | 1.3 | |
| Accruals and deferred income | | | 1.2 | | | 1.4 | |
| | |
|
| |
|
| |
| | | | 278.4 | | | 440.6 | |
| | |
|
| |
|
| |
Bank loans and other loans as at December 31, 2004 are shown net of finance costs of £6.2 million (2003: £12.1 million) which are being amortized over the life of the debt.
| | |
| Registered number: 3768265 | 98 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
19 Borrowings, financial instruments and risk management
Analysis of debt shown net of unamortized issuance costs
| | | | Avecia Group plc Consolidated | |
| | |
|
| |
| | | | Gross repayable
December 31, | | | Net of fees
December 31, | |
| | | | 2004 | | | 2004 | |
| | |
|
| |
|
| |
| | | | £ million | | | £ million | |
| Debt can be analyzed as falling due: | | | | | | | |
| In one year or less, or on demand | | | 75.0 | | | 72.8 | |
| Between one and two years | | | — | | | — | |
| Between two and three years | | | — | | | — | |
| Between three and four years | | | — | | | — | |
| Between four and five years | | | 278.8 | | | 272.6 | |
| In five years or more | | | — | | | — | |
| | |
|
| |
|
| |
| | | | 353.8 | | | 345.4 | |
| | |
|
| |
|
| |
| | | | Avecia Group plc Consolidated | |
| | |
|
| |
| | | | Gross repayable
December 31, | | | Net of fees
December 31, | |
| | | | 2003 | | | 2003 | |
| | |
|
| |
|
| |
| | | | £ million | | | £ million | |
| Debt can be analyzed as falling due: | | | | | | | |
| In one year or less, or on demand | | | 74.1 | | | 70.0 | |
| Between one and two years | | | 38.6 | | | 34.4 | |
| Between two and three years | | | 43.4 | | | 40.4 | |
| Between three and four years | | | 36.6 | | | 34.4 | |
| Between four and five years | | | 18.3 | | | 16.5 | |
| In five years or more | | | 306.2 | | | 305.3 | |
| | |
|
| |
|
| |
| | | | 517.2 | | | 501.0 | |
| |
|
| |
|
| |
| Amounts repayable in more than five years: | | | | | | | |
| | | | Gross repayable
December 31, | | | Net of fees
December 31, | |
| | | | 2003 | | | 2003 | |
| | |
|
| |
|
| |
| | | | £ million | | | £ million | |
| | | | | | | | |
| High Yield Bonds | | | 306.2 | | | 305.3 | |
| | |
|
| |
|
| |
High Yield Bond
The High Yield Bond is repayable in 2009 and interest is fixed at 11%. The difference between net and gross repayable is unamortized fees.
| | |
| Registered number: 3768265 | 99 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
19 Borrowings, financial instruments and risk management (continued)
Debt covenants and restrictions
Term loans
Under the conditions of the term loans entered into by the group, Avecia Corporation Limited, a wholly owned subsidiary of Avecia Group plc, and certain of its subsidiaries have guaranteed the obligations of each other. In addition, the various obligations under the credit agreement are secured by security interests created over certain of the assets of Avecia Corporation Limited and its subsidiaries.
The agreement entered into by Avecia Corporation Limited and Avecia Investments Limited with the lenders of the term loans contains customary events of default and various restrictive covenants. These covenants place restrictions on the actions of Avecia Investments Limited and its subsidiaries, in particular in relation to the payment of dividends and other specified payments to Avecia Corporation Limited or any of its holding companies, other than in certain specific circumstances. The credit agreement also contains financial covenants, including maintenance of financial ratios, including among others:
- a ratio of Consolidated EBITDA to Consolidated Net Interest Charges
- a ratio of Adjusted Cash Flow to Relevant Expenditure
- a ratio of Net Senior Debt to Consolidated EBITDA
- a maximum limitation on capital expenditure.
Following the disposal of NeoResins, in February 2005, the Term loans were fully repaid from the proceeds (see Note 31).
High yield bond
The high yield bond issued by Avecia Group plc is guaranteed by Avecia Corporation Limited. Payments under the guarantee will be subordinated to the guarantor’s payment of its obligations under the term loan agreements. Under the terms of the bond, Avecia Group plc and certain of its subsidiaries are subject to restrictions over the sale of assets unless certain, specified conditions are met.
In addition, Avecia Group plc has committed:
| | − | that none of the restricted subsidiaries may declare or pay any dividend or other distribution on account of Avecia or any of its restricted subsidiaries’ equity interests unless certain, specified conditions are met; |
| | − | not to purchase, redeem or otherwise acquire or retire any equity interest of itself or any intermediate holding company; |
| | − | not to make any payment on or in respect of any subordinated debt with specified exceptions; |
| | − | not to make any restricted investment; |
| | − | to comply with specified restrictions over the incurrence of debt and issuance of preferred stock; |
| | − | to comply with specified restrictions on merger, consolidation or sale of all or substantially all assets; |
| | − | to comply with specified restrictions on transactions with affiliates; |
| | − | to comply with specified restrictions on issuing guarantees of debt by restricted subsidiaries; |
| | − | to comply with specified restrictions on designations of unrestricted subsidiaries. |
| | |
| Registered number: 3768265 | 100 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
19 Borrowings, financial instruments and risk management (continued)
The maturity of obligations under finance leases and hire purchase contracts is as follows:
| | | | Avecia Group plc Consolidated | |
| | |
|
| |
| | | | December 31,
2004 | | | December 31,
2003 | |
| | |
|
| |
|
| |
| | | | £ million | | | £ million | |
| | | | | | | | |
| Within one year | | | 1.0 | | | 1.3 | |
| Between one and two years | | | 0.9 | | | 1.1 | |
| Between two and three years | | | 0.8 | | | 0.9 | |
| Between three and four years | | | 0.8 | | | 0.8 | |
| Between four and five years | | | 0.8 | | | 0.8 | |
| Over five years | | | 1.2 | | | 1.9 | |
| | |
|
| |
|
| |
| | | | 5.5 | | | 6.8 | |
| Less future finance charges | | | (1.0 | ) | | (1.4 | ) |
| | |
|
| |
|
| |
| | | | 4.5 | | | 5.4 | |
| | |
|
| |
|
| |
At December 31, 2004, £nil (2003: £132.7 million) of borrowings falling due after more than one year were secured on assets of the group.
Operations
The Group’s treasury department manages the group’s funding, liquidity and exposure to interest rates and foreign exchange rate risks.
The Group holds or issues financial instruments for two main purposes:
to finance its operations;
to manage the interest rate and currency risks arising from its operations and from its sources of finance.
In addition, various financial instruments – for example, trade debtors, trade creditors, accruals and pre-payments – arise directly from the Group’s operations.
The Group finances its operations by a mixture of bank borrowings and high yield bonds. The Group’s long term loans are raised centrally by Group finance companies which fund operating subsidiaries, on commercial terms, all of which are included in the consolidated financial statements. The Group now borrows in the UK sterling market with interest rates fixed six-monthly. All derivatives previously used for interest rate management have matured.
The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign currency risk and market price risk. The board reviews and agrees policies for managing each of these risks and they are summarized below. These policies have remained unchanged since incorporation.
Financial instruments comprise net borrowings together with other instruments deemed to be financial instruments under FRS 13 including long term debtors, other long term creditors and provisions for liabilities and charges. Disclosure dealt within this note exclude short term debtors and creditors where permitted by FRS 13.
| | |
| Registered number: 3768265 | 101 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the combined and consolidated financial statements (continued)
19 Borrowings, financial instruments and risk management (continued)
Finance and interest rate risk
The group’s policy is to manage exposure to interest rate fluctuations on its borrowings and deposits by using interest rate swaps and interest rate caps. The group’s policy is to keep at least 50 per cent of net external debt at fixed or capped rates of interest for the period of the borrowing. At the year-end, after taking account of interest rate swaps, the proportion of the group’s borrowings at fixed rates was 100 per cent (2003: 72 per cent).
Liquidity risk
Group policy is to match currency cash expenditure with currency cash income subject to the existence of a free market for that currency’s debt and differences in funding costs between markets. Group borrowings comprise bank debt £72.9 million (2003: £160.4 million) which is due to be repaid by November 2005 and a High Yield Bond £272.6 million (2003: £296.9 million) due 2009, both shown net of unamortized fees. 21 per cent (2003: 6 per cent) of the group’s total borrowings at the year end will become due in the next 12 months, 79 per cent (2003: 87 per cent) in more than two years and 0 per cent (2003: 67 per cent) will become due in more than five years.
At December 31, 2004, the group also had undrawn committed borrowing facilities of £71.8 million (2003: £31.0 million). Commitment fees are paid on the undrawn portion of these facilities.
Currency risk
The group publishes its financial statements in pounds sterling and conducts businesses in several foreign currencies. As a result, it is subject to foreign currency exchange risk due to exchange rate movements which will affect the group’s transaction costs and revenues, and the translation of the results and underlying net assets of its subsidiaries. By holding borrowings in foreign currencies, the group hedges a substantial portion of its exposure to fluctuations on the translation into pounds sterling of its foreign currency net assets.
The group hedges, on a rolling 12 month basis, the translation of a proportion of its forecast future net cash flow denominated in US Dollars (50%), Euro (50%) and Japanese Yen (50%) with forward foreign currency contracts. This limits in part the transactional exposure of the group’s net cash flow to movements in exchange rates. The gain or loss on the hedge is recognized at the same time as the underlying transaction.
At December 31, 2004 the group had £16.2 million of outstanding gross foreign exchange contracts as a result of the transaction exposure cover outlined above. Of the total £2.0 million were to sell US Dollars, £9.9 million were to sell Japanese Yen, £4.3 million were to buy US Dollars.
At December 31, 2003 the group had £49.3 million of outstanding gross foreign exchange contracts as a result of the transaction exposure cover outlined above. Of the total £32.0 million were to sell US Dollars, £15.2 million were to sell Japanese Yen, £2.1 million were to buy US Dollars.
| | |
| Registered number: 3768265 | 102 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the combined and consolidated financial statements (continued)
19 Borrowings, financial instruments and risk management (continued)
Interest rate risk profile of financial liabilities and assets
After taking account of interest rate swaps and caps, the currency and interest rate profile of the financial liabilities and assets of the group was as follows:
As at December 31, 2004
| | | | Floating
rate
interest | | | Capped
rate
interest | | | Fixed
rate
interest | | | Zero
rated
interest | | | Total | | | Weighted average fixed interest rate | | | Weighted average
period for
which rate
is fixed | | | Weighted average
period for
which no
interest is
payable | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | | | % | | | Years | | | Years | |
| Financial liabilities | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sterling | | | 4.4 | | | — | | | 72.9 | | | 6.6 | | | 83.9 | | | 7.7 | | | 0.9 | | | 11.9 | |
| US dollar | | | — | | | — | | | 310.3 | | | — | | | 310.3 | | | 11.6 | | | 4.7 | | | — | |
| Euro | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | | | | | | | | |
| Total | | | 4.4 | | | — | | | 383.2 | | | 6.6 | | | 394.2 | | | 10.9 | | | 3.9 | | | 11.9 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | | | | | | | | |
| Financial assets | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sterling | | | — | | | — | | | — | | | 0.8 | | | 0.8 | | | | | | | | | | |
| US dollar | | | 8.7 | | | — | | | — | | | — | | | 8.7 | | | | | | | | | | |
| Other | | | 2.9 | | | — | | | — | | | — | | | 2.9 | | | | | | | | | | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | | | | | | | | |
| Total | | | 11.6 | | | — | | | — | | | 0.8 | | | 12.4 | | | | | | | | | | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | | | | | | | | |
| As at December 31, 2003 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Floating
rate
interest | | | Capped
rate
interest | | | Fixed
rate
interest | | | Zero
rated
interest | | | Total | | | Weighted
average
fixed
interest
rate | | | Weighted
average
period for
which rate
is fixed | | | Weighted
average
period for
which no
interest is
payable | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | | | % | | | Years | | | Years | |
| Financial liabilities | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sterling | | | 5.4 | | | — | | | — | | | 1.7 | | | 7.1 | | | — | | | — | | | 11.4 | |
| US dollar | | | 4.4 | | | 32.9 | | | 369.7 | | | — | | | 407.0 | | | 11.1 | | | 5.2 | | | — | |
| Euro | | | 26.6 | | | 63.6 | | | — | | | — | | | 90.2 | | | — | | | — | | | — | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | | | | | | | | |
| Total | | | 36.4 | | | 96.5 | | | 369.7 | | | 1.7 | | | 504.3 | | | 11.1 | | | 5.2 | | | 11.4 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | | | | | | | | |
| Financial assets | | | | | | | | | | | | | | | | | | | | | | | | | |
| Sterling | | | 1.1 | | | — | | | — | | | 2.3 | | | 3.4 | | | | | | | | | 0.5 | |
| US dollar | | | 0.8 | | | — | | | — | | | — | | | 0.8 | | | | | | | | | — | |
| Other | | | 3.7 | | | — | | | — | | | — | | | 3.7 | | | | | | | | | — | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| | | | | | | | | | |
| Total | | | 5.6 | | | — | | | — | | | 2.3 | | | 7.9 | | | | | | | | | 0.5 | |
| | |
| Registered number: 3768265 | 103 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the combined and consolidated financial statements (continued)
19 Borrowings, financial instruments and risk management (continued)
The floating rate financial liabilities comprise bank borrowings bearing interest at rates fixed six months in advance by reference to the six month LIBOR.
The financial liabilities on which no interest is paid include pensions of £0.7m (2003: £1.2m) (see note 20).
The financial assets include cash balances placed on money market at call.
Currency exposures
At December 31, 2004, the net monetary assets and liabilities denominated in currencies other than the functional currencies of the group companies (other than certain non-sterling borrowings treated as hedges of net investments in overseas operations), were as follows:
| | | | Avecia Group plc Consolidated | |
| | | | Net foreign currency monetary assets/(liabilities) | |
| | |
|
| |
| Functional currency of group operation | | | Sterling | | | US dollar | | | Euro | | | Japanese yen | | | Other | | | Total | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | | | | | | | | | | |
| Sterling | | | — | | | (236.1 | ) | | 1.3 | | | 0.3 | | | 2.8 | | | (231.7 | ) |
| US dollar | | | — | | | 64.9 | | | — | | | — | | | — | | | 64.9 | |
| Euro | | | — | | | — | | | 23.0 | | | — | | | — | | | 23.0 | |
| Japanese yen | | | — | | | — | | | — | | | — | | | — | | | — | |
| Other | | | — | | | — | | | — | | | — | | | — | | | — | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Total | | | — | | | (171.2 | ) | | 24.3 | | | 0.3 | | | 2.8 | | | (143.8 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
As at December 31, 2003
| | | | Avecia Group plc Consolidated | |
| | | | Net foreign currency monetary assets/(liabilities) | |
| | |
|
| |
| Functional currency of group operation | | | Sterling | | | US dollar | | | Euro | | | Japanese yen | | | Other | | | Total | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | | | | | | | | | | |
| Sterling | | | — | | | (275.5 | ) | | 4.0 | | | 1.6 | | | 0.3 | | | (269.6 | ) |
| US dollar | | | — | | | 65.1 | | | — | | | — | | | — | | | 65.1 | |
| Euro | | | 0.7 | | | (0.8 | ) | | 10.6 | | | — | | | — | | | 10.5 | |
| Japanese yen | | | — | | | — | | | — | | | — | | | — | | | — | |
| Other | | | — | | | — | | | — | | | — | | | — | | | — | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| Total | | | 0.7 | | | (211.2 | ) | | 14.6 | | | 1.6 | | | 0.3 | | | (194.0 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | |
| Registered number: 3768265 | 104 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the combined and consolidated financial statements (continued)
19 Borrowings, financial instruments and risk management (continued)
Maturity of financial liabilities
The maturity profile of the group’s financial liabilities at December 31, 2004 was as follows:
| | | | Avecia Group plc
Consolidated | |
| | |
|
| |
| | | | Gross repayable | | | Net of fees | |
| | |
|
| |
|
| |
| | | | £ million | | | £ million | |
| | | | | | | | |
| In one year or less, or on demand | | | 76.0 | | | 73.6 | |
| In more than one year but not more than two years | | | 0.9 | | | 0.6 | |
| In more than two years but not more than five years | | | 281.3 | | | 273.3 | |
| In more than five years | | | 47.7 | | | 46.6 | |
| | |
|
| |
|
| |
| | | | 405.9 | | | 394.1 | |
| | |
|
| |
|
| |
The above figures include preference shares, the redemption of which is mandatory on July 1, 2010. They may, however, be redeemed at the option of the company on or after January 1, 2005 or earlier on certain public equity offerings at a redemption value equal to the liquidation preference value ($25 per share) plus all accumulated and unpaid dividends to the date of redemption.
| | |
| Registered number: 3768265 | 105 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the combined and consolidated financial statements (continued)
19 Borrowings, financial instruments and risk management (continued)
The maturity profile of the group’s financial liabilities at December 31, 2003 was as follows:
| | | | Avecia Group plc
Consolidated | |
| | |
|
| |
| | | | Gross repayable | | | Net of fees | |
| | |
|
| |
|
| |
| | | | £ million | | | £ million | |
| | | | | | | | |
| In one year or less, or on demand | | | 31.4 | | | 26.9 | |
| In more than one year but not more than two years | | | 39.8 | | | 35.2 | |
| In more than two years but not more than five years | | | 100.7 | | | 93.2 | |
| In more than five years | | | 351.1 | | | 349.0 | |
| | |
|
| |
|
| |
| | | | 523.0 | | | 504.3 | |
| | |
|
| |
|
| |
The above figures include preference shares, the redemption of which is mandatory on July 1, 2010. They may, however, be redeemed at the option of the company at a redemption value equal to the liquidation preference value ($25 per share) plus all accumulated and unpaid dividends to the date of redemption.
Credit risk and market risk
The above financial instruments are subject to credit and market risk. Avecia contains credit risk by ongoing review procedures. All financial instruments are transacted with commercial banks. The notional principal values of balance sheet financial instruments do not represent amounts exchanged by the parties and are not a measure of the credit risk to the group of these instruments. The credit risk of these instruments is limited to the positive fair values of such contracts.
Market risk is the sensitivity of the value of financial instruments to changes in related currency and interest rates. The group is not exposed to material market risk because gains and losses on the derivative financial instruments are largely offset by gains and losses on the underlying assets, liabilities and transactions subject to hedge.
Borrowing facilities
The group has various borrowing facilities available to it. The undrawn committed facilities available at December 31, 2004 were as follows:
| | | | December 31, 2004 | | | December 31, 2003 | |
| | |
|
| |
|
| |
| | | | £ million | | | £ million | |
| | | | | | | | |
| Expiring in one year or less | | | 71.8 | | | — | |
| Expiring in more than one year but not more than two years | | | — | | | — | |
| Expiring in more than two years | | | — | | | 31.0 | |
| | |
|
| |
|
| |
| Total | | | 71.8 | | | 31.0 | |
| | |
|
| |
|
| |
| | |
| Registered number: 3768265 | 106 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the combined and consolidated financial statements (continued)
19 Borrowings, financial instruments and risk management (continued)
Terms
The facility was set up under normal banking conditions.
Fees paid
The arrangement fees incurred on setting up the facilities are being amortized over the terms of the loans. Commitment fees of 0.5% are charged on the undrawn facility.
Conditions under which commitments may be withdrawn
Default under the conditions of the facility may cause the commitments to be withdrawn. This includes any default on the covenants in place.
Fair values of financial assets and financial liabilities
Set out below is a comparison by category of book values and fair values of all the group’s financial assets and financial liabilities as at December 31, 2004.
| | | | Book value | | | Fair value | |
| | |
|
| |
|
| |
| | | | £ million | | | £ million | |
| Primary financial instruments held or issued to finance the group’s operations: | | | | | | | |
| Short term borrowings and current portion of long term borrowings | | | (72.9 | ) | | (72.9 | ) |
| Long term borrowings | | | (272.9 | ) | | (294.7 | ) |
| Finance leases | | | (50.7 | ) | | (72.8 | ) |
| Other financial assets | | | 0.8 | | | 0.8 | |
| Cash at bank and in hand | | | 11.6 | | | 11.6 | |
| | | | | | | | |
| Derivative financial instruments held to manage the interest rate: | | | | | | | |
| Interest rate swaps and similar instruments – gains | | | — | | | — | |
| Interest rate swaps and similar instruments – losses | | | — | | | — | |
| Interest rate caps and collars – gains | | | — | | | — | |
| Interest rate caps and collars – losses | | | — | | | — | |
| Derivative financial instruments held or issued to hedge the currency exposure on expected future net cash flow: | | | | | | | |
| Forward foreign currency contracts – gains | | | — | | | 0.2 | |
| Forward foreign currency contracts – losses | | | — | | | (0.3 | ) |
| | |
|
| |
|
| |
| | | | (384.1 | ) | | (428.1 | ) |
| | |
|
| |
|
| |
| | |
| Registered number: 3768265 | 107 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the combined and consolidated financial statements (continued)
19 Borrowings, financial instruments and risk management (continued)
Set out below is a comparison by category of book values and fair values of all the group’s financial assets and financial liabilities as at December 31, 2003.
| | | | Book value | | | Fair value | |
| | |
|
| |
|
| |
| | | | £ million | | | £ million | |
| Primary financial instruments held or issued to finance the group’s operations: | | | | | | | |
| Short term borrowings and current portion of long term borrowings | | | (26.0 | ) | | (26.0 | ) |
| Long term borrowings | | | (431.0 | ) | | (402.7 | ) |
| Finance lease and other | | | (57.9 | ) | | (79.1 | ) |
| Other financial assets | | | 2.0 | | | 2.0 | |
| Cash at bank and in hand | | | 8.0 | | | 8.0 | |
| Derivative financial instruments held to manage the interest rate: | | | | | | | |
| Interest rate swaps and similar instruments – gains | | | — | | | — | |
| Interest rate swaps and similar instruments – losses | | | — | | | (0.9 | ) |
| Interest rate caps and collars – gains | | | 0.3 | | | — | |
| Interest rate caps and collars – losses | | | — | | | — | |
| Derivative financial instruments held or issued to hedge the currency exposure on expected future net cash flow: | | | | | | | |
| Forward foreign currency contracts – gains | | | — | | | 4.9 | |
| Forward foreign currency contracts – losses | | | — | | | (0.4 | ) |
| | |
|
| |
|
| |
| | | | (504.6 | ) | | (494.2 | ) |
| |
|
| |
|
| |
Market values have been used to determine the fair value of forward foreign currency contracts and all listed debt issued. The fair values of all other items have been calculated by discounting expected future cash flows at 31 December, 2004 LIBOR interest rates.
Fair value judgments and changes in market conditions and assumptions could significantly affect these estimates. The disclosed values are those which are representative of fair values at the dates indicated. No financial instruments were held for the purposes of dealing or other financial instrument trading activities.
Hedges
As explained in the introduction, the group’s policy is to hedge the following exposures:
Interest rate risk, using interest swaps and caps contracts;
Net cash flow, using forward foreign currency contracts.
Gains and losses on instruments used for hedging are not recognized until the exposure that is being hedged is itself recognized. Unrecognized gains and losses on instruments used for hedging, and the movements therein are as follows:
| | | | 2004
Gains | | | 2004
Losses | | | 2004
Total net gains/(losses) | |
| | |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | |
| Gains/(losses) arising in 2004 that were not recognized in 2004 | | | 0.2 | | | (0.3 | ) | | (0.1 | ) |
Of which:
Gains/(losses) expected to be recognized in 2005 | | | 0.2 | | | (0.3 | ) | | (0.1 | ) |
| | |
| Registered number: 3768265 | 108 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
20 Provisions for liabilities and charges
| | | Pensions and
similar obligations | | Deferred
taxation | | Environmental provisions | | Reorganization and other provisions | | Total | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | | | | | | | |
| January 1, 2003 | | | 1.1 | | | 4.7 | | | 0.5 | | | 12.0 | | | 18.3 | |
| Charge/(credit) for the year | | | 0.1 | | | 0.1 | | | 0.1 | | | (0.1 | ) | | 0.2 | |
| Utilized during year | | | 0.1 | | | — | | | (0.2 | ) | | (11.1 | ) | | (11.2 | ) |
| Other movements | | | (0.1 | ) | | — | | | — | | | (0.3 | ) | | (0.4 | ) |
| Exchange | | | — | | | 0.4 | | | 0.1 | | | 0.1 | | | 0.6 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| At December 31, 2003 | | | 1.2 | | | 5.2 | | | 0.5 | | | 0.6 | | | 7.5 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| At January 1, 2004 | | | 1.2 | | | 5.2 | | | 0.5 | | | 0.6 | | | 7.5 | |
| Charge/(credit) for the year | | | 0.1 | | | 0.5 | | | (0.1 | ) | | 19.9 | | | 20.4 | |
| Utilized during year | | | (0.1 | ) | | — | | | — | | | (10.3 | ) | | (10.4 | ) |
| Other movements | | | (0.3 | ) | | — | | | — | | | — | | | (0.3 | ) |
| Exchange | | | (0.2 | ) | | — | | | — | | | — | | | (0.2 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| At December 31, 2004 | | | 0.7 | | | 5.7 | | | 0.4 | | | 10.2 | | | 17.0 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
The reorganization and other provisions primarily relate to severance costs.
| | |
| Registered number: 3768265 | 109 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
20 Provisions for liabilities and charges (continued)
The amounts of deferred taxation accounted for in the Group balance sheet and the full potential amounts of deferred taxation comprised the following deferred tax liabilities and assets at December 31, 2004:
| | | Avecia Group plc Consolidated | |
| | | December 31, 2004 | |
| | |
|
|
|
|
|
|
|
| |
| | | | Provision for deferred tax | | | Not accounted
for deferred tax | | | Full provision
for deferred tax | |
| | |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | |
| Deferred tax liabilities | | | | | | | | | | |
| Difference between accumulated depreciation and amortization and capital allowances | | | 1.6 | | | — | | | 1.6 | |
| Other timing differences | | | 4.1 | | | — | | | 4.1 | |
| |
|
| |
|
| |
|
| |
| | | | 5.7 | | | — | | | 5.7 | |
| |
|
| |
|
| |
|
| |
| Deferred tax asset | | | | | | | | | | |
| Tax losses for future utilization | | | — | | | 30.9 | | | 30.9 | |
| |
|
| |
|
| |
|
| |
| Net deferred tax (liability)/asset | | | (5.7 | ) | | 30.9 | | | 25.2 | |
| |
|
| |
|
| |
|
| |
| | | | Avecia Group plc Consolidated | |
| | | | December 31, 2003 | |
| | |
|
|
|
|
|
|
|
| |
| | | | Provision for deferred tax | | | Not accounted
for deferred tax | | | Full provision
for deferred tax | |
| | |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | |
| Deferred tax liabilities | | | | | | | | | | |
| Difference between accumulated depreciation and amortization and capital allowances | | | 2.3 | | | — | | | 2.3 | |
| Other timing differences | | | 2.9 | | | — | | | 2.9 | |
| |
|
| |
|
| |
|
| |
| | | | 5.2 | | | — | | | 5.2 | |
| |
|
| |
|
| |
|
| |
| Deferred tax asset | | | | | | | | | | |
| Tax losses for future utilization | | | — | | | 81.0 | | | 81.0 | |
| |
|
| |
|
| |
|
| |
| Net deferred tax (liability)/asset | | | (5.2 | ) | | 81.0 | | | 75.8 | |
| |
|
| |
|
| |
|
| |
Deferred tax assets which are not accounted for represent deferred tax assets (principally net operating losses) for which an off setting valuation allowance has been made in full.
| | |
| Registered number: 3768265 | 110 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
20 Provisions for liabilities and charges (continued)
| | | Avecia Group plc Consolidated | |
| | |
| |
| | | | December 31,
2004 | | | December 31,
2003 | |
| | |
|
| |
|
| |
| | | | £ million | | | £ million | |
| Deferred taxation provision movement | | | | | | | |
| At beginning of year | | | 5.2 | | | 4.7 | |
| Charge for the year | | | 0.5 | | | 0.2 | |
| Exchange differences | | | — | | | 0.3 | |
| | |
|
| |
|
| |
| At end of year | | | 5.7 | | | 5.2 | |
| | |
|
| |
|
| |
A deferred tax provision of £0.6m (2003:£nil) has been made in respect of UK corporation tax and foreign withholding tax on accumulated undistributed reserves in foreign subsidiaries as at December 31, 2004.
21 Acquisitions
There were no acquisitions during 2004.
In 2003 the group made a deferred payment of £1.9 million for the acquisition of the remaining 85% of Covion Organic Semiconductors Gmbh which took place on December 31, 2001.
| | |
| Registered number: 3768265 | 111 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
22 Called up share capital
| | | Avecia Group plc Consolidated | |
| | |
|
|
|
|
| |
| | | | December 31, 2004 | | | December 31, 2003 | |
| | |
|
|
|
|
| |
|
|
|
|
| |
| | | | Number of
shares | | | Nominal value
of shares | | | Number of
shares | | | Nominal value
of shares | |
| | |
|
| |
|
| |
|
| |
|
| |
| | | | | | | £000 | | | | | | £000 | |
| Authorized | | | | | | | | | | | | | |
| Equity: Ordinary shares of £1.00 each | | | 400,000,000 | | | 400,000 | | | 400,000,000 | | | 400,000 | |
| Non-equity Pay-in-kind (PIK) 16% cumulative redeemable preference shares of $1.00 each | | | 3,500,000 | | | 2,222 | | | 3,500,000 | | | 2,222 | |
| | |
|
| |
|
| |
|
| |
|
| |
| | | | 403,500,000 | | | 402,222 | | | 403,500,000 | | | 402,222 | |
| | |
|
| |
|
| |
|
| |
|
| |
| Allotted, called up and fully paid | | | | | | | | | | | | | |
| Equity: Ordinary shares of £1.00 each | | | 329,100,001 | | | 329,100 | | | 329,100,001 | | | 329,100 | |
| Non-equity Pay-in-kind (PIK) 16% cumulative redeemable preference shares of $1.00 each | | | 3,022,496 | | | 1,561 | | | 2,591,298 | | | 1,470 | |
| | |
|
| |
|
| |
|
| |
|
| |
| | | | 332,122,497 | | | 330,661 | | | 331,691,299 | | | 330,570 | |
| | |
|
| |
|
| |
|
| |
|
| |
Redeemable preference shares
The redemption of preference shares is mandatory on July 1, 2010 but may be redeemed at the option of the Company on or after January 1, 2005 or earlier on certain public equity offerings at a redemption value equal to the liquidation preference value plus all accumulated and unpaid dividends to the date of redemption. On a winding up they would rank in priority to ordinary shares. Up to July 1, 2004 the company issued further PIK preference shares instead of a cash dividend (based on the liquidated preference amount of $25 per share). Subsequent to July 1, 2004 this option was no longer available and subsequent dividends became payable in cash. The PIK preference shares have no voting rights at meetings of the ordinary shareholders and attract a dividend of 16 per cent. The carrying value of the preferred shares is being increased from the date of issue to the mandatory redemption date, by the interest method, such that the carrying value at the mandatory redemption date will equal the redemption value of $25 per share. The accretion for 2004 was £0.1 million (2003: £0.2 million).
| | |
| Registered number: 3768265 | 112 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
23 Share premium and reserves
Avecia Group plc – Consolidated for the year ended December 31, 2004
| | | Equity share capital | | Non-equity share capital | | Shares
to be
issued | | Share
premium
account | | Profit
and loss
account | | Total | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | | | | | | | | | | |
| At January 1, 2003 as previously stated | | | 329.1 | | | 1.4 | | | 2.8 | | | 15.2 | | | (210.0 | ) | | 138.5 | |
| Impact of adopting UITF38 | | | — | | | — | | | — | | | — | | | (0.3 | ) | | (0.3 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| At December 31, 2002 restated and at January 1, 2003 | | | 329.1 | | | 1.4 | | | 2.8 | | | 15.2 | | | (210.3 | ) | | 138.2 | |
| Loss for year | | | — | | | — | | | — | | | — | | | (94.5 | ) | | (94.5 | ) |
| Appropriation re PIK preference shares | | | — | | | — | | | — | | | — | | | (6.4 | ) | | (6.4 | ) |
| Foreign exchange | | | — | | | (0.1 | ) | | (0.1 | ) | | (1.6 | ) | | 1.6 | | | (0.2 | ) |
| Amortization of share issue costs | | | — | | | — | | | — | | | 0.3 | | | — | | | 0.3 | |
| Non-equity dividend | | | — | | | — | | | 6.1 | | | — | | | — | | | 6.1 | |
| Reserve reclassification | | | — | | | — | | | — | | | (6.1 | ) | | 6.1 | | | — | |
| Shares issued in year | | | — | | | 0.2 | | | (5.8 | ) | | 5.6 | | | — | | | — | |
| Losses recognized in pension scheme | | | — | | | — | | | — | | | — | | | (25.1 | ) | | (25.1 | ) |
| UITF38 ESOP adjustment | | | — | | | — | | | — | | | — | | | (0.2 | ) | | (0.2 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| At December 31, 2003 restated | | | 329.1 | | | 1.5 | | | 3.0 | | | 13.4 | | | (328.8 | ) | | 18.2 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| At January 1, 2004 | | | 329.1 | | | 1.5 | | | 3.0 | | | 13.4 | | | (328.8 | ) | | 18.2 | |
| Profit for year | | | — | | | — | | | — | | | — | | | 18.9 | | | 18.9 | |
| Appropriation re PIK preference shares | | | — | | | — | | | — | | | — | | | (6.6 | ) | | (6.6 | ) |
| Foreign exchange | | | — | | | (0.1 | ) | | 0.1 | | | (1.7 | ) | | (5.9 | ) | | (7.6 | ) |
| Amortization of share issue costs | | | — | | | — | | | — | | | 0.3 | | | — | | | 0.3 | |
| Non-equity dividend | | | — | | | — | | | 3.1 | | | — | | | — | | | 3.1 | |
| Reserve reclassification | | | — | | | — | | | — | | | (3.1 | ) | | 3.1 | | | — | |
| Shares issued in year | | | — | | | 0.2 | | | (6.2 | ) | | 6.0 | | | — | | | — | |
| Losses recognized in pension scheme | | | — | | | — | | | — | | | — | | | (10.5
| ) | | (10.5
| ) |
| UITF38 ESOP adjustment | | | | | | | | | | | | | | | (0.3 | ) | | (0.3 | ) |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| At 31 December 2004 | | | 329.1 | | | 1.6 | | | — | | | 14.9 | | | (330.1 | ) | | 15.5 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| | |
| Registered number: 3768265 | 113 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
24 Contingent liabilities and contingent assets
Environmental
The group has environmental liabilities at some of its current or former sites and is subject to contingencies pursuant to laws and regulations which in the future may require it to take action to correct the effects on the environment of the prior disposal, release or escape of chemical substances. Sites which were formerly part of the specialty chemicals business of the AstraZeneca group but which were not in operation at the date of the group’s acquisition of the business in June 1999 were not transferred to the group.
An Environmental Deed of Covenant entered into by companies in the AstraZeneca group, notably Zeneca Limited (as a principal seller of the business to the group) and AstraZeneca plc (as guarantor), on the group’s acquisition of AstraZeneca’s specialty chemicals business, provides certain indemnities to and by group companies for environmental liabilities and costs arising from events or circumstances existing prior to the acquisition. These include liabilities relating to or arising out of pre-acquisition contamination at sites which were transferred to group companies in 1999 but which have subsequently been disposed of, notably at the St. Clair du Rhone site, France and the Mount Pleasant site, Tennessee. These also include historic liabilities arising on any sites previously owned by companies acquired by the group in the course of the acquisition transaction but where the sites in question were not themselves part of the acquisition transaction. The liability of the AstraZeneca group to indemnify group companies in respect of these matters is, subject to certain exceptions, subject to maximum caps of liability, de minimis levels of liability, time limits for claims to be made and/or contributions by group companies. Where time limits or caps on liability apply, on the expiry of the relevant time limit or if the environmental liabilities and costs exceed the relevant cap, the environmental liabilities and costs, or excess thereof, would be the responsibility of group companies. On the disposal of relevant businesses out of the group, where purchasers have assumed liabilities which may be subject to indemnity from the AstraZeneca group under the Environmental Deed or which may otherwise be the responsibility of group companies under the deed, the benefits and obligations under the Environmental Deed have, insofar as they relate to the sold businesses or sites, been assigned to the purchasers subject to appropriate limitations on the maximum amounts which the purchasers may claim under the Environmental Deed.
While the outcome of some of these matters cannot be readily foreseen, the directors believe that they will be disposed of without material effect on the financial position as shown in these consolidated financial statements.
The ultimate requirement for remediation work and its cost are difficult to estimate. However, where such costs are not within the scope of the indemnities provided by the deed of covenant referred to above, and where such costs are deemed probable and identifiable, provision has been made in the financial statements.
Litigation and other claims
Various companies in the group are parties to legal actions and claims by third parties, regulatory and fiscal authorities. While the outcome of some of these matters cannot be readily foreseen, the directors believe that they will be disposed of without material effect on the financial position as shown in these consolidated financial statements.
Excise Duties Inspection, Spain
During 2003, the Spanish tax authority carried out a tax inspection of the quantity of alcohol used by Avecia Spain (the company) exempt from excise duties, compared with its authorization. The period covered was 1999 to 2002. The tax inspector came to the view that the Company had exceeded its authority limit for each year and issued an assessment for the excise duty arising from that excess. The final amount of the assessment was €4.2 million. The company appealed against the assessment to the Administrative Tribunal. In November 2004, the Company heard that the Tribunal had not accepted the appeal. The Company therefore submitted a further appeal to the Court of Justice. A decision on this further appeal is not expected for many months.
| | |
| Registered number: 3768265 | 114 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
24 Contingent liabilities and contingent assets (continued)
On 2 February 2005, the Company was purchased by Koninklijke DSM NV (“DSM”) as part of the NeoResins business disposal by the Avecia Group. Under Paragraph 3.1.2 of the Tax Deed to the disposal, DSM accepted responsibility for any liability arising from the assessment. The liability of the Avecia Group ceased at that point.
Corporate Tax Audit, Avecia Spain
During 2003 and 2004, the Spanish tax authority carried out a corporate tax audit at Avecia Spain. As a result the tax inspector decided that the merger transaction undertaken by the Company in 1999 did not have sufficient economic reasons to qualify for the beneficial tax regime for restructuring processes. In October 2004 the tax inspector therefore raised an assessment on the Company for tax on the capital gain arising from the goodwill and tangible assets revaluation. The amount of the assessment including delay interest, was €18.7m. During January 2005, the Company appealed against that assessment.
On 2 February 2005, the Company was purchased by Koninklijke DSM NV(“DSM”) as part of the NeoResins business disposal by the Avecia Group. Under Paragraph 3.1.1 of the Tax Deed to the disposal, DSM accepted responsibility for any liability arising from the assessment. The liability of the Avecia Group ceased at that point.
Corporate Tax Audit, Stahl Iberica, Spain
Stahl Iberica was owned by the Avecia Group in 1999 at the time it undertook a similar merger transaction as that for Avecia Spain referred to above. The Spanish tax authority carried out a parallel tax audit at Stahl Iberica, but the tax inspector delayed his conclusions until a decision was made in the case of Avecia Spain.
The tax inspector has now issued (in March 2005) a preliminary tax assessment for tax on the capital gain arising to Stahl Iberica. The amount of the tax assessment including delay interest is €3.1m. Until a final assessment is issued in the period up to June 2005, no appeal is required.
Avecia believes that a claim could be made by the current owners of Stahl Iberica under the Tax Deed relating to the disposal of the Stahl Group in 2002. Until that claim is received, it is not possible to calculate the extent of Avecia’s liability.
| | |
| Registered number: 3768265 | 115 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
25 Commitments
(a) Capital commitments of the group at the end of the financial period, for which no provision has been made, are as follows:
| | | Avecia Group plc Consolidated | |
| | |
|
| |
| | | | December 31,
2004 | | | December 31,
2003 | |
| | |
|
| |
|
| |
| | | | £ million | | | £ million | |
| | | | | | | | |
| Contracted capital commitments | | | 5.3 | | | 4.3 | |
| | |
|
| |
|
| |
(b) Annual commitments under non-cancellable operating leases are as follows:
| | | Avecia Group plc Consolidated | |
| | |
|
| |
| | | December 31, 2004 | | December 31, 2003 | |
| | |
|
| |
|
| |
| | | | Land and
buildings | | | Other | | | Land anD
buildings | | | Other | |
| | |
|
| |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | | | £ million | |
| Operating leases which expire: | | | | | | | | | | | | | |
| Within one year | | | — | | | — | | | — | | | — | |
| In the second to fifth years inclusive | | | 0.5 | | | — | | | 0.9 | | | 0.2 | |
| After five years | | | 2.2 | | | — | | | 3.0 | | | — | |
| | |
|
| |
|
| |
|
| |
|
| |
| | | | 2.7 | | | — | | | 3.9 | | | 0.2 | |
| | |
|
| |
|
| |
|
| |
|
| |
The future minimum lease payments under operating and finance leases, including finance charges, were as follows:
| | | Operating leases | | Finance leases | |
| | |
|
| |
|
| |
| | | Avecia Group plc
Consolidated | | Avecia Group plc
Consolidated | |
| | |
|
|
|
|
| |
|
|
|
|
| |
| | | | December 31,
2004 | | | December 31,
2003 | | | December 31,
2004 | | | December 31,
2003 | |
| | |
|
| |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | | | | |
| Due in one year or less | | | 0.7 | | | 0.8 | | | 0.8 | | | 0.9 | |
| Due between one and two years | | | 0.4 | | | 0.8 | | | 0.6 | | | 0.8 | |
| Due between two and three years | | | 0.4 | | | 0.5 | | | 0.6 | | | 0.6 | |
| Due between three and four years | | | 0.4 | | | 0.5 | | | 0.7 | | | 0.6 | |
| Due between four and five years | | | 0.4 | | | 0.5 | | | 0.8 | | | 0.7 | |
| Due in five years or more | | | 0.4 | | | 1.1 | | | 1.0 | | | 1.8 | |
| | |
|
| |
|
| |
|
| |
|
| |
| | | | 2.7 | | | 4.2 | | | 4.5 | | | 5.4 | |
| | |
|
| |
|
| |
|
| |
|
| |
There were no commitments (2003: £nil) under finance leases at the balance sheet date that were due to commence thereafter.
| | |
| Registered number: 3768265 | 116 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
26 Pension scheme
The Avecia group participates in retirement plans, which cover the majority of its employees. These plans are either defined contribution, where the level of company contribution is fixed at a set level or percentage of employees pay, or defined benefit, where benefits are based on employees’ years of service and average final remunerations. In general all plans are funded through separate trustee-administered funds. The pension cost for the main defined benefit plans is established in accordance with the advice of independent qualified actuaries based on valuations undertaken on varying dates. There are material plans in the UK, the US and the Netherlands.
UK
An actuarial valuation was carried out as at March 31, 2003 using a market-led approach. The assets are taken at market value with the liabilities valued using financial assumptions derived from market yields on Government Fixed Interest and Index Linked gilts at the valuation date. The significant assumptions used in this valuation were UK price inflation of 2.5 per cent pa, investment returns of 6.5 per cent pa (pre-retirement) and 5.0 per cent pa (post-retirement), salary increases of 3.5 per cent pa and pension increases of 2.5 per cent pa. The market value of the fund’s assets was £109.6 million and represented 64 per cent of the accrued liabilities at that date allowing for projected future salary increases. The next valuation will be as at March 2006.
The contribution rate currently payable by the employer is 14.5 per cent of pensionable salaries plus special contributions of £480,000 per month. Employees pay varying levels of contribution in accordance with the rules and the current average is 3.6 per cent of pensionable salaries.
Avecia’s investment policy for the UK pension scheme is to consider a full range of asset classes, the risks and rewards of alternative asset allocation strategies, the suitability of each asset class in the planned asset allocation strategy, and the need for appropriate diversification. It is the trustee’s policy to delegate all day-to-day decisions about the investments that fall within each investment option to the fund manager.
US
In the US an actuarial valuation was carried out as at January 1, 2003. The significant assumptions used in this valuation were that the rate of return on investment would be 8.0 per cent pa, the rate of salary increases would be 5.0 per cent and pension increases 0 per cent pa. The market value of the plans’ assets at that date was $31.0 million. The primary reason for the decrease in market value of plans’ assets from $41.5 million as at January 1, 2002 was the transfer out of $8.4 million of trust assets in 2002 coincidental with the sale of Stahl. The January 1, 2003 market value of the plans’ assets represented 64 per cent of the accrued liabilities as at that date, based on salaries projected to the date of retirement or assumed earlier death or leaving service. There is a deficiency of $11.4 million on this funding level basis and the basis of the actuarial value of assets that is used in the US to determine employer contributions.
During the year $3.5 million was funded into the plan’s trust. It is anticipated that amounts will also be funded in 2005. Employer contributions are based on the minimum funding requirements of ERISA.
Netherlands
In the Netherlands an actuarial valuation was carried out as at December 31, 2003. The value of assets was € 42.265 million, which represents 107.4 per cent of the plan liabilities at that date. Total contributions in 2003 were payable at a rate of 23.2 per cent of pensionable salaries less the state pension offset of € 15,973. In 2003 this was approximately equivalent to 14.5 per cent of members’ pensionable salaries. Contributions are currently payable by the employee at the rate of 2 per cent between earnings limits of € 23,960 and € 43,065 and 7.5 per cent of earnings above the € 43,065 limit. In 2003 this was equivalent to approximately 1.8 per cent of gross pensionable salaries. Employer’s contribution is approximately 12.7 per cent.
| | |
| Registered number: 3768265 | 117 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
26 Pension scheme (continued)
Further additional payments have been made by Avecia in 2003 for a total amount of € 1.48 million to close the gap between liabilities and assets because of a negative return on assets in 2001 and 2002. At the end of 2002 Stahl left the Avecia Pension fund and transferring liabilities for an amount of € 23.5 million to the Stahl Pension fund. Per January 1, 2004 we changed, after reaching agreement with the stakeholders, the pension plan from a final pay into an average weighted system and furthermore increased the contribution from the employees to a higher level.
Major Assumptions
| | | | 2004
% | | | 2003
% | | | 2002
% | |
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| | | | UK | | | US | | | Netherlands | | | UK | | | US | | | Netherlands | | | UK | | | US | | | Netherlands | |
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| Rate of general increase in salaries | | | 3.90 | | | 4.25 | | | 3.00 | | | 3.80 | | | 4.25 | | | 3.00 | | | 3.80 | | | 4.25 | | | 3.00 | |
| Rate of increase to pensions in payment | | | 2.70 | | | — | | | 1.75 | | | 2.70 | | | — | | | 2.00 | | | 2.40 | | | — | | | 2.00 | |
| Discount rate for scheme liabilities | | | 5.30 | | | 6.25 | | | 4.50 | | | 5.40 | | | 6.25 | | | 5.45 | | | 5.50 | | | 6.75 | | | 5.60 | |
| Inflation | | | 2.90 | | | 3.25 | | | 2.00 | | | 2.80 | | | 3.25 | | | 2.00 | | | 2.30 | | | 4.00 | | | 2.00 | |
The assets in the schemes and the expected rate of return were:
| | | | Long term rate of return expected 31 December 2004 | | | Value as at 31 December 2004 | | | Long term rate of return expected 31 December
2004 | | | Value as at 31 December 2004 | | | Long term rate of return expected 31 December 2004 | | | Value as at 31 December 2004 | |
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| | | | UK | | | UK | | | USA | | | USA | | | Netherlands | | | Netherlands | |
| | | | % pa | | | £ million | | | % pa | | | £ million | | | % pa | | | £ million | |
| | | | | | | | | | | | | | | | | | | | |
| Equities | | | 7.5 | | | 137.4 | | | 10.5 | | | 8.9 | | | 7.7 | | | 9.6 | |
| Bonds | | | 4.6 | | | 34.8 | | | 7.0 | | | 4.0 | | | 4.3 | | | 23.1 | |
| Cash | | | 5.0 | | | 3.1 | | | — | | | — | | | — | | | — | |
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| Market value of assets | | | | | | 175.3 | | | | | | 12.9 | | | | | | 32.7 | |
| Present value of scheme liabilities | | | | | | (248.2 | ) | | | | | (22.1 | ) | | | | | (47.4 | ) |
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| Deficit | | | | | | (72.9 | ) | | | | | (9.2 | ) | | | | | (14.7 | ) |
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The Investment return is calculated using the expected rate of return for each asset class, taking into account assumptions on inflation and fund diversification. The return for each asset class is set with reference to current market yields and making assumptions regarding the expected return on equities in the long term.
| | |
| Registered number: 3768265 | 118 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
26 Pension Scheme (continued)
| | | | Long term
rate of return
expected
31 December
2003 | | | Value as at
31 December
2003 | | | Long term
rate of return
expected
31 December
2003 | | | Value as at
31 December
2003 | | | Long term
rate of return
expected
31 December
2003 | | | Value as at
31 December
2003 | |
| | | | UK | | | UK | | | USA | | | USA | | | Netherlands | | | Netherlands | |
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| | | | % pa | | | £m | | | % pa | | | £m | | | % pa | | | £m | |
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| Equities | | | 7.8 | | | 122.5 | | | 10.5 | | | 8.9 | | | 8.3 | | | 11.3 | |
| Bonds | | | 4.8 | | | 18.3 | | | 7.0 | | | 4.6 | | | 4.3 | | | 17.7 | |
| Cash | | | 4.5 | | | 2.1 | | | — | | | — | | | — | | | 0.2 | |
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| Market value of assets | | | | | | 142.9 | | | | | | 13.5 | | | | | | 29.2 | |
| Present value of scheme liabilities | | | | | | (222.2 | ) | | | | | (25.2 | ) | | | | | (41.2 | ) |
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| Deficit | | | | | | (79.3 | ) | | | | | (11.7 | ) | | | | | (12.0 | ) |
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| Deferred tax | | | | | | — | | | | | | — | | | | | | (3.4 | ) |
| | | | Long term rate
of return expected
31 December
2002 | | | Value as at
31 December
2002 | | | Long term rate
of return expected
31 December
2002 | | | Value as at
31 December
2002 | | | Long term rate
of return expected
31 December
2002 | | | Value as at
31 December
2002 | |
| | | | UK | | | UK | | | USA | | | USA | | | Netherlands | | | Netherlands | |
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| | | | % pa | | | £m | | | % pa | | | £m | | | % pa | | | £m | |
| | | | | | | | | | | | | | | | | | | | |
| Equities | | | 7.5 | | | 92.5 | | | 11.0 | | | 11.0 | | | 8.5 | | | 7.1 | |
| Bonds | | | 4.5 | | | 15.6 | | | 5.7 | | | 6.7 | | | 4.5 | | | 15.0 | |
| Cash | | | 4.2 | | | 1.4 | | | — | | | — | | | 0.0 | | | 0.7 | |
There were no assets relating to Other Post Retirement Benefits.
| | |
| Registered number: 3768265 | 119 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
26 Pension Scheme (continued)
Movement in deficit during the year
| | | Year ended 31 December 2004 | | | Year ended 31 December 2003 | |
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| | | UK | | | USA | | | Netherlands | | | Other PRB | | | UK | | | USA | | | Netherlands | | | Other PRB | |
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| | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Deficit at start of year | | (79.3 | ) | | (11.7 | ) | | (12.0 | ) | | (10.2 | ) | | (49.9 | ) | | (18.3 | ) | | (11.8 | ) | | (13.9 | ) |
| Current service cost | | (8.3 | ) | | (0.8 | ) | | (1.4 | ) | | (0.4 | ) | | (9.8 | ) | | (1.3 | ) | | (2.0 | ) | | (0.5 | ) |
| Past service cost | | (0.4 | ) | | — | | | — | | | — | | | (1.8 | ) | | — | | | — | | | — | |
| Company contributions | | 17.7 | | | 2.0 | | | 1.7 | | | 0.4 | | | 10.2 | | | 1.8 | | | 2.8 | | | 0.1 | |
| Other financing(charge)/credit | | (1.1 | ) | | (0.1 | ) | | (0.3 | ) | | (0.6 | ) | | (0.9 | ) | | (0.3 | ) | | (0.7 | ) | | (0.7 | ) |
| Actuarial gain/(loss) | | (5.1 | ) | | (2.4 | ) | | (2.9 | ) | | (0.1 | ) | | (27.1 | ) | | (1.4 | ) | | 0.7 | | | (3.0 | ) |
| Exchange gain/(loss) | | — | | | 1.0 | | | 0.2 | | | 0.7 | | | — | | | 1.3 | | | (1.0 | ) | | 0.9 | |
| Gain/loss due to settlement/curtailment | | 3.6 | | | 2.8 | | | — | | | 1.3 | | | — | | | 6.5 | | | — | | | 6.9 | |
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| Deficit at end of year | | (72.9 | ) | | (9.2 | ) | | (14.7 | ) | | (8.9 | ) | | (79.3 | ) | | (11.7 | ) | | (12.0 | ) | | (10.2 | ) |
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Analysis of the amounts charged to operating profit :
| | | Year ended 31 December 2004 | | | Year ended 31 December 2003 | |
| |
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| |
| | | UK | | | USA | | | Netherlands | | | Other PRBs | | | UK | | | USA | | | Netherlands | | | Other PRB | |
| |
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| | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Current service cost | | (8.3 | ) | | (0.8 | ) | | (1.4 | ) | | (0.4 | ) | | (9.8 | ) | | (1.3 | ) | | (2.0 | ) | | (0.5 | ) |
| Past service cost | | (0.4 | ) | | — | | | — | | | — | | | (1.8 | ) | | — | | | — | | | — | |
|
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| | | (8.7 | ) | | (0.8 | ) | | (1.4 | ) | | (0.4 | ) | | (11.6 | ) | | (1.3 | ) | | (2.0 | ) | | (0.5 | ) |
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Analysis of amounts included in Other Financing (charge)/credit :
| | | Year ended 31 December 2004 | | | Year ended 31 December 2003 | |
| |
|
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| | | UK | | | USA | | | Netherlands | | | Other PRB | | | UK | | | USA | | | Netherlands | | | Other PRB | |
| |
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| | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | | | £m | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest cost | | (12.2 | ) | | (1.3 | ) | | (2.0 | ) | | (0.6 | ) | | (8.7 | ) | | (2.0 | ) | | (2.2 | ) | | (0.7 | ) |
| Expected return on assets | | 11.1 | | | 1.2 | | | 1.7 | | | — | | | 7.8 | | | 1.7 | | | 1.5 | | | — | |
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| | | (1.1 | ) | | (0.1 | ) | | (0.3 | ) | | (0.6 | ) | | (0.9 | ) | | (0.3 | ) | | (0.7 | ) | | (0.7 | ) |
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| Registered number: 3768265 | 120 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
26 Pension Scheme (continued)
Analysis of the amount recognised in statement of total recognised gains and losses :
| | | Year ended 31 December 2004 | |
| | |
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| | | UK | | USA | | Netherlands | | Other PRB | |
| | |
| |
| |
| |
| |
| | | £m | | % of scheme assets/(liabilities) | | £m | | % of scheme assets/(liabilities) | | £m | | % of scheme assets/(liabilities) | | £m | | % of scheme assets/(liabilities) | |
| | | | | | | | | | | | | | | | | | |
| Difference between Actual and Expected return on assets | | 5.8 | | 3% | | 0.1 | | 1% | | 0.6 | | 2% | | — | | 0% | |
| Experience gains and losses | | (1.9 | ) | (1% | ) | 0.2 | | 1% | | (0.9 | ) | (2% | ) | 0.3 | | 3% | |
| Effects of changes in assumptions on value of scheme liabilities | | (9.0 | ) | (4% | ) | (1.7 | ) | (7% | ) | (2.5 | ) | (6% | ) | 0.3 | | 3% | |
| |
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| | | (5.1 | ) | (2% | ) | (1.4 | ) | (6% | ) | (2.8 | ) | (6% | ) | 0.6 | | 6% | |
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| Registered number: 3768265 | 121 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
26 Pension Scheme (continued)
| | | Year ended 31 December 2003 | |
| | |
| |
| | | UK | | USA | | Netherlands | | Other PRB | |
| | |
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| | | £m | | % of scheme assets/(liabilities) | | £m | | % of scheme assets/(liabilities) | | £m | | % of scheme assets/(liabilities) | | £m | | % of scheme assets/(liabilities) | |
| | | | | | | | | | | | | | | | | | |
| Difference between Actual and Expected return on assets | | 14.2 | | 10% | | 1.3 | | 10% | | — | | 0% | | — | | 0% | |
| Experience gains and losses | | (9.4 | ) | (4% | ) | (3.7 | ) | (15% | ) | (1.5 | ) | (4% | ) | (3.2 | ) | (31% | ) |
| Effects of changes in assumptions on value of scheme liabilities | | (31.9 | ) | (14% | ) | 2.3 | | 9% | | 1.2 | | 3% | | 1.1 | | 15% | |
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| | | (27.1 | ) | (12% | ) | (0.1 | ) | 0% | | (0.3 | ) | (1% | ) | (2.1 | ) | (21% | ) |
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History of Experience Gains and Losses
| | | | | | | 2004 | | | 2003 | |
| | | | | | | | | | | |
| Difference between the expected and actual return on scheme assets | | | (£ million) | | | 6.5 | | | 15.3 | |
| Percentage of scheme assets | | | | | | 3% | | | 8% | |
| | | | | | | | | | | |
| Experience gains and losses on scheme liabilities | | | (£ million) | | | (2.2 | ) | | (17.8 | ) |
| Percentage of the present value of scheme liabilities | | | | | | (1% | ) | | (6% | ) |
| | | | | | | | | | | |
| Changes in assumptions re value of liabilities | | | (£ million) | | | (12.9 | ) | | (27.3 | ) |
| As a percentage of scheme liabilities | | | | | | (4% | ) | | (9% | ) |
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| Total amount recognised in statement of total recognised gains and losses | | | (£ million) | | | (8.6 | ) | | (29.6 | ) |
| As a percentage of scheme liabilities | | | | | | (3% | ) | | (10% | ) |
| | |
| Registered number: 3768265 | 122 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
26 Pension Scheme (continued)
For purposes of US GAAP, the pension costs of all significant plans have been shown in the following tables in accordance with the requirements of SFAS No 132 – ‘Employers’ Disclosures about Pensions and Other Post-retirement Benefits’.
The changes in projected benefit obligations and plan assets and details of the funded status of these retirement plans, together with the changes in the accumulated other post-retirement benefit obligations, under SFAS No 132 are as follows:
| | | Pension benefits | | Other post-retirement benefits | |
| | | Avecia Group plc
Consolidated | | Avecia Group plc
Consolidated | |
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|
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|
| |
| | | For the year ended December 31, 2004 | | For the year ended December 31, 2003 | | For the year ended December 31, 2004 | | For the year ended December 31, 2003 | |
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| | | | £ million | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | | | | |
| Change in projected benefit obligation | | | 29 | | | 62 | | | (2 | ) | | (4 | ) |
| | | | | | | | | | | | | | |
| Projected benefit obligation at beginning of period | | | 292 | | | 230 | | | 10 | | | 14 | |
| Service cost | | | 10 | | | 15 | | | — | | | — | |
| Interest cost | | | 16 | | | 13 | | | 1 | | | 1 | |
| Participant contributions | | | 2 | | | 2 | | | — | | | — | |
| Plan amendments | | | 4 | | | 2 | | | — | | | — | |
| Actuarial gain | | | 14 | | | 46 | | | — | | | 3 | |
| Benefits paid | | | (5 | ) | | (4 | ) | | (1 | ) | | — | |
| Settlements/curtailments | | | (8 | ) | | (13 | ) | | — | | | — | |
| Other movements including exchange | | | (4 | ) | | 1 | | | (2 | ) | | (8 | ) |
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| Projected benefit obligation at end of period | | | 321 | | | 292 | | | 8 | | | 10 | |
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| Registered number: 3768265 | 123 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
26 Pension Scheme (continued)
| | | Pension Benefits | | Other post-retirement benefits | |
| | | Avecia Group plc
Consolidated | | Avecia Group plc
Consolidated | |
| | |
|
| |
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| |
| | | For the year ended December 31, 2004 | | For the year ended December 31, 2003 | | For the year ended December 31, 2004 | | For the year ended December 31, 2003 | |
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| | | | £ million | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | | | | |
| Change in plan assets | | | 35 | | | 36 | | | — | | | — | |
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| Fair value at beginning of period | | | 186 | | | 150 | | | — | | | — | |
| Actual return on plan assets | | | 21 | | | 27 | | | — | | | — | |
| Group contribution | | | 21 | | | 15 | | | — | | | — | |
| Participant contributions | | | 2 | | | 2 | | | — | | | — | |
| Benefits paid | | | (5 | ) | | (3 | ) | | — | | | — | |
| Disposition | | | (2 | ) | | (7 | ) | | — | | | — | |
| Other movements including exchange | | | (2 | ) | | 2 | | | — | | | — | |
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| Fair value of plan assets at end of period | | | 221 | | | 186 | | | — | | | — | |
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| Funded status of plans | | | (100 | ) | | (106 | ) | | (9 | ) | | (10 | ) |
| Unrecognized net loss/(gain) | | | 86 | | | 84 | | | 2 | | | 2 | |
| Prior service cost not recognized | | | (1 | ) | | 2 | | | — | | | — | |
| Unrecognized net obligation on implementation | | | — | | | — | | | — | | | — | |
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| | | | (15 | ) | | (20 | ) | | (7 | ) | | (8 | ) |
| Adjustments to recognize minimum liability | | | | | | | | | | | | — | |
| Intangible assets | | | (3 | ) | | (2 | ) | | — | | | — | |
| Other Comprehensive Income | | | 51 | | | 58 | | | — | | | | |
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| | | | (48 | ) | | (56 | ) | | — | | | — | |
| | | | | | | | | | | | | | |
| Accrued benefit liability | | | (63 | ) | | (76 | ) | | (7 | ) | | (8 | ) |
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The Accumulated Benefit Obligation is £226m for the UK plan, £19.6m for the US plan and £38.0 for the Netherlands plan. There were no plan assets in respect of other post-retirement benefits.
| | |
| Registered number: 3768265 | 124 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
26 Pension Scheme (continued)
Assumed discount rates and rates of increase in remuneration used in calculating the projected benefit obligations, together with long-term rates of return on plan assets, vary according to the economic conditions of the country in which the retirement plans are situated. The weighted average rates used for calculation of year end benefit obligations and forecast benefit cost in the main retirement plans and other benefit obligations for SFAS No 132 purposes were as follows:
| | | | Pension benefits | | | Other post-retirement benefits | |
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| | | | 2004 | | | 2003 | | | 2002 | | | 2004 | | | 2003 | | | 2002 | |
| | | | % | | | % | | | % | | | % | | | % | | | % | |
| | | | | | | | | | | | | | | | | | | | |
| Discount rate | | | 5.2 | | | 5.5 | | | 5.8 | | | 5.6 | | | 6.25 | | | 6.75 | |
| Long-term rate of increase in remuneration | | | 3.8 | | | 3.7 | | | 3.8 | | | 3.8 | | | 4.25 | | | 4.25 | |
| Expected long-term return on assets | | | 6.9 | | | 6.7 | | | 6.7 | | | n/a | | | n/a | | | n/a | |
Avecia has assumed a long-term rate of increase in healthcare costs of 10% (2003: 8%).
| | | | Pension benefits | | | | |
| | | | Avecia Group plc
Consolidated | | | Avecia Group plc
Consolidated | |
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| | | For the year ended December 31, | | For the year ended December 31, | | For the year ended December 31, | | For the year ended December 31, | | For the year ended December 31, | | For the year ended December 31, | |
| | | | 2004 | | | 2003 | | | 2002 | | | 2004 | | | 2003 | | | 2002 | |
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| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
| Net periodic cost | | | | | | | | | | | | | | | | | | | |
| Service cost – present value of benefits accruing during the period | | | 10 | | | 13 | | | 12 | | | — | | | — | | | — | |
| Interest cost on projected benefit obligations | | | 16 | | | 13 | | | 12 | | | 1 | | | 1 | | | 1 | |
| Expected (return)/loss on assets | | | (14 | ) | | (11 | ) | | (12 | ) | | — | | | — | | | — | |
| Net amortization and deferral | | | 6 | | | 5 | | | 3 | | | — | | | — | | | — | |
| Settlements & curtailments | | | 2 | | | (2 | ) | | — | | | (1 | ) | | (5 | ) | | — | |
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| Net periodic cost for the period | | | 20 | | | 18 | | | 15 | | | — | | | (4 | ) | | 1 | |
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It is estimated that a 1 percentage point change in the weighted average healthcare costs trend would have the following effects on the accumulated benefit obligation and net periodic cost at December 31, 2004 and December 31, 2003.
| | | | 1 percentage point | |
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| | | | At December 31, 2004 | | | At December 31, 2003 | |
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| | | | Increase | | | Decrease | | | Increase | | | Decrease | |
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| | | | £ million | | | £ million | | | £ million | | | £ million | |
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| Accumulated benefit obligation | | | 0.63 | | | (0.64 | ) | | 0.56 | | | (0.53 | ) |
| Net periodic cost | | | 0.09 | | | (0.09 | ) | | 0.10 | | | (0.09 | ) |
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| Registered number: 3768265 | 125 |
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Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
27 Net cash inflow from operating activities
| | | | For the year ended December 31, 2004 | | | For the year ended December 31, 2003 | | | For the year ended December 31, 2002 | |
| | | | | | | | | | Restated | |
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| | | | £ million | | | £ million | | | £ million | |
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| Operating loss | | | (50.4 | ) | | (81.1 | ) | | (17.2 | ) |
| Non cash items | | | (1.5 | ) | | (1.7 | ) | | 3.6 | |
| Depreciation, amortization and impairment charges | | | 73.0 | | | 135.2 | | | 101.8 | |
| (Decrease)/increase in provision for pensions and similar obligations | | | (1.1 | ) | | 0.2 | | | 1.3 | |
| Decrease in environmental provision | | | — | | | (0.1 | ) | | — | |
| (Decrease)/increase in other provisions | | | 9.6 | | | (11.1 | ) | | 10.7 | |
| Profit on sale of fixed assets | | | (1.8 | ) | | (0.2 | ) | | (0.7 | ) |
| Decrease/(increase) in stocks | | | 1.7 | | | (3.7 | ) | | 8.7 | |
| (Increase)/decrease in debtors | | | (16.8 | ) | | 9.4 | | | 1.1 | |
| (Decrease)/increase in creditors | | | (1.5 | ) | | 0.4 | | | (1.5 | ) |
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| Net cash inflow from operating activities | | | 11.2 | | | 47.3 | | | 107.8 | |
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| Registered number: 3768265 | 126 |
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Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
28 Analysis of cash flows
| | | | Avecia Group plc
Consolidated | |
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| | | | For the year ended December 31, | | | For the year ended December 31, | | | For the year ended December 31 | |
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| | | | 2004 | | | 2004 | | | 2003 | | | 2003 | | | 2002 | | | 2002 | |
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| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
| Dividends from joint ventures and associates | | | | | | | | | | | | | | | | | | | |
| Joint ventures | | | 2.5 | | | | | | 3.0 | | | | | | 5.5 | | | | |
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| | | | | | | 2.5 | | | | | | 3.0 | | | | | | 5.5 | |
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| Returns on investment and servicing of finance | | | | | | | | | | | | | | | | | | | |
| Interest received | | | 1.1 | | | | | | 1.0 | | | | | | 1.9 | | | | |
| Interest paid | | | (39.2 | ) | | | | | (47.6 | ) | | | | | (58.4 | ) | | | |
| Interest element of finance lease rental payments | | | (0.3 | ) | | | | | (0.4 | ) | | | | | (0.4 | ) | | | |
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| | | | | | | (38.4 | ) | | | | | (47.0 | ) | | | | | (56.9 | ) |
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| Capital expenditure and financial investment | | | | | | | | | | | | | | | | | | | |
| Purchase of tangible fixed assets | | | (17.4 | ) | | | | | (49.9 | ) | | | | | (42.9 | ) | | | |
| Purchase of intangible fixed assets | | | (1.1 | ) | | | | | (0.3 | ) | | | | | (0.3 | ) | | | |
| Sale of tangible fixed assets | | | 5.2 | | | | | | 0.6 | | | | | | 0.1 | | | | |
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| | | | | | | (13.3 | ) | | | | | (49.6 | ) | | | | | (43.1) | |
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| Registered number: 3768265 | 127 |
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Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
28 Analysis of cash flows (continued)
| | | | | For the year ended December 31, | | | For the year ended December 31, | | | For the year ended December 31, | |
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| | | | | 2004 | | | 2004 | | | 2003 | | | 2003 | | | 2002 | | | 2002 | |
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| | Note | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
| Acquisitions and disposals | | | | | | | | | | | | | | | | | | | |
| Purchase of subsidiary undertaking | 21 | | | — | | | | | | (1.9 | ) | | | | | (3.4 | ) | | | |
| Net cash disposed with subsidiary | | | | (0.2 | ) | | | | | (0.1 | ) | | | | | (3.7 | ) | | | |
| Disposal of subsidiary undertaking | | | | 187.1 | | | | | | 78.6 | | | | | | 203.3 | | | | |
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| | | | | | | | 186.9 | | | | | | 76.6 | | | | | | 196.2 | |
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| Financing | | | | | | | | | | | | | | | | | | | | |
| Loans to related parties | | | | — | | | | | | 0.1 | | | | | | 0.1 | | | | |
| Debt due within one year: | | | | | | | | | | | | | | | | | | | |
| New loan repayable in current year | | | 117.5 | | | | | | 64.0 | | | | | | 39.0 | | | | |
| Loan repayments | | | | (250.5 | ) | | | | | (103.7 | ) | | | | | (239.4 | ) | | | |
| Capital element of finance lease rental payments | | | (0.8 | ) | | | | | (1.0 | ) | | | | | (0.9 | ) | | | |
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| | | | | | | | (133.8 | ) | | | | | (40.6 | ) | | | | | (201.2 | ) |
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| Registered number: 3768265 | 128 |
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<<<Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
29 Analysis of net debt
| | | | Avecia Group plc – Consolidated for the year ended December 31, 2004 | |
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| | | At beginning of period | | | Disposed | | | Cash flow | | Other non cash changes | | Exchange movement | | At end of Period | |
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| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | | | | | | | | | | |
| Cash at bank and in hand | | | 8.0 | | | (0.2 | ) | | 15.1 | | | — | | | (0.2 | ) | | 22.7 | |
| Revolver facility | | | (44.0 | ) | | — | | | 44.0 | | | — | | | — | | | — | |
| Debt due after one year | | | (431.1 | ) | | — | | | 131.9 | | | (5.8 | ) | | 32.4 | | | (272.6 | ) |
| Debt due within one year | | | (26.0 | ) | | — | | | (43.1 | ) | | (3.0 | ) | | 1.5 | | | (70.6 | ) |
| Finance leases | | | (5.3 | ) | | — | | | 0.8 | | | — | | | — | | | (4.5 | ) |
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| Total | | | (498.4 | ) | | (0.2 | ) | | 148.7 | | | (8.8 | ) | | 33.7 | | | (325.0 | ) |
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| | | | Avecia Group plc – Consolidated for the year ended December 31, 2003 | |
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| | | At beginning of period | | | Acquired | | Cash flow | | Other non cash changes | | Exchange movement | | At end of Period | |
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| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | | | | | | | | | | |
| Cash at bank and in hand | | | 16.2 | | | — | | | (10.4 | ) | | — | | | 2.2 | | | 8.0 | |
| Revolver facility | | | — | | | — | | | (44.0 | ) | | — | | | — | | | (44.0 | ) |
| Debt due after one year | | | (534.8 | ) | | — | | | 81.3 | | | (4.1 | ) | | 26.5 | | | (431.1 | ) |
| Debt due within one year | | | (26.4 | ) | | — | | | 2.4 | | | — | | | (2.0 | ) | | (26.0 | ) |
| Finance leases | | | (6.3 | ) | | — | | | 1.0 | | | — | | | — | | | (5.3 | ) |
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| Total | | | (551.3 | ) | | — | | | 30.3 | | | (4.1 | ) | | 26.7 | | | (498.4 | ) |
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| Registered number: 3768265 | 129 |
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Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
30 Post balance sheet events
On 2 February 2005 Avecia completed the sale of the NeoResins business to Royal DSM N.V. for a consideration of EUR 515m. The business’ principle manufacturing asset at Waalwijk (Netherlands), Parets des Villes (Spain), Willmington MA and Frankfort IN (United States) are included in the sale. Approximately 635 employees transferred to DSM N.V. upon completion.
Following this divestment, Avecia used the net proceeds to repay all outstanding Senior Bank Borrowings (£75 million) together with accrued interest, and on 4 February 2005 to purchase 77% ($415,912,000) of the aggregate principal amount of the High Yield Bonds in issue, at a total cost of $447.307 million.
On 28 February 2005 Avecia completed the sale of its OLED and Polymer Electronics units to Merck KgaA of Darmstadt for EUR 50million. The sale included Avecia’s displays business – Covion Organic Semiconductors GmbH and its polymer research and development activities based in Manchester, UK. Approximately 74 employees transferred to Merck KgaA upon completion.
On 5 April 2005, following a review of operations in Avecia’s DNA business, Avecia announced the closure of its UK DNA facility at Grangemouth, with consolidation of DNA Medicine operations and activities at Avecia’s site in Milford, MA. Approximately 95 jobs will be at risk following the decision, and Avecia will be taking an appropriate charge to cover restructuring costs during 2005.
31 Related Party disclosures
In June 1999, Cinven and Investcorp S.A. jointly directed the formation of Avecia, and its acquisition of the Zeneca Specialties business. Cinven and Investcorp S.A. continue to provide consulting services to the Group, for which they may receive payments of up to £400,000 per annum. In January 2002 Avecia completed the sale of its Stahl business to Luxembourg 101 S.A. and its affiliates. The purchase of Stahl from Avecia was managed by Investcorp S.A. on behalf of Luxembourg 101 SA and its affiliates, which under the terms of the Bond Indenture means that Luxembourg 101 SA is considered a related party. The sale of the Stahl business was therefore conducted under the terms of the bond indenture relating to related party transactions.
At December 31, 2004 debtors include £15.0 million (2003: £17.2 million) owed to companies within the group by the parent companies of Avecia Group plc, Avecia Holdings plc and Avecia Finance plc. The £15.0million relates to acquisition fees This amount is interest free.
32 Ultimate parent company
The ultimate parent company is Avecia (Jersey) Limited, a company registered and incorporated in Jersey. The registered number is 74318. The external address of the ultimate parent company is:
Avecia (Jersey) Limited
Mourant du Feu & Jeune
22 Grenville Street
St. Helier
Jersey
JE4 8PX.
| | |
| Registered number: 3768265 | 130 |
| | |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
33 Difference between UK and US accounting principles
These consolidated financial statements are prepared in accordance with UK GAAP. Significant differences between UK GAAP and US GAAP which affect the net income and net assets of Avecia and Zeneca Specialties are set out below.
Reclassification of parent company debtors
Since the acquisition of the Specialty Chemicals business of AstraZeneca in 1999, certain amounts have been due from Avecia Holdings plc and Avecia Finance plc, the parent companies of Avecia Group plc on a long term basis (see note 16). Under US GAAP, such amounts are reflected as a reduction of shareholders’ funds. Net assets in accordance with US GAAP have been reduced by £15.0 million to reflect this reclassification at December 31, 2004 (December 31, 2003: £17.2 million).
Capitalization of interest
There is no mandatory accounting standard in the United Kingdom regarding the capitalization of interest and, accordingly, the business does not capitalize interest as part of the cost of fixed assets in financial statements prepared under UK GAAP. US GAAP requires interest incurred and associated with the cost of constructing fixed assets to be capitalized and amortized over the life of the asset.
Revenue recognition
The company recognizes revenues on individual elements of multiple-element sales arrangements when sums are contractually due for work performed or services rendered during the year. Under US GAAP, such sums are deferred unless they are in exchange for products delivered or services performed which represent the culmination of a separate earnings process. Certain revenues recognized under UK GAAP on a multiple-element sales arrangement may not be recognized under US GAAP until the terms of additional elements of the arrangement have been completed or fulfilled and all contingencies resolved.
Deferred taxation
Following the implementation of FRS 19 ‘Deferred tax’ both US GAAP and UK GAAP now provide for deferred taxation on a full liability basis. US GAAP, however, requires provision for revaluation gains, fair value adjustments similar to revaluations arising on the acquisition of a business, latent rolled over gains and the retained earnings of foreign subsidiaries that are not permanently reinvested. These are not normally provided for under UK GAAP.
| | |
| Registered number: 3768265 | 131 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
33 Difference between UK and US accounting principles (continued)
Pension Expense
There are various differences between UK GAAP and US GAAP in accounting for pension costs:
| • | US GAAP requires measurement of plan assets and obligations to be made as at the date of the financial statements or a date not more than three months prior to that date. Under UK GAAP, calculations are made at the date of the financial statements; |
| | |
| • | under US GAAP, a negative pension cost may arise where a significant unrecognized net asset or gain exists at the time of implementation. This is required to be amortized on a straight-line basis over the average remaining service period of employees. In accordance with UK GAAP, Avecia policy is not to recognize pension credits in its financial statements unless a refund of, or reduction in, contributions is likely. |
| | |
| • | under US GAAP, a minimum pension liability is recognized through other comprehensive income in certain circumstances when there is a deficit of plan assets relative to the accumulated benefits obligation. Under UK GAAP, there is no such requirement. |
| | |
| • | Under US GAAP, pension prepayments and liabilities accrued are included in the balance sheet within debtors, creditors or provisions as appropriate. Under UK GAAP (FRS17), the whole net pensions asset or liability is recognized as a single item on the balance sheet. |
Purchase accounting adjustments (goodwill and intangibles)
In the consolidated financial statements, goodwill arising on acquisitions made prior to January 1998 accounted for under the purchase method has been eliminated against shareholders’ equity, in accordance with UK GAAP. Under the requirements of UK Financial Reporting Standard 10 ‘Goodwill and intangible assets’, goodwill on acquisitions made after January 1, 1998 is capitalized and amortized over its estimated useful life, which is generally presumed not to exceed 20 years. UK GAAP requires that on subsequent disposal or termination of a previously acquired business, any goodwill previously taken directly to shareholders’ equity is charged in the income statement against the profit or loss on disposal or termination.
Under UK GAAP goodwill created outside the Avecia Group plc group of companies is not reported in the financial statements of Avecia Group plc. Under US GAAP this goodwill is pushed down into the net assets of the group as it is deemed to be attached to assets held by the Avecia Group plc group of companies.
Minority interests
Under UK GAAP, minority interests are included as part of ‘shareholders’ funds and minority interests’. Under US GAAP minority interests are classified outside of shareholders’ equity.
Pay-in-kind preference shares
Under UK GAAP, the pay-in-kind preference shares issued by the company form part of shareholders’ funds. Under US GAAP, due to the mandatory redemption requirements in place, this class of shares is classified as debt. Shares are currently classified as debt in 2004 as a result of the implementation of SFAS 150. In prior years they were classified as mezzanine. The dividend is classified as interest expense in 2004.
Disposal of Business
Under UK and US GAAP foreign exchange differences arising on the consolidation of overseas equity investments are taken to reserves. Under US GAAP, the accumulated translation component of equity attributable to investments that have been disposed of should be recognized in measuring the gain or loss on sale, under UK GAAP these exchange differences remain in reserves.
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| Registered number: 3768265 | 132 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
33 Difference between UK and US accounting principles (continued)
Restructuring Costs
Under UK GAAP provisions for restructuring costs should be made when an entity has; a present obligation as a result of a past event; when it is probable that the transfer of economic benefit will be required to settle the obligation; and a reliable estimate can be made of the amount. Under US GAAP costs associated with exit or disposal activities should only be recognized a liability has been incurred.
Investments
Investments in entities over which Avecia do not exercise control, but exercise significant influence (associates and joint ventures), are accounted for by the equity method.
UK GAAP requires the consolidated financial statements to show separately the proportion of operating profit or loss, exceptional items, inventory holding gains or losses, interest expense and taxation of associated undertakings and joint ventures. In addition, the turnover of joint ventures should be disclosed.
For US GAAP, the after tax profits or losses (i.e. operating results after exceptional items, inventory holding gains or losses, interest expense and taxation) is included in the income statement as a single line item.
UK GAAP requires the group’s share of the gross assets and gross liabilities of joint ventures to be shown on the face of the balance sheet, whereas under US GAAP the net investment is included as a single line item.
Assets and liabilities
Under US GAAP fixed asset impairments have been calculated in accordance with SFAS 144; this approach differs from FRS11 in the determination of relevant asset groups and also in the determination of which asset groups are subject to an impairment calculation.
Current assets under UK GAAP include amounts which fall due after more than one year. Under US GAAP such assets would be reclassified as non-current assets. In addition, under UK GAAP unamortized debt issuance costs are netted against the associated debt, whereas under US GAAP such unamortized costs are included in other assets.
Provisions for liabilities and charges under UK GAAP include amounts due, or estimated to become payable, within one year which would be reclassified to current liabilities under US GAAP. In addition, under US GAAP, provisions not due or expected to be payable within one year would be shown as part of amounts payable and accrued liabilities due after one year.
Statement of cash flows: Basis of preparation
The statements of group cash flow for Avecia are prepared in accordance with UK Financial Reporting Standard 1 ‘FRS 1 (Revised 1996)’, whose objective and principles are similar to those set out in SFAS No 95, ‘Statement of cash flows’. The principal differences between the standards relate to classification. Under FRS 1 (Revised 1996), Avecia and Zeneca Specialties present cash flows for (a) operating activities; (b) dividends received from joint ventures and associates; (c) returns on investments and servicing of finance; (d) tax paid; (e) capital expenditure and financial investment; (f) acquisitions and disposals; (g) dividends paid to shareholders; (h) management of liquid resources; and (i) financing. SFAS No 95 requires only three categories of cash flow activity being (a) operating; (b) investing; and (c) financing.
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| Registered number: 3768265 | 133 |
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Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
33 Difference between UK and US accounting principles (continued)
Cash flows from taxation, returns on investments and servicing of finance and dividends received from joint ventures and associates under FRS 1 (Revised 1996) would be included as operating activities under SFAS No 95; capital expenditure and financial investment and acquisitions and disposals would be included as investing activities; and distributions or dividends would be included as a financing activity under SFAS No 95. Under FRS 1 (Revised 1996) cash comprises cash in hand and deposits repayable on demand, less overdrafts repayable on demand; and liquid resources comprise current asset investments held as readily disposable stores of value. Under SFAS No 95 cash equivalents, comprising short-term highly liquid investments, generally with original maturities of three months or less, are grouped together with cash; short-term borrowings repayable on demand would not be included within cash and cash equivalents and movements on those borrowings would be included in financing activities.
Derivative Instruments
SFAS 133 requires that all derivative instruments are recognized as assets or liabilities on the balance sheet and measured at fair value, regardless of the purpose or intent for holding them. Changes in the fair value of derivative instruments are recognized periodically either in earnings or stockholders’ equity (as a component of other comprehensive income), depending on whether the derivative is designated as a hedge of changes in fair value or cash flows. For derivatives designated as fair value hedges, changes in fair value of the hedged item and the derivative are recognized currently in earnings. For derivatives designated as cash flow hedges, fair value changes of the effective portion of the hedging instrument are recognized in accumulated other comprehensive income on the balance sheet until the hedged item is recognized in earnings.
The ineffective portion of the fair value changes are recognized in earnings immediately. SFAS 133 also requires that certain derivative instruments embedded in host contracts be accounted for separately as derivatives.
If a derivative instrument is not designated as a hedge, movements in the fair value of the instrument are recognized in earnings. The types of derivative that the company has identified are described in note 19.
The company has not elected to designate any derivative instruments as a hedge of exposures as at January 1, 2001. In accordance with SFAS 133, the derivative instruments are measured at fair value with future changes in the fair values of those contacts recorded through earnings.
Share Options
On December 31, 1999 certain employees of Avecia Group plc were given the opportunity to invest in the preference shares of Avecia Holdings plc, the parent company of Avecia Group plc. Attached to these preference shares were options to purchase 10.7 million ordinary shares in Avecia Holdings plc.
The preference shares were purchased at a price of £1.234 per share and, upon a change in control or public listing (‘Exit Event’), the preference shares will be redeemed at a price equal to or less than £1.234 per share. No dividends are payable in respect of these shares.
The share options, were granted with an exercise price of £0.02518 per ordinary share, and were only exercisable if an Exit Event occurs and expire 10 years from the date of grant.
During 2001, certain provisions relating to the share options were modified, and employees exchanged their options for 10.7 million restricted ordinary shares in Avecia Holdings plc. These shares are restricted because they are legally owned by an Employee Benefit Trust and, under the terms of the arrangement, employees can only realize their beneficial interest (i.e. transfer ownership of the shares) upon the occurrence of an Exit Event. In connection with this modification, Avecia Holdings plc redeemed a sufficient number of preference shares at a price of £1.234 per preference share to fund the acquisition of the ordinary shares at the original exercise price of £0.02518 per share.
No compensation expense has been recorded in the consolidated financial statements of Avecia Group plc during the periods presented herein because the number of shares, if any, that will ultimately vest with the employees is contingent upon the company achieving an Exit Event. Under US GAAP, in the period in which an Exit Event does occur, the company will record a compensation expense and a capital contribution, based on the intrinsic value of these awards at the date of the Exit Event.
| | |
| Registered number: 3768265 | 134 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
33 Difference between UK and US accounting principles (continued)
Reporting comprehensive income
SFAS No 130 – ‘Reporting comprehensive income’ established requirements for the reporting and display of income and its components, including the reclassification of financial statements for earlier periods for comparative purposes. The information set out in the Statement of Total Recognized Gains and Losses, and below, is consistent with the requirements of SFAS No 130.
Goodwill
Under US GAAP, it is required to ascribe fair values to net assets acquired, including identifiable intangibles, and for goodwill to be capitalized in the balance sheet. Prior to January 1, 2002 goodwill was amortized through the income statement over the estimated useful life of 15 years. SFAS No. 142 ‘Goodwill and Other Intangible Assets’ was adopted during the year ended December 31, 2002. The impairment loss identified on adoption of £34.8 million has been classified as a cumulative effect of a change in accounting principle in accordance with the standard. Goodwill is now tested annually for impairment in lieu of amortization.
Cumulative exchange gains and losses
The total recognized gains and losses of Avecia differ from the net income for the year (as set out in the consolidated profit and loss account) in respect of foreign currency translation adjustments amounting to an aggregate loss of £7.0 million for the year ended December 31, 2004 (year ended December 31, 2003 £1.6 million gain, year ended December 31, 2002 £9.0 million loss). The foreign currency adjustments are set out in the Statement of total recognized gains and losses.
The cumulative exchange gains and losses on the translation of foreign currency financial statements into sterling under UK GAAP are set out in the following note.
| | | | Avecia Group plc Consolidated | |
| | |
|
| |
| | | | For the year ended
December 31, 2004 | | | For the year ended
December 31, 2003 | | | For the year ended
December 31, 2002 | |
| | |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | |
| Balance at beginning of period | | | (11.0 | ) | | (12.6 | ) | | (3.6 | ) |
| Movement in period | | | (7.0 | ) | | 1.6 | | | (9.0 | ) |
| |
|
| |
|
| |
|
| |
| Balance at end of period | | | (18.0 | ) | | (11.0 | ) | | (12.6 | ) |
| |
|
| |
|
| |
|
| |
Classification differences between UK and US GAAP:
Debt issuance costs
Issue costs of £10.6 million have been offset against the carrying amount of the debt under UK GAAP. Under US GAAP, the issue costs would be similarly deferred in the balance sheet but presented as other assets.
Discontinued operations
Under UK GAAP discontinued operations are presented within the financial statements by analyzing the relevant line items. US GAAP requires that net income/loss, net of tax, for a discontinued operation be presented on a single line in the income statement. Under US GAAP, discontinued operations include the gain on disposal of business of £100.9 million (2003 : £15.4 million, 2002 : £9.4 million) and an allocation of the tax charge of £Nil million (2003 £nil million, 2002 £0.4 million).
| | |
| Registered number: 3768265 | 135 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
33 Difference between UK and US accounting principles (continued)
Exceptional Items
Under UK GAAP certain amounts are separately identified on the face of the income statement as exceptional. These amounts relate primarily to impairments and restructuring costs. Under US GAAP these amounts would not be separately identified and would be included as part of operating costs.
| | |
| Registered number: 3768265 | 136 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
| 33 | Difference between UK and US accounting principles (continued) |
The following is a summary of the material adjustments to net profit/(loss) and net assets/(liabilities) which would have been required if US GAAP had been applied instead of UK GAAP.
| | | | Avecia Group plc Consolidated | |
| | |
|
| |
| | | | For the year ended December 31, 2004 | | | For the year ended December 31, 2003 | | | For the year ended December 31, 2002 | |
| | |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | |
| Net profit/(loss) before minority interest for the financial period under UK GAAP | | | 18.9 | | | (94.5 | ) | | (43.0 | ) |
| | |
|
| |
|
| |
|
| |
| Adjustments to conform to US GAAP | | | | | | | | | | |
| Capitalization of interest, less disposals and amortization | | | 0.6 | | | 2.5 | | | 0.3 | |
| Software costs capitalized under US GAAP | | | 0.3 | | | 0.2 | | | — | |
| Income recognition deferral | | | (1.8 | ) | | — | | | 1.2 | |
| Pension expense | | | (16.6 | ) | | (1.5 | ) | | (5.2 | ) |
| Post-retirement benefits (1) | | | 0.9 | | | 4.8 | | | (0.5 | ) |
| Differences on profit on disposal of business (2): | | | (44.7 | ) | | (7.0 | ) | | (4.8 | ) |
| Goodwill amortization | | | 28.1 | | | 29.6 | | | 30.7 | |
| Goodwill additional impairment under UK GAAP | | | — | | | — | | | 21.5 | |
| Goodwill additional impairment under US GAAP | | | (4.6 | ) | | (11.7 | ) | | — | |
| Fixed asset additional impairment under UK GAAP | | | 4.9 | | | — | | | 4.1 | |
| Fixed asset additional impairment under US GAAP | | | — | | | (23.1 | ) | | — | |
| Deferred tax asset recognized under US GAAP | | | — | | | — | | | — | |
| Restructuring costs not recognized | | | 0.6 | | | (7.4 | ) | | 7.4 | |
| Onerous contract provision not recognized under US GAAP | | | 1.7 | | | — | | | — | |
| SFAS 133: Derivative instruments | | | (3.2 | ) | | 5.5 | | | 2.1 | |
| Deferred taxation on adjustments to conform to US GAAP | | | (0.7 | ) | | (0.7 | ) | | 0.6 | |
| Preference share dividend | | | (6.6 | ) | | — | | | — | |
| | |
|
| |
|
| |
|
| |
| Net (loss) / income before cumulative effects of change in accounting policy | | | (22.2 | ) | | (103.4 | ) | | 14.4 | |
| Cumulative effect of change in accounting policy on adoption of SFAS 142 | | | — | | | — | | | (34.8 | ) |
| | |
|
| |
|
| |
|
| |
| Net loss in accordance with US GAAP | | | (22.2 | ) | | (103.4 | ) | | (20.4 | ) |
| Preference share dividend | | | — | | | (6.4 | ) | | (6.0 | ) |
| | |
|
| |
|
| |
|
| |
| Net loss available to common shareholders in accordance with US GAAP | | | (22.2 | ) | | (109.8 | ) | | (26.4 | ) |
| | |
|
| |
|
| |
|
| |
| Loss before taxation in accordance with US GAAP from: | | | | | | | | | | |
| continuing operations | | | 35.9
| | | (165.4
| ) | | (77.7)
| |
| discontinued operations | | | (55.5 | ) | | 62.9 | | | 63.2 | |
| Taxation in accordance with US GAAP on: | | | | | | | | | | |
| continuing operations | | | (2.6 | ) | | (0.9 | ) | | (5.6 | ) |
| discontinued operations | | | — | | | — | | | (0.3 | ) |
| Net loss in accordance with US GAAP from: | | | | | | | | | | |
| continuing operations | | | 33.3 | | | (166.3 | ) | | (83.3 | ) |
| discontinued operations | | | (55.5 | ) | | 62.9 | | | 62.9 | |
| | |
| Registered number: 3768265 | 137 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
33 Difference between UK and US accounting principles (continued)
(1) Under US GAAP, the amount charged to the profit and loss account for Post Retirement Benefits is the total net periodic benefit cost. Under UK GAAP only the service cost plus interest cost is charged.
(2) Under US GAAP, the elements of the purchase accounting adjustments, which related to the Additives, Biocides and SDP businesses are charged directly against the profit in the period on the disposal of the business; this accounts for £44.7 million loss of the GAAP difference shown. The impact of exchange losses previously taken to reserves was £0.3 million.
| | | | Avecia Group plc Consolidated | |
| | |
|
| |
| | | As at
December 31, 2004 | | As at
December 31, 2003 | |
| | | | | | | Restated | |
| | |
|
| |
|
| |
| | | | £ million | | | £ million | |
| UK GAAP | | | | | | | |
| | | | | | | | |
| Total shareholders funds as previously stated | | | 15.5 | | | 18.7 | |
| Impact of adopting UITF38 | | | — | | | (0.5 | ) |
| | |
|
| |
|
| |
| Total shareholders funds as restated | | | 15.5 | | | 18.2 | |
| | |
|
| |
|
| |
| Adjustments to conform to US GAAP | | | | | | | |
| Reclassification of parent company debtors | | | (15.0 | ) | | (17.2 | ) |
| Capitalization, less disposals and amortization of interest | | | 11.2 | | | 10.6 | |
| Software costs capitalized under US GAAP | | | 0.5 | | | 0.2 | |
| Income recognition deferral | | | (6.6 | ) | | (4.8 | ) |
| Pension liability | | | 84.4 | | | 83.2 | |
| Post-retirement benefits/plan amendment | | | 1.9 | | | 2.4 | |
| Additional minimum liability | | | (54.0 | ) | | (58.0 | ) |
| Pensions intangible assets | | | 2.6 | | | 2.0 | |
| Purchase accounting adjustments | | | 41.3 | | | 86.0 | |
| Additional Goodwill impairment under US GAAP | | | (29.6 | ) | | (25.0 | ) |
| Removal of goodwill amortization under UK GAAP | | | 88.4 | | | 60.3 | |
| Additional fixed asset impairment | | | (14.1 | ) | | (19.0 | ) |
| Pay-in-kind preference shares | | | (37.6 | ) | | (37.7 | ) |
| Tax on adjustments to conform to US GAAP | | | (0.9 | ) | | (0.2 | ) |
| Derivative Instruments | | | 0.1 | | | 3.3 | |
| Restructuring costs not recognized | | | 0.6 | | | — | |
| Onerous contract provision not recognized under US GAAP | | | 1.7 | | | — | |
| | |
|
| |
|
| |
| Shareholders equity in accordance with US GAAP | | | 90.4 | | | 104.3 | |
| | |
|
| |
|
| |
Restatement of cash flows in accordance with US GAAP
| | | | Avecia Group plc Consolidated | |
| | |
|
| |
| | | For the year ended December 31, 2004 | | For the year ended December 31, 2003 | | For the year ended December 31, 2002 | |
| | |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | |
| Cash (outflow)/inflow from operating activities | | | (24.9 | ) | | 3.2 | | | 52.3 | |
| Cash inflow from investing activities | | | 173.6 | | | 27.0 | | | 153.1 | |
| Cash outflow from financing activities | | | (133.8 | ) | | (40.6 | ) | | (201.2 | ) |
| | |
|
| |
|
| |
|
| |
| Increase/(decrease) in cash in the period | | | 14.9 | | | (10.4 | ) | | 4.2 | |
| | |
|
| |
|
| |
|
| |
| | |
| Registered number: 3768265 | 138 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
34 Condensed financial statements
Avecia Corporation Limited is a wholly-owned subsidiary of Avecia Group plc. Avecia Corporation Limited has guaranteed the US $540 million 11% notes issued by Avecia Group plc on an unconditional basis. Avecia Corporation Limited is itself a holding company with no operations or assets, other than shares of Avecia Investments Limited and loans to Avecia Investments Limited and from Avecia Group plc.
For the purposes of Securities Act 1933, guarantees of securities are themselves securities. As a result, the Securities Act requires both the issuer of the debt and guarantor to be either registered or exempt from registration. However, Rule 3-10 of Regulation S-X has restated the general rule that all issuers or guarantors must include separate financial statements. Paragraph (e) of Rule 3-10 provides that a subsidiary guarantor need not include separate financial statements if no other subsidiary of the company guarantees the securities, the guarantee is full and unconditional, the parent company’s financial statements are filed for the required periods and a note to the parent company’s financial statements includes condensed consolidating financial information for the same periods.
Profit and loss account
| | | | For the year ended December 31, 2004 | |
| | |
|
| |
| | | Avecia Group plc | | Avecia Corporation Limited | | Other subsidiaries | | Consolidation adjustments | | | Total | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | | | | | | | |
| Turnover | | | — | | | — | | | 407.2 | | | — | | | 407.2 | |
| Net operating costs | | | — | | | — | | | (457.6 | ) | | — | | | (457.6 | ) |
| Share of operating loss of joint venture | | | — | | | — | | | (6.9 | ) | | — | | | (6.9 | ) |
| Profit on disposal of business | | | — | | | — | | | 98.6 | | | — | | | 98.6 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Profit on ordinary activities before interest and taxation | | | — | | | — | | | 41.3 | | | — | | | 41.3 | |
| Other interest receivable and similar income | | | 37.8 | | | 62.1 | | | 32.9 | | | (99.9 | ) | | 32.9 | |
| Income from current asset investments | | | — | | | — | | | 0.2 | | | — | | | 0.2 | |
| Interest payable and similar charges | | | (34.3 | ) | | (62.1 | ) | | (57.1 | ) | | 99.9 | | | (53.6 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Profit on ordinary activities before taxation | | | 3.5 | | | — | | | 17.3 | | | — | | | 20.8 | |
| Taxation on profit on ordinary activities | | | — | | | — | | | (1.9 | ) | | — | | | (1.9 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Net income for the financial period | | | 3.5 | | | — | | | 15.4 | | | — | | | 18.9 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| US GAAP adjustments | | | — | | | — | | | (41.1 | ) | | — | | | (41.1 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| US GAAP net income / (loss) | | | 3.5 | | | — | | | (25.7 | ) | | — | | | (22.2 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | |
| Registered number: 3768265 | 139 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
| 34 | Condensed financial statements (continued) |
Profit and loss account (continued)
| | | | For the year ended December 31, 2003 | |
| | |
|
| |
| | | Avecia Group plc | | Avecia Corporation Limited | | Other subsidiaries | | Consolidation adjustments | | | Total | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | | | | | | | |
| Turnover | | | — | | | — | | | 485.2 | | | — | | | 485.2 | |
| Net operating costs | | | — | | | — | | | (566.3 | ) | | — | | | (566.3 | ) |
| Share of operating profit of joint venture | | | — | | | — | | | 1.7 | | | — | | | 1.7 | |
| Profit on disposal of business | | | — | | | — | | | 15.4 | | | — | | | 15.4 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Loss on ordinary activities before interest and taxation | | | — | | | — | | | (64.0 | ) | | — | | | (64.0 | ) |
| Other interest receivable and similar income | | | 41.3 | | | 37.8 | | | 34.3 | | | (79.1 | ) | | 34.3 | |
| Interest payable and similar charges | | | (37.6 | ) | | (37.8 | ) | | (67.6 | ) | | 79.1 | | | (63.9 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Profit /(loss) on ordinary activities before taxation | | | 3.7 | | | — | | | (97.3 | ) | | — | | | (93.6 | ) |
| Taxation on profit on ordinary activities | | | — | | | — | | | (0.9 | ) | | — | | | (0.9 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Net income / (loss) for the financial period | | | 3.7 | | | — | | | (98.2 | ) | | — | | | (94.5 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| US GAAP adjustments | | | — | | | — | | | (8.9 | ) | | — | | | (8.9 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| US GAAP net income / (loss) | | | 3.7 | | | — | | | (107.1 | ) | | — | | | (103.4 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | For the year ended December 31, 2002 | |
| | |
|
| |
| | | Avecia Group plc | | Avecia Corporation Limited | | Other subsidiaries | | Consolidation adjustments | | | Total | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | | | | | | | |
| Turnover | | | — | | | — | | | 575.7 | | | — | | | 575.7 | |
| Net operating costs | | | — | | | — | | | (592.9 | ) | | — | | | (592.9 | ) |
| Share of operating profit of joint venture | | | — | | | — | | | 2.2 | | | — | | | 2.2 | |
| Profit on disposal of business | | | (0.2 | ) | | — | | | 9.6 | | | — | | | 9.4 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Loss on ordinary activities before interest and taxation | | | (0.2 | ) | | — | | | (5.4 | ) | | — | | | (5.6 | ) |
| Other interest receivable and similar income | | | 44.2 | | | 41.8 | | | 34.5 | | | (86.0 | ) | | 34.5 | |
| Interest payable and similar charges | | | (40.7 | ) | | (41.8 | ) | | (68.9 | ) | | 86.0 | | | (65.4 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Profit/(loss) on ordinary activities before taxation | | | 3.3 | | | — | | | (39.8 | ) | | — | | | (36.5 | ) |
| Taxation on profit on ordinary activities | | | — | | | — | | | (6.5 | ) | | — | | | (6.5 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Net income / (loss) for the financial period | | | 3.3 | | | — | | | (46.3 | ) | | — | | | (43.0 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| US GAAP adjustments | | | — | | | — | | | 22.6 | | | — | | | 22.6 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| US GAAP net income / (loss) | | | 3.3 | | | — | | | (23.7 | ) | | — | | | (20.4 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | |
| Registered number: 3768265 | 140 |
| | |
Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
34 Condensed financial statements (continued)
Balance sheet
| | | | As at December 31, 2004 | |
| | |
|
| |
| | | Avecia Group plc | | Avecia Corporation Limited | | Other subsidiaries | | Consolidation adjustments | | | Total | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
| | | | | | | | | | | | | | | | | |
| Fixed assets | | | 328.6 | | | 326.8 | | | 414.6 | | | (655.4 | ) | | 414.6 | |
| Current assets | | | 315.6 | | | 285.1 | | | 145.6 | | | (603.7 | ) | | 142.6 | |
| Creditors: amounts falling due within one year | | | (18.5 | ) | | — | | | (168.0 | ) | | 30.9 | | | (155.6 | ) |
| Debtors: amounts falling due after more than one year | | | — | | | — | | | 15.0 | | | — | | | 15.0 | |
| Creditors: amounts falling due after more than one year | | | (275.4 | ) | | (285.1 | ) | | (290.7 | ) | | 572.8 | | | (278.4 | ) |
| Provisions for liabilities and charges including pension liability | | | — | | | — | | | (122.7 | ) | | | | | (122.7 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Net assets/(liabilities) | | | 350.3 | | | 326.8 | | | (6.2 | ) | | (655.4 | ) | | 15.5 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| Share capital and reserves | | | | | | | | | | | | | | | | |
| Share capital (including non-equity) | | | 330.7 | | | 326.8 | | | 326.8 | | | (653.6 | ) | | 330.7 | |
| Reserves | | | 19.6 | | | — | | | (333.0 | ) | | (1.8 | ) | | (315.2 | ) |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| | | | 350.3 | | | 326.8 | | | (6.2 | ) | | (655.4 | ) | | 15.5 | |
| | | | | | | | | | | | | | | | | |
| US GAAP adjustments | | | (0.9 | ) | | — | | | 75.8 | | | — | | | 74.9 | |
| | |
|
| |
|
| |
|
| |
|
| |
|
| |
| US GAAP net assets | | | 349.4 | | | 326.8 | | | 69.6 | | | (655.4 | ) | | 90.4 | |
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| | | | As at December 31, 2003 (restated) | |
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| | | Avecia Group plc | | Avecia Corporation Limited | | Other subsidiaries | | Consolidation adjustments | | | Total | |
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| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
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| Fixed assets | | | 328.6 | | | 326.8 | | | 569.8 | | | (655.4 | ) | | 569.8 | |
| Current assets | | | 342.3 | | | 312.9 | | | 161.0 | | | (658.2 | ) | | 158.0 | |
| Creditors: amounts falling due within one year | | | (15.2 | ) | | — | | | (180.0 | ) | | 29.7 | | | (165.5 | ) |
| Debtors: amounts falling due after more than one year | | | — | | | — | | | 17.2 | | | — | | | 17.2 | |
| Creditors: amounts falling due after more than one year | | | (302.1 | ) | | (312.9 | ) | | (454.1 | ) | | 628.5 | | | (440.6 | ) |
| Provisions for liabilities and charges including pension liability | | | — | | | — | | | (120.7 | ) | | — | | | (120.7 | ) |
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| Net assets/(liabilities) | | | 353.6 | | | 326.8 | | | (6.8 | ) | | (655.4 | ) | | 18.2 | |
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| Share capital and reserves | | | | | | | | | | | | | | | | |
| Share capital (including non-equity) | | | 330.6 | | | 326.8 | | | 326.8 | | | (653.6 | ) | | 330.6 | |
| Reserves | | | 23.0 | | | — | | | (333.6 | ) | | (1.8 | ) | | (312.4 | ) |
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| | | | 353.6 | | | 326.8 | | | (6.8 | ) | | (655.4 | ) | | 18.2 | |
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| US GAAP adjustments | | | (37.7 | ) | | — | | | 123.8 | | | — | | | 86.1 | |
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| US GAAP net assets | | | 315.9 | | | 326.8 | | | 117.0 | | | (655.4 | ) | | 104.3 | |
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| Registered number: 3768265 | 141 |
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Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
34 Condensed financial statements (continued)
Cash flow statement
| | | | For the year ended December 31, 2004 | |
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| | | | Avecia Group plc | | | Avecia Corporation Limited | | | Other subsidiaries | | | Consolidation adjustments | | | Total | |
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| | | | £ million | | | £ million | | | £ million | | | £ million | | | £ million | |
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| Cash inflow from operating activities | | | — | | | — | | | 11.2 | | | — | | | 11.2 | |
| Dividends from joint ventures | | | — | | | — | | | 2.5 | | | — | | | 2.5 | |
| Returns on investments and servicing of finance | | | — | | | — | | | (38.4 | ) | | — | | | (38.4 | ) |
| Taxation | | | — | | | — | | | (0.2 | ) | | — | | | (0.2 | ) |
| Capital expenditure and financial investment | | | — | | | — | | | (13.3 | ) | | — | | | (13.3 | ) |
| Acquisitions and disposals | | | — | | | — | | | 186.9 | | | — | | | 186.9 | |
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| Cash inflow before financing | | | — | | | — | | | 148.7 | | | — | | | 148.7 | |
| Financing | | | — | | | — | | | (133.8 | ) | | — | | | (133.8 | ) |
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| Increase in cash in the period | | | — | | | — | | | 14.9 | | | — | | | 14.9 | |
| US GAAP adjustments | | | — | | | — | | | — | | | — | | | — | |
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| US GAAP increase in cash in the period | | | — | | | — | | | 14.9 | | | — | | | 14.9 | |
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| | | | For the year ended December 31, 2003 | |
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| | | | Avecia Group plc | | | Avecia Corporation Limited | | | Other subsidiaries | | | Consolidation adjustments | | | Total | |
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| Cash inflow from operating activities | | | — | | | — | | | 47.3 | | | — | | | 47.3 | |
| Dividends from joint ventures | | | — | | | — | | | 3.0 | | | — | | | 3.0 | |
| Returns on investments and servicing of finance | | | — | | | — | | | (47.0 | ) | | — | | | (47.0 | ) |
| Taxation | | | — | | | — | | | (0.1 | ) | | — | | | (0.1 | ) |
| Capital expenditure and financial investment | | | — | | | — | | | (49.6 | ) | | — | | | (49.6 | ) |
| Acquisitions and disposals | | | — | | | — | | | 76.6 | | | — | | | 76.6 | |
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| Cash inflow before financing | | | — | | | — | | | 30.2 | | | — | | | 30.2 | |
| Financing | | | — | | | — | | | (40.6 | ) | | — | | | (40.6 | ) |
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| Decrease in cash in the period | | | — | | | — | | | (10.4 | ) | | — | | | (10.4 | ) |
| US GAAP adjustments | | | — | | | — | | | — | | | — | | | — | |
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| US GAAP increase in cash in the period | | | — | | | — | | | (10.4 | ) | | — | | | (10.4 | ) |
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| Registered number: 3768265 | 142 |
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Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Notes to the consolidated financial statements (continued)
34 Condensed financial statements (continued)
Cash flow statement (continued)
| | | | For the year ended December 31, 2002 | |
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|
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| | | | Avecia Group plc | | | Avecia Corporation Limited | | | Other subsidiaries | | | Consolidation adjustments | | | Total | |
| | | | | | | | | | | | | | | | | |
| Cash inflow from operating activities | | | 0.2 | | | — | | | 107.6 | | | — | | | 107.8 | |
| Dividends from joint ventures | | | — | | | — | | | 5.5 | | | — | | | 5.5 | |
| Returns on investments and servicing of finance | | | — | | | — | | | (56.9 | ) | | — | | | (56.9 | ) |
| Taxation | | | — | | | — | | | (4.1 | ) | | — | | | (4.1 | ) |
| Capital expenditure and financial investment | | | — | | | — | | | (43.1 | ) | | — | | | (43.1 | ) |
| Acquisitions and disposals | | | (0.2 | ) | | — | | | 196.4 | | | — | | | 196.2 | |
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| Cash outflow before financing | | | — | | | — | | | 205.4 | | | — | | | 205.4 | |
| Financing | | | — | | | — | | | (201.2 | ) | | — | | | (201.2 | ) |
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| Increase in cash in the period | | | — | | | — | | | 4.2 | | | — | | | 4.2 | |
| US GAAP adjustments | | | — | | | — | | | — | | | — | | | — | |
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| US GAAP (decrease) in cash in the period | | | — | | | — | | | 4.2 | | | — | | | 4.2 | |
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The other notes to these financial statements provide additional information relevant to this note.
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| Registered number: 3768265 | 143 |
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Back to Contents
Avecia Group plc
20-F
Year ended December 31, 2004
Exhibit Index
| | |
| Registered number: 3768265 | 144 |
| | |
No 