Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP value, as no adjustment was required on transition. This has also been subject to impairment tests at that date and will continue to be, at least, annually. Goodwill written off immediately to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal of the assets to which it related.
Revenue is measured at the fair value of the consideration received or receivable and represents amounts due for goods and services provided in the normal course of business, net of discounts, VAT and other sales related taxes.
In particular, redundancy provisions are made where the plans are sufficiently detailed and well advanced, and where appropriate communication to those affected has been made at the balance sheet date. These provisions also include charges for any termination costs arising from enhancement of retirement or other post-employment benefits for those employees affected by these plans.
Provisions are also created for long term employee benefits that depend on the length of service, such as long service and sabbatical awards, disability benefits and long term compensated absences such as sick leave. The amount recognised as a liability is the present value of benefit obligations at the balance sheet date, and all movements in the provision (including actuarial gains and losses or past service costs) are recognised immediately within profit and loss.
Corus participates in the EU Emissions Trading Scheme, initially measuring any rights received or purchased at cost, and recognises a provision in relation to carbon dioxide quotas if there is any anticipated shortfall in the level of quotas received or purchased when compared with actual emissions in a given period. Any surplus is only recognised once it is realised in the form of an external sale.
Recognition of costs as an asset is stopped when the project is complete and available for its intended use, or if these criteria no longer apply. The approach to amortisation and impairment of other intangible assets is described in XVIII.
Where development activities do not meet the conditions for recognition as an asset, any associated expenditure is treated as an expense in the period in which it is incurred.
Presentation of accounts and accounting policies
IX Insurance
Certain of the Group’s insurances are handled by its two captive insurance companies, Crucible Insurance Company Limited and Hoogovens Verzekeringsmaatschappij NV. They both account for all insurance business on an annual basis and the net consolidated result is dealt with as part of the operating costs in these accounts. Insurance premiums in respect of insurance placed with third parties and reinsurance premiums in respect of risks not retained by the Group’s captive insurance companies are charged to profit and loss in the period to which they relate.
X Share-based payments
In accordance with the transitional provisions, the Group has applied the requirements of IFRS 2 ‘Share-based payments’ to all grants of equity instruments after 7 November 2002 that were unvested at the date of transition to IFRS.
The Group issues equity settled share-based payments to certain employees. These are measured at fair value at the date of grant. This fair value is then expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. Fair value is measured by use of actuarial models such as Black Scholes or modified binomial approaches, dependent upon the nature of vesting conditions (in particular the Group’s Leveraged Equity Acquisition Plan awards are linked to Total Shareholder Return (TSR) performance which is a market condition). The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The charge is adjusted at each balance sheet date to reflect the actual number of forfeitures, cancellations and leavers during the period.
Where employees cease contributions into an existing sharesave scheme in order to take up an offer to participate in a new sharesave scheme, then modification accounting is applied. This means the charge for the old awards is continued to be spread over the old vesting period and any incremental charge arising from switching to the new award is spread over the new vesting period.
XI Retirement benefit costs
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.
For defined benefit retirement schemes, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. The Group has early adopted the amendment to IAS 19 ‘Employee Benefits’ (as issued in December 2004) to allow actuarial gains and losses to be recognised in retained earnings and presented in the statement of recognised income and expense. In applying IAS 19, in relation to retirement benefits costs, the current service cost, interest cost and expected return on plan assets have been treated as a net expense within employment costs.
Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested.
The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost, and as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to unrecognised past service cost, plus the present value of available refunds and reductions in future contributions to the plan.
XII Financing items
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.
Interest expense, including that related to financing the construction of property, plant and equipment is written off as incurred. Discounts or premiums and expenses on the issue of debt securities are amortised over the term of the related security and included within interest expense. Unamortised amounts are shown in the balance sheet as part of the outstanding balance of the related security. Premiums payable on early redemptions of debt securities, in lieu of future interest costs, are written off as interest expense when paid.
XIII Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences. In contrast, deferred tax assets are only recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised (which, in particular, requires an assessment of the time horizon over which taxable profits are more likely
98 Corus Report & Accounts and Form 20-F 2005
Presentation of accounts and accounting policies
than not to arise to offset brought forward losses). Liabilities are not recognised for taxable temporary differences arising on investments in subsidiaries, joint ventures and associates where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Both current and deferred tax items are calculated using the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. This means using tax rates that have been enacted or substantially enacted by the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset to the extent that they relate to taxes levied by the same tax authority and they are in the same taxable entity, or a group of taxable entities where the tax losses of one entity are used to offset the taxable profits of another.
XIV Foreign currencies
Functional currency
The individual financial statements of each Group company are reported in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in pounds sterling, which is the functional currency of the Company and the presentation currency for the consolidated financial statements.
Transactions and balances
Monetary assets and liabilities in foreign currencies are translated into sterling at the quoted rates of exchange ruling at each balance sheet date. Income statement items and cash flows are translated into sterling at the average rates for the financial period. In order to hedge its exposure to certain foreign exchange transaction risks, the Group enters into forward contracts and options (see note XV below for details of the Group’s accounting policies in respect of such derivative financial instruments).
Exchange differences on the retranslation of the opening net investment in foreign enterprises and the retranslation of profit and loss items from average to closing rate are recorded as movements on reserves.
Exchange gains and losses on foreign currency borrowings and forward exchange contracts used to finance an equity investment in a foreign enterprise are offset against the exchange difference arising on the retranslation of the net investment.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
XV Financial instruments
Up to 1 January 2005
Forward contracts and commodity futures are used by the Group, where appropriate, to hedge the cash flow risk of contracted sales and purchase transactions. Up to 1 January 2005 net sales and purchases covered by these contracts or options were translated into sterling at contract rates. No account was taken of the potential but unrealised profits or losses on open forward contracts or options which were intended as a hedge against future contracted transactions; such profits and losses were accounted for so as to match the exchange or price differences arising on the underlying contracted transactions.
If a derivative instrument ceases to meet the criteria for deferral or settlement accounting, any subsequent gains or losses are recognised at that time in the income statement. If a transaction does not occur, the hedge is terminated and any gains or losses are recognised in profit and loss.
From 2 January 2005
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. The detailed accounting treatment for such items can differ, as described in the following sections:
(a) Trade receivables
Trade receivables, which are initially recorded at their fair value, do not carry any interest and are subsequently stated at their amortised cost, as reduced by appropriate allowances for any impairment.
(b) Other investments
Other investments include long term financial assets that are initially measured at fair value, including transaction expenses. They are classified as either available for sale or as loans and receivables. For available for sale investments, gains and losses arising from changes in fair values are recognised directly in equity until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the net profit or loss for the period. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Following initial recognition they are measured at amortised cost using the effective interest rate method.
Corus Report & Accounts and Form 20-F 2005 99
Presentation of accounts and accounting policies
(c) Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the individual contractual arrangements.
(d) Bank Borrowings
Interest-bearing bank loans, overdrafts and issued debt are initially recorded at their fair value which is generally the proceeds received, net of direct issue costs. These borrowings are subsequently stated at amortised cost.
(e) Convertible loan notes
Convertible loan notes are regarded as compound instruments, consisting of a liability component and a conversion option component. At the date of issue, the fair value of the liability component is estimated using, inter alia, the prevailing market interest rate for similar non-convertible debt. Where the convertible bonds are issued in a currency other than sterling, this instrument is recognised as a financial liability with an embedded option. The option is subsequently re-measured to its fair value at each period end, with any movements being recognised within financial charges in profit and loss.
The interest expense on the liability component is calculated by applying the prevailing market interest rate at inception for similar non-convertible debt to the liability component of the instrument. The difference between this amount and the interest paid is added to the carrying amount of the convertible loan note.
Issue costs are apportioned between the liability and equity components of the convertible loan notes based on their relative carrying amounts at the date of issue. The portion relating to the equity component is charged directly against equity.
(f) Trade payables
Trade payables, which are initially recorded at fair value, are not interest bearing and are subsequently stated at their amortised cost.
(g) Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
(h) Derivative financial instruments and hedge accounting
In the ordinary course of business the Group uses certain derivative financial instruments to reduce business risks which arise from its exposure to foreign exchange, base metal prices and interest rate fluctuations. The instruments are confined principally to forward foreign exchange contracts, forward rate agreements, options and LME contracts. The instruments are employed as hedges of transactions included in the accounts or forecast for firm contractual commitments. These contracts do not generally extend beyond 12 months other than for certain long term contracts principally in the Aluminium division, which may extend up to four years.
Derivatives are accounted and measured at fair value from the date the derivative contract is taken out and subsequently measured at fair value. For forward currency and commodity contracts the fair values are determined based on market forward rates as at the balance sheet date.
Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised directly in equity and the ineffective portion is recognised immediately in profit and loss. If the cash flow hedge of a firm commitment or forecasted transaction results in the recognition of a non-financial asset or liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of an asset or a liability, amounts deferred in equity are recognised in profit and loss in the same period in which the hedged item affects profit and loss.
For an effective hedge of an exposure to changes in fair value, the hedged item is adjusted for changes attributable to the risk being hedged with the corresponding entry in profit and loss. Gains or losses from re-measuring the associated derivative are also recognised in profit and loss.
Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in profit and loss as they arise.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to net profit or loss for the period.
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value with gains or losses reported in profit and loss.
100 Corus Report & Accounts and Form 20-F 2005
Presentation of accounts and accounting policies
XVI Patents, trademarks and software
Patents, trademarks and software are included in the balance sheet as intangible assets where they are clearly linked to long term economic benefits for the Group. In this case they are measured initially at purchase cost and then amortised on a straight-line basis over their estimated useful lives.
All other costs on patents, trademarks and software are expensed in profit and loss as incurred.
XVII Property, plant and equipment
Property, plant and equipment is recorded at original cost less accumulated depreciation and any recognised impairment loss. Cost includes professional fees, and, for assets constructed by the Group, any related works to the extent that these are directly attributable to the acquisition or construction of the asset. Commissioning costs and interest attributable to expenditure on assets in the course of construction are written off to profit and loss as incurred. Assets in the course of construction are depreciated from the date on which they are ready for their intended use.
The gain or loss arising on disposal of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset, and is recognised in profit and loss.
Included in property, plant and equipment are loose plant and tools which are stated at cost less amounts written off related to their expected useful lives and estimated scrap value and also spares, against which impairment provisions are made where necessary to cover slow moving and obsolete items.
Subsequent costs are included in the carrying value of an asset when it is probable that additional future economic benefits will flow to the Group and the cost of the item can be measured reliably. All other repairs and renewals are charged to profit and loss as incurred.
XVIII Depreciation, amortisation and impairment of property, plant and equipment and other
intangible assets
Depreciation or amortisation is provided so as to write off, on a straight-line basis, the cost of property, plant and equipment and other intangible assets, including those held under finance leases, to their residual value. These charges are commenced from the dates the assets are available for their intended use and are spread over their estimated useful economic lives or, in the case of leased assets, over the lease period if shorter. The estimated useful lives of assets are reviewed regularly and, when necessary, revised. Accelerated depreciation or amortisation is provided where an asset is expected to become obsolete before the end of its normal useful life or if events or changes in circumstances indicate that an impairment loss needs to be recognised, as discussed below. No further charges are provided in respect of assets that are fully written down but are still in use.
The estimated useful lives for the main categories of property, plant and equipment and other intangible assets are:
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Freehold and long leasehold buildings that house plant and other works buildings | | 25 years |
Other freehold and long leasehold buildings | | | | 50 years |
Plant and machinery: | | | | |
Iron and steelmaking | | maximum | | 25 years |
IT hardware and software | | maximum | | 8 years |
Office equipment and furniture | | | | 10 years |
Motor vehicles | | | | 4 years |
Other | | maximum | | 15 years |
Patents and trademarks | | | | 4 years |
Product and process development costs | | | | 5 years |
Investment property | | | | 50 years |
At each balance sheet date, the Group reviews the carrying amounts of its property, plant and equipment and other intangible assets to determine whether there is any indication that the carrying amount of those assets may not be recoverable through continuing use. If any such indication exists, the recoverable amount of the asset is reviewed in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. Other intangible assets with indefinite useful lives are tested for impairment annually and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate. The discount rate applied in the period of 9.5% was based upon the Group’s long term weighted average cost of capital with appropriate adjustments for the risks associated with the relevant units. If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.
Corus Report & Accounts and Form 20-F 2005 101
Presentation of accounts and accounting policies
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately.
XIX Leases
Assets held under finance leases are recognised as assets of the Group at their deemed cost to the Group, being their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income over the period of the lease.
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the term of the lease.
XX Joint ventures and associates
The results and assets and liabilities of joint ventures and associates are incorporated in the accounts using the equity method of accounting, except where classified as held for sale (see note XXI).
Investments in joint ventures and associates are initially measured at cost. Any excess of the cost of acquisition over the Group’s share of the fair values of the identifiable net assets acquired, being goodwill, is included within the carrying value of the joint venture or associate and is subsequently tested for impairment on an annual basis. Any deficiency of the cost of acquisition below the Group’s share of the fair values of the identifiable net assets acquired is credited to profit or loss in the period of acquisition. The Group’s share of post acquisition profits and losses is recognised in profit and loss, and its share of post acquisition movement in reserves are recognised directly in reserves. Losses of associates in excess of the Group’s interest in those associates are not recognised, unless the Group has incurred obligations or made payments on behalf of the associate.
Unrealised gains on transactions with joint ventures or associates are eliminated and, where material, the results of joint ventures and associates are modified to conform to the Group’s policies.
XXI Non-current assets held for sale
From 2 January 2005
Non-current assets, and disposal groups, classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset, or disposal group, is available for immediate sale in its present condition and is marketed for sale at a price that is reasonable in relation to its current fair value. The Group must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.
XXII Inventories
Inventories of raw materials are valued at the lower of cost and net realisable value. Cost is determined using the ‘first in first out’ method. Inventories of partly processed materials, finished products and stores are individually valued at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value is the price at which the inventories can be realised in the normal course of business after allowing for the cost of conversion from their existing state to a finished condition and for the cost of marketing, selling and distribution. Provisions are made to cover slow moving and obsolete items based on historical experience of utilisation on a category-by-category basis.
XXIII Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.
102 Corus Report & Accounts and Form 20-F 2005
Presentation of accounts and accounting policies
XXIV Segmental reporting
Corus is organised into a structure that comprises four main operating divisions: Strip Products, Long Products, Distribution & Building Systems and Aluminium. This structure reflects the dominant source and nature of the Group’s operational risks and returns and all intra-divisional trading is based on commercial terms. These business divisions are used as the primary format for segmental reporting. Segment assets are operational assets used in normal day to day activities. They include attributable goodwill, intangible assets, property, plant and equipment, equity accounted investments, inventories and operational receivables. They do not include cash and short term deposits, short term investments, tax assets and other current financial assets. Segment liabilities are also those resulting from the normal activities of the division, excluding tax liabilities and indebtedness but including post retirement obligations where directly attributable to the segment. Financing items are managed centrally for the Group as a whole and so are not directly attributable to individual business segments.
Geographical sectors are used as the secondary format for segmental reporting. Those areas separately disclosed represent the Group’s most significant regional markets. Segment assets are operational assets employed in each region and include items such as tax and pension balances that are specific to a country. They also include attributable goodwill but exclude cash and short term deposits and short term investments. Segment liabilities are those arising within each region, excluding indebtedness. Financing items are managed centrally for the Group as a whole and so are not directly attributable to individual geographical segments.
XXV IFRS transition exemptions and choices
IFRS 1 permits those companies adopting IFRS for the first time to take certain exemptions from the full requirements of IFRS in the transition period. Corus has taken the following key exemptions.
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(a) | Employee benefits: At the transition date for IAS 19, all cumulative actuarial gains and losses have been recognised in the balance sheet within retirement benefit assets or retirement benefit obligations. Subsequently, actuarial gains and losses have been recognised immediately and taken to reserves through the statement of recognised income and expense. |
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(b) | The effect of changes in foreign exchange rates: Under IAS 21, cumulative translation differences on the consolidation of subsidiaries are only being accumulated for each individual subsidiary from the date of transition to IFRS and not from their original acquisition date. |
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(c) | Financial instruments: Financial instruments were designated as a financial asset or liability at fair value (with the fair values taken through profit and loss) or as available for sale on the adoption date of 2 January 2005, rather than at the date of initial recognition. IAS 32, IAS 39 and IFRS 4 have not been applied to the comparative financial statements included in this first set of IFRS accounts. Financial instruments in 2004 are recorded on the pre-existing UK GAAP basis. |
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(d) | Share-based payment: IFRS 2 has been adopted from the transition date and is only being applied to equity instruments (for example share options and share scheme awards) granted on or after 7 November 2002 and not vested as at 4 January 2004. Corus has elected not to take up the option of full retrospective application of the standard. |
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(e) | Business combinations: IFRS 3 has been applied prospectively from the transition date to IFRS with no restatement of previous business combinations (including the acquisition of Koninklijke Hoogovens NV). |
As well as the above exemptions, IAS 31 ‘Interests in Joint Ventures’ allows a choice of equity accounting or proportional consolidation for joint ventures. Corus has chosen to continue to equity account for its investments in joint ventures and associates.
Corus Report & Accounts and Form 20-F 2005 103
Notes to the consolidated accounts
1. Segmental analysis
1.1 Operating division analysis
Corus is organised into a structure that comprises four main operating divisions – Strip Products, Long Products, Distribution & Building Systems and Aluminium. Analyses of the operating results and balance sheets for each of these divisions are set out below.
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2005
(Figures in £m, unless otherwise stated) | | Strip
Products | | Long
Products | | Distribution
& Building
Systems | | Aluminium | | Central
& other | | Eliminations | | Total | |
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Gross turnover | | | 5,140 | | | 2,679 | | | 3,021 | | | 1,110 | | | 77 | | | (1,887 | ) | | 10,140 | |
Inter-segment sales | | | (1,013 | ) | | (714 | ) | | (50 | ) | | (45 | ) | | (65 | ) | | 1,887 | | | — | |
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Group turnover | | | 4,127 | | | 1,965 | | | 2,971 | | | 1,065 | | | 12 | | | — | | | 10,140 | |
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Depreciation (net of grants released) | | | (172 | ) | | (63 | ) | | (19 | ) | | (36 | ) | | (5 | ) | | — | | | (295 | ) |
Amortisation | | | (7 | ) | | (1 | ) | | (1 | ) | | (1 | ) | | (2 | ) | | — | | | (12 | ) |
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Operating profit/(loss) before restructuring, impairment and disposals | | | 598 | | | 106 | | | 44 | | | 25 | | | (53 | ) | | — | | | 720 | |
Restructuring and impairment costs: | | | | | | | | | | | | | | | | | | | | | | |
Redundancy and related costs | | | (4 | ) | | (17 | ) | | (3 | ) | | (5 | ) | | 2 | | | — | | | (27 | ) |
Impairment (losses)/reversals related to property, plant and equipment | | | (3 | ) | | 3 | | | (2 | ) | | (34 | ) | | (2 | ) | | — | | | (38 | ) |
Impairment losses related to intangible assets | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Other asset write downs | | | (1 | ) | | — | | | — | | | — | | | — | | | — | | | (1 | ) |
Other rationalisation costs | | | 1 | | | (1 | ) | | (6 | ) | | — | | | — | | | — | | | (6 | ) |
Accelerated release of grants | | | — | | | — | | | — | | | — | | | 2 | | | — | | | 2 | |
Profit on disposal of property, plant and equipment | | | 16 | | | 6 | | | 19 | | | — | | | 3 | | | — | | | 44 | |
Loss on disposal of group undertakings (Note 38) | | | (2 | ) | | (8 | ) | | (4 | ) | | — | | | — | | | — | | | (14 | ) |
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Group operating profit/(loss) | | | 605 | | | 89 | | | 48 | | | (14 | ) | | (48 | ) | | — | | | 680 | |
Finance costs | | | — | | | — | | | — | | | — | | | (132 | ) | | — | | | (132 | ) |
Finance income | | | — | | | — | | | — | | | — | | | 31 | | | — | | | 31 | |
Share of post-tax (losses)/profits of joint ventures and associates | | | (6 | ) | | 2 | | | 5 | | | — | | | — | | | — | | | 1 | |
Taxation | | | — | | | — | | | — | | | — | | | (129 | ) | | — | | | (129 | ) |
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Profit/(loss) after taxation | | | 599 | | | 91 | | | 53 | | | (14 | ) | | (278 | ) | | — | | | 451 | |
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Goodwill | | | 51 | | | — | | | 18 | | | 14 | | | — | | | — | | | 83 | |
Property, plant and equipment | | | 1,696 | | | 615 | | | 138 | | | 322 | | | 49 | | | — | | | 2,820 | |
Equity accounted investments | | | 56 | | | 13 | | | 26 | | | — | | | — | | | — | | | 95 | |
Other segment assets | | | 1,758 | | | 911 | | | 752 | | | 435 | | | 737 | | | (520 | ) | | 4,073 | |
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Total segment assets | | | 3,561 | | | 1,539 | | | 934 | | | 771 | | | 786 | | | (520 | ) | | 7,071 | |
Cash, short term deposits and short term investments | | | — | | | — | | | — | | | — | | | 871 | | | — | | | 871 | |
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Total assets | | | 3,561 | | | 1,539 | | | 934 | | | 771 | | | 1,657 | | | (520 | ) | | 7,942 | |
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Total segment liabilities | | | (1,152 | ) | | (600 | ) | | (495 | ) | | (312 | ) | | (833 | ) | | 520 | | | (2,872 | ) |
Borrowings | | | — | | | — | | | — | | | — | | | (1,692 | ) | | — | | | (1,692 | ) |
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Total liabilities | | | (1,152 | ) | | (600 | ) | | (495 | ) | | (312 | ) | | (2,525 | ) | | 520 | | | (4,564 | ) |
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Net assets/(liabilities) | | | 2,409 | | | 939 | | | 439 | | | 459 | | | (868 | ) | | — | | | 3,378 | |
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Other information | | | | | | | | | | | | | | | | | | | | | | |
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Capital expenditure on property, plant and equipment | | | 228 | | | 115 | | | 21 | | | 50 | | | 9 | | | — | | | 423 | |
Capital expenditure on other intangible assets | | | 14 | | | 1 | | | — | | | — | | | 14 | | | — | | | 29 | |
Average weekly number of employees | | | 22,500 | | | 12,800 | | | 5,700 | | | 5,700 | | | 1,500 | | | — | | | 48,200 | |
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104 Corus Report & Accounts and Form 20-F 2005
Notes to the consolidated accounts
1. Segmental analysiscontinued
1.1 Operating division analysiscontinued
| | | | | | | | | | | | | | | | | | | | | | |
2004
(Figures in £m, unless otherwise stated) | | Strip
Products | | Long
Products | | Distribution
& Building
Systems | | Aluminium | | Central
& other | | Eliminations | | Total | |
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Income statement key data | | | | | | | | | | | | | | | | | | | | | | |
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Gross turnover | | | 4,724 | | | 2,605 | | | 2,606 | | | 1,092 | | | 67 | | | (1,762 | ) | | 9,332 | |
Inter-segment sales | | | (841 | ) | | (750 | ) | | (72 | ) | | (40 | ) | | (59 | ) | | 1,762 | | | — | |
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Group turnover | | | 3,883 | | | 1,855 | | | 2,534 | | | 1,052 | | | 8 | | | — | | | 9,332 | |
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Depreciation (net of grants released) | | | (169 | ) | | (61 | ) | | (25 | ) | | (36 | ) | | (5 | ) | | — | | | (296 | ) |
Amortisation | | | (3 | ) | | (2 | ) | | — | | | (2 | ) | | — | | | — | | | (7 | ) |
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Operating profit/(loss) before restructuring, impairment and disposals | | | 411 | | | 162 | | | 79 | | | 53 | | | (74 | ) | | — | | | 631 | |
Restructuring and impairment costs: | | | | | | | | | | | | | | | | | | | | | | |
Redundancy and related costs | | | (8 | ) | | (6 | ) | | (4 | ) | | (2 | ) | | (6 | ) | | — | | | (26 | ) |
Impairment (losses)/reversals related to property, plant and equipment | | | (3 | ) | | 67 | | | (8 | ) | | (37 | ) | | — | | | — | | | 19 | |
Impairment losses related to intangible assets | | | (10 | ) | | (9 | ) | | — | | | (3 | ) | | — | | | — | | | (22 | ) |
Other asset write downs | | | — | | | (13 | ) | | — | | | — | | | — | | | — | | | (13 | ) |
Other rationalisation costs | | | — | | | (1 | ) | | (4 | ) | | — | | | — | | | — | | | (5 | ) |
Accelerated release of grants | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Profit on disposal of property, plant and equipment | | | 27 | | | 5 | | | 2 | | | — | | | — | | | — | | | 34 | |
Profit on disposal of group undertakings | | | — | | | 43 | | | 1 | | | — | | | — | | | — | | | 44 | |
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Group operating profit/(loss) | | | 417 | | | 248 | | | 66 | | | 11 | | | (80 | ) | | — | | | 662 | |
Finance costs | | | — | | | — | | | — | | | — | | | (129 | ) | | — | | | (129 | ) |
Finance income | | | — | | | — | | | — | | | — | | | 13 | | | — | | | 13 | |
Share of post-tax profits of joint ventures and associates | | | 11 | | | 4 | | | 6 | | | — | | | — | | | — | | | 21 | |
Taxation | | | — | | | — | | | — | | | — | | | (126 | ) | | — | | | (126 | ) |
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Profit/(loss) after taxation | | | 428 | | | 252 | | | 72 | | | 11 | | | (322 | ) | | — | | | 441 | |
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Balance sheet key data | | | | | | | | | | | | | | | | | | | | | | |
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Goodwill | | | 53 | | | — | | | 18 | | | 14 | | | — | | | — | | | 85 | |
Property, plant and equipment | | | 1,661 | | | 600 | | | 143 | | | 342 | | | 47 | | | — | | | 2,793 | |
Equity accounted investments | | | 69 | | | 14 | | | 25 | | | 1 | | | — | | | — | | | 109 | |
Other segment assets | | | 1,635 | | | 903 | | | 842 | | | 369 | | | 466 | | | (511 | ) | | 3,704 | |
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Total segment assets | | | 3,418 | | | 1,517 | | | 1,028 | | | 726 | | | 513 | | | (511 | ) | | 6,691 | |
Cash, short term deposits and short term investments | | | — | | | — | | | — | | | — | | | 600 | | | — | | | 600 | |
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Total assets | | | 3,418 | | | 1,517 | | | 1,028 | | | 726 | | | 1,113 | | | (511 | ) | | 7,291 | |
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Total segment liabilities | | | (1,073 | ) | | (572 | ) | | (576 | ) | | (246 | ) | | (835 | ) | | 511 | | | (2,791 | ) |
Borrowings | | | — | | | — | | | — | | | — | | | (1,442 | ) | | — | | | (1,442 | ) |
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Total liabilities | | | (1,073 | ) | | (572 | ) | | (576 | ) | | (246 | ) | | (2,277 | ) | | 511 | | | (4,233 | ) |
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Net assets/(liabilities) | | | 2,345 | | | 945 | | | 452 | | | 480 | | | (1,164 | ) | | — | | | 3,058 | |
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Other information | | | | | | | | | | | | | | | | | | | | | | |
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Capital expenditure on property, plant and equipment | | | 210 | | | 106 | | | 14 | | | 43 | | | 2 | | | — | | | 375 | |
Capital expenditure on other intangible assets | | | 6 | | | — | | | 1 | | | 1 | | | 8 | | | — | | | 16 | |
Average weekly number of employees | | | 22,500 | | | 13,300 | | | 5,800 | | | 5,700 | | | 1,300 | | | — | | | 48,600 | |
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Corus Report & Accounts and Form 20-F 2005 105
Notes to the consolidated accounts
1 Segmental analysiscontinued
1.2 Geographical analysis
Analyses of the operating results and balance sheets by geographical sectors, representing Corus’ most significant regional markets, are set out below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2005
(Figures in £m, unless otherwise stated) | | UK | | EU
(excl UK) | | Europe
(excl EU) | | North
America | | Asia | | Rest of
World | | Net
Debt | | Eliminations | | Total | |
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Income statement key data | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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By destination: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Group turnover | | | 2,706 | | | 5,018 | | | 400 | | | 870 | | | 863 | | | 283 | | | — | | | — | | | 10,140 | |
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By location of Group entity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Gross turnover | | | 5,155 | | | 4,874 | | | 150 | | | 527 | | | 476 | | | 26 | | | — | | | (1,068 | ) | | 10,140 | |
Inter-segment sales | | | (652 | ) | | (397 | ) | | (15 | ) | | (3 | ) | | (1 | ) | | — | | | — | | | 1,068 | | | — | |
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Group turnover | | | 4,503 | | | 4,477 | | | 135 | | | 524 | | | 475 | | | 26 | | | — | | | — | | | 10,140 | |
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Included above: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exports from the United Kingdom | | | 2,356 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,356 | |
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Depreciation (net of grants released) | | | (146 | ) | | (133 | ) | | (3 | ) | | (12 | ) | | (1 | ) | | — | | | — | | | — | | | (295 | ) |
Amortisation | | | (8 | ) | | (4 | ) | | — | | | — | | | — | | | — | | | — | | | — | | | (12 | ) |
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Operating profit before restructuring, impairment and disposals | | | 188 | | | 500 | | | 7 | | | 10 | | | 11 | | | 4 | | | — | | | — | | | 720 | |
Restructuring and impairment costs: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Redundancy and related costs | | | (21 | ) | | (6 | ) | | — | | | — | | | — | | | — | | | — | | | — | | | (27 | ) |
Impairment losses related to property, plant and equipment | | | (2 | ) | | (36 | ) | | — | | | — | | | — | | | — | | | — | | | — | | | (38 | ) |
Impairment losses related to intangible assets | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Other asset write downs | | | — | | | (1 | ) | | — | | | — | | | — | | | — | | | — | | | — | | | (1 | ) |
Other rationalisation costs | | | (6 | ) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (6 | ) |
Accelerated release of grants | | | 2 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 2 | |
Profit on disposal of property, plant and equipment | | | 41 | | | 3 | | | — | | | — | | | — | | | — | | | — | | | — | | | 44 | |
(Loss)/profit on disposal of group undertakings (Note 38) | | | — | | | (15 | ) | | — | | | 1 | | | — | | | — | | | — | | | — | | | (14 | ) |
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Group operating profit | | | 202 | | | 445 | | | 7 | | | 11 | | | 11 | | | 4 | | | — | | | — | | | 680 | |
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Share of post-tax profits/(losses) of joint ventures and associates | | | 2 | | | (6 | ) | | 5 | | | — | | | — | | | — | | | — | | | — | | | 1 | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance sheet key data | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Goodwill | | | — | | | 83 | | | — | | | — | | | — | | | — | | | — | | | — | | | 83 | |
Property, plant and equipment | | | 1,395 | | | 1,287 | | | 22 | | | 108 | | | 7 | | | 1 | | | — | | | — | | | 2,820 | |
Equity accounted investments | | | 27 | | | 54 | | | 13 | | | — | | | 1 | | | — | | | — | | | — | | | 95 | |
Other segment assets | | | 2,147 | | | 1,898 | | | 58 | | | 209 | | | 60 | | | 15 | | | — | | | (314 | ) | | 4,073 | |
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Total segment assets | | | 3,569 | | | 3,322 | | | 93 | | | 317 | | | 68 | | | 16 | | | — | | | (314 | ) | | 7,071 | |
Cash, short term deposits and short term investments | | | — | | | — | | | — | | | — | | | — | | | — | | | 871 | | | — | | | 871 | |
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Total assets | | | 3,569 | | | 3,322 | | | 93 | | | 317 | | | 68 | | | 16 | | | 871 | | | (314 | ) | | 7,942 | |
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Total segment liabilities | | | (1,526 | ) | | (1,394 | ) | | (35 | ) | | (175 | ) | | (51 | ) | | (5 | ) | | — | | | 314 | | | (2,872 | ) |
Borrowings | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,692 | ) | | — | | | (1,692 | ) |
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Total liabilities | | | (1,526 | ) | | (1,394 | ) | | (35 | ) | | (175 | ) | | (51 | ) | | (5 | ) | | (1,692 | ) | | 314 | | | (4,564 | ) |
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Net assets/(liabilities) | | | 2,043 | | | 1,928 | | | 58 | | | 142 | | | 17 | | | 11 | | | (821 | ) | | — | | | 3,378 | |
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Other information | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Capital expenditure on property, plant and equipment | | | 218 | | | 193 | | | 2 | | | 9 | | | 1 | | | — | | | — | | | — | | | 423 | |
Capital expenditure on other intangible assets | | | 22 | | | 7 | | | — | | | — | | | — | | | — | | | — | | | — | | | 29 | |
Average weekly number of employees | | | 24,300 | | | 21,500 | | | 500 | | | 1,500 | | | 300 | | | 100 | | | — | | | — | | | 48,200 | |
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106 Corus Report & Accounts and Form 20-F 2005
Notes to the consolidated accounts
1 Segmental analysiscontinued
1.2 Geographical analysiscontinued
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2004
(Figures in £m, unless otherwise stated) | | UK | | EU
(excl UK) | | Europe
(excl EU) | | North
America | | Asia | | Rest of
World | | Net
Debt | | Eliminations | | Total | |
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Income statement key data | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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By destination: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Group turnover | | | 2,614 | | | 4,645 | | | 338 | | | 923 | | | 594 | | | 218 | | | — | | | — | | | 9,332 | |
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By location of Group entity: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Gross turnover | | | 4,547 | | | 4,585 | | | 139 | | | 554 | | | 338 | | | 25 | | | — | | | (856 | ) | | 9,332 | |
Inter-segment sales | | | (559 | ) | | (282 | ) | | (10 | ) | | (1 | ) | | (4 | ) | | — | | | — | | | 856 | | | — | |
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Group turnover | | | 3,988 | | | 4,303 | | | 129 | | | 553 | | | 334 | | | 25 | | | — | | | — | | | 9,332 | |
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Included above: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Exports from the United Kingdom | | | 1,881 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,881 | |
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Depreciation (net of grants released) | | | (133 | ) | | (146 | ) | | (4 | ) | | (12 | ) | | (1 | ) | | — | | | — | | | — | | | (296 | ) |
Amortisation | | | (2 | ) | | (4 | ) | | — | | | (1 | ) | | — | | | — | | | — | | | — | | | (7 | ) |
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Operating profit before restructuring, impairment and disposals | | | 94 | | | 477 | | | 7 | | | 43 | | | 8 | | | 2 | | | — | | | — | | | 631 | |
Restructuring and impairment costs: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Redundancy and related costs | | | (18 | ) | | (7 | ) | | — | | | (1 | ) | | — | | | — | | | — | | | — | | | (26 | ) |
Impairment reversals/(losses) related to property, plant and equipment | | | 58 | | | (38 | ) | | — | | | (1 | ) | | — | | | — | | | — | | | — | | | 19 | |
Impairment losses related to intangible assets | | | — | | | (22 | ) | | — | | | — | | | — | | | — | | | — | | | — | | | (22 | ) |
Other asset write downs | | | (13 | ) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (13 | ) |
Other rationalisation costs | | | (2 | ) | | (3 | ) | | — | | | — | | | — | | | — | | | — | | | — | | | (5 | ) |
Accelerated release of grants | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Profit on disposal of property, plant and equipment | | | 34 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 34 | |
Profit on disposal of group undertakings | | | 25 | | | — | | | — | | | 19 | | | — | | | — | | | — | | | — | | | 44 | |
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Group operating profit | | | 178 | | | 407 | | | 7 | | | 60 | | | 8 | | | 2 | | | — | | | — | | | 662 | |
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Share of post-tax profits of joint ventures and associates | | | 4 | | | 12 | | | 5 | | | — | | | — | | | — | | | — | | | — | | | 21 | |
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Balance sheet key data | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Goodwill | | | — | | | 85 | | | — | | | — | | | — | | | — | | | — | | | — | | | 85 | |
Property, plant and equipment | | | 1,323 | | | 1,329 | | | 32 | | | 103 | | | 5 | | | 1 | | | — | | | — | | | 2,793 | |
Equity accounted investments | | | 28 | | | 67 | | | 12 | | | — | | | 2 | | | — | | | — | | | — | | | 109 | |
Other segment assets | | | 1,975 | | | 1,816 | | | 36 | | | 159 | | | 55 | | | 16 | | | — | | | (353 | ) | | 3,704 | |
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Total segment assets | | | 3,326 | | | 3,297 | | | 80 | | | 262 | | | 62 | | | 17 | | | — | | | (353 | ) | | 6,691 | |
Cash, short term deposits and short term investments | | | — | | | — | | | — | | | — | | | — | | | — | | | 600 | | | — | | | 600 | |
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Total assets | | | 3,326 | | | 3,297 | | | 80 | | | 262 | | | 62 | | | 17 | | | 600 | | | (353 | ) | | 7,291 | |
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Total segment liabilities | | | (1,430 | ) | | (1,455 | ) | | (37 | ) | | (159 | ) | | (56 | ) | | (7 | ) | | — | | | 353 | | | (2,791 | ) |
Borrowings | | | — | | | — | | | — | | | — | | | — | | | — | | | (1,442 | ) | | — | | | (1,442 | ) |
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Total liabilities | | | (1,430 | ) | | (1,455 | ) | | (37 | ) | | (159 | ) | | (56 | ) | | (7 | ) | | (1,442 | ) | | 353 | | | (4,233 | ) |
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Net assets/(liabilities) | | | 1,896 | | | 1,842 | | | 43 | | | 103 | | | 6 | | | 10 | | | (842 | ) | | — | | | 3,058 | |
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Other information | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Capital expenditure on property, plant and equipment | | | 250 | | | 118 | | | 2 | | | 4 | | | 1 | | | — | | | — | | | — | | | 375 | |
Capital expenditure on other intangible assets | | | 10 | | | 6 | | | — | | | — | | | — | | | — | | | — | | | — | | | 16 | |
Average weekly number of employees | | | 24,500 | | | 21,400 | | | 500 | | | 1,800 | | | 300 | | | 100 | | | — | | | — | | | 48,600 | |
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Corus Report & Accounts and Form 20-F 2005 107
Notes to the consolidated accounts
2. Operating costs
| | | | | | | |
| | 2005
£m | | 2004
£m | |
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Costs by type: | | | | | | | |
Raw materials and consumables | | | 4,584 | | | 4,178 | |
Maintenance costs (excluding own labour) | | | 804 | | | 808 | |
Other external charges (including fuels and utilities, hire charges and carriage costs) | | | 1,528 | | | 1,343 | |
Employment costs (Note 4) | | | 1,844 | | | 1,789 | |
Depreciation and amortisation | | | 350 | | | 312 | |
Regional development and other grants released | | | (7 | ) | | (6 | ) |
Other operating costs (including rents, rates, insurance and general expenses) | | | 557 | | | 556 | |
Changes in inventory of finished goods and work in progress | | | (144 | ) | | (213 | ) |
Own work capitalised | | | (26 | ) | | (19 | ) |
Profit on disposal of property, plant and equipment | | | (44 | ) | | (34 | ) |
Loss/(profit) on disposal of group undertakings | | | 14 | | | (44 | ) |
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| | | 9,460 | | | 8,670 | |
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Costs by function: | | | | | | | |
Costs of goods sold | | | 8,655 | | | 7,981 | |
Selling, general and administrative expenses | | | 765 | | | 720 | |
Restructuring, impairment and disposals | | | 40 | | | (31 | ) |
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| | | 9,460 | | | 8,670 | |
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| | | | | | | | | | |
| | Operating costs
before restructuring,
impairment
and disposals
£m | | Restructuring,
impairment
and disposals
£m | | Total
£m | |
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The above costs in the 12 months to 31 December 2005 include: | | | | | | | | | | |
Raw materials and consumables | | | 4,584 | | | — | | | 4,584 | |
Maintenance costs (excluding own labour) | | | 804 | | | — | | | 804 | |
Other external charges (including fuels and utilities, hire charges and carriage costs) | | | 1,528 | | | — | | | 1,528 | |
Employment costs (Note 4) | | | 1,817 | | | 27 | | | 1,844 | |
Depreciation and amortisation | | | 312 | | | 38 | | | 350 | |
Regional development and other grants released | | | (5 | ) | | (2 | ) | | (7 | ) |
Other operating costs (including rents, rates, insurance and general expenses) | | | 550 | | | 7 | | | 557 | |
Changes in inventory of finished goods and work in progress | | | (144 | ) | | — | | | (144 | ) |
Own work capitalised | | | (26 | ) | | — | | | (26 | ) |
Profit on disposal of property, plant and equipment | | | — | | | (44 | ) | | (44 | ) |
Loss on disposal of group undertakings | | | — | | | 14 | | | 14 | |
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| | | 9,420 | | | 40 | | | 9,460 | |
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Further analysis of restructuring and impairment costs is presented in Note 3.
| | | | | | | |
| | 2005
£m | | 2004
£m | |
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The above costs are stated after including: | | | | | | | |
Amortisation of other intangible assets | | | 12 | | | 7 | |
Impairment losses related to intangible assets | | | — | | | 22 | |
Depreciation of owned assets | | | 299 | | | 301 | |
Impairment losses/(reversals) related to owned assets (Note 3) | | | 38 | | | (19 | ) |
Depreciation of assets held under finance leases | | | 1 | | | 1 | |
Operating leases: | | | | | | | |
Plant and machinery | | | 59 | | | 54 | |
Leasehold property | | | 33 | | | 34 | |
Costs of research and development (gross) | | | 75 | | | 71 | |
Recoveries on research and development | | | (9 | ) | | (6 | ) |
Impairments against trade receivables | | | 5 | | | 11 | |
Costs of renegotiating the syndicated bank facility | | | 7 | | | — | |
Settlement of outstanding legal claim | | | (16 | ) | | — | |
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The 2005 operating result is stated after including a net charge of £18m in relation to the impact of costs and lost contribution associated with the BOS plant fire at Port Talbot works.
108 Corus Report & Accounts and Form 20-F 2005
Notes to the consolidated accounts
2. Operating costscontinued
Remuneration of Group’s auditors
| | | | | | | |
| | 2005
£000 | | 2004
£000 | |
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In respect of the audit: | | | | | | | |
Corus Group plc | | | 11 | | | 11 | |
Subsidiary undertakings: | | | | | | | |
Corus UK Limited | | | 1,033 | | | 1,092 | |
Other subsidiary undertakings | | | 2,011 | | | 2,037 | |
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| | | 3,055 | | | 3,140 | |
Audit related work | | | 2,912 | | | 1,673 | |
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Audit and audit related remuneration | | | 5,967 | | | 4,813 | |
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Amounts paid to Group auditors in respect of other work: | | | | | | | |
Tax | | | 786 | | | 866 | |
Other | | | 12 | | | 26 | |
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| | | 798 | | | 892 | |
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| | | 6,765 | | | 5,705 | |
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Audit related fees consist of fees billed for assurance and related services that are traditionally performed by the external auditor. In 2005 these fees also included work in connection with planned compliance with the requirements of the US Sarbanes-Oxley Act, the transition to IFRS, acquisition and disposal related services and other consultation in relation to financial accounts and reporting standards.
Tax fees include fees billed for corporate tax compliance services, tax advisory services and expatriate tax compliance and advisory services. Other fees relate to training and other one-off projects.
The Audit committee has reviewed and approved a policy for the control and monitoring of audit and non-audit work by the auditor so as to safeguard auditor objectivity and independence. This policy defines prohibited services that cannot be provided by the auditor and permitted services that can be provided.
The Audit committee has pre-approved permitted services. The relevant categories being audit services and audit related/assurance services, and tax services and other services that do not compromise the independence of the audit role. The approval process requires details of the scope of the service to be performed and the fee structure. Prior to engagement the Audit committee must approve activities that are not pre-approved and actual fees incurred are included in statements on fees provided to the Audit committee at specified intervals.
During 2005, 100% of audit fees, 100% of audit related fees, 100% of tax fees and 100% of all other fees provided to Corus by PricewaterhouseCoopers LLP were approved by the Audit committee. There were no services pursuant to the de minimis exception to the pre-approval requirement provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
Further details on the Group’s policy for the appointment of external auditors for non-audit services is provided in the Audit committee section of the Directors’ report on page 57.
3. Restructuring and impairment costs
| | | | | | | | |
| | 2005
£m | | 2004
£m | |
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Provision for restructuring and related measures: | | | | | | | |
Redundancy and related costs | | | 31 | | | | 30 | |
Impairment losses related to property, plant and equipment | | | 42 | | | | 59 | |
Impairment losses related to intangible assets | | | — | | | | 22 | |
Other asset write downs | | | 1 | | | | 13 | |
Other rationalisation costs | | | 17 | | | | 9 | |
| | | 91 | | | 133 | |
Credits for restructuring and related measures: | | | | | | | |
Redundancy and related costs | | | (4 | ) | | | (4 | ) |
Impairment reversals related to property, plant and equipment | | | (4 | ) | | | (78 | ) |
Accelerated release of grants | | | (2 | ) | | | — | |
Other rationalisation costs | | | (11 | ) | | | (4 | ) |
| | | (21 | ) | | (86 | ) |
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| | | 70 | | | 47 | |
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Corus Report & Accounts and Form 20-F 2005 109
Notes to the consolidated accounts
4. Employees
| | | | | | | |
| | 2005
£m | | 2004
£m | |
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The total employment costs of all employees (including directors) in the Group were: | | | | | | | |
Wages and salaries | | | 1,544 | | | 1,501 | |
Social security costs | | | 180 | | | 165 | |
Other pension costs (Note 37) | | | 93 | | | 97 | |
Redundancy and related costs (Note 3) | | | 27 | | | 26 | |
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| | | 1,844 | | | 1,789 | |
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(i) | Related average employee numbers are presented in Note 1. |
| |
(ii) | Included within wages and salaries above is an expense arising from share-based payment transactions of £12m (2004: £4m). In arriving at this expense, the fair value of employee option awards under the Group’s Sharesave schemes (see Note 28) has been estimated using the Black Scholes option pricing model with the following weighted average assumptions being used: |
| | | | | | | | |
| | | 2005
Awards | 2004
Awards |
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| Risk free interest rate | | | 4.3 | % | | 4.6 | % |
| Expected volatility | | | 37 | % | | 46 | % |
| Dividend yield | | | 4.45 | % | | 4.45 | % |
| Weighted average fair values of options granted in the period | | | £0.17 | | | £0.16 | |
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| The fair value of awards from the Leveraged Equity Acquisition Plan (see Note 28) have been estimated using a binomial model which incorporates the impact of the TSR performance condition, including the dependency between the number of awards vesting (equivalent to the Company’s TSR against its comparator group) and the share price at the date of vesting. The following assumptions were used: |
| | | | | | | | |
| | | 2005
Awards | 2004
Awards |
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| Risk free interest rate | | | 4.4 | % | | 4.8 | % |
| Expected volatility | | | 38 | % | | 53 | % |
| Expected correlation between each pair of shares in the comparator group | | | 11.4 | % | | 11.1 | % |
| Dividend yield | | | 4.45 | % | | 4.45 | % |
| Weighted average fair values of options granted in the period | | | £0.45 | | | £0.46 | |
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| Expected volatility has been calculated using historical data from the previous three years over a term of increasing length ending on the date of each grant. Further details of each of the employee share plans in place are given in Note 28 and where applicable in the Report on remuneration. |
|
(iii) | The Group’s key management personnel as defined by IAS 24 ‘Related Party Disclosures’ are the Board of directors and other Executive committee members. Included within wages and salaries above is £2m (2004: £1m) in relation to the share-based payment expense for these individuals. Details of the rest of the directors’ and other Executive committee members’ emoluments are given in the auditable part of the Report on remuneration. |
5. Financing items
| | | | | | | |
| | 2005
£m | | 2004
£m | |
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| |
Interest expense: | | | | | | | |
Bank and other borrowings | | | (120 | ) | | (117 | ) |
Accretion of convertible bonds | | | (7 | ) | | — | |
Finance leases | | | (1 | ) | | (1 | ) |
Fair value losses – convertible bond equity options | | | (4 | ) | | — | |
Charges arising on redemption of bond | | | — | | | (11 | ) |
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Finance costs | | | (132 | ) | | (129 | ) |
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Interest income: | | | | | | | |
Cash and short term deposits and short term investments | | | 31 | | | 13 | |
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Finance income | | | 31 | | | 13 | |
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| | | (101 | ) | | (116 | ) |
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110 Corus Report & Accounts and Form 20-F 2005
Notes to the consolidated accounts
6. Taxation
| | | | | | | |
| | 2005
£m | | 2004
£m | |
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| |
UK corporation tax | | | — | | | — | |
UK prior year credit | | | (2 | ) | | — | |
Overseas prior year credit | | | (3 | ) | | (1 | ) |
Overseas taxes | | | 137 | | | 106 | |
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Current tax | | | 132 | | | 105 | |
UK deferred tax | | | 15 | | | 13 | |
Overseas deferred tax | | | (18 | ) | | 8 | |
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| | | 129 | | | 126 | |
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In addition to the total taxation charged to profit and loss a deferred tax credit of £7m (2004: £19m) has been recognised directly in equity during the year (Note 26).
The total charge for the year can be reconciled to the accounting profit as follows:
| | | | | | | |
| | 2005
£m | | 2004
£m | |
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| |
Profit before taxation | | | 580 | | | 567 | |
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Profit multiplied by the applicable corporation tax rate of 31.2% (2004: 34.7%) | | | 181 | | | 197 | |
Effects of: | | | | | | | |
Adjustments to current tax in respect of prior periods | | | (5 | ) | | (1 | ) |
Adjustments to deferred tax in respect of prior periods | | | 28 | | | (5 | ) |
Adjustments to deferred tax in respect of changes in tax rates | | | (5 | ) | | (16 | ) |
Share of results of joint ventures and associates | | | (1 | ) | | (8 | ) |
Utilisation of tax losses not previously recognised | | | (73 | ) | | (50 | ) |
Tax losses not recognised | | | 2 | | | 11 | |
Other differences | | | 2 | | | (2 | ) |
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| | | 129 | | | 126 | |
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| |
The applicable corporation tax rate is the average tax rate weighted in proportion to the accounting profits earned in each geographical area.
7. Dividends
| | | | | | | |
| | 2005
£m | | 2004
£m | |
|
|
|
|
| |
Amounts recognised as distributions to equity holders in the period: | | | | | | | |
Interim dividend of 0.5p (2004: nil) per ordinary share | | | 22 | | | — | |
|
|
|
|
|
|
| |
| | | 22 | | | — | |
|
|
|
|
|
|
| |
| | | | | | | |
Proposed final dividend of 1p (2004: nil) per ordinary share | | | 45 | | | — | |
|
|
|
|
|
|
| |
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.
Corus Report & Accounts and Form 20-F2005 111
Notes to the consolidated accounts
8. Earnings per ordinary share
The earnings per ordinary share has been calculated by dividing the profit attributable to equity holders of the parent by the weighted average number of ordinary shares outstanding during the period.
| | | | | | | |
| | 2005
No. m | | 2004
No. m | |
|
|
|
|
| |
Weighted average number of ordinary shares in issue during the period and used to calculate: | | | | | | | |
Basic earnings per ordinary share | | | 4,446 | | | 4,436 | |
Dilutive effects of share options | | | 2 | | | 3 | |
Conditional share awards | | | 38 | | | 23 | |
Dilutive effects of convertible debentures (see Note 28) | | | 331 | | | 331 | |
|
|
|
|
|
|
| |
Diluted earnings per ordinary share | | | 4,817 | | | 4,793 | |
|
|
|
|
|
|
| |
| | | | | | | |
| | 2005
£m | | 2004
£m | |
|
|
|
|
| |
Profit attributable to equity holders of the parent during the period and used to calculate: | | | | | | | |
Basic earnings per ordinary share | | | 452 | | | 447 | |
Finance costs of convertible debentures | | | 21 | | | 9 | |
Taxation effect of the dilutions | | | (4 | ) | | (4 | ) |
|
|
|
|
|
|
| |
Diluted earnings per ordinary share | | | 469 | | | 452 | |
|
|
|
|
|
|
| |
| |
(i) | The Trustee of the Qualifying Employee Share Ownership Trust (QUEST) has waived all but a nominal amount of the dividend on the trust’s holding of ordinary shares in the Company, and therefore these ordinary shares are not included in the calculation of earnings per ordinary share. |
| |
(ii) | As per Note 28, the share capital of the Company includes 3,130m deferred shares of 40p each. These deferred shares do not carry any voting rights, dividend rights or rights on a return of capital, thereby rendering them effectively worthless and on this basis the deferred shares are not included within the earnings per ordinary share calculation above. |
9. Goodwill
| | | | | | | |
| | 2005
£m | | 2004
£m | |
|
|
|
|
| |
Cost at beginning of period | | | 172 | | | 166 | |
Additions | | | — | | | 6 | |
Exchange rate movements | | | (2 | ) | | — | |
|
|
|
|
|
|
| |
Cost at end of period | | | 170 | | | 172 | |
|
|
|
|
|
|
| |
Impairment losses at beginning of period | | | 87 | | | 65 | |
Impairment losses recognised during the period | | | — | | | 22 | |
|
|
|
|
|
|
| |
Impairment losses at end of period | | | 87 | | | 87 | |
|
|
|
|
|
|
| |
Net book value at end of period | | | 83 | | | 85 | |
|
|
|
|
|
|
| |
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units that are expected to benefit from that combination. The Group then tests goodwill annually for impairment, or more frequently if there are any indications that goodwill might be impaired. The recoverable amount of the goodwill is determined from value in use calculations. Key assumptions for the value in use calculations are those regarding expected changes to selling prices and direct costs during the period, as well as market growth rates and discount rates. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. Growth rates are based on industry growth factors and discount rates reflect current market assessments of the time value of money. The Group prepares cash flow forecasts for these calculations using the most recent approved financial budgets.
112 Corus Report & Accounts and Form 20-F 2005
Notes to the consolidated accounts
10. Other intangible assets
| | | | | | | | | | | | | |
2005 | | | Computer
software
£m | | | Development
costs
£m | | | Patents and
trademarks
£m | | | Total
£m | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost at beginning of period | | | 53 | | | 1 | | | 11 | | | 65 | |
Additions | | | 26 | | | 3 | | | — | | | 29 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost at end of period | | | 79 | | | 4 | | | 11 | | | 94 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Amortisation at beginning of period | | | 19 | | | — | | | 7 | | | 26 | |
Charge for the period | | | 10 | | | 1 | | | 1 | | | 12 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Amortisation at end of period | | | 29 | | | 1 | | | 8 | | | 38 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net book value at end of period | | | 50 | | | 3 | | | 3 | | | 56 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | |
2004 | | | Computer
software
£m | | | Development
costs
£m | | | Patents and
trademarks
£m | | | Total
£m | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost at beginning of period | | | 38 | | | 1 | | | 10 | | | 49 | |
Additions | | | 15 | | | — | | | 1 | | | 16 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost at end of period | | | 53 | | | 1 | | | 11 | | | 65 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Amortisation at beginning of period | | | 13 | | | — | | | 6 | | | 19 | |
Charge for the period | | | 6 | | | — | | | 1 | | | 7 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Amortisation at end of period | | | 19 | | | — | | | 7 | | | 26 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net book value at end of period | | | 34 | | | 1 | | | 4 | | | 39 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
11. Property, plant and equipment
| | | | | | | | | | | | | |
2005 | | | Land and
buildings
£m | | | Plant and
machinery
£m | | | Assets in
course of
construction
£m | | | Total
£m | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost at beginning of period | | | 1,092 | | | 6,939 | | | 392 | | | 8,423 | |
Additions | | | 9 | | | 125 | | | 289 | | | 423 | |
Disposals | | | (62 | ) | | (466 | ) | | — | | | (528 | ) |
Exchange rate movements | | | (10 | ) | | (26 | ) | | (4 | ) | | (40 | ) |
Transfers and other movements | | | 13 | | | 279 | | | (292 | ) | | — | |
Reclassified as held for sale | | | (8 | ) | | (40 | ) | | — | | | (48 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost at end of period | | | 1,034 | | | 6,811 | | | 385 | | | 8,230 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Depreciation at beginning of period | | | 666 | | | 5,188 | | | — | | | 5,854 | |
Charge for the period | | | 30 | | | 270 | | | — | | | 300 | |
Impairment losses recognised during the period | | | 1 | | | 41 | | | — | | | 42 | |
Impairment losses reversed during the period | | | — | | | (4 | ) | | — | | | (4 | ) |
Disposals | | | (43 | ) | | (453 | ) | | — | | | (496 | ) |
Exchange rate movements | | | (3 | ) | | (13 | ) | | — | | | (16 | ) |
Reclassified as held for sale | | | (5 | ) | | (40 | ) | | — | | | (45 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Depreciation at end of period | | | 646 | | | 4,989 | | | — | | | 5,635 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net book value at end of period | | | 388 | | | 1,822 | | | 385 | | | 2,595 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Loose plant, tools and spares (net book value) | | | | | | | | | | | | 225 | |
| | | | | | | | | | |
|
| |
| | | | | | | | | | | | 2,820 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
Corus Report & Accounts and Form 20-F 2005 113 |
Notes to the consolidated accounts
11. Property, plant and equipmentcontinued
| | | | | | | | | | | | | |
2004 | | | Land and
buildings
£m | | | Plant and
machinery
£m | | | Assets in
course of
construction
£m | | | Total
£m | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost at beginning of period | | | 1,125 | | | 7,320 | | | 128 | | | 8,573 | |
Additions | | | 6 | | | 48 | | | 321 | | | 375 | |
Acquisitions | | | 4 | | | 17 | | | — | | | 21 | |
Disposals | | | (47 | ) | | (500 | ) | | (1 | ) | | (548 | ) |
Exchange rate movements | | | — | | | — | | | 2 | | | 2 | |
Transfers and other movements | | | 4 | | | 54 | | | (58 | ) | | — | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost at end of period | | | 1,092 | | | 6,939 | | | 392 | | | 8,423 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Depreciation at beginning of period | | | 663 | | | 5,440 | | | — | | | 6,103 | |
Charge for the period | | | 34 | | | 268 | | | — | | | 302 | |
Impairment losses recognised during the period | | | 2 | | | 57 | | | — | | | 59 | |
Impairment losses reversed during the period | | | — | | | (78 | ) | | — | | | (78 | ) |
Disposals | | | (33 | ) | | (499 | ) | | — | | | (532 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Depreciation at end of period | | | 666 | | | 5,188 | | | — | | | 5,854 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net book value at end of period | | | 426 | | | 1,751 | | | 392 | | | 2,569 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Loose plant, tools and spares (net book value) | | | | | | | | | | | | 224 | |
| | | | | | | | | | |
|
| |
| | | | | | | | | | | | 2,793 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
(i) | Included above are fully depreciated assets with an original cost of £1,821m (2004: £1,764m) which are still in use. In addition, there are fully depreciated assets with an original cost of £241m (2004: £498m) which are permanently out of use and pending disposal, demolition or reapplication elsewhere within the Group. |
| | | | | | | | |
| | | | 2005
£m | | | 2004
£m | |
|
|
|
|
|
|
|
| |
(ii) | The net book value of land and buildings comprises: | | | | | | | |
| Freehold | | | 361 | | | 406 | |
| Long leasehold (over 50 years unexpired) | | | 15 | | | 7 | |
| Short leasehold | | | 12 | | | 13 | |
|
|
|
|
|
|
|
| |
| | | | 388 | | | 426 | |
|
|
|
|
|
|
|
| |
| Which may be further analysed as: | | | | | | | |
| Assets held under finance leases: | | | | | | | |
| Cost | | | 37 | | | 38 | |
| Accumulated depreciation | | | (7 | ) | | (4 | ) |
|
|
|
|
|
|
|
| |
| | | | 30 | | | 34 | |
| Owned assets | | | 358 | | | 392 | |
|
|
|
|
|
|
|
| |
| | | | 388 | | | 426 | |
|
|
|
|
|
|
|
| |
(iii) | The net book value of plant and machinery comprises: | | | | | | | |
| Assets held under finance leases: | | | | | | | |
| Cost | | | 32 | | | 30 | |
| Accumulated depreciation | | | (28 | ) | | (28 | ) |
|
|
|
|
|
|
|
| |
| | | | 4 | | | 2 | |
| Owned assets | | | 1,818 | | | 1,749 | |
|
|
|
|
|
|
|
| |
| | | | 1,822 | | | 1,751 | |
|
|
|
|
|
|
|
| |
(iv) | The net book value of loose plant, tools and spares comprises: | | | | | | | |
| Cost | | | 554 | | | 568 | |
| Accumulated depreciation and impairment losses | | | (329 | ) | | (344 | ) |
|
|
|
|
|
|
|
| |
| | | | 225 | | | 224 | |
|
|
|
|
|
|
|
| |
| |
| Loose plant, tools and spares are shown at net book value. Due to the substantial number of items involved, and the many variations in their estimated useful lives, it is impracticable to give the details of movements normally disclosed in respect of property, plant and equipment. |
| |
114 Corus Report & Accounts and Form 20-F 2005 |
Notes to the consolidated accounts
12. Equity accounted investments
| | | | | | | | | | | | | |
| | | Interests in
joint ventures
£m | | | Investments
in associates
£m | | | 2005
Total
£m | | | 2004
Total
£m | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost at beginning of period | | | 75 | | | 9 | | | 84 | | | 96 | |
Additions and transfers | | | 1 | | | — | | | 1 | | | 5 | |
Disposals | | | (8 | ) | | (2 | ) | | (10 | ) | | (6 | ) |
Consolidation as subsidiary undertaking | | | — | | | — | | | — | | | (12 | ) |
Exchange rate movements | | | (2 | ) | | — | | | (2 | ) | | 1 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cost at end of period | | | 66 | | | 7 | | | 73 | | | 84 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Share of post acquisition reserves at beginning of period | | | 24 | | | 2 | | | 26 | | | 8 | |
Share of results in period retained | | | (9 | ) | | 1 | | | (8 | ) | | 17 | |
Consolidation as subsidiary undertaking | | | — | | | — | | | — | | | 1 | |
Disposals | | | 5 | | | — | | | 5 | | | — | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Share of post acquisition reserves at end of period | | | 20 | | | 3 | | | 23 | | | 26 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Provisions at beginning of period | | | 1 | | | — | | | 1 | | | 5 | |
Disposals | | | — | | | — | | | — | | | (4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Provisions at end of period | | | 1 | | | — | | | 1 | | | 1 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net book value at end of period | | | 85 | | | 10 | | | 95 | | | 109 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net book value at beginning of period | | | 98 | | | 11 | | | 109 | | | 99 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
(i) | The Group’s main equity accounted investments are listed in Note 41. |
| |
(ii) | Summarised information in respect of the Group’s joint ventures is presented below: |
| | | | | | | | |
| | | | 2005
£m | | | 2004
£m | |
|
|
|
|
|
|
|
| |
| Share of the assets and liabilities of the Group’s joint ventures: | | | | | | | |
| Non-current assets | | | 59 | | | 63 | |
| Current assets | | | 166 | | | 165 | |
| Current liabilities | | | (131 | ) | | (85 | ) |
| Non-current liabilities | | | (9 | ) | | (45 | ) |
|
|
|
|
|
|
|
| |
| Group’s share of net assets | | | 85 | | | 98 | |
|
|
|
|
|
|
|
| |
| | | | | | | | |
|
|
|
|
|
|
|
| |
| Share of the revenue and expenses of the Group’s joint ventures: | | | | | | | |
| Revenue | | | 486 | | | 267 | |
| Expenses | | | (486 | ) | | (249 | ) |
|
|
|
|
|
|
|
| |
| Group’s share of joint ventures’ profit for the period | | | — | | | 18 | |
| Dividends received | | | (9 | ) | | (4 | ) |
|
|
|
|
|
|
|
| |
| Group’s share of retained (loss)/profit for the period | | | (9 | ) | | 14 | |
|
|
|
|
|
|
|
| |
| | | | | | | | |
(iii) | Summarised information in respect of the Group’s associates is presented below: | | | | | | | |
| | | | | | | | |
| | | | 2005
£m | | | 2004
£m | |
|
|
|
|
|
|
|
| |
| Summarised balance sheet information: | | | | | | | |
| Total assets | | | 77 | | | 82 | |
| Total liabilities | | | (49 | ) | | (52 | ) |
|
|
|
|
|
|
|
| |
| Net assets | | | 28 | | | 30 | |
|
|
|
|
|
|
|
| |
| Group’s share of net assets | | | 10 | | | 11 | |
|
|
|
|
|
|
|
| |
| | | | | | | | |
|
|
|
|
|
|
|
| |
| Summarised income statement information: | | | | | | | |
| Revenue | | | 131 | | | 111 | |
|
|
|
|
|
|
|
| |
| Profit for the period | | | 2 | | | 8 | |
|
|
|
|
|
|
|
| |
| Group’s share of associates profit for the period | | | 1 | | | 3 | |
| Dividends received | | | — | | | — | |
|
|
|
|
|
|
|
| |
| Group’s share of retained profit for the period | | | 1 | | | 3 | |
|
|
|
|
|
|
|
| |
| |
Corus Report & Accounts and Form 20-F 2005 115 |
Notes to the consolidated accounts
13. Other investments
| | | | | | | | | | | | | |
| | Loans and
receivables
£m | | Available
for sale
investments
£m | | 2005
Total
£m | | 2004
Total
£m | |
|
|
|
|
|
|
|
|
| |
Carrying value at beginning of period | | | 7 | | | 59 | | | 66 | | | 60 | |
Additions | | | 2 | | | 41 | | | 43 | | | 13 | |
Disposals | | | (1 | ) | | (2 | ) | | (3 | ) | | (7 | ) |
Revaluations | | | — | | | 7 | | | 7 | | | — | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Carrying value at end of period | | | 8 | | | 105 | | | 113 | | | 66 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
(i) | The currency and interest exposure of other investments of the Group is as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2005 | | 2004 | |
| | |
| |
| |
| | | Fixed rate
long term
financial
assets
£m | | Floating rate
long term
financial
assets
£m | | Zero rate
long term
financial
assets
£m | | Total
£m | | Fixed rate
long term
financial
assets
£m | | Floating rate
long term
financial
assets
£m | | Zero rate
long term
financial
assets
£m | | Total
£m | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Sterling | | | 34 | | | 17 | | | — | | | 51 | | | 46 | | | — | | | — | | | 46 | |
| Euros | | | 33 | | | 2 | | | 3 | | | 38 | | | 12 | | | 3 | | | 2 | | | 17 | |
| US Dollars | | | 5 | | | 2 | | | — | | | 7 | | | — | | | — | | | — | | | — | |
| Other | | | 17 | | | — | | | — | | | 17 | | | 3 | | | — | | | — | | | 3 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | 89 | | | 21 | | | 3 | | | 113 | | | 61 | | | 3 | | | 2 | | | 66 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Disclosed as: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans and receivables | | | 1 | | | 4 | | | 3 | | | 8 | | | 2 | | | 3 | | | 2 | | | 7 | |
| Available for sale investments | | | 88 | | | 17 | | | — | | | 105 | | | 59 | | | — | | | — | | | 59 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | |
| | | 2005 | | 2004 | |
| | |
| |
| |
| | | Weighted
average
effective
fixed interest
rate
% | | Weighted
average time
for which
rate is fixed
Years | | Weighted
average
effective
fixed interest
rate
% | | Weighted
average time
for which
rate is fixed
Years | |
|
|
|
|
|
|
|
|
|
| |
| Sterling | | | 4.5 | | | 2.2 | | | 3.7 | | | 0.3 | |
| Euros | | | 4.6 | | | 10.2 | | | 4.0 | | | 6.7 | |
| US Dollars | | | 4.7 | | | 15.3 | | | — | | | — | |
| Other | | | 3.1 | | | 10.4 | | | 2.3 | | | 8.7 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
(ii) | Contractual maturities of other investments are as follows: |
| | | | | | | | |
| | | | | | | | |
| | | 2005
£m | | 2004
£m | |
|
|
|
|
|
| |
| Within one year | | | 20 | | | 44 | |
| Between two and five years | | | 29 | | | 10 | |
| Greater than five years | | | 38 | | | 4 | |
| No contractual maturity date | | | 26 | | | 8 | |
|
|
|
|
|
|
|
| |
| | | | 113 | | | 66 | |
|
|
|
|
|
|
|
| |
| |
(iii) | Of the available for sale investments of £105m above, the majority are held by Crucible Insurance Company Limited and Hoogovens Verzekeringsmaatschappij NV to fund insurance liabilities of the Group. Their total investments arise as follows: |
| | | | | | | | |
| | | 2005
£m | | 2004
£m | |
|
|
|
|
|
| |
| UK listed investments | | | 28 | | | 37 | |
| Overseas listed investments | | | 55 | | | 14 | |
| Other investments | | | 1 | | | 7 | |
|
|
|
|
|
|
|
| |
| | | | 84 | | | 58 | |
|
|
|
|
|
|
|
| |
116 Corus Report & Accounts and Form 20-F 2005
Notes to the consolidated accounts
14. Inventories
| | | | | | | |
| | 2005
£m | | 2004
£m | |
|
|
|
|
| |
Raw materials and consumables | | | 729 | | | 652 | |
Work in progress | | | 564 | | | 483 | |
Finished goods and goods for resale | | | 661 | | | 597 | |
|
|
|
|
|
|
| |
| | | 1,954 | | | 1,732 | |
|
|
|
|
|
|
| |
The value of inventories above is stated after impairment for obsolescence and write downs to net realisable value of £74m (2004: £71m).
15. Current tax
| | | | | | | |
| | Assets
£m | | Liabilities
£m | |
|
|
|
|
| |
2005 | | | | | | | |
UK corporation tax | | | 1 | | | — | |
Overseas taxation | | | 20 | | | (79 | ) |
|
|
|
|
|
|
| |
| | | 21 | | | (79 | ) |
|
|
|
|
|
|
| |
| | | | | | | |
2004 | | | | | | | |
UK corporation tax | | | 5 | | | — | |
Overseas taxation | | | 14 | | | (117 | ) |
|
|
|
|
|
|
| |
| | | 19 | | | (117 | ) |
|
|
|
|
|
|
| |
16. Trade and other receivables
| | | | | | | |
| | 2005
£m | | 2004
£m | |
|
|
|
|
| |
Trade receivables | | | 1,410 | | | 1,231 | |
Less provision for impairment of receivables | | | (51 | ) | | (51 | ) |
|
|
|
|
|
|
| |
| | | 1,359 | | | 1,180 | |
Amounts owed by joint ventures | | | 22 | | | 28 | |
Amounts owed by associates | | | 2 | | | 4 | |
Other receivables | | | 129 | | | 151 | |
|
|
|
|
|
|
| |
| | | 1,512 | | | 1,363 | |
|
|
|
|
|
|
| |
In the comparative information for 2004 all proceeds received from the Group’s debtor securitisation programme are shown as a deduction from trade receivables. Following the adoption of IAS 32 and IAS 39 from 2 January 2005, these proceeds are now classified as borrowings, as described in Note 20.
Corus Report & Accounts and Form 20-F 2005 117
Notes to the consolidated accounts
17. Cash, short term deposits and short term investments
| | | | | | | |
| | 2005
£m | | 2004
£m | |
|
|
|
|
| |
Cash at bank and in hand | | | 258 | | | 383 | |
Short term deposits | | | 613 | | | 206 | |
|
|
|
|
|
|
| |
Cash and short term deposits | | | 871 | | | 589 | |
Short term investments | | | — | | | 11 | |
|
|
|
|
|
|
| |
| | | 871 | | | 600 | |
|
|
|
|
|
|
| |
| |
(i) | The currency and interest exposure of cash, short term deposits and short term investments of the Group is as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Cash
£m | | Short term
deposits
£m | | Short term
investments
£m | | 2005
Total
£m | | Cash
£m | | Short term
deposits
£m | | Short term
investments
£m | | 2004
Total
£m | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Sterling | | | 107 | | | 600 | | | — | | | 707 | | | 81 | | | 205 | | | — | | | 286 | |
| Euros | | | 89 | | | 9 | | | — | | | 98 | | | 223 | | | — | | | 11 | | | 234 | |
| US Dollars | | | 45 | | | 3 | | | — | | | 48 | | | 36 | | | — | | | — | | | 36 | |
| Other currencies | | | 17 | | | 1 | | | — | | | 18 | | | 43 | | | 1 | | | — | | | 44 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | 258 | | | 613 | | | — | | | 871 | | | 383 | | | 206 | | | 11 | | | 600 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Floating interest rate | | | 258 | | | — | | | — | | | 258 | | | 383 | | | — | | | — | | | 383 | |
| Fixed interest rate | | | — | | | 613 | | | — | | | 613 | | | — | | | 206 | | | 11 | | | 217 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Short term deposits are highly liquid investments with original maturities of three months or less and short term investments are deposits for periods not exceeding one year. The weighted average interest rate across both these types of investment was 4.5% (2004: 4.2%). During each of the periods above cash earned interest at a floating rate based on LIBOR or other official local rates.
18. Assets held for sale
| | | | | | | |
| | 2005
£m | | 2004
£m | |
|
|
|
|
| |
Land and buildings | | | 3 | | | — | |
|
|
|
|
|
|
| |
During the period land and buildings and plant and machinery with an original cost of £48m and accumulated depreciation of £45m were reclassified as held for sale. These assets have been taken out of use and are being actively marketed for sale, with an expectation that they will be sold within the next 12 months.
19. Trade and other payables
| | | | | | | |
| | 2005
£m | | 2004
£m | |
|
|
|
|
| |
Trade payables | | | 1,271 | | | 1,185 | |
Amounts owed to joint ventures | | | 4 | | | 2 | |
Amounts owed to associates | | | 3 | | | 4 | |
Other taxation and social security | | | 37 | | | 47 | |
Interest payable | | | 45 | | | 42 | |
Capital expenditure creditors | | | 90 | | | 90 | |
Other payables | | | 394 | | | 372 | |
|
|
|
|
|
|
| |
| | | 1,844 | | | 1,742 | |
|
|
|
|
|
|
| |
Other payables include amounts provided in respect of insurances, holiday pay, other employment costs and sundry other items.
118 Corus Report & Accounts and Form 20-F 2005
Notes to the consolidated accounts
20. Borrowings
| | | | | | | |
| | 2005
£m | | 2004
£m | |
|
|
|
|
|
|
| |
Current: | | | | | | | |
Bank overdrafts | | | 46 | | | 32 | |
Other loans | | | 11 | | | 14 | |
5.375% Eurobond 2006 | | | 14 | | | — | |
4.625% Subordinated convertible debenture loan 2007 (see Note 28) | | | 108 | | | 116 | |
3% Unsubordinated convertible bond 2007 (see Note 28) | | | 203 | | | 216 | |
Obligations under finance leases | | | 2 | | | 1 | |
|
|
|
|
|
|
| |
| | | 384 | | | 379 | |
|
|
|
|
|
|
| |
| | | | | | | |
| | 2005
£m | | 2004
£m | |
|
|
|
|
|
|
| |
Non-current: | | | | | | | |
5.375% Eurobond 2006 | | | — | | | 14 | |
5.625% Debenture stock 2008 | | | 92 | | | 96 | |
6.75% Bonds 2008 | | | 199 | | | 199 | |
7.5% Senior notes 2011 | | | 543 | | | 558 | |
11.5% Debenture stock 2016 | | | 150 | | | 150 | |
Non-returnable proceeds from securitisation programme | | | 272 | | | — | |
Redeemable shares | | | 8 | | | — | |
Bank and other loans | | | 11 | | | 18 | |
Obligations under finance leases | | | 33 | | | 28 | |
|
|
|
|
|
|
| |
| | | 1,308 | | | 1,063 | |
|
|
|
|
|
|
| |
Interest payable on the above borrowings is included within trade and other payables (Note 19).
| |
(i) | The currency and interest exposure of gross borrowings of the Group at the end of the period is as follows: |
| | | | | | | | | | | | | | | | | |
| | 2005 | | 2004 | |
| |
| |
| |
| | Fixed rate
borrowings
£m | | Floating rate
borrowings
£m | | Zero rate
borrowings
£m | | Total
£m | | Fixed rate
borrowings
£m | | Floating rate
borrowings
£m | | Zero rate
borrowings
£m | | Total
£m | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Sterling | | 364 | | 293 | | 8 | | 665 | | 366 | | 13 | | — | | 379 | |
Euros | | 984 | | 10 | | 1 | | 995 | | 1,018 | | 12 | | 5 | | 1,035 | |
US Dollars | | 2 | | — | | — | | 2 | | 1 | | — | | — | | 1 | |
Other | | 20 | | 10 | | — | | 30 | | 25 | | 2 | | — | | 27 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | 1,370 | | 313 | | 9 | | 1,692 | | 1,410 | | 27 | | 5 | | 1,442 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | |
| | 2005 | | 2004 | |
| |
| |
| |
| | Weighted
average
fixed
interest rate
% | | Weighted
average time
for which
rate is fixed
Years | | Weighted
average
fixed
interest rate
% | | Weighted
average time
for which
rate is fixed
Years | |
|
|
|
|
|
|
|
|
| |
Sterling | | 8.8 | | 6.1 | | 8.8 | | 7.1 | |
Euros | | 6.0 | | 3.4 | | 6.0 | | 4.0 | |
US Dollars | | 5.1 | | 0.6 | | 5.0 | | 0.1 | |
Other | | 6.4 | | 0.7 | | 5.3 | | 1.7 | |
|
|
|
|
|
|
|
|
| |
| |
| The majority of floating rate borrowings are bank borrowings bearing interest rates based on LIBOR or official local rates. These rates are fixed for periods of up to six months. The zero rate borrowings, which include items referred to in (x) on page 121, have a weighted average maturity of 0.1 years (2004: 0.5 years). |
| |
| The weighted average interest rate on current borrowings was 3.9% (2004: 3.6%) and on non-current borrowings was 7.0% (2004: 7.6%). |
Corus Report & Accounts and Form 20-F 2005 119
Notes to the consolidated accounts
20. Borrowingscontinued
| |
(ii) | The maturity of borrowings is as follows: |
| | | | | | | |
| | | 2005
£m | | | 2004
£m | |
|
|
|
|
|
|
| |
In one year or less or on demand | | | 386 | | | 381 | |
Between one and two years | | | 12 | | | 16 | |
Between two and three years | | | 297 | | | 19 | |
Between three and four years | | | 275 | | | 297 | |
Between four and five years | | | 2 | | | 2 | |
More than five years | | | 735 | | | 742 | |
|
|
|
|
|
|
| |
| | | 1,707 | | | 1,457 | |
Less: amounts representing interest in future minimum lease payments | | | (15 | ) | | (15 | ) |
|
|
|
|
|
|
| |
| | | 1,692 | | | 1,442 | |
|
|
|
|
|
|
| |
Amounts falling due within one year | | | 384 | | | 379 | |
Amounts falling due after more than one year | | | 1,308 | | | 1,063 | |
|
|
|
|
|
|
| |
| |
| Following the conversion to IFRS, the Group’s two convertible bonds are now disclosed within other loans as current borrowings. The bonds mature in 2007, however bondholders do have the right to convert at any time in the intervening period. |
| |
| Amounts payable under finance leases are as follows: |
| | | | | | | | | | | | | |
| | Minimum
lease payments | | Present value
of minimum
lease payments | |
| |
| |
| |
| | | 2005
£m | | | 2004
£m | | | 2005
£m | | | 2004
£m | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Not later than one year | | | 4 | | | 3 | | | 2 | | | 1 | |
Later than one year but not more than five years | | | 12 | | | 8 | | | 7 | | | 3 | |
More than five years | | | 34 | | | 33 | | | 26 | | | 25 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | 50 | | | 44 | | | 35 | | | 29 | |
Less: future finance charges on finance leases | | | (15 | ) | | (15 | ) | | — | | | — | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Present value of lease obligations | | | 35 | | | 29 | | | 35 | | | 29 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
(iii) | The maturity of undrawn committed borrowing facilities of the Group is as follows: |
| | | | | | | |
| | | 2005
£m | | | 2004
£m | |
|
|
|
|
|
|
| |
In one year or less (see (iv) below) | | | 3 | | | 145 | |
Between one and two years | | | 12 | | | 425 | |
More than two years | | | 550 | | | 2 | |
|
|
|
|
|
|
| |
| | | 565 | | | 572 | |
|
|
|
|
|
|
| |
Total unutilised bank facilities at the end of the period were £681m (2004: £723m). | | | | | | | |
120 Corus Report & Accounts and Form 20-F 2005
Notes to the consolidated accounts
20. Borrowingscontinued
| | |
(iv) | On 31 July 2003, the Company signed a €1,200m banking facility. This amortising syndicated facility had a final maturity date of 30 June 2006, and provided committed bank financing for Corus’ working capital requirements. |
| |
| However, on 24 February 2005 Corus signed a replacement €800m banking facility with a consortium of relationship banks, replacing this facility on more favourable terms and with a reduced security package. The new revolving facility has a final maturity date of 31 December 2008 and provides committed bank financing for general corporate purposes and working capital requirements. The principal terms of the new syndicated facility include: |
| |
| • | The facility has two tranches (a €700m facility available to Corus and Corus Nederland BV, and a further €100m for Corus Nederland BV only). |
| | |
| • | The €700m facility will reduce by an amount up to €100m on 1 January 2008, less any prior reductions, and will not be required to be reduced below €550m. |
| | |
| • | Fixed security over shares in Corus Nederland BV and its UK holding companies and a floating charge over the assets of Corus Group plc (but excluding its shares in Corus UK Limited). Unlike the previous facility, the banks participating in the new facility do not have any security over the shares and assets of Corus UK Limited or Corus Finance plc. |
| | |
| Covenants (under pre-existing UK GAAP): |
| |
| • | Group EBITDA/net interest cover and Corus Nederland Group EBITDA/Corus Nederland Group net interest cover shall not be less than: 3.5 times until the end of December 2006; 4 times until the end of 2007; and, 4.5 times until the end of December 2008. |
| | |
| • | Group consolidated net tangible worth (after allowing for impairment/restructuring costs) shall not be less than £2,500m until the end of 2006; £2,750m until the end of 2007; and £3,000m until the end of 2008. Corus Nederland Group consolidated net tangible worth shall not be less than €2,000m. |
| | |
| • | Dividends of up to 50% of consolidated net income (prior to exceptional items) are permitted, subject to Group EBITDA/net interest cover of at least 4.5 times. |
| | |
| • | Group gearing (net debt/net tangible worth, after allowing for impairment/restructuring costs) shall not exceed 60% until the end of December 2007 and 55% until the end of December 2008. Corus Nederland Group gearing shall not exceed 35% until the end of December 2008. |
| | |
(v) | The 11.5% Debenture stock 2016 is secured by a floating charge over the assets of Corus UK Limited. The Debenture stock contains various covenants, the most onerous of which is that the aggregate value of tangible assets of Corus UK Limited situated in the UK shall not be less than £2,000m. Following the balance sheet date this Debenture has been fully redeemed (see Note 40). |
| |
(vi) | The other Bonds, Eurobond and other Debenture stock are unsecured and contain no financial covenants. Under the terms of the 6.75% Bonds 2008 the Company has agreed that no further charges will be created over the assets of Corus UK Limited to support bond debt other than the Debenture stock described in (v) above. |
| |
(vii) | The €307m 3% Guaranteed convertible unsubordinated bonds due 2007, issued by the Company, are unconditionally and irrevocably guaranteed by Corus UK Limited. |
| |
(viii) | On 23 September 2004, €600m 7.5% Senior notes due 2011 were issued by the Company. On 20 October 2004, a further €200m of these notes were issued with the second issue being at a premium of 5.5%, equivalent to £8m. The notes are unsecured and are guaranteed on a senior basis by Corus UK Limited, and contain no financial covenants. |
| |
(ix) | Corus has a revolving period securitisation programme under which it may offer to assign all of its rights, title and interest in a pool of invoiced trade receivables to a third party which is funded ultimately in the commercial paper markets. Cash advanced under this programme at the end of the year amounted to £272m and under IAS 39 this has been shown as non-current borrowings. The Group is not obliged, and does not intend, to support any losses arising from the assigned receivables against which cash has been advanced. In the event of default in payment by a debtor, the providers of the finance will seek repayment of cash advanced, as to both principal and interest, only from the remainder of the pool of debtors in which they hold an interest. Repayment will not be sought from the Group in any other way. |
| |
(x) | As a result of the adoption of IAS 32 on 2 January 2005, the redeemable shares issued by Cogent Power Ltd are now disclosed as financial liabilities. In 2004 these shares were included within minority interests. The redeemable shares, which do not carry any voting or dividend rights, were issued in 2000 by Cogent Power Ltd, a 75% subsidiary of Corus Group plc, at £1 per share and are redeemable at £1 per share at the option of the shareholders. |
| | | | | | | |
Authorised, issued and fully paid | | | 2005
£m | | | 2004
£m | |
|
|
|
|
|
|
| |
Redeemable shares of £1 each | | | 8 | | | n/a | |
|
|
|
|
|
|
| |
Corus Report & Accounts and Form 20-F 2005 121
Notes to the consolidated accounts
21. Other non-current liabilities
| | | | | | | |
| | | 2005
£m | | | 2004
£m | |
|
|
|
|
|
|
| |
Non-current financial liabilities (Note 23) | | | 22 | | | — | |
Other creditors | | | 24 | | | 26 | |
|
|
|
|
|
|
| |
| | | 46 | | | 26 | |
|
|
|
|
|
|
| |
| | | | | | | |
| | | 2005
£m | | | 2004
£m | |
|
|
|
|
|
|
| |
An analysis of other creditors by currency is set out below: | | | | | | | |
Sterling | | | 21 | | | 24 | |
Euros | | | 1 | | | 1 | |
Other | | | 2 | | | 1 | |
|
|
|
|
|
|
| |
| | | 24 | | | 26 | |
|
|
|
|
|
|
| |
These other creditors, which predominately relate to long term insurance liabilities, are due for repayment within five years and are not subject to interest.
22. Currency analysis of net assets
The Group’s net assets by principal currencies at the end of the period are:
| | | | | | | | | | | | | | | | | |
| | 2005 | | 2004 | |
| |
| |
| |
| | Operational
net assets by
functional
currency
£m | | Cash, short term
deposits and
short term
investments
£m | | Gross
borrowings
£m | | Net
assets
£m | | Operational
net assets by
functional
currency
£m | | Cash, short term
deposits and
short term
investments
£m | | Gross
borrowings
£m | | Net
assets
£m | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Sterling | | 2,270 | | 707 | | (665 | ) | 2,312 | | 1,921 | | 286 | | (379 | ) | 1,828 | |
Euros | | 1,697 | | 98 | | (995 | ) | 800 | | 1,790 | | 234 | | (1,035 | ) | 989 | |
US Dollars | | 75 | | 48 | | (2 | ) | 121 | | 42 | | 36 | | (1 | ) | 77 | |
Other | | 157 | | 18 | | (30 | ) | 145 | | 147 | | 44 | | (27 | ) | 164 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | 4,199 | | 871 | | (1,692 | ) | 3,378 | | 3,900 | | 600 | | (1,442 | ) | 3,058 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
The Group’s policy is to protect the value following translation of assets denominated in foreign currency and therefore to economically hedge a proportion of material overseas investments with foreign currency borrowings consistent with maintaining a prudent approach to the value of currency liabilities when translated back to sterling. In the case of the investment in Corus Nederland BV, where the risk tends to be balanced over time by the opposing effect of exchange rate movements on its competitiveness and profitability, only a partial hedge is undertaken. The period end position was compatible with the Group’s policy and strategy which was applied consistently throughout the period.
122 Corus Report & Accounts and Form 20-F 2005
Notes to the consolidated accounts
23. Derivative financial instruments
The Group utilises currency and commodity derivatives to hedge significant future transactions and cash flows. In addition certain of the Group’s other operating contracts and convertible loan notes contain embedded derivatives that are required to be accounted for separately. These items gave rise to the following fair values that have been recognised in the balance sheet:
| | | | | | | |
| | Assets
£m | | Liabilities
£m | |
|
|
|
|
|
|
| |
At the end of the period | | | | | | | |
Non-current: | | | | | | | |
Commodity contracts | | | — | | | (10 | ) |
Foreign currency contracts | | | — | | | (7 | ) |
Other embedded derivatives | | | — | | | (5 | ) |
|
|
|
|
|
|
| |
| | | — | | | (22 | ) |
|
|
|
|
|
|
| |
Current: | | | | | | | |
Commodity contracts | | | 40 | | | (25 | ) |
Foreign currency contracts | | | 40 | | | (5 | ) |
Other embedded derivatives | | | 5 | | | (8 | ) |
|
|
|
|
|
|
| |
| | | 85 | | | (38 | ) |
|
|
|
|
|
|
| |
| | | 85 | | | (60 | ) |
|
|
|
|
|
|
| |
| | | | | | | |
| | Assets
£m | | Liabilities
£m | |
|
|
|
|
| |
On adoption of IAS 32 and IAS 39 | | | | | | | |
Non-current: | | | | | | | |
Commodity contracts | | | 5 | | | — | |
Foreign currency contracts | | | 8 | | | (1 | ) |
Other embedded derivatives | | | — | | | — | |
|
|
|
|
|
|
| |
| | | 13 | | | (1 | ) |
|
|
|
|
|
|
| |
Current: | | | | | | | |
Commodity contracts | | | 35 | | | — | |
Foreign currency contracts | | | 25 | | | (45 | ) |
Other embedded derivatives | | | — | | | (3 | ) |
|
|
|
|
|
|
| |
| | | 60 | | | (48 | ) |
|
|
|
|
|
|
| |
| | | 73 | | | (49 | ) |
|
|
|
|
|
|
| |
| | | | |
| | | 2005
£m | |
|
|
|
| |
The net fair values of derivative financial instruments that were designated as cash flow hedges at the balance sheet date were: | | | | |
Commodity contracts | | | 11 | |
Foreign currency contracts | | | (22 | ) |
The following amounts have been transferred to profit and loss and inventories in respect of contracts maturing or arising during the period: | | | | |
Commodity contracts | | | 6 | |
Foreign currency contracts | | | (50 | ) |
|
|
|
| |
At the balance sheet date the total notional amount of outstanding foreign currency and commodity contracts that the Group has committed to are as follows:
| | | | | | | |
| | | 2005
£m | | | 2004
£m | |
|
|
|
|
|
|
| |
Foreign currency contracts | | | 1,782 | | | 1,367 | |
Commodity futures and options | | | 367 | | | 368 | |
|
|
|
|
|
|
| |
The Group covers substantially 100% of its contracted currency transaction exposure by way of forward currency exchange contracts and options. In this respect, no material gains or losses are recognised in profit and loss.
Corus Report & Accounts and Form 20-F 2005 123
Notes to the consolidated accounts
24. Fair values of non derivative financial assets and financial liabilities
The major financial risks facing the Group and the objectives and policies for holding financial instruments are discussed in the Financial review on pages 51 and 52.
| | | | | | | | | |
| | 2005 | | 2004 | |
| |
| |
| |
| | Book value
£m | | Fair value
£m | | Book value
£m | | Fair value
£m | |
|
|
|
|
|
|
|
|
| |
Financial assets: | | | | | | | | | |
Non-current loans and receivables and available for sale investments (Note 13) | | 113 | | 113 | | 66 | | 66 | |
Trade and other receivables (Note 16) | | 1,512 | | 1,512 | | 1,363 | | 1,363 | |
Other short term investments | | — | | — | | 11 | | 11 | |
Cash and short term deposits (i) (Note 17) | | 871 | | 871 | | 589 | | 589 | |
Financial liabilities: | | | | | | | | | |
Current borrowings (i) (Note 20) | | (384 | ) | (415 | ) | (379 | ) | (395 | ) |
Trade and other payables (Note 19) | | (1,844 | ) | (1,844 | ) | (1,742 | ) | (1,742 | ) |
Non-current borrowings (iii) (Note 20) | | (1,308 | ) | (1,428 | ) | (1,063 | ) | (1,220 | ) |
|
|
|
|
|
|
|
|
| |
| | (1,040 | ) | (1,191 | ) | (1,155 | ) | (1,328 | ) |
|
|
|
|
|
|
|
|
| |
The following notes summarise the principal methods and assumptions that are used in estimating the fair values of non derivative financial instruments.
Non-current loans and receivables and non-current borrowings are valued at market prices or dealer quotes.
| |
(i) | The fair values of cash, short term deposits, short term investments and current borrowings (other than those arising from separately listed debt) approximate to their book values due to their short term nature. |
| |
(ii) | For those loan investments bearing either no interest or a floating rate of interest it is deemed that the carrying amount approximates to the fair value. For those bearing a fixed rate of interest, unless there is a significant difference between the fixed rate and the rate at which the Group could make a similar loan in current conditions, it is deemed the carrying amount approximates to the fair value. |
| |
(iii) | £313m (2004: £27m) of borrowings are with variable rate terms, for which the carrying amount approximates to fair value because of the frequency of re-pricing at market value. The remaining £1,379m (2004: £1,415m) of borrowings are fixed. For these, fair values are based on quoted market values where appropriate, or are estimated by discounting future cash flows using rates currently available to the Group for borrowings with similar terms. |
25. Provisions for liabilities and charges
| | | | | | | | | | | | | |
| | Rationalisation
costs
£m | | Insurance
£m | | Employee
benefits
£m | | Other
£m | | Total
2005
£m | | Total
2004
£m | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
At beginning of period | | 134 | | 41 | | 20 | | 68 | | 263 | | 254 | |
Charged to profit and loss | | 48 | | 4 | | 7 | | 11 | | 70 | | 83 | |
Released to profit and loss | | (15 | ) | — | | — | | (3 | ) | (18 | ) | (15 | ) |
Disposal of group undertakings | | (4 | ) | — | | (2 | ) | — | | (6 | ) | — | |
Utilised in period | | (63 | ) | (3 | ) | — | | (9 | ) | (75 | ) | (59 | ) |
Exchange rate movements | | — | | — | | — | | (1 | ) | (1 | ) | — | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
At end of period | | 100 | | 42 | | 25 | | 66 | | 233 | | 263 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Analysed as: | | | | | | | | | | | | | |
Current liabilities | | 92 | | 4 | | 2 | | 19 | | 117 | | 141 | |
Non-current liabilities | | 8 | | 38 | | 23 | | 47 | | 116 | | 122 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
124 Corus Report & Accounts and Form 20-F 2005
Notes to the consolidated accounts
25. Provisions for liabilities and chargescontinued
(i) Rationalisation costs include redundancy provisions as follows:
| | | | | | | | | |
| | By value | | Related employee numbers | |
| |
| |
| |
| | 2005
£m | | 2004
£m | | 2005
No. | | 2004
No. | |
|
|
|
|
|
|
|
|
| |
At beginning of period | | 58 | | 59 | | 2,100 | | 2,179 | |
Group charge for redundancies (across manufacturing, selling, distribution and administration) | | 31 | | 30 | | 950 | | 1,023 | |
Released to profit and loss | | (4 | ) | (4 | ) | (226 | ) | (166 | ) |
Disposal of group undertakings | | (4 | ) | — | | (76 | ) | — | |
Utilised during the period | | (33 | ) | (27 | ) | (1,169 | ) | (936 | ) |
|
|
|
|
|
|
|
|
| |
At end of period | | 48 | | 58 | | 1,579 | | 2,100 | |
|
|
|
|
|
|
|
|
| |
| | | | | | | | | |
| | 2005
£m | | 2004
£m | | | | | |
|
|
|
|
| | | | | |
Other rationalisation provisions arise as follows: | | | | | | | | | |
Onerous lease payments relating to unutilised premises | | 7 | | 7 | | | | | |
Environmental and other remediation costs | | 22 | | 32 | | | | | |
Pension and other charges associated with redundancies | | 13 | | 21 | | | | | |
Other | | 10 | | 16 | | | | | |
|
|
|
|
| | | | | |
| | 52 | | 76 | | | | | |
|
|
|
|
| | | | | |
| |
| Although the precise timing in respect of rationalisation provisions including redundancy is not known, the majority is expected to be incurred within two years. |
| |
(ii) | The insurance provisions relate to Crucible Insurance Company Limited which underwrites marine cargo, employers’ liability, public liability and retrospective hearing impairment policies for the Group. These provisions are subject to regular review and are adjusted as appropriate; the value of final insurance settlements is uncertain and so is the timing of expenditure. |
| |
(iii) | Provisions for employee benefits include long term benefits such as long service and sabbatical leave, disability benefits and sick leave. All items are subject to independent actuarial assessments. |
| |
(iv) | Other provisions include £6m (2004: £6m) for product warranty claims. During the period there were charges to profit and loss of £3m (2004: £3m) and cash settlements of £3m (2004: £7m) against these claims. The other provisions also include environmental provisions for which the timing of any potential expenditure is uncertain. |
Corus Report & Accounts and Form 20-F 2005 125
Notes to the consolidated accounts
26. Deferred tax
The following is the analysis of the deferred tax balances for balance sheet purposes:
| | | | | | | | | | | |
| | | | | | | | 2005
£m | | 2004
£m | |
|
|
|
|
|
|
|
|
|
|
| |
Deferred tax assets | | | | | | | | 172 | | 174 | |
Deferred tax liabilities | | | | | | | | (126 | ) | (137 | ) |
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | 46 | | 37 | |
|
|
|
|
|
|
|
|
|
|
| |
The following are the major deferred tax assets and liabilities recognised by the Group, and the movements thereon, during the current and prior reporting periods.
| | | | | | | | | | | |
2005 | | Accelerated tax
depreciation
£m | | Losses
£m | | Pension
£m | | Other
£m | | Total
£m | |
|
|
|
|
|
|
|
|
|
|
| |
At beginning of period | | (209 | ) | 259 | | (14 | ) | 1 | | 37 | |
(Charged)/credited to profit and loss | | (24 | ) | 55 | | (20 | ) | (8 | ) | 3 | |
Exchange rate movements | | 2 | | — | | 1 | | 1 | | 4 | |
Credited/(charged) to equity | | — | | — | | 20 | | (13 | ) | 7 | |
Reclassifications | | — | | — | | — | | (5 | ) | (5 | ) |
|
|
|
|
|
|
|
|
|
|
| |
At end of period | | (231 | ) | 314 | | (13 | ) | (24 | ) | 46 | |
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | |
2004 | | Accelerated tax
depreciation
£m | | Losses
£m | | Pension
£m | | Other
£m | | Total
£m | |
|
|
|
|
|
|
|
|
|
|
| |
At beginning of period | | (176 | ) | 231 | | (33 | ) | 18 | | 40 | |
(Charged)/credited to profit and loss | | (32 | ) | 28 | | — | | (17 | ) | (21 | ) |
Exchange rate movements | | (1 | ) | — | | — | | — | | (1 | ) |
Credited to equity | | — | | — | | 19 | | — | | 19 | |
|
|
|
|
|
|
|
|
|
|
| |
At end of period | | (209 | ) | 259 | | (14 | ) | 1 | | 37 | |
|
|
|
|
|
|
|
|
|
|
| |
The deferred tax assets of £172m (2004: £174m), which mainly arise in the UK, are recoverable against future forecast taxable profits that the directors consider to be more likely than not to occur. Deferred tax assets have not been recognised in respect of total tax losses with a value of £1,471m (2004: £1,706m). These losses include UK losses of £1,063m (2004: £1,218m) and non UK losses of £286m (2004: £299m) that expire between the years 2009 to 2024.
At the balance sheet date, the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries, joint ventures and associates for which deferred tax liabilities have not been recognised is £1,397m (2004: £1,533m). No liability has been recognised in respect of these differences because the Group is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future.
27. Deferred income
| | | | | | | | | | | |
| | | | Contract
advances
£m | | Development
grants
£m | | Total
2005
£m | | Total
2004
£m | |
|
|
|
|
|
|
|
|
|
|
| |
At beginning of period | | | | — | | 33 | | 33 | | 39 | |
New contributions received | | | | 43 | | 2 | | 45 | | — | |
Releases to profit and loss | | | | (6 | ) | (5 | ) | (11 | ) | (6 | ) |
Accelerated releases to profit and loss | | | | — | | (2 | ) | (2 | ) | — | |
|
|
|
|
|
|
|
|
|
|
| |
At end of period | | | | 37 | | 28 | | 65 | | 33 | |
|
|
|
|
|
|
|
|
|
|
| |
New contract advance contributions largely relate to amounts received in accordance with the 10 year off-take agreement to supply slab from the Teesside Cast Products business.
126 Corus Report & Accounts and Form 20-F 2005
Notes to the consolidated accounts
28. Share capital
28.1 Share capital of the Company
The share capital of the Company is shown below:
| | | | | | | |
Authorised | | 2005
£m | | 2004
£m | |
|
|
|
|
| |
9,978,327,388 ordinary shares of 10p each | | | 998 | | | 998 | |
3,130,418,153 deferred shares of 40p each | | | 1,252 | | | 1,252 | |
|
|
|
|
|
|
| |
| | | 2,250 | | | 2,250 | |
|
|
|
|
|
|
| |
| | | | | | | |
Allotted, called up and fully paid | | 2005
£m | | 2004
£m | |
|
|
|
|
| |
4,452,087,589 (2004: 4,438,832,877) ordinary shares of 10p each | | | 445 | | | 444 | |
3,130,418,153 (2004: 3,130,418,153) deferred shares of 40p each | | | 1,252 | | | 1,252 | |
|
|
|
|
|
|
| |
| | | 1,697 | | | 1,696 | |
|
|
|
|
|
|
| |
| |
(i) | The increase in ordinary share capital during the period comprises the following allotments: |
| | | | | | | | | | | | | |
| | No. of shares | | No. of shares | | £m | | £m | |
| |
|
|
| |
|
|
| |
Issued | | 2005 | | 2004 | | 2005 | | 2004 | |
|
|
|
|
|
|
|
|
| |
Exercise of share options | | | 4,933,106 | | | 1,033,943 | | | — | | | — | |
Awards of shares under Employee Share Ownership Plan | | | 5,300,913 | | | 3,039,884 | | | 1 | | | — | |
Awards of shares under Leveraged Equity Acquisition Plan | | | 3,020,693 | | | — | | | — | | | — | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | 13,254,712 | | | 4,073,827 | | | 1 | | | — | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
| Share options were exercised at prices ranging between 42p and 54p (2004: 50p). Shares were awarded under the Employee Share Ownership Plan at prices ranging between 43p and 60p (2004: ranging between 42p and 53p). Shares were awarded under the Leveraged Equity Acquisition Plan at prices ranging between 10p and 58p (2004: £nil). The total consideration received was £6m (2004: £1m). |
| |
(ii) | The rights attached to the deferred shares, which are not listed, renders them effectively worthless and it is intended that they will be cancelled and an appropriate reserve created in due course. |
| |
(iii) | Pursuant to the approvals given at the Annual General Meetings held on 22 April 2004 and 16 June 2005, the Company retained authority to make market purchases of up to 444,565,340 of its own ordinary shares up to the end of the Annual General Meeting to be held in 2006. No purchases under these authorities have been made. Details of ordinary shares purchased are shown below: |
| | | | | | | | | | | | | |
| | Total number of
shares purchased* | | Average price
paid per share | | Total number of shares
purchased as part of
publicly announced
plans or programs | | Maximum number of
shares that may yet
be purchased under
the plans or programs | |
| |
| |
| |
| |
| |
Period | | | 2005 | | | 2005 | | | 2005 | | | 2005 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
January | | | — | | | — | | | — | | | — | |
February | | | — | | | — | | | — | | | — | |
March | | | — | | | — | | | — | | | — | |
April | | | — | | | — | | | — | | | — | |
May | | | 114,138 | | | 58 | p | | — | | | — | |
June | | | — | | | — | | | — | | | — | |
July | | | — | | | — | | | — | | | — | |
August | | | — | | | — | | | — | | | — | |
September | | | — | | | — | | | — | | | — | |
October | | | — | | | — | | | — | | | — | |
November | | | — | | | — | | | — | | | — | |
December | | | — | | | — | | | — | | | — | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
| * | Purchases made by Hill Samuel ESOP Trustees Limited in respect of awards made under the Employee Share Ownership Plan and by the Hill Samuel Offshore Trust Limited in respect of awards made under the Leveraged Equity Acquisition Plan. |
| | |
(iv) | The Group operates a number of employee share plans and included within employment costs in Note 4 is an expense arising from these share-based payment transactions amounting to £12m. Details of the share plans are given below and, where applicable, in the Report on remuneration. |
Corus Report & Accounts and Form 20-F 2005 127
Notes to the consolidated accounts
28. Share capitalcontinued
28.2 Rights to subscribe for shares
Employee Share Plans
Five share option schemes were in operation during the year:
| | | | |
| | Executive scheme name | | Sharesave scheme name |
|
|
|
|
|
Former British Steel schemes: | | Corus UK Executive | | |
| | Corus Overseas Executive | | |
Corus schemes: | | Corus Executive | | Corus Sharesave |
| | | | Corus International Sharesave |
|
|
|
|
|
The former British Steel Schemes are no longer capable of being used for granting options because their rules only permit options to be granted over British Steel shares. Options outstanding on 6 October 1999, when British Steel plc merged with Koninklijke Hoogovens NV to form Corus Group plc, were converted from options over British Steel shares into options over Corus shares whilst maintaining the exercisable value. These schemes continue to operate in all respects other than in connection with granting of options and are described in more detail in the Report on remuneration.
Sharesave schemes
The Corus Sharesave Scheme is a UK HM Revenue & Customs approved savings related sharesave scheme available to UK employees. The scheme rules of the Corus International Sharesave Scheme are based, to such an extent as practically possible, on the rules of the Corus Sharesave Scheme.
The majority of employees in the UK, the Netherlands and Germany are eligible to apply for options under one or other of the Sharesave Schemes which are linked to a three year savings contract. Options are granted at a price not less than 80% of the average of the market value of an ordinary share on the London Stock Exchange on three consecutive dealing days immediately preceding the date of invitation and within 30 days of date of grant.
Movements in ordinary shares under sharesave schemes are set out below:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Corus UK Sharesave
No. of shares
000s | | Corus Sharesave
No. of shares
000s | | Corus
International Sharesave
No. of shares
000s | | Weighted
average
exercise price | |
| |
| |
| |
| |
| |
Period | | 2005 | | 2004 | | 2005 | | 2004 | | 2005 | | 2004 | | 2005 | | 2004 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
At beginning of period | | | — | | | 10 | | | 112,484 | | | 61,446 | | | 35,870 | | | — | | | 45 | p | | 50 | p |
Granted | | | — | | | — | | | 43,417 | | | 81,162 | | | 10,908 | | | 35,870 | | | 39 | p | | 42 | p |
Exercised | | | — | | | — | | | (393 | ) | | (1,034 | ) | | (7 | ) | | — | | | 49 | p | | 50 | p |
Forfeited | | | — | | | — | | | (1,066 | ) | | (455 | ) | | (126 | ) | | — | | | 43 | p | | 50 | p |
Expired or lapsed | | | — | | | (10 | ) | | (18,750 | ) | | (28,635 | ) | | (1,180 | ) | | — | | | 44 | p | | 50 | p |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
At end of period | | | — | | | — | | | 135,692 | | | 112,484 | | | 45,465 | | | 35,870 | | | 42 | p | | 45 | p |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Exercisable at end of period | | | — | | | — | | | 876 | | | 721 | | | — | | | — | | | 45 | p | | 50 | p |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
The weighted average share prices at the date of exercise and date of grant were 51p (2004: 53p) and 39p (2004: 42p) respectively.
Sharesave options over ordinary shares outstanding together with their exercise prices and dates of exercise are set out below:
| | | | | | | | | | | | | | | | |
| | Year of
grant | | Price
per share | | No. of shares
2005 | | No. of shares
2004 | | Normal dates
of exercise | |
|
|
|
|
|
|
|
|
|
|
| |
Corus Sharesave Scheme | | | 2001 | | | 50 | p | | — | | | 544,398 | | | 2005 | |
| | | 2001 | | | 50 | p | | 26,869,807 | | | 30,944,648 | | | 2006 | |
| | | 2004 | | | 42 | p | | 65,470,938 | | | 80,995,367 | | | 2008 | |
| | | 2005 | | | 39 | p | | 43,351,764 | | | — | | | 2009 | |
Corus International Sharesave Scheme | | | 2004 | | | 42 | p | | 34,556,511 | | | 35,869,601 | | | 2008 | |
| | | 2005 | | | 39 | p | | 10,908,159 | | | — | | | 2009 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | 181,157,179 | | | 148,354,014 | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Options were granted under the Corus Sharesave Scheme and the Corus International Sharesave Scheme on 4 October 2005 at an exercise price of 39p per share (2004: 15 October 2004 at 42p per share). The market price on the day of grant was 52p (2004: 50p). The option price was equivalent to 80% of the market value of the options at the date of invitation. The weighted average length of time to expiry is 28 months.
128 Corus Report & Accounts and Form 20-F 2005
Notes to the consolidated accounts
28. Share capitalcontinued
28.2 Rights to subscribe for sharescontinued
Executive Schemes
Options under all executive schemes are normally exercisable between the third and tenth anniversary of the date of grant. Options are granted at a price which is the average of the market value of an ordinary share on the London Stock Exchange on the three consecutive dealing days immediately preceding the date of grant. No options were granted during the year.
Movements in ordinary shares under executive share option schemes are set out below:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Corus UK Executive
No. of shares
000s | | Corus Overseas Executive
No. of shares
000s | | Corus Executive
No. of shares
000s | | Weighted average price | |
| |
| |
| |
| |
| |
| | 2005 | | 2004 | | 2005 | | 2004 | | 2005 | | 2004 | | 2005 | | 2004 | |
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|
| |
At beginning of period | | | 4,378 | | | 7,161 | | | 9,317 | | | 12,152 | | | 54,192 | | | 58,136 | | | 85 | p | | 89 | p |
Granted | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Exercised | | | — | | | — | | | — | | | — | | | (4,533 | ) | | — | | | 53 | p | | — | |
Forfeited | | | (24 | ) | | (94 | ) | | (26 | ) | | (122 | ) | | (990 | ) | | (509 | ) | | 76 | p | | 94 | p |
Expired or lapsed | | | (1,623 | ) | | (2,689 | ) | | (1,626 | ) | | (2,713 | ) | | (12,668 | ) | | (3,435 | ) | | 96 | p | | 118 | p |
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At end of period | | | 2,731 | | | 4,378 | | | 7,665 | | | 9,317 | | | 36,001 | | | 54,192 | | | 85 | p | | 85 | p |
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Exercisable at end of period | | | 109 | | | 1,625 | | | 2,885 | | | 3,955 | | | 2,651 | | | 16,728 | | | 106 | p | | 95 | p |
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The weighted average share price at date of exercise was 58p (2004: nil).
Executive share options over ordinary shares outstanding together with their exercise prices and dates of exercise are set out below:
| | | | | | | | | | | | | | | | |
| | Year of
grant | | Price
per share | | No. of shares | | Normal dates
of exercise | |
| | | |
| | |
| | | | 2005 | | 2004 | | |
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|
|
|
|
|
|
|
|
|
| |
Corus UK Executive Share Option Scheme | | | 1995 | | | 126 | p | | — | | | 1,059,012 | | | 1998-2005 | |
| | | 1996 | | | 134 | p | | 279,390 | | | 327,712 | | | 1999-2006 | |
| | | 1997 | | | 118 | p | | 953,370 | | | 1,205,106 | | | 2000-2007 | |
| | | 1999 | | | 125 | p | | 1,498,517 | | | 1,785,713 | | | 2002-2009 | |
Corus Overseas Executive Share Option Scheme | | | 1995 | | | 126 | p | | — | | | 8,690 | | | 1998-2005 | |
| | | 1996 | | | 134 | p | | 934,228 | | | 1,211,009 | | | 1999-2006 | |
| | | 1997 | | | 118 | p | | 1,556,296 | | | 1,935,790 | | | 2000-2007 | |
| | | 1999 | | | 125 | p | | 5,174,657 | | | 6,161,690 | | | 2002-2009 | |
Corus Executive Share Option Scheme | | | 2000 | | | 117 | p | | 13,584,304 | | | 20,820,741 | | | 2003-2010 | |
| | | 2000 | | | 103 | p | | 117,113 | | | 117,113 | | | 2003-2010 | |
| | | 2001 | | | 54 | p | | 18,897,191 | | | 29,031,058 | | | 2004-2011 | |
| | | 2001 | | | 49 | p | | — | | | 820,617 | | | 2004-2011 | |
| | | 2003 | | | 16 | p | | 3,401,953 | | | 3,401,953 | | | 2006-2013 | |
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|
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| | | | | | | | | 46,397,019 | | | 67,886,204 | | | | |
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The weighted average length of time to expiry is 50 months.
The Employee Share Ownership Plan
The Employee Share Ownership Plan was introduced in 2001 with an offer of free and partnership shares in accordance with the rules of the scheme. Eligible employees are allowed to make contributions from pre-tax salary to buy Corus ordinary shares, which are held in trust (partnership shares). Shares are issued to satisfy awards of free and partnership shares at the market value of an ordinary share on the London Stock Exchange on the day prior to award. Only partnership shares were awarded and issued to the trust during the year.
Corus Report & Accounts and Form 20-F 2005 129
Notes to the consolidated accounts
28. Share capitalcontinued
28.2 Rights to subscribe for sharescontinued
The Leveraged Equity Acquisition Plan
In 2004 the Company introduced a new share-based, long term incentive arrangement known as the Leveraged Equity Acquisition Plan (LEAP). Its objective is to create a very strong link between business performance, senior executives’ reward and shareholders’ interests over the medium term, by providing both an opportunity for executive directors and Executive committee members to invest in the Company’s ordinary shares and a deferred bonus arrangement based on shares. Subject to the satisfaction of a performance condition, described below, an award of matching shares may be made based on the performance achieved and the number of shares executives have invested in the Plan.
| | | |
LEAP TSR Performance relative to comparator group | | Matching awards |
|
|
|
Below | 50th percentile | | Nil |
| 50th | | One half of the shares in LEAP |
| 51st to 66th | | Pro rata between one half and one times the shares in LEAP |
| 67th | | One times the shares in LEAP |
| 68th to 74th | | Pro rata between one and two times the shares in LEAP |
| 75th | | Two times the shares in LEAP |
| 76th to 89th | | Pro rata between two and three times the shares in LEAP |
| 90th and above | | Three times the shares in LEAP |
|
|
|
|
This performance condition was chosen because relative performance to a relevant group (the FTSE 250 excluding the finance sector) is considered a valid and appropriate comparator group as the Company was a constituent of this group at the time awards were made.
There are three routes to investment in the LEAP:
| |
• | the mandatory investment of half of annual bonus; |
| |
• | an award of conditional shares of up to 25% of annual salary in any year; conditional shares are also subject to performance conditions which are described below; and |
| |
• | further shares from executives’ own resources if they choose. |
Investment in any year is subject to a maximum commitment of 60% of an executive’s annual base salary with all the above routes to investment counting towards this maximum.
These shares will vest, provided the Company’s Total Shareholder Return (TSR) is at or above the 50th percentile compared to a comparator group of companies. The comparator group consists of the FTSE 250 at the date of the award, but excludes those companies in the finance sector.
Matching shares may also be awarded, with the number of potential matching shares determined by reference to the same performance condition and comparator group, in accordance with the table above. Matching shares may apply to shares acquired by bonus deferral, conditional shares and shares transferred to the LEAP from the executive’s own resources.
Further details of the scheme as it applies to Executive committee members are given in the Report on remuneration with shares vesting and being matched, subject to performance conditions having been met, after three years.
Other members of the scheme receive awards of only conditional shares which also vest after three years subject to the level of performance achieved by the Company in accordance with the table above.
Shares issued to satisfy awards are based on the market value of an ordinary share on the London Stock Exchange on the day prior to the award.
130 Corus Report & Accounts and Form 20-F 2005
Notes to the consolidated accounts
28. Share capitalcontinued
28.2 Rights to subscribe for sharescontinued
Movements in ordinary shares under the LEAP are set out below:
| | | | | | | | | | | | | |
| | Deferred bonus shares
No. of shares
000s | | Annual bonus cash shares
No. of shares
000s | |
| |
| |
| |
| | 2005 | | 2004 | | 2005 | | 2004 | |
|
|
|
|
|
|
|
|
| |
At beginning of period | | | 467 | | | — | | | 350 | | | — | |
Contributed | | | 1,269 | | | 467 | | | — | | | 350 | |
Vested | | | (98 | ) | | — | | | (28 | ) | | — | |
Forfeited | | | — | | | — | | | — | | | — | |
Expired or lapsed | | | — | | | — | | | — | | | — | |
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At end of period | | | 1,638 | | | 467 | | | 322 | | | 350 | |
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| |
| | | | | | | | | | | | | |
| | Investment shares
No. of shares
000s | | Conditional shares
No. of shares
000s | |
| |
| |
| |
| | 2005 | | 2004 | | 2005 | | 2004 | |
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|
| |
At beginning of period | | | 395 | | | — | | | 14,288 | | | — | |
Awarded | | | 114 | | | 395 | | | 9,405 | | | 14,490 | |
Vested | | | — | | | — | | | (675 | ) | | (43 | ) |
Forfeited | | | — | | | — | | | (572 | ) | | (159 | ) |
Expired or lapsed | | | — | | | — | | | — | | | — | |
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| |
At end of period | | | 509 | | | 395 | | | 22,446 | | | 14,288 | |
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| |
Convertible debt (see Note 20)
Holders of convertible debt can exercise their conversion rights throughout the unexpired term of the loans and be issued with Corus Group plc ordinary shares of 10p each as set out below:
| | | | | | | | | | | | | |
Corus Nederland BV 4.625% Subordinated convertible debenture loan 2007 | | Nominal
amount
€m | | No.
of shares
to be issued | | Period during
which right is
exercisable | | Consideration
to be received
£m | |
|
|
|
|
|
|
|
|
| |
At 1 January 2005 | | | 152 | | | 96,693,438 | | | 2000-2007 | | | 108 | |
At 31 December 2005 | | | 152 | | | 96,693,438 | | | 2000-2007 | | | 104 | |
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| |
| | | | | | | | | | |
Corus Group plc €307m 3% Unsubordinated convertible bond 2007 | | Nominal
amount
€m | | No.
of shares
to be issued | | Period during
which right is
exercisable | |
|
|
|
|
|
|
| |
At 1 January 2005 | | | 307 | | | 234,351,152 | | | 2002-2007 | |
At 31 December 2005 | | | 307 | | | 234,351,152 | | | 2002-2007 | |
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| |
Corus Report & Accounts and Form 20-F 2005 131
Notes to the consolidated accounts
29. Reconciliation of movements in share capital and reserves
| | | | | | | | | | | | | | | | | | | |
| | Share
capital
£m | | Share
premium
account
£m | | Statutory
reserve
£m | | Other
reserves
£m | | Consolidated
reserves
(see note vi)
£m | | Total
£m | |
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| |
2005 | | | | | | | | | | | | | | | | | | | |
At beginning of period | | | 1,696 | | | 168 | | | 2,338 | | | 201 | | | (1,378 | ) | | 3,025 | |
Adoption of IAS 32 and IAS 39 | | | — | | | — | | | — | | | — | | | 24 | | | 24 | |
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| |
At beginning of period as restated | | | 1,696 | | | 168 | | | 2,338 | | | 201 | | | (1,354 | ) | | 3,049 | |
Cancellation of Corus UK Limited statutory reserve | | | — | | | — | | | (2,338 | ) | | 24 | | | 2,314 | | | — | |
Profit after taxation attributable to equity holders of the parent | | | — | | | — | | | — | | | — | | | 452 | | | 452 | |
Reclassification to other reserves | | | — | | | — | | | — | | | 58 | | | (58 | ) | | — | |
Exchange translation differences on foreign currency net investments | | | — | | | — | | | — | | | — | | | (12 | ) | | (12 | ) |
New shares issued | | | 1 | | | 5 | | | — | | | — | | | — | | | 6 | |
Issue of conditional share awards | | | — | | | — | | | — | | | — | | | 12 | | | 12 | |
Actuarial gains and losses on defined benefit plans | | | — | | | — | | | — | | | — | | | (156 | ) | | (156 | ) |
Net movement on cash flow hedges | | | — | | | — | | | — | | | — | | | (6 | ) | | (6 | ) |
Revaluation of available for sale investments | | | — | | | — | | | — | | | — | | | 7 | | | 7 | |
Revaluation of goodwill due to exchange | | | — | | | — | | | — | | | — | | | (2 | ) | | (2 | ) |
Deferred tax on items taken directly to reserves | | | — | | | — | | | — | | | — | | | 24 | | | 24 | |
Dividends paid | | | — | | | — | | | — | | | — | | | (22 | ) | | (22 | ) |
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| |
At end of period | | | 1,697 | | | 173 | | | — | | | 283 | | | 1,199 | | | 3,352 | |
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| | | | | | | | | | | | | | | | | | | |
| | Share
capital
£m | | Share
premium
account
£m | | Statutory
reserve
£m | | Other
reserves
£m | | Consolidated
reserves
(see note vi)
£m | | Total
£m | |
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| |
2004 | | | | | | | | | | | | | | | | | | | |
At beginning of period | | | 1,696 | | | 167 | | | 2,338 | | | 201 | | | (1,782 | ) | | 2,620 | |
Profit after taxation attributable to equity holders of the parent | | | — | | | — | | | — | | | — | | | 447 | | | 447 | |
Exchange translation differences on foreign currency net investments | | | — | | | — | | | — | | | — | | | (2 | ) | | (2 | ) |
New shares issued | | | — | | | 1 | | | — | | | — | | | — | | | 1 | |
Issue of conditional share awards | | | — | | | — | | | — | | | — | | | 4 | | | 4 | |
Actuarial gains and losses on defined benefit plans | | | — | | | — | | | — | | | — | | | (64 | ) | | (64 | ) |
Deferred tax on items taken directly to reserves | | | — | | | — | | | — | | | — | | | 19 | | | 19 | |
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| |
At end of period | | | 1,696 | | | 168 | | | 2,338 | | | 201 | | | (1,378 | ) | | 3,025 | |
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| |
| |
(i) | The statutory reserve of £2,338m arose in Corus UK Limited under section 7(1) of the British Steel Act 1988. £381m of the statutory reserves were available for distribution; the balance of £1,957m being restricted reserves which could only be applied in paying up unissued shares to be allotted to members as fully paid bonus shares. On 17 June 2005, after issuing these bonus shares to the parent company Corus Group plc, Corus UK Limited made a court application for a capital reduction to effectively cancel the statutory reserve to the extent of any cumulative profit and loss deficit arising in that company. This application was successful and became effective as from 15 July 2005. |
| |
(ii) | Distributable retained profits of subsidiaries, joint ventures and associates attributable to the Group include £497m (2004: £637m) retained overseas. Deferred tax has not been provided on earnings retained overseas as it is not intended to remit earnings which would give rise to significant UK tax liabilities after taking account of any related double tax relief. |
| |
(iii) | Following the cancellation of the statutory reserve (see (i) above) the profits made on the disposals of certain assets and the settlement of certain provisions are being reclassified from consolidated reserves into other reserves. The brought forward other reserve balance largely relates to a merger accounting adjustment for the acquisition of Corus Nederland BV on the formation of Corus Group plc, previously reported under UK GAAP and exempt from revision on transition to IFRS. All of these other reserves are not available for distribution. |
| |
(iv) | Retained profits of subsidiary undertakings include £8m (2004: £6m) which is not available for distribution. |
| |
(v) | The cumulative translation exchange in equity at the end of the period since the transition to IFRS as from 4 January 2004 is £16m (2004: £2m). |
132 Corus Report & Accounts and Form 20-F 2005
Notes to the consolidated accounts
29. Reconciliation of movements in share capital and reservescontinued
| |
(vi) | Consolidated reserves may be further analysed as follows: |
| | | | | | | | | | | | | | | | | |
| | | Hedging
reserve
£m | | Translation
reserves
£m | | Investment
revaluation
reserves
£m | | Retained
earnings
£m | | Total
£m | |
|
|
|
|
|
|
|
|
|
|
|
| |
| 2005 | | | | | | | | | | | | | | | | |
| At beginning of period | | | — | | | (2 | ) | | — | | | (1,376 | ) | | (1,378 | ) |
| Adoption of IAS 32 and IAS 39 | | | 24 | | | — | | | — | | | — | | | 24 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| At beginning of period restated | | | 24 | | | (2 | ) | | — | | | (1,376 | ) | | (1,354 | ) |
| Cancellation of Corus UK Limited statutory reserve | | | — | | | — | | | — | | | 2,314 | | | 2,314 | |
| Profit after taxation attributable to equity holders of the parent | | | — | | | — | | | — | | | 452 | | | 452 | |
| Reclassification to other reserves | | | — | | | — | | | — | | | (58 | ) | | (58 | ) |
| Exchange translation differences on foreign currency net investments | | | — | | | (12 | ) | | — | | | — | | | (12 | ) |
| Issue of conditional share awards | | | — | | | — | | | — | | | 12 | | | 12 | |
| Actuarial gains and losses on defined benefit plans | | | — | | | — | | | — | | | (156 | ) | | (156 | ) |
| Net movement on cash flow hedges | | | (6 | ) | | — | | | — | | | — | | | (6 | ) |
| Revaluation of available for sale investments | | | — | | | — | | | 7 | | | — | | | 7 | |
| Revaluation of goodwill due to exchange | | | — | | | (2 | ) | | — | | | — | | | (2 | ) |
| Deferred tax on items taken directly to reserves | | | 8 | | | — | | | — | | | 16 | | | 24 | |
| Dividends paid | | | — | | | — | | | — | | | (22 | ) | | (22 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| At end of period | | | 26 | | | (16 | ) | | 7 | | | 1,182 | | | 1,199 | |
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | | | | | | | | | | | | | | | |
| | | Hedging
reserve
£m | | Translation
reserves
£m | | Investment
revaluation
reserves
£m | | Retained
earnings
£m | | Total
£m | |
|
|
|
|
|
|
|
|
|
|
|
| |
| 2004 | | | | | | | | | | | | | | | | |
| At beginning of period | | | — | | | — | | | — | | | (1,782 | ) | | (1,782 | ) |
| Profit after taxation attributable to equity holders of the parent | | | — | | | — | | | — | | | 447 | | | 447 | |
| Exchange translation differences on foreign currency net investments | | | — | | | (2 | ) | | — | | | — | | | (2 | ) |
| Issue of conditional share awards | | | — | | | — | | | — | | | 4 | | | 4 | |
| Actuarial gains and losses on defined benefit plans | | | — | | | — | | | — | | | (64 | ) | | (64 | ) |
| Deferred tax on items taken directly to reserves | | | — | | | — | | | — | | | 19 | | | 19 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| At end of period | | | — | | | (2 | ) | | — | | | (1,376 | ) | | (1,378 | ) |
|
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|
| |
30. Minority interests
| | | | | | | |
| | 2005
£m | | 2004
£m | |
|
|
|
|
| |
At beginning of period | | | 33 | | | 38 | |
Reclassification arising from adoption of IAS 32 (Note 20(x)) | | | (8 | ) | | — | |
Retained loss | | | (1 | ) | | (6 | ) |
Exchange rate movements | | | 2 | | | 1 | |
|
|
|
|
|
|
| |
At end of period | | | 26 | | | 33 | |
|
|
|
|
|
|
| |
31. Future capital expenditure
| | | | | | | |
| | 2005
£m | | 2004
£m | |
|
|
|
|
| |
Contracted but not provided for | | | 180 | | | 99 | |
Authorised but contracts not yet placed | | | 319 | | | 53 | |
|
|
|
|
|
|
| |
External consortium members will contribute approximately 76% of the expected US$100m capital expenditure of the Teesside Cast Products business over the 10 year agreement to supply slab, with the balance of the requirement being met by Corus. The amounts above reflect Corus’ 24% share of any contracted or authorised expenditure at the balance sheet date.
At the end of the period there was £4m (2004: £17m) of expenditure authorised but contracts not yet placed in relation to intangible assets.
Corus Report & Accounts and Form 20-F 2005 133
Notes to the consolidated accounts
32. Operating leases
| | | | | | | |
| | 2005
£m | | 2004
£m | |
|
|
|
|
| |
Committed amounts payable for the next year are: | | | | | | | |
Leases of land and buildings expiring: | | | | | | | |
Within one year | | | — | | | 1 | |
In years two to five | | | 2 | | | 4 | |
After more than five years | | | 10 | | | 9 | |
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|
|
|
|
| |
| | | 12 | | | 14 | |
|
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|
|
|
|
| |
Other leases (principally for plant and machinery) expiring: | | | | | | | |
Within one year | | | 18 | | | 10 | |
In years two to five | | | 25 | | | 51 | |
After more than five years | | | 32 | | | 14 | |
|
|
|
|
|
|
| |
| | | 75 | | | 75 | |
|
|
|
|
|
|
| |
Future minimum lease payments for the Group at the end of the period are: | | | | | | | |
Not later than one year | | | 87 | | | 89 | |
Later than one year and not later than five | | | 193 | | | 165 | |
More than five years | | | 262 | | | 154 | |
|
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|
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|
| |
33. Contingencies
| | | | | | | |
| | 2005
£m | | 2004
£m | |
|
|
|
|
| |
Guarantees given under trade agreements | | | 39 | | | 45 | |
Guarantees on behalf of joint ventures | | | 4 | | | 7 | |
Others | | | 81 | | | 42 | |
|
|
|
|
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| |
There are also contingent liabilities in the ordinary course of business in connection with the completion of contractual arrangements.
Within the EU there has historically been close co-operation between the steel industry, the European Commission and governments. Eurofer is the trade association to which all major European steel producers including Corus belong, either directly or through national trade associations. Eurofer, through its main committees, supplies and coordinates advice and information to its members and in turn represents them to, amongst others, the European Commission. These representations cover a wide range of issues where there is a need for a common industry voice, and include international trade policies, social and environmental control issues, research and development matters, market conditions and various aspects of the sale and marketing of steel products. They relate to most major steel products. Corus is also a member of other trade associations and other industry groups in respect of its other products and activities, for example, the European Aluminium Association (EAA).
On 8 November 2001 an explosion occurred at the no.5 blast furnace at Port Talbot works, which led to three employee fatalities, several employees suffering severe burns and the total loss of the blast furnace. Some contractors’ employees also suffered injuries. The accident was initially investigated by the police but the investigation was subsequently passed to the Health & Safety Executive. On 15 February 2006 the Health & Safety Executive served two summonses on Corus for alleged breaches of s.2(1) and s.3(1) of the Health & Safety Work Act 1974. The first hearing of the case is scheduled for 12 April 2006 at Neath Magistrate’s Court. Any convictions are likely to result in substantial fines being levied, although these would not be material in the context of the Group. Corus has admitted its civil liability for the incident. Twenty six civil claims for death and personal injury have been made against Corus. Should all the relevant claimants succeed in their claims, Corus’ liability could amount to several million pounds, although Corus has insurance cover in place that it expects will be able to meet these claims in full.
134 Corus Report & Accounts and Form 20-F 2005
Notes to the consolidated accounts
34. Reconciliation of cash generated from operations
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| | 2005
£m | | 2004
£m | |
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Profit after taxation | | | 451 | | | 441 | |
Adjustments for: | | | | | | | |
Tax | | | 129 | | | 126 | |
Depreciation and amortisation including impairment items (net of grants released) | | | 343 | | | 306 | |
Profit on disposals | | | (30 | ) | | (78 | ) |
Interest income | | | (31 | ) | | (13 | ) |
Interest expense | | | 132 | | | 129 | |
Share of results of joint ventures and associates | | | (1 | ) | | (21 | ) |
Other non cash items | | | 12 | | | 4 | |
Movement in pension prepayments and provisions | | | 1 | | | 1 | |
Movement in provisions for impairments of trade receivables | | | — | | | 1 | |
Movement in insurance and other provisions | | | 7 | | | 26 | |
Movement in loose plant, tools and spares | | | (16 | ) | | 18 | |
Movement in inventories | | | (262 | ) | | (357 | ) |
Movement in receivables | | | 72 | | | (277 | ) |
Movement in payables | | | 125 | | | 290 | |
Unamortised element of contract advances | | | 37 | | | — | |
Rationalisation costs provided | | | 33 | | | 31 | |
Utilisation of rationalisation provisions | | | (63 | ) | | (49 | ) |
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Net cash flow generated from operations | | | 939 | | | 578 | |
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35. Reconciliation of net cash inflow to movement in net debt
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| | 2005
£m | | 2004
£m | |
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Movement in cash and cash equivalents | | | 270 | | | 218 | |
Movement in short term investments | | | (11 | ) | | 5 | |
Movement in debt | | | 17 | | | (54 | ) |
Issue costs of new loans | | | — | | | 15 | |
Premium received on issue of new loans | | | — | | | (8 | ) |
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Change in net debt resulting from cash flows in period | | | 276 | | | 176 | |
Debt and liquid resources acquired | | | — | | | 3 | |
Exchange rate movements | | | 27 | | | (9 | ) |
Other non cash changes | | | (14 | ) | | (11 | ) |
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Movement in net debt in period | | | 289 | | | 159 | |
Net debt at beginning of period | | | (842 | ) | | (1,001 | ) |
Adoption of IAS 32 and IAS 39 | | | (268 | ) | | — | |
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Net debt at end of period | | | (821 | ) | | (842 | ) |
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The adoption of IAS 32 and IAS 39 may be further analysed as follows: | | | | | | | |
Reclassification of non-returnable proceeds from the securitisation programme | | | (275 | ) | | | |
Reclassification of equity element of convertible debt and accretion of interest thereon | | | 15 | | | | |
Reclassification of minority preference shares | | | (8 | ) | | | |
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| | | (268 | ) | | | |
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Corus Report & Accounts and Form 20-F 2005 135
Notes to the consolidated accounts
36. Analysis of net debt
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2003
£m | | Cash
flow
£m | | Acquisitions
(excluding cash
and overdrafts)
£m | | Exchange
rate
movements
£m | | Other
non cash
movements
£m | | 2004
£m | | Adoption of
IAS 32 and
IAS 39
£m | | Cash
flow
£m | | Exchange
rate
movements
£m | | Other
non cash
movements
£m | | 2005
£m | |
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Cash and short term deposits | | | 374 | | | 216 | | | — | | | (1 | ) | | — | | | 589 | | | — | | | 284 | | | (2 | ) | | — | | | 871 | |
Bank overdrafts | | | (34 | ) | | 2 | | | — | | | — | | | — | | | (32 | ) | | — | | | (14 | ) | | — | | | — | | | (46 | ) |
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Cash and cash equivalents | | | 340 | | | 218 | | | — | | | (1 | ) | | — | | | 557 | | | — | | | 270 | | | (2 | ) | | — | | | 825 | |
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Short term investments | | | 6 | | | 5 | | | — | | | — | | | — | | | 11 | | | — | | | (11 | ) | | — | | | — | | | — | |
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Liquid resources | | | 6 | | | 5 | | | — | | | — | | | — | | | 11 | | | — | | | (11 | ) | | — | | | — | | | — | |
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Long term borrowings | | | (907 | ) | | (109 | ) | | 5 | | | (11 | ) | | (13 | ) | | (1,035 | ) | | (283 | ) | | 10 | | | 20 | | | 13 | | | (1,275 | ) |
Other loans | | | (410 | ) | | 61 | | | (2 | ) | | 3 | | | 2 | | | (346 | ) | | 15 | | | 6 | | | 9 | | | (20 | ) | | (336 | ) |
Obligations under finance leases | | | (30 | ) | | 1 | | | — | | | — | | | — | | | (29 | ) | | — | | | 1 | | | — | | | (7 | ) | | (35 | ) |
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Total debt excluding bank overdrafts | | | (1,347 | ) | | (47 | ) | | 3 | | | (8 | ) | | (11 | ) | | (1,410 | ) | | (268 | ) | | 17 | | | 29 | | | (14 | ) | | (1,646 | ) |
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| | | (1,001 | ) | | 176 | | | 3 | | | (9 | ) | | (11 | ) | | (842 | ) | | (268 | ) | | 276 | | | 27 | | | (14 | ) | | (821 | ) |
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37. Pensions and post retirement benefits
Introduction
The Group operates a number of defined benefit pension and post retirement schemes throughout the world, covering the majority of employees. Benefits offered by these schemes are largely based on final pay and years of service at retirement. With the exception of plans in Germany, France and certain unfunded arrangements in the UK, the assets of these schemes are held in separately administered funds.
The principal pension schemes of the Group are:
| |
• | the British Steel Pension Scheme (the ‘BS’ scheme), which is the main scheme for historic and present employees based in the UK; |
| |
• | the Corus Engineering Steels Pension Scheme (the ‘CES’ scheme). Until 31 March 2003 employees of Corus Engineering Steels were active members of the CES scheme. However, these active members were offered membership of the BS scheme for all future service from 1 April 2003; |
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• | the Stichting Pensioenfonds Hoogovens (the ‘SPH’ scheme), which is the main scheme for historic and present employees based in the Netherlands; and |
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• | the aggregation of all schemes in Germany. |
The Group accounts for all pension and post retirement benefit arrangements using IAS 19 ‘Employee Benefits’ as amended to allow actuarial gains and losses to be recognised in retained earnings with independent actuaries being used to calculate the costs, assets and liabilities to be recognised in relation to these schemes. The present value of the defined benefit obligation, the current service cost and past service costs were calculated by these actuaries using the projected unit credit method. However, the ongoing funding arrangements of each scheme, in place to meet their long term pension liabilities, are governed by the individual scheme documentation and national legislation. The accounting and disclosure requirements of IAS 19 do not effect these funding arrangements. As disclosed in Note 40, following the balance sheet date the contribution and benefit framework for the BS scheme was substantially revised.
The Group also participates in a number of defined contribution plans on behalf of relevant personnel. Any expense recognised in relation to these schemes represents the value of contributions payable during the period by the Group at rates specified by the rules of those plans. The only amounts included in the balance sheet are those relating to the prior month’s contribution that were not due to be paid until after the balance sheet date.
136 Corus Report & Accounts and Form 20-F 2005
Notes to the consolidated accounts
37. Pensions and post retirement benefitscontinued
Actuarial assumptions
A range of assumptions must be used to determine the IAS 19 amounts and the values to be included can vary significantly with only small changes in these assumptions. Furthermore the actuarial assumptions used may vary according to the country in which the plans are situated.
Key assumptions applied at the balance sheet date were as follows:
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
2005 | | | BS
% | | | CES
% | | | SPH
% | | | Germany
% | | | Other
% | |
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Salary growth | | | 3.70 | | | 3.70 | | | 2.50 | | | 3.00 | | | 2.00 to 4.30 | |
Pension increases | | | 2.70 | | | 2.60 | | | 2.00 | | | 2.00 | | | 1.50 to 4.00 | |
Discount rate | | | 4.80 | | | 4.80 | | | 4.00 | | | 4.25 | | | 4.20 to 6.00 | |
Inflation | | | 2.70 | | | 2.70 | | | 2.00 | | | 2.00 | | | 2.00 to 3.00 | |
Expected return on plan assets: | | | | | | | | | | | | | | | | |
Equities | | | 7.75 | | | 7.75 | | | 7.00 | | | n/a | | | 7.50 to 9.50 | |
Bonds | | | 4.30 | | | 4.30 | | | 3.80 | | | n/a | | | 3.60 to 5.40 | |
Property | | | 6.00 | | | 6.30 | | | 6.00 | | | n/a | | | 5.80 to 6.50 | |
Cash/others | | | 3.70 | | | 4.50 | | | 6.00 | | | n/a | | | 3.00 to 5.20 | |
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2004 | | | BS
% | | | CES
% | | | SPH
% | | | Germany
% | | | Other
% | |
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Salary growth | | | 4.30 | | | 3.60 | | | 2.50 | | | 2.50 to 3.00 | | | 2.00 to 4.30 | |
Pension increases | | | 2.60 | | | 2.60 | | | 2.00 | | | 1.50 to 2.00 | | | 2.00 to 3.00 | |
Discount rate | | | 5.40 | | | 5.40 | | | 4.80 | | | 5.00 | | | 4.90 to 6.30 | |
Inflation | | | 2.60 | | | 2.60 | | | 2.00 | | | 2.00 | | | 2.00 to 3.00 | |
Expected return on plan assets: | | | | | | | | | | | | | | | | |
Equities | | | 8.00 | | | 6.90 | | | 7.50 | | | n/a | | | 7.50 to 9.70 | |
Bonds | | | 4.70 | | | 4.50 | | | 4.50 | | | n/a | | | 3.80 to 5.40 | |
Property | | | 6.50 | | | 6.90 | | | 6.00 | | | n/a | | | 5.00 to 6.50 | |
Cash/others | | | 3.50 | | | — | | | 6.00 | | | n/a | | | 2.50 to 6.50 | |
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The discount rate reflects the current rate of return on AA rated corporate bonds of equivalent currency and term to the scheme liabilities. Projected inflation rate liabilities and pension increases are long term predictions based, mainly, on the yield gap between long term index-linked and fixed interest gilts. The Group establishes the expected rate of return on plan assets by developing a forward looking, long term return assumption for each asset class, taking into account factors such as the expected real return for the specific asset class, respective yields and market rates at the balance sheet date, and inflation. These returns are assumed to be net of investment expenses.
Demographic assumptions are set having regard to the latest trends in life expectancy, plan experience and other relevant data, including externally published actuarial information within each national jurisdiction. The assumptions are reviewed and updated as necessary as part of the periodic actuarial funding valuations of the individual pension and post retirement plans. In particular the mortality assumptions used at December 2005 for the BS and CES schemes are based on the results of investigations undertaken as part of their 2005 triennial valuations. The assumptions adopted are in line with the PMA92 table and reflect the steel industry mortality experience. This indicates that today’s 60 year old male member is expected to live on average to around 82 years of age. Mortality assumptions for the SPH scheme are based on the Dutch Table GBM 1995-2000, with an age set back of two years, giving an equivalent life expectancy of 80 years. The Heubeck 2005 G published biometric data is now being used for the schemes in Germany, which results in a life expectancy of over 82 years of age. Assumptions for all schemes include an allowance for continuing future improvements in life expectancy.
| |
Corus Report & Accounts and Form 20-F 2005 137 |
Notes to the consolidated accounts
37. Pensions and post retirement benefitscontinued
Income statement costs
Under IAS 19 costs in relation to pension and post retirement plans arise as follows:
| |
• | The current service cost is the actuarially determined present value of the pension benefits earned by employees in the current period. No charge or credit is reflected here for any surplus or deficit in the scheme and so the cost is unrelated to whether, or how, the scheme is funded. |
| |
• | The expected return on assets is the actuarial forecast of total return (that is, income and gains) on the actual assets in the scheme. This is a long term rate and is set at the beginning of the period. |
| |
• | The interest cost is the notional interest cost arising from unwinding the discount on the scheme liabilities, based on the discount rate (that is, appropriate bond rate) at the beginning of the period. |
These items are treated as a net operating cost in profit and loss within employee remuneration.
Variations from expected costs, arising from the experience of the plans or changes in actuarial assumptions are recognised immediately in the statement of recognised income and expense. Examples are differences between the estimated return on scheme assets (credited to profit and loss) and the actual return, the remeasurement of scheme liabilities to reflect changes in discount rates, changes in demographic assumptions such as using updated mortality tables, or the effect of more employees leaving service than forecast.
Income statement pension costs arose as follows:
| | | | | | | | | | | | | | | | | | | |
2005 | | | BS
£m | | | CES
£m | | | SPH
£m | | | Germany
£m | | | Other
£m | | | Total
£m | |
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Current service cost | | | 120 | | | — | | | 36 | | | 2 | | | 5 | | | 163 | |
Interest cost | | | 411 | | | 39 | | | 149 | | | 8 | | | 16 | | | 623 | |
Expected return on plan assets | | | (481 | ) | | (32 | ) | | (177 | ) | | — | | | (16 | ) | | (706 | ) |
Past service cost – vested benefits | | | — | | | — | | | — | | | — | | | (3 | ) | | (3 | ) |
Settlements, curtailments and terminations | | | 3 | | | — | | | — | | | — | | | — | | | 3 | |
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Defined benefit schemes | | | 53 | | | 7 | | | 8 | | | 10 | | | 2 | | | 80 | |
Defined contribution schemes | | | — | | | — | | | — | | | — | | | 13 | | | 13 | |
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Total charge for the period (Note 4) | | | 53 | | | 7 | | | 8 | | | 10 | | | 15 | | | 93 | |
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2004 | | | BS
£m | | | CES
£m | | | SPH
£m | | | Germany
£m | | | Other
£m | | | Total
£m | |
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Current service cost | | | 118 | | | — | | | 29 | | | 2 | | | 6 | | | 155 | |
Interest cost | | | 401 | | | 39 | | | 153 | | | 8 | | | 16 | | | 617 | |
Expected return on plan assets | | | (468 | ) | | (32 | ) | | (172 | ) | | — | | | (15 | ) | | (687 | ) |
Past service cost – vested benefits | | | — | | | — | | | — | | | — | | | (8 | ) | | (8 | ) |
Settlements, curtailments and terminations | | | — | | | — | | | — | | | — | | | (4 | ) | | (4 | ) |
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Defined benefit schemes | | | 51 | | | 7 | | | 10 | | | 10 | | | (5 | ) | | 73 | |
Defined contribution schemes | | | — | | | — | | | — | | | — | | | 24 | | | 24 | |
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Total charge for the period (Note 4) | | | 51 | | | 7 | | | 10 | | | 10 | | | 19 | | | 97 | |
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The actual return on plan assets for the above schemes was £1,933m (2004: £1,238m).
| |
138 Corus Report & Accounts and Form 20-F 2005 |
Notes to the consolidated accounts
37. Pensions and post retirement benefitscontinued
Balance sheet measurement
In determining the amounts to be recognised in the balance sheet the following approach has been adopted:
| |
• | Pension scheme assets are measured at fair value (for example for quoted securities this is the bid-market value on the relevant public exchange). |
| |
• | Pension liabilities include future benefits for pensioners and deferred pensioners, and accrued benefits for members in service taking into account projected earnings. As noted above, the pension liabilities are discounted at the current rate of return on AA rated corporate bonds of equivalent currency and term to the pension liability. |
Amounts recognised in the balance sheet arose as follows:
| | | | | | | | | | | | | | | | | | | |
2005 | | | BS
£m | | | CES
£m | | | SPH
£m | | | Germany
£m | | | Other
£m | | | Total
£m | |
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Fair value of plan assets at end of period | | | 8,961 | | | 633 | | | 3,643 | | | — | | | 260 | | | 13,497 | |
Present value of obligation at end of period | | | (8,894 | ) | | (826 | ) | | (3,580 | ) | | (156 | ) | | (349 | ) | | (13,805 | ) |
Past service cost not yet recognised | | | — | | | — | | | 24 | | | — | | | — | | | 24 | |
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Defined benefit asset/(liability) at end of period | | | 67 | | | (193 | ) | | 87 | | | (156 | ) | | (89 | ) | | (284 | ) |
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Disclosed as: | | | | | | | | | | | | | | | | | | | |
Defined benefit asset | | | 67 | | | — | | | 87 | | | — | | | 3 | | | 157 | |
Defined benefit liability – current | | | — | | | — | | | — | | | (3 | ) | | (2 | ) | | (5 | ) |
Defined benefit liability – non-current | | | — | | | (193 | ) | | — | | | (153 | ) | | (90 | ) | | (436 | ) |
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Arising from: | | | | | | | | | | | | | | | | | | | |
Funded schemes | | | 67 | | | (193 | ) | | 87 | | | — | | | (71 | ) | | (110 | ) |
Unfunded schemes | | | — | | | — | | | — | | | (156 | ) | | (18 | ) | | (174 | ) |
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Included within other programmes above are post-retirement medical and similar net obligations of £21m (2004: £23m).
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2004 | | | BS
£m | | | CES
£m | | | SPH
£m | | | Germany
£m | | | Other
£m | | | Total
£m | |
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Fair value of plan assets at end of period | | | 8,034 | | | 538 | | | 3,366 | | | — | | | 221 | | | 12,159 | |
Present value of obligation at end of period | | | (7,826 | ) | | (749 | ) | | (3,267 | ) | | (171 | ) | | (308 | ) | | (12,321 | ) |
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Defined benefit asset/(liability) at end of period | | | 208 | | | (211 | ) | | 99 | | | (171 | ) | | (87 | ) | | (162 | ) |
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Disclosed as: | | | | | | | | | | | | | | | | | | | |
Defined benefit asset | | | 208 | | | — | | | 99 | | | — | | | 4 | | | 311 | |
Defined benefit liability – current | | | — | | | — | | | — | | | (4 | ) | | (14 | ) | | (18 | ) |
Defined benefit liability – non-current | | | — | | | (211 | ) | | — | | | (167 | ) | | (77 | ) | | (455 | ) |
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Arising from: | | | | | | | | | | | | | | | | | | | |
Funded schemes | | | 208 | | | (211 | ) | | 99 | | | — | | | (69 | ) | | 27 | |
Unfunded schemes | | | — | | | — | | | — | | | (171 | ) | | (18 | ) | | (189 | ) |
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The percentage of total plan assets for each category of investment was as follows:
| | | | | | | | | | | | | | | | | | | |
2005 | | | | | | BS
% | | | CES
% | | | SPH
% | | | Germany
% | | | Other
% | |
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Equities | | | | | | 46 | | | 61 | | | 18 | | | n/a | | | 73 | |
Bonds | | | | | | 48 | | | 5 | | | 56 | | | n/a | | | 20 | |
Property | | | | | | 5 | | | 31 | | | 8 | | | n/a | | | 1 | |
Cash/others | | | | | | 1 | | | 3 | | | 18 | | | n/a | | | 6 | |
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| |
| | | | | | 100 | | | 100 | | | 100 | | | | | | 100 | |
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| |
| | | | | | | | | | | | | | | | | | | |
2004 | | | | | | BS
% | | | CES
% | | | SPH
% | | | Germany
% | | | Other
% | |
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|
|
|
|
|
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| |
Equities | | | | | | 41 | | | 65 | | | 23 | | | n/a | | | 70 | |
Bonds | | | | | | 51 | | | 31 | | | 60 | | | n/a | | | 21 | |
Property | | | | | | 5 | | | 4 | | | 9 | | | n/a | | | 1 | |
Cash/others | | | | | | 3 | | | — | | | 8 | | | n/a | | | 8 | |
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|
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|
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|
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| |
| | | | | | 100 | | | 100 | | | 100 | | | | | | 100 | |
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Corus Report & Accounts and Form 20-F 2005 139 |
Notes to the consolidated accounts
37. Pensions and post retirement benefitscontinued
Movements in the plan assets and benefit obligations during the period arose as follows:
| | | | | | | | | | | | | | | | | | | |
2005 | | | BS
£m | | | CES
£m | | | SPH
£m | | | Germany
£m | | | Other
£m | | | Total
£m | |
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Plan assets: | | | | | | | | | | | | | | | | | | | |
Fair value at start of period | | | 8,034 | | | 538 | | | 3,366 | | | — | | | 221 | | | 12,159 | |
Expected return on plan assets | | | 481 | | | 32 | | | 177 | | | — | | | 16 | | | 706 | |
Employer contributions | | | 13 | | | 12 | | | 37 | | | 7 | | | 6 | | | 75 | |
Employee contributions | | | 37 | | | — | | | 21 | | | — | | | 1 | | | 59 | |
Benefits paid | | | (434 | ) | | (39 | ) | | (146 | ) | | (7 | ) | | (20 | ) | | (646 | ) |
Actuarial gain on plan assets | | | 830 | | | 90 | | | 286 | | | — | | | 21 | | | 1,227 | |
Exchange rate movements | | | — | | | — | | | (98 | ) | | — | | | 15 | | | (83 | ) |
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Fair value at end of period | | | 8,961 | | | 633 | | | 3,643 | | | — | | | 260 | | | 13,497 | |
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|
|
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Benefit obligations: | | | | | | | | | | | | | | | | | | | |
Benefit obligations at start of period | | | 7,826 | | | 749 | | | 3,267 | | | 171 | | | 308 | | | 12,321 | |
Current service cost | | | 120 | | | — | | | 36 | | | 2 | | | 5 | | | 163 | |
Interest cost | | | 411 | | | 39 | | | 149 | | | 8 | | | 16 | | | 623 | |
Employee contributions | | | 37 | | | — | | | 21 | | | — | | | 1 | | | 59 | |
Past service cost – non vested benefits | | | — | | | — | | | 24 | | | — | | | — | | | 24 | |
Settlements | | | 3 | | | — | | | — | | | — | | | — | | | 3 | |
Disposal of group undertakings | | | — | | | — | | | — | | | (33 | ) | | — | | | (33 | ) |
Benefits paid | | | (434 | ) | | (39 | ) | | (146 | ) | | (7 | ) | | (20 | ) | | (646 | ) |
Actuarial loss on benefit obligation | | | 931 | | | 77 | | | 326 | | | 18 | | | 31 | | | 1,383 | |
Exchange rate movements | | | — | | | — | | | (97 | ) | | (3 | ) | | 8 | | | (92 | ) |
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Benefit obligations at end of period | | | 8,894 | | | 826 | | | 3,580 | | | 156 | | | 349 | | | 13,805 | |
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| | | | | | | | | | | | | | | | | | | |
2004 | | | BS
£m | | | CES
£m | | | SPH
£m | | | Germany
£m | | | Other
£m | | | Total
£m | |
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Plan assets: | | | | | | | | | | | | | | | | | | | |
Fair value at start of period | | | 7,817 | | | 504 | | | 2,990 | | | — | | | 204 | | | 11,515 | |
Expected return on plan assets | | | 468 | | | 32 | | | 172 | | | — | | | 15 | | | 687 | |
Employer contributions | | | 12 | | | 12 | | | 35 | | | 7 | | | 6 | | | 72 | |
Employee contributions | | | 35 | | | — | | | 19 | | | — | | | 1 | | | 55 | |
Settlements | | | (130 | ) | | — | | | — | | | — | | | — | | | (130 | ) |
Benefits paid | | | (426 | ) | | (30 | ) | | (144 | ) | | (7 | ) | | (17 | ) | | (624 | ) |
Actuarial gain on plan assets | | | 258 | | | 20 | | | 262 | | | — | | | 11 | | | 551 | |
Exchange rate movements | | | — | | | — | | | 32 | | | — | | | 1 | | | 33 | |
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Fair value at end of period | | | 8,034 | | | 538 | | | 3,366 | | | — | | | 221 | | | 12,159 | |
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Benefit obligations: | | | | | | | | | | | | | | | | | | | |
Benefit obligations at start of period | | | 7,532 | | | 715 | | | 2,905 | | | 158 | | | 306 | | | 11,616 | |
Current service cost | | | 118 | | | — | | | 29 | | | 2 | | | 5 | | | 154 | |
Interest cost | | | 401 | | | 39 | | | 153 | | | 8 | | | 18 | | | 619 | |
Employee contributions | | | 35 | | | — | | | 19 | | | — | | | 1 | | | 55 | |
Past service cost – non vested benefits | | | — | | | — | | | — | | | — | | | (3 | ) | | (3 | ) |
Past service cost – vested benefits | | | — | | | — | | | — | | | — | | | (8 | ) | | (8 | ) |
Settlements | | | (130 | ) | | — | | | — | | | — | | | (3 | ) | | (133 | ) |
Curtailments | | | — | | | — | | | — | | | — | | | (1 | ) | | (1 | ) |
Benefits paid | | | (426 | ) | | (30 | ) | | (144 | ) | | (7 | ) | | (17 | ) | | (624 | ) |
Actuarial loss on benefit obligation | | | 296 | | | 25 | | | 273 | | | 8 | | | 13 | | | 615 | |
Exchange rate movements | | | — | | | — | | | 32 | | | 2 | | | (3 | ) | | 31 | |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Benefit obligations at end of period | | | 7,826 | | | 749 | | | 3,267 | | | 171 | | | 308 | | | 12,321 | |
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140 Corus Report & Accounts and Form 20-F 2005 |
Notes to the consolidated accounts
37. Pensions and post retirement benefitscontinued
The history of actuarial gains or losses is as follows:
| | | | | | | |
| | 2005 | | 2004 | |
|
|
|
|
| |
Experience adjustments on scheme assets: | | | | | | | |
Amount (£m) | | | 1,227 | | | 551 | |
Percentage of scheme assets (%) | | | 9 | | | 5 | |
|
|
|
|
|
|
| |
Experience adjustments on scheme liabilities: | | | | | | | |
Amount (£m) | | | 1,383 | | | 615 | |
Percentage of scheme liabilities (%) | | | 10 | | | 5 | |
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|
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|
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| |
In accordance with the transitional provisions for the amendments to IAS 19 in December 2004, the disclosures above are only determined prospectively, from the 2004 reporting period onwards. Cumulative actuarial losses recorded in the statement of recognised income and expense since the date of transition to IFRS are £220m.
The benefit payments relating to the Group’s pension and post retirement benefit schemes, which reflect future service as appropriate, are expected to be paid as follows:
| | | | |
| | £m | |
|
|
| |
2006 | | | 658 | |
2007 | | | 671 | |
2008 | | | 685 | |
2009 | | | 702 | |
2010 | | | 716 | |
2011-2015 | | | 3,900 | |
|
|
|
| |
The estimated employer contributions to the British Steel Pension Scheme and to the Stichting Pensioenfonds Hoogovens Scheme for 2006 are £56m and €54m respectively. Monthly payments of £1m are being made to the Corus Engineering Steels Pension Scheme in respect of past service funding requirements, subject to review at future actuarial valuations. Additional payments will also be made to the Corus Engineering Steels Pension Scheme, where necessary, to address any funding strains resulting from early retirements. The employer contributions for 2006 in relation to other schemes are estimated to be consistent with 2005 levels.
Corus Report & Accounts and Form 20-F 2005 141
Notes to the consolidated accounts
38. Disposals
On 21 January 2005 Corus disposed of the assets of its direct reduced iron facility at Mobile in the USA, which had been mothballed since November 2000, to Al Tuwairqi Group for a gross consideration of US$5m (approximately £3m).
In addition Corus completed the disposal of substantially all of the assets of Rafferty-Brown Steel, a flat rolled carbon steel processing business in the USA, to Coilplus Holdings Inc. on 27 May 2005 for a gross consideration of US$24m (approximately £13m).
Furthermore, on 31 December 2005 Corus completed the sale of the Mannstaedt Werke operation to Georgsmarienhuette Holding (GMH) for proceeds of €17m (approximately £11m). Also on this date Corus completed the disposal of substantially all of the assets of the Corus Perfo operations to Dillinger Fabrik gelochter Bleche GmbH for €1m (approximately £1m).
The results of these businesses during the period were not considered to be material to the Group.
| | | | |
| | £m | |
|
|
| |
The net assets disposed of were as follows: | | | | |
Property, plant and equipment (including loose plant, tools and spares of £14m) | | | 42 | |
Inventories | | | 29 | |
Trade and other receivables | | | 19 | |
Cash and cash equivalents | | | 4 | |
Trade and other payables | | | (14 | ) |
Retirement benefit obligations | | | (33 | ) |
Provisions and other liabilities | | | (6 | ) |
|
|
|
| |
Net assets disposed of | | | 41 | |
Loss on disposal | | | (14 | ) |
|
|
|
| |
Consideration | | | 27 | |
|
|
|
| |
Consideration satisfied by: | | | | |
Cash | | | 28 | |
Transaction fees | | | (1 | ) |
|
|
|
| |
| | | | |
Net cash inflow arising on disposal: | | | | |
Cash consideration for disposals during the period | | | 27 | |
Deferred cash consideration received during the period in respect of prior year disposals | | | 6 | |
Cash and cash equivalents disposed of | | | (4 | ) |
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| |
| | | 29 | |
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| |
142 Corus Report & Accounts and Form 20-F 2005
Notes to the consolidated accounts
39. Related party transactions
The table below sets out details of transactions and loans between Corus and its joint ventures and associates.
| | | | | | | |
| | 2005
£m | | 2004
£m | |
|
|
|
|
| |
Sales to joint ventures and associates | | | 173 | | | 176 | |
Purchases from joint ventures and associates | | | 78 | | | 93 | |
Outstanding loans to joint ventures and associates | | | 2 | | | 2 | |
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|
| |
Details of transactions with key management personnel are given in the auditable part of the Report on remuneration and also in Note 4.
40. Post balance sheet events
| | |
(i) | On 2 February 2006 Corus together with the National Trade Union Steel Coordinating Committee (NTUSCC) announced that they had jointly considered the longer term challenges facing the Company’s main UK defined benefit pension fund, the British Steel Pension Scheme (BSPS). This included a comprehensive consultation process during which the Scheme Trustees were kept fully informed. |
| |
| As a result of these discussions, the BSPS contribution and benefit framework will be revised to secure a 3.5% reduction in the headline rate of future service costs and a 1% increase in employee contributions. Taken together these changes will result in an approximate 20% reduction in the underlying cost to the Company of providing pension benefits. |
| |
| The main features are: |
| |
| • | revised early retirement terms will be applied for future service accrual; |
| | |
| • | inflation related pension increases on future service accrual will now be capped at 4% per annum; and |
| | |
| • | employee ordinary contributions will increase from 5% to 6% of pensionable earnings. |
| | |
| A joint Company and NTUSCC working group over the next 12 months will review pension options for new entrants. |
| |
| Corus is due to recommence cash contributions to the main section of the BSPS from April 2006. This rate has been set at 10%. |
| |
(ii) | On 1 February 2006 Corus Finance plc, a subsidiary of Corus Group plc, announced an invitation to sell and consent solicitation in respect of its £150m Debenture stock due 2016, subject to the terms and conditions set out in the Invitation Memorandum dated on the same day. On 3 March 2006, Corus completed the early repayment, which was made to improve the efficiency of the balance sheet. The total cost of the early finance cost was £237m and the premium paid of £87m will be expensed as a non-recurring finance cost during the first quarter of 2006. Corus estimates that the repayment will result in a reduction in future finance costs of £7m per annum. |
| |
(iii) | On 16 March 2006 Corus announced that it had signed a letter of intent for Aleris International Inc. to acquire Corus’ downstream Aluminium rolled products and extrusions businesses for a gross consideration of €826m (approximately £570m). Corus’ smelting operations will remain within Corus and it is the intention that they will supply Aleris under a long term supply agreement. It is also the intention that Corus and Aleris will enter into an agreement related to research, development and technology. |
| |
| Informal consultation and advice processes related to the transaction have commenced. The proposed sale will also be subject to external regulatory clearances from the European Commission and other regulatory authorities in different jurisdictions, including the US. It is intended that a Sale and Purchase Agreement will be entered into upon successful completion of these processes. |
Corus Report & Accounts and Form 20-F 2005 143
Notes to the consolidated accounts
41. Main subsidiaries and investments
The most important subsidiary undertakings, joint ventures and associates of the Group at 31 December 2005 are set out below. A complete list of subsidiary undertakings, joint ventures and associates will be attached to the Annual Return to the Registrar of Companies.
Country names are countries of incorporation. Undertakings operate principally in their country of incorporation except where otherwise stated.
Subsidiary undertakings
Steel and aluminium producing, further processing or related activities:
England and Wales
Corus UK Limited (a)
Cogent Power Limited (75% owned)
Orb Electrical Steels Limited (75% owned)
Austria
Corus Aluminium Verkauf GmbH
Belgium
Corus Aluminium NV
Corus International Services NV
Canada
Corus LP (60% owned)
China
Corus Aluminium Extrusions Tianjin Co Limited (61.09% owned)
Czech Republic
Corus Central Europe sro
Denmark
Corus Byggesystemer AS
Finland
Corus Finland Oy
France
Corus Batiment et Systemes SA
Corus France SA
Myriad SA
Corus Rail France SA
Unitol SA
Sacra Nord SA
Germany
Blume Stahlservice GmbH
Corus Aluminium Profiltechnik GmbH
Corus Aluminium Profiltechnik Bonn GmbH
Corus Aluminium Voerde GmbH
Corus Aluminium Walzprodukte GmbH
Corus Degels GmbH
Fischer Profil GmbH
Hille & Müller GmbH
Kienle & Spiess Stanz – und Drückgiesswerk GmbH
(75% owned)
Hong Kong
Corus Asia Limited
Hungary
Kienle & Spiess Hungary Ipari Kft (75% owned)
Ireland (Republic of)
The Steel Company of Ireland Limited
Italy
Corus Italia Srl
India
Corus India Limited
Japan
Corus Aluminium Japan Limited
Latvia
SIA Corus Building Systems
Malaysia
Corus Metals (Malaysia) Sdn Bhd
Mexico
Cogent Power Inc. (75% owned)
Netherlands
Aluminium Delfzijl BV
Corus Met BV
Corus Nederland BV
Corus Service Centre Maastricht BV
Corus Staal BV
Corus Tubes BV
Corus Vlietjonge BV
Namascor BV
S.A.B.-Profiel BV
New Zealand
Corus New Zealand Limited
Norway
Corus Norge AS
Corus Packaging Plus Norway AS
144 Corus Report & Accounts and Form 20-F 2005
Notes to the consolidated accounts
41. Main subsidiaries and investmentscontinued
Poland
Corus Polska Sp. zo.o
Portugal
Corus-Sistemas Constructivos e Revestimentos Metalicos LDA
Singapore
Corus Building Systems Pte Limited
Spain
Corus Metal Iberica SA
Corus Laminacion y Derivados SL
Sweden
Surahammar Bruks AB (75% owned)
Switzerland
Montana-Bausysteme AG
Thailand
Corus Metals (Thailand) Limited
Turkey
Corus Yasan Metal Sanayi ve Ticaret AS (62.5% owned)
United Arab Emirates
Corus Middle East FZE
United States of America
Apollo Metals Limited
Corus America Inc
Thomas Steel Strip Corp
Insurance underwriting for certain risks of the Group:
Isle of Man
Crucible Insurance Company Limited
Other undertakings:
England and Wales
UK Steel Enterprise Limited
Joint ventures and associates
| | | | | | | | | | | | | |
| | Products | | Annual sales
£m | | | | Issued capital
Number of shares | | %
held | |
|
|
|
|
|
|
|
|
|
|
| |
England and Wales | | | | | | | | | | | | | |
Caparo Merchant Bar plc (b) | | Light sections | | 82 | | ordinary shares of £1 | | | 2,466,667 | | | 25 | |
| | | | | | | | | | | | | |
GrantRail Limited (b) | | Railtrack maintenance and renewals | | 112 | | ordinary shares of £1 | | | 4,000,000 | | | 50 | |
| | | | | | | | | | | | | |
Netherlands | | | | | | | | | | | | | |
HKS Scrap Metals BV (b) | | Purchase and sale of scrap | | 200 | | shares of €454 | | | 40,000 | | | 50 | |
| | | | | | | | | | | | | |
Laura Metaal Holding BV (b) | | Trading and processing of non-prime metal | | 73 | | shares of €454 | | | 5,600 | | | 49 | |
| | | | | | | | | | | | | |
Danieli Corus Technical Services BV | | Supply of engineering, proprietary equipment contracting in the metals industry | | 99 | | shares of €355 | | | 41,750 | | | 50 | |
| | | | | | | | | | | | | |
Norway | | | | | | | | | | | | | |
Norsk Stål AS | | Stockholders of strip | | 178 | | shares of NOK1,000 | | | 63,500 | | | 50 | |
Norsk Stål Tynnplater AS | | and long products | | 47 | | shares of NOK1,000 | | | 26,500 | | | 50 | |
| | | | | | | | | | | | | |
Portugal | | | | | | | | | | | | | |
Lusosider Projectos Siderúrgicos SA (b) | | Galvanised steel and tinplate | | 136 | | shares of €5 | | | 3,500,000 | | | 50 | |
| | | | | | | | | | | | | |
Turkey | | | | | | | | | | | | | |
Corus Celik Ticaret AS | | Intermediary in the trade of finished steel products | | 1 | | shares of YTL1 | | | 80,000 | | | 50 | |
|
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| |
Unless indicated otherwise, subsidiary undertakings are wholly owned within the Group, and the Group holding comprises ordinary shares and 100% of the voting rights.
| |
(a) | The Company only owns shares directly in those marked (a) (Corus UK Limited 100%). All other undertakings are owned by other subsidiaries of the Company. |
| |
(b) | Accounts of undertakings marked (b) are not audited by PricewaterhouseCoopers LLP. |
Corus Report & Accounts and Form 20-F 2005 145
Notes to the consolidated accounts
42. Reconciliation of equity and profit under UK GAAP to IFRS
With effect from 2 January 2005 Corus is preparing its consolidated financial statements, for the first time, in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). For this purpose IFRS represent all International Accounting Standards and International Financial Reporting Standards, as well as interpretations published by the International Financial Reporting Interpretation Committee and its predecessor body, that were issued prior to 31 December 2005 and endorsed by the EU prior to authorisation of these financial statements.
Corus Group financial statements were previously prepared under UK Generally Accepted Accounting Principles (UK GAAP), which differs in a number of areas from IFRS. Therefore it has been necessary to amend certain presentation, accounting, valuation and consolidation methods previously applied under UK GAAP, in order to comply with IFRS for these financial statements. Corus has previously published a separate, detailed description of the move to IFRS and the nature of reconciling items from UK GAAP at the date of transition (being 4 January 2004), and this is available on the website at www.corusgroup.com. All comparative figures in respect of 2004 have been restated to reflect these changes, except for the adoption of IAS 32 and IAS 39, which only applied from 2 January 2005 as described on page 96.
As required under IFRS 1 ‘First Time Adoption of International Financial Reporting Standards’ Corus presents below a reconciliation between UK GAAP and IFRS for the following:
| |
• | the retained profit for the 12 months to 1 January 2005; |
• | shareholders equity as at the date of adoption (4 January 2004); and |
• | the date of the last financial statements (1 January 2005). |
| | | | | | | |
| | Notes | | 12 months to
1 January 2005
£m | |
|
|
|
|
| |
Retained profit under UK GAAP | | | | | | 446 | |
IFRS 3 – non amortisation of goodwill | | | (a) | | | 6 | |
IFRS 3 – no recycling of goodwill on disposals | | | (b) | | | 10 | |
IAS 12 – no discounting of deferred taxes | | | (c) | | | (13 | ) |
IAS 19 – pension costs | | | (d) | | | (14 | ) |
IAS 19 – post retirement benefits | | | (e) | | | 11 | |
IAS 19 – other employee benefits | | | (f) | | | (5 | ) |
IAS 38 – software and development costs | | | (g) | | | 5 | |
IFRS 2 – share-based payments | | | (j) | | | 1 | |
|
|
|
|
|
|
| |
Profit attributable to equity holders of the parent under IFRS | | | | | | 447 | |
|
|
|
|
|
|
| |
| | | | | | | | | | |
| | Notes | | Date of IFRS
adoption
£m | | 1 January
2005
£m | |
|
|
|
|
|
|
| |
Total equity under UK GAAP | | | | | | 2,843 | | | 3,300 | |
IFRS 3 – non amortisation of goodwill | | | (a) | | | — | | | 6 | |
IAS 12 – no discounting of deferred taxes | | | (c) | | | (6 | ) | | (19 | ) |
IAS 19 – pension costs | | | (d) | | | (176 | ) | | (224 | ) |
IAS 19 – post retirement benefits | | | (e) | | | 3 | | | 3 | |
IAS 19 – other employee benefits | | | (f) | | | (35 | ) | | (44 | ) |
IAS 38 – software and development costs | | | (g) | | | 14 | | | 21 | |
IAS 17 – finance leases | | | (h) | | | 9 | | | 9 | |
IAS 21 – functional currencies | | | (i) | | | 6 | | | 6 | |
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Total equity under IFRS | | | | | | 2,658 | | | 3,058 | |
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(a) | Under IFRS, goodwill is considered to have an indefinite life and is not amortised, but is subject to an impairment review on transition and annually thereafter. |
| |
(b) | Under UK GAAP, on all acquisitions prior to 1 April 1998 Corus immediately wrote off any positive or negative goodwill to retained earnings. This goodwill was transferred from reserves to the profit and loss account on any subsequent disposal of the net assets to which it related. From 1 April 1998, goodwill on acquisitions was held as an intangible asset in the balance sheet and amortised over its estimated useful life, normally no longer than 20 years. Only the unamortised portion was included in the gain or loss recognised in the period of disposal. Under IFRS there is no requirement for this ‘recycling’ of goodwill on disposals. |
| |
(c) | Under UK GAAP, Corus chose the option to discount deferred tax balances. Under IFRS, the discounting of deferred tax is not permitted and the reversal of the effect of discounting gives rise to a transition adjustment. |
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(d) | Under UK GAAP, Corus provided for pensions in accordance with SSAP 24 ‘Accounting for pension costs’, having decided against the early adoption of the recognition and measurement criteria of FRS 17 ‘Retirement benefits’. Nevertheless, detailed disclosures were made in line with the transitional requirements of FRS 17. Under IFRS, IAS 19 ‘Employee Benefits’ uses a similar approach as FRS 17 to calculate a current service cost, interest cost and expected return on assets for defined benefit pension plans. |
146 Corus Report & Accounts and Form 20-F 2005
Notes to the consolidated accounts
42. Reconciliation of equity and profit under UK GAAP to IFRScontinued
| |
(e) | Under UK GAAP, Corus provided for post retirement benefits in accordance with SSAP 24. The enactment of the Medicare Prescription Drug, Improvement and Modernization Act in the USA has significantly reduced the liabilities of defined benefit post retirement healthcare plans of certain subsidiary companies at December 2004. Under IFRS, the reduction in liabilities is credited immediately to the income statement as an adjustment to employment costs for post retirement benefits. |
| |
(f) | Under UK GAAP, Corus provided for other employee benefits in accordance with FRS 12 ‘Provisions, Contingent Liabilities and Contingent Assets’. This means provision was made when an obligation had actually arisen and there was a probable future transfer of economic benefits to settle the obligation. Under IFRS, IAS 19 is more prescriptive in its approach to other employee benefits such as overtime, holiday pay, disability pay and long service awards. |
| |
(g) | Under UK GAAP, Corus policy was to expense all software costs immediately, other than software used to operate plant and machinery, and specific material projects. Under IFRS, intangible assets must be recognised if they meet the criteria specified in IAS 38, necessitating a change in the Corus policy. There is a similar change between UK GAAP and IFRS in respect of development costs, but Corus has only identified limited amounts that meet the strict criteria of IAS 38. |
| |
(h) | Under UK GAAP, a lease is classified as a finance lease if it transfers substantially all of the risks and rewards incidental to ownership. Conversely, it is classified as an operating lease if it does not transfer substantially all of the risks and rewards incidental to ownership. Under IFRS, similar conditions apply but IAS 17 requires finance leases for land and buildings to be split, with the land element generally being classified as an operating lease. |
| |
(i) | Under UK GAAP, the goodwill that arose through the acquisition accounting for Corus Nederland BV (formerly Koninklijke Hoogovens NV) was denominated in sterling. However, under IFRS, IAS 21 requires that the goodwill should be accounted for in the functional currency of the acquired operations. Accordingly, this goodwill is denominated in euros and translated at the period end exchange rate. |
| |
(j) | Under UK GAAP, the approach in respect of share-based payments was to record a charge to profit and loss based on the intrinsic value of awarded shares at the grant date. The charge is spread over the performance period. There is no charge in respect of HM Revenue & Customs approved SAYE schemes. IFRS 2 requires the fair value of the equity instruments issued to be charged to profit and loss. The cost is calculated using option price methods and applies to all options granted after 7 November 2002. |
Explanation of IFRS cash flow statement adjustments
The move from UK GAAP does not significantly change any of the cash flows of the Group. The IFRS cash flow format is similar to UK GAAP but presents various cash flows in different categories and in a different order from the UK GAAP cash flow statement. All of the IFRS accounting adjustments net out within cash generated from operations except for reclassification of intangible assets and short term investments with original maturity of three months or less, which are classified as cash equivalents under IFRS. In addition, following the transition to IFRS, the Group’s two convertible bonds are now disclosed within other loans. The bonds mature in 2007, however bondholders do have the right to convert at any time in the intervening period.
Under IFRS, the analysis of net debt at 1 January 2005 (December 2004 year end) was as follows:
| | | | | | | | | | |
| | 2004 | |
| |
| |
| | UK GAAP
£m | | Change
£m | | IFRS
£m | |
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|
|
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| |
Cash at bank and in hand | | | 383 | | | — | | | 383 | |
Short term deposits | | | — | | | 206 | | | 206 | |
Bank overdrafts | | | (32 | ) | | — | | | (32 | ) |
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| |
| | | 351 | | | 206 | | | 557 | |
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Short term investments: | | | | | | | | | | |
Deposits within 3 months of maturity when acquired | | | 206 | | | (206 | ) | | — | |
Other short term investments | | | 11 | | | — | | | 11 | |
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| | | 217 | | | (206 | ) | | 11 | |
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Long term borrowings | | | (1,367 | ) | | 332 | | | (1,035 | ) |
Other loans | | | (14 | ) | | (332 | ) | | (346 | ) |
Obligations under finance leases | | | (41 | ) | | 12 | | | (29 | ) |
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| | | (1,422 | ) | | 12 | | | (1,410 | ) |
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Net debt | | | (854 | ) | | 12 | | | (842 | ) |
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Corus Report & Accounts and Form 20-F 2005 147
Supplementary information for
North American investors
From 2 January 2005 as required by the European Union’s IAS regulation, the Group has prepared its Report & Accounts and Form 20-F in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), which differ in certain respects from US Generally Accepted Accounting Principles (US GAAP). These differences relate principally to the items presented below, and the effect of each of the adjustments to profit for the financial period and shareholders’ equity, that would be required under US GAAP, is set out in the following tables.
IFRS as adopted by the EU differ in certain respects from IFRS as issued by the International Accounting Standards Board (IASB). However, the consolidated financial statements for the periods presented would be no different had the Group applied IFRS as issued by the IASB. References to IFRS hereafter should be construed as references to IFRS as adopted by the EU.
As a result of the Group’s transition to IFRS on 4 January 2004 the reconciliations of net income and shareholders’ equity for 2004 published in previous periods have been restated from UK GAAP, as previously used, to reflect the profit and net equity reported within the Consolidated income statement and Consolidated balance sheet under IFRS.
Under the IFRS transition provisions within the Securities and Exchange Commission’s Form 20-F requirements, the Group is permitted to provide only two years of comparable financial information under IFRS and reconciliations to US GAAP for the periods presented.
The adjustments necessary to reconcile the profit for the financial period and shareholders’ equity in accordance with US GAAP are shown in the tables below.
| | | | | | | |
| | 2005
£m | | 2004
£m | |
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Profit for financial period: | | | | | | | |
Profit attributable to shareholders – IFRS | | | 452 | | | 447 | |
Adjustments: | | | | | | | |
Amortisation of goodwill (i), (vi) | | | — | | | (2 | ) |
Interest costs capitalised (ii) | | | 27 | | | 23 | |
Depreciation of capitalised interest (ii) | | | (16 | ) | | (19 | ) |
Software costs (iii) | | | 3 | | | 12 | |
Pensions and other employee benefits (iv) | | | (94 | ) | | (31 | ) |
Stock-based employee compensation awards (v) | | | (2 | ) | | (5 | ) |
Deferred taxation (vii) | | | 6 | | | 17 | |
Derivatives (ix) | | | (10 | ) | | (17 | ) |
Impairment losses (viii) | | | 3 | | | (72 | ) |
Financial instruments (xiv) | | | 11 | | | — | |
Profit on disposal of property, plant and equipment (x) | | | 2 | | | 2 | |
Debt issue costs (xi) | | | 5 | | | (11 | ) |
Restructuring costs (xii) | | | 1 | | | — | |
Finance leases (xiii) | | | 1 | | | — | |
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Profit for financial period – US GAAP | | | 389 | | | 344 | |
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Profit for financial period arising from: | | | | | | | |
Continuing operations | | | 396 | | | 293 | |
Discontinued operations | | | (7 | ) | | 51 | |
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| | | 389 | | | 344 | |
|
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Basic earnings per ADS in accordance with US GAAP: | | | | | | | |
Continuing operations | | | £0.89 | | | £0.66 | |
Discontinued operations | | | £(0.02 | ) | | £0.11 | |
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| | | £0.87 | | | £0.77 | |
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Diluted earnings per ADS in accordance with US GAAP: | | | | | | | |
Continuing operations | | | £0.84 | | | £0.61 | |
Discontinued operations | | | £(0.02 | ) | | £0.11 | |
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| | | £0.82 | | | £0.72 | |
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| | | | | | | |
| | | No. m | | | No. m | |
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Weighted average number of ADSs in issue | | | 445 | | | 444 | |
Effect of potential conversion of convertible bonds (Note 8) | | | 33 | | | 33 | |
Dilutive effects of share options and conditional share awards | | | 4 | | | 5 | |
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Number of ADSs as basis of calculation of diluted earnings per ADS | | | 482 | | | 482 | |
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During 2005 options over 224m Corus Group plc ordinary shares (2004: 96m) were anti-dilutive and have been excluded from the calculation of diluted earnings per ADS.
148 Corus Report & Accounts and Form 20-F 2005
Supplementary information for North American investors
| | | | | | | |
| | 2005
£m | | 2004
£m | |
|
|
|
|
| |
Shareholders’ equity: | | | | | | | |
Shareholders’ equity – IFRS | | | 3,352 | | | 3,025 | |
Adjustments: | | | | | | | |
Additional goodwill under US GAAP (i) | | | 48 | | | 4 | |
Interest costs capitalised (net of depreciation) (ii) | | | 111 | | | 102 | |
Property, plant and equipment (xiii) | | | 3 | | | — | |
Pensions and other employee benefits (iv) | | | 613 | | | 611 | |
Purchase consideration (vi) | | | (25 | ) | | (25 | ) |
Deferred taxation (vii) | | | (211 | ) | | (205 | ) |
Impairment losses (viii) | | | 29 | | | 26 | |
Assets for derivatives (ix) | | | — | | | 26 | |
Financial instruments (xiv) | | | 1 | | | — | |
Deferred profits on property, plant and equipment disposals (x) | | | (25 | ) | | (27 | ) |
Restructuring costs (xii) | | | 1 | | | — | |
Debt issue costs (xi) | | | 5 | | | — | |
Finance leases (xiii) | | | (11 | ) | | (12 | ) |
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Shareholders’ equity in accordance with US GAAP | | | 3,891 | | | 3,525 | |
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2005£m
| | | 2004
£m | |
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The reconciliation of the movement in shareholders’ equity is as follows: | | | | | | | |
Opening shareholders’ equity in accordance with US GAAP | | | 3,525 | | | 3,174 | |
Net income for the period | | | 389 | | | 344 | |
Foreign exchange movements | | | (10 | ) | | — | |
Conditional share awards | | | 14 | | | 9 | |
New shares issued (net of issue costs) | | | 6 | | | 1 | |
Dividends paid | | | (22 | ) | | — | |
Revaluation of available for sale investments | | | 7 | | | — | |
Movement on accumulated benefit obligation | | | (8 | ) | | (5 | ) |
Deferred tax on items taken directly to comprehensive income | | | (10 | ) | | 2 | |
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Closing shareholders’ equity in accordance with US GAAP | | | 3,891 | | | 3,525 | |
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Consolidated statement of cash flows
Under both IFRS and US GAAP, cash flows are classified under operating activities, investing activities and financing activities. Under IFRS, cash is defined as cash in hand and investments with original maturities of three months or less, less overdrafts repayable on demand. Under US GAAP, cash and cash equivalents are defined as only being cash and investments with original maturities of three months or less.
Use of estimates
The preparation of financial statements to conform with generally accepted accounting principles requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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. The most significant techniques for estimation are discussed in the ‘Presentation of accounts and accounting policies’ on pages 96 to 103.
Summary of differences between IFRS and US generally accepted accounting principles
| |
(i) | Goodwill |
| Corus has exercised the exemption available under IFRS 1 ‘First time Adoption of International Financial Reporting Standards’ not to restate business combinations prior to the date of transition of the Company’s reporting GAAP from UK GAAP to IFRS. Under UK GAAP, on all acquisitions completed prior to 1 April 1998, Corus immediately wrote off any positive or negative goodwill to retained earnings. This goodwill is reflected in the income statement of the period of any subsequent divestment, as part of the calculation of the profit or loss on disposal. From 1 April 1998, goodwill on acquisitions was held as an intangible asset in the balance sheet and amortised over its estimated useful life. Under IFRS Corus applies IFRS 3 ‘Business Combinations’ in accounting for goodwill, which it adopted as at 4 January 2004. Whereas, for US GAAP purposes, Corus applies SFAS 142 ‘Goodwill and Other Intangible Fixed Assets’, which was adopted at 30 December 2001. Both of these standards have a similar approach. They do not allow the amortisation of goodwill and, instead, impairment reviews must be carried out at least annually to assess the recoverability of goodwill balances. However, the different adoption dates of these respective standards give rise to a reconciling item in calculating shareholder’s equity. As a result due to this any subsequent impairments would reflect the higher carrying value of goodwill in the US GAAP balance sheet, leading to a higher charge than under IFRS. |
Corus Report & Accounts and Form 20-F 2005 149
Supplementary information for North American investors
During 2004 a number of impairments to the carrying values of goodwill were made, as follows:
| |
• | £11m to write off the balance of goodwill on the Group’s acquisition of Kienle & Spiess, part of the Cogent Power reporting unit; |
• | £11m to fully write off the goodwill that arose on the Group’s acquisition of Corus Rail France; and |
• | £2m to impair the goodwill arising on the acquisition of Corus Nederland BV, that had previously been allocated to the aluminium smelter operations (see (viii)). |
All of these charges were based on discounted cash flows for the businesses involved, after a review of trading conditions in which they were operating.
| | | | | | | | | | | | | | | | |
| | Strip
Products
£m | | Long
Products
£m | | Distribution
& Building
Systems
£m | | Aluminium
£m | | Total
£m | |
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The movements in the net book value of goodwill, by division, are: | | | | | | | | | | | | | | | | |
Net book value at 3 January 2004 | | | 41 | | | 11 | | | 18 | | | 12 | | | 82 | |
Additions during year | | | 6 | | | — | | | — | | | — | | | 6 | |
Impairments in year | | | (11 | ) | | (11 | ) | | — | | | (2 | ) | | (24 | ) |
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Net book value at 1 January 2005 | | | 36 | | | — | | | 18 | | | 10 | | | 64 | |
Other movements (a) | | | 44 | | | — | | | — | | | — | | | 44 | |
Exchange movements | | | (2 | ) | | — | | | — | | | — | | | (2 | ) |
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Net book value at 31 December 2005 | | | 78 | | | — | | | 18 | | | 10 | | | 106 | |
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Represented by: | | | | | | | | | | | | | | | | |
Goodwill under IFRS (Note 9) | | | | | | | | | | | | | | | 83 | |
Additional goodwill under US GAAP | | | | | | | | | | | | | | | 48 | |
Purchase consideration (vi) | | | | | | | | | | | | | | | (25 | ) |
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| | | | | | | | | | | | | | | 106 | |
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| | |
| (a) | Other movements during 2005 concern pensions and other employee benefit provisions relating to the previous acquisition of Corus Nederland BV in October 1999. These pensions and other employees benefits were identified as part of the transition to IFRS, and have therefore required adjustment within the US GAAP reconciliation for the current year. |
| | |
(ii) | Capitalisation of interest costs |
| Under IFRS, Corus has opted not to capitalise interest in its financial statements. However, for US GAAP reporting, the estimated amount of interest incurred in connection with the financing of expenditure for major capital projects is included within property, plant and equipment. This interest is then depreciated over the lives of the related assets. |
| |
(iii) | Software costs |
| Under UK GAAP as previously applied by Corus, certain costs relating to the development and purchase of software for internal use are expensed when incurred. Whereas under US GAAP these costs are capitalised and subsequently amortised over the estimated useful life of the software in line with Statement of Financial Position 98-1 ‘Accounting for Costs of Computer Software Developed or Obtained for Internal Use’. During 2004 and 2005 several IT projects met the criteria for capitalisation under US GAAP. |
| |
(iv) | Pension costs and other employee benefits |
| Under both IFRS and US GAAP pension costs are charged to earnings so as to reflect the provisions of future pension liabilities accrued by employees during the period, by reference to the respective pension scheme liability and the market value of underlying plan assets. |
| |
| Under US GAAP surpluses or deficits arising where the actual performance of the scheme differs from previous actuarial assumptions are generally recognised in future periods. The Group applies the 10% corridor test at the beginning of the year to determine whether amortisation of the gain or loss is necessary. Where the gain or loss exceeds 10% of the greater of the projected benefit obligation or the market related value of the scheme’s assets this is amortised through the income statement over the active participant’s average remaining service periods. In contrast, under IFRS the Group has opted to recognise such actuarial gains and losses immediately within the consolidated statement of recognised income and expense. |
| |
| In both 2005 and 2004, Corus has recognised a minimum pension liability within US GAAP shareholders’ equity. US GAAP requires the employer to recognise an additional minimum pension liability to the extent that the accumulated benefit obligation exceeds the fair value of the plan assets and this shortfall is not covered by the pension liability already recorded in the balance sheet. This results in a charge to other comprehensive income equal to the minimum pension liability but adjusted to take account of an intangible asset which represents the unrecognised transition obligation. |
| |
| For the purposes of the US GAAP reconciliation the Group has previously only provided adjustments to restate its main pension scheme arrangements to a SFAS 87 basis. This was consistent with the Group’s UK GAAP approach, where immaterial schemes were reported on an unadjusted local GAAP basis. However as part of the transition to IFRS all schemes are now accounted for on a consistent basis within IFRS shareholders’ equity. So it is now felt appropriate to account for all schemes on a consistent, SFAS 87, basis for the purposes of US GAAP. Hence during 2005 the Group has increased the coverage of those scheme and benefit arrangements subject to accounting under SFAS 87. As a result of this adjustment plan assets and plan liabilities have increased. |
150 Corus Report & Accounts and Form 20-F 2005
Supplementary information for North American investors
These amounts are considered immaterial to prior periods and the net liability was included in the determination of net income and other comprehensive income as appropriate under US GAAP in 2005.
| |
(v) | Stock-based employee compensation awards |
| Under UK GAAP the Group applies the fair value method of accounting for its stock-based compensation plans. But, as permitted under the transition rules for IFRS this approach has only been adopted for awards granted after 7 November 2002. For US GAAP purposes Corus has elected to adopt the provisions of SFAS 123 in accounting for its stock-based employee compensation awards. SFAS 123 requires a fair value based method of accounting for stock-based employee awards for transactions entered into after 15 December 1994. |
| |
(vi) | Purchase consideration |
| Under UK GAAP the fair value of the shares offered as consideration for the acquisition of Corus Nederland BV was determined by reference to the market price of the Group shares on the date the offer became unconditional, 6 October 1999. As the Group exercised the IFRS 1 exemption not to restate business combinations, the UK GAAP purchase consideration has been adopted for IFRS. Under US GAAP the fair value of these shares was based on the market price of the shares when the principal terms of the acquisition were announced on 7 June 1999. This difference resulted in a lower purchase consideration under US GAAP which means the recognised capital issued and goodwill on the Corus Nederland BV acquisition is lower. |
| |
(vii) | Deferred taxation |
| Under IFRS a deferred tax asset is recognised in respect of deductible temporary differences to the extent that there are offsetting taxable temporary differences or it is probable that sufficient taxable profit will be available against which the temporary differences can be utilised. Under US GAAP a deferred tax asset is recognised in full but is then reduced by a valuation allowance if it is more likely than not that some, or all, of the deferred tax asset will not be realised. |
| |
| Under both IFRS and US GAAP the company assesses the likelihood that it will be able to recover deferred tax assets by utilisation against future taxable profits by considering all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing tax planning strategies when prudent and feasible. Corus has significant historical tax loss carry-forwards in the UK. When evaluating the recoverability of this asset under US GAAP, the approach used to determine the weight of available evidence associated with recent historical losses differs from the IFRS approach. In particular more losses have been incurred than were envisaged when the asset was originally recognised. As a result the Group has not taken future projected profits into consideration under US GAAP, resulting in a reduction of £35m in the Group’s deferred tax asset during 2005, taking the net carrying value to nil. |
| |
| In addition the reconciliation of IFRS to US GAAP includes the tax effect of the other US GAAP adjustments. |
| |
(viii) | Impairment losses |
| Under IFRS if there is an indication of impairment then relevant assets should be tested for impairment and if necessary written down to their value in use. The value in use is calculated based on discounted future pre-tax cash flows related to the asset or the income-generating unit to which the asset belongs. US GAAP assesses whether impairment is necessary based on undiscounted cash flows. An impairment loss exists if the sum of these cash flows is less than the carrying value of the assets. The impairment loss is measured as the difference between fair value based on discounted cash flows and carrying value of the assets. |
| |
| Certain of the historical impairments recognised by Corus under UK GAAP and IFRS did not meet the undiscounted cash flow test required by US GAAP, and as a consequence have not been recognised in the determination of profit for the period or shareholders’ equity under US GAAP. These historical differences, combined with the resulting differences in amortisation have resulted in a difference between the carrying value of certain assets under US GAAP. |
| |
| During 2004, the Group recognised an impairment in use of £38m for the property, plant and equipment associated with its aluminium smelting operations in Europe, following losses associated at least in part with high energy costs. Furthermore, charges of £14m were made against those assets affected by the transfer of UK rail production to Scunthorpe from its current manufacturing facility at Workington. The main impairments during 2005 are discussed on pages 35 and 36 of the Review of the period. |
| |
| IFRS allows the reversal of an impairment loss where the recoverable amount increases due to a change in economic conditions or in the expected use of an asset. Such reversals are prohibited under US GAAP. In the current period £4m (2004: £68m) of previously recognised impairment charges have been credited to IFRS earnings. This credit has been reversed in the US GAAP reconciliation. During the prior period the IFRS credit included a reversal of the existing impairment provisions of £65m against the property, plant and equipment at Teesside. |
| |
| The adjustment in arriving at the US GAAP shareholders’ equity may be analysed as follows: |
| | | | | | | |
| | 2005
£m | | 2004
£m | |
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| |
IFRS impairment provisions not meeting the undiscounted criteria | | | 137 | | | 137 | |
Additional depreciation under US GAAP on these assets | | | (28 | ) | | (25 | ) |
Reversal and amortisation of prior period impairment losses, not allowed under US GAAP | | | (80 | ) | | (86 | ) |
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| | | 29 | | | 26 | |
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Corus Report & Accounts and Form 20-F 2005 151
Supplementary information for North American investors
| |
(ix) | Derivative instruments and hedging activities |
| The Group enters into derivative arrangements to limit its exposure to interest rate, foreign exchange and commodity price risks. |
| |
| On 2 January 2005 the Group adopted IAS 32 and IAS 39 under IFRS on a prospective basis, requiring designation of hedging instruments and recognition of all derivative instruments at fair value on the balance sheet. The Group’s economic hedging policies remain unchanged but the instruments are accounted for as described in ‘Presentation of accounts and accounting policies’ on page 100 (XV(h)). |
| |
| Under US GAAP, the Group adopted SFAS 133 ‘Accounting for Derivative Instruments and Hedging Activities’, as amended by SFAS 137 and SFAS 138 and as interpreted by the Derivatives Implementation Group, with effect from 1 January 2001. SFAS 133 also requires all derivatives to be recognised as assets or liabilities in the balance sheet and those instruments to be measured at fair value. Changes in fair value over the period are recorded in current earnings unless hedge accounting is obtained. SFAS 133 prescribes requirements for designation and documentation of hedging relationships and ongoing assessments of effectiveness in order to qualify for hedge accounting. Certain derivatives that are designated by the Group as hedging instruments under IAS 39 are not designated as such under SFAS 133. Accordingly hedge accounting is not applied in respect of these arrangements. Hedges of net investment and the treatment of realised and unrealised gains and losses are the same under US GAAP as under IFRS in both years, being taken to other comprehensive income. |
| |
(x) | Profit on disposal of property, plant and equipment |
| Under IFRS any profit or loss arising on the sale and operating leaseback of property, plant and equipment may generally be recognised in profit and loss immediately in the period in which the sale takes place. However for US GAAP purposes, under SFAS 28 ‘Accounting for Sales with Leasebacks’ any such gain or loss must be deferred and amortised over the contract lease period. |
| |
(xi) | Debt issue costs |
| As discussed in Note 20 the Group has, during 2003 and 2005, undertaken a series of renegotiations of its main banking facility. Certain costs have arisen in relation to some of these negotiations and under IFRS they could not be deferred and were expensed immediately upon contractual completion. Whereas under US GAAP they are deferred and subsequently amortised through the income statement over the term of the facility. |
| |
(xii) | Restructuring costs |
| Under IFRS restructuring costs are accounted for in accordance with IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’, and recognised where implementation of a formal plan has begun and has been communicated to those affected. Costs for items such as leased property, plant and equipment, which will no longer provide economic benefit to the Group, are provided for as part of the restructuring plan. |
| |
| Under US GAAP one-time termination benefits are recognised where a detailed formal plan has been communicated to employees. Where employees are required to continue working until they are terminated to be eligible for the termination benefit and that period exceeds the minimum retention period, the cost is only recognised over the retention period. Termination benefits under a pre-existing benefit plan that vest during employment are recognised when such benefits become probable of being paid. Under US GAAP, other costs associated with a restructuring plan are recognised when the liability is incurred rather than at the date of the Group’s commitment to an exit plan. |
| |
(xiii) | Finance leases |
| In accordance with IAS 17 ‘Leases’, under IFRS, the Group separates the land and buildings elements of sale and leaseback transactions when considering classification of a contract as an operating or a finance lease. To the extent that such a transaction is established at fair value then any profit or loss is recognised immediately on the disposal of the land element. Under US GAAP no such distinction is made between land and buildings and therefore the leaseback contract would be recognised as a finance lease in its entirety and the net book value of the land would continue to be reported within property, plant and equipment. |
| |
(xiv) | Financial instruments |
| Under IFRS, the Group’s convertible bonds have been accounted for as separate liability and conversion option components. At the date of issue, the fair value of the liability component is estimated using, inter alia, the prevailing market interest rate for similar non-convertible debt. As these convertible bonds are issued in a currency other than sterling, these instruments are recognised as a financial liability with an embedded option. The option is subsequently re-measured to its fair value at each period end, with any movements being recognised within financial charges in the income statement. The interest expense on the liability component is calculated by applying the prevailing market interest rate at inception for similar non-convertible debt to the liability component of the instrument. The difference between this amount and the interest paid is added to the carrying amount of the convertible loan note. Under US GAAP, the whole liability is included within creditors, and the interest charge is based upon the coupon rate. |
152 Corus Report & Accounts and Form 20-F 2005
Supplementary information for North American investors
| |
| Additional disclosures for pensions and post-retirement benefits under US GAAP |
| For the purpose of determining annual or periodic pension costs in accordance with US GAAP the Group adopts US Statements of Financial Accounting Standards SFAS 87 ‘Employers’ Accounting for Pensions’ and SFAS 88 ‘Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits’. For disclosure purposes, the Group adopts SFAS 132 (Revised 2003) ‘Employers’ Disclosures about Pensions and other Post Retirement Benefits’. This statement standardises the disclosure requirements and has no impact upon pensions measurements and recognition. |
| |
| US GAAP – BS |
| The components of the BS Scheme’s pension cost under SFAS 87 and SFAS 88 are as follows: |
| | | | | | | |
| | 2005
£m | | 2004
£m | |
|
|
|
|
| |
Service cost | | | 120 | | | 116 | |
Interest cost | | | 411 | | | 403 | |
Expected return on scheme assets | | | (454 | ) | | (462 | ) |
Amortisation of prior service cost | | | 14 | | | 14 | |
Special termination benefits | | | 3 | | | — | |
|
|
|
|
|
|
| |
Net benefit cost under SFAS 87 and SFAS 88 | | | 94 | | | 71 | |
|
|
|
|
|
|
| |
| |
| The pension costs for the BS Scheme were determined using the following assumptions: |
| | | | | | | |
| | 2005 | | 2004 | |
|
|
|
|
| |
Discount rate | % | | 5.40 | | | 5.50 | |
Rate of future pensionable salary increases | % | | 4.30 | | | 4.25 | |
Rate of future pension increases | % | | 2.60 | | | 2.50 | |
Expected long term rate of return on scheme assets | % | | 6.00 | | | 6.00 | |
|
|
|
|
|
|
| |
| |
| The defined benefit obligations at the end of the period for the BS Scheme were determined using the following assumptions: |
| | | | | | | | | | |
| | | | | 2005 | | 2004 | |
|
|
|
|
|
|
|
| |
Discount rate | | | % | | | 4.80 | | | 5.40 | |
Rate of future pensionable salary increases | | | % | | | 3.70 | | | 4.30 | |
Rate of future pension increases | | | % | | | 2.70 | | | 2.60 | |
Expected long term rate of return on scheme assets | | | % | | | 6.00 | | | 6.00 | |
|
|
|
|
|
|
|
|
|
| |
| |
| The disclosure requirements for the BS Scheme under SFAS 132 (Revised 2003), as calculated under SFAS 87 and SFAS 88 and measured at the period end date, are as follows: |
| | | | | | | |
| | 2005
£m | | 2004
£m | |
|
|
|
|
| |
Change in benefit obligation: | | | | | | | |
Benefit obligation at beginning of period | | | 7,826 | | | 7,532 | |
Service cost | | | 120 | | | 116 | |
Interest cost | | | 411 | | | 403 | |
Employee contributions | | | 37 | | | 35 | |
Actuarial movement | | | 931 | | | 296 | |
Special termination benefits | | | 3 | | | — | |
Benefits paid | | | (434 | ) | | (426 | ) |
Bulk transfer payment | | | — | | | (130 | ) |
|
|
|
|
|
|
| |
Benefit obligation at end of period | | | 8,894 | | | 7,826 | |
|
|
|
|
|
|
| |
Change in scheme assets: | | | | | | | |
Fair value of scheme assets at beginning of period | | | 8,043 | | | 7,825 | |
Actual return on scheme assets | | | 1,311 | | | 727 | |
Employer contributions | | | 13 | | | 12 | |
Employee contributions | | | 37 | | | 35 | |
Benefits paid | | | (434 | ) | | (426 | ) |
Bulk transfer payment | | | — | | | (130 | ) |
|
|
|
|
|
|
| |
Fair value of scheme assets at end of period | | | 8,970 | | | 8,043 | |
|
|
|
|
|
|
| |
Reconciliation of funded status: | | | | | | | |
Fair value of scheme assets at end of period | | | 8,970 | | | 8,043 | |
Projected benefit obligation | | | (8,894 | ) | | (7,826 | ) |
|
|
|
|
|
|
| |
Funded status | | | 76 | | | 217 | |
Unrecognised prior service cost | | | 83 | | | 97 | |
Other unrecognised net loss | | | 138 | | | 64 | |
|
|
|
|
|
|
| |
Net amount recognised | | | 297 | | | 378 | |
|
|
|
|
|
|
| |
Corus Report & Accounts and Form 20-F 2005 153
Supplementary information for North American investors
| |
| On adoption of SFAS 87 there was a transition asset of £64m representing the excess of the market value of the BS Scheme’s investments over its liabilities in respect of past service (with full allowance for future salary increases), the projected benefit obligation. This amount has now been fully recognised. |
| |
| Changes in the pension arrangements made in 1999 and 2002 are reflected in prior service costs. Prior service costs are amortised on a straight-line basis over the average remaining service period of employees active at the date of amendment. At 1 January 2005, there was an unrecognised actuarial loss of £138m (2004: £64m) arising out of actual experience differing from assumptions made primarily in respect of investment performance. Cumulative actuarial gains or losses, excluding asset gains and losses not yet reflected in market-related value which exceed 10% of the greater of the projected benefit obligation and the market-related value of the scheme’s assets, will be amortised on a straight-line basis over the average remaining service period of active employees. |
| |
| The BS Scheme’s assets are invested in equities, fixed interest and index-linked securities and property. The BS Scheme has specifically invested in a bond portfolio that seeks to match the cash flow of pension liabilities. The balance of its assets are invested with the aim of achieving a higher return than that available from fixed interest investments. |
| |
| The end of period Accumulated Benefit Obligation (ABO) was £7,742m (2004: £6,567m). The ABO represents the actuarial present value of the benefits which the employee has accrued at the measurement date, assuming the employee separates immediately, in accordance with EITF 88-1. |
| |
| US GAAP – Other Schemes |
| The combined components of the Group’s other schemes’ pension cost under SFAS 87 and SFAS 88 are as follows: |
| | | | | | | |
| | 2005
£m | | 2004
£m | |
|
|
|
|
| |
Service cost | | | 89 | | | 34 | |
Interest cost | | | 211 | | | 193 | |
Expected return on scheme assets | | | (226 | ) | | (207 | ) |
Recognised actuarial loss | | | 2 | | | — | |
Amortisation of prior service cost | | | 2 | | | 5 | |
Amortisation of transition liability | | | 2 | | | 2 | |
|
|
|
|
|
|
| |
Net benefit cost under SFAS 87 and SFAS 88 | | | 80 | | | 27 | |
|
|
|
|
|
|
| |
| |
| The pension costs for the other schemes were determined using the following assumptions: |
| | | | | | | | | | |
| | | | | 2005 | | 2004 | |
|
|
|
|
|
|
|
| |
Discount rate | | | % | | | 4.75 to 6.30 | | | 5.50 | |
Rate of future pensionable salary increases | | | % | | | 2.50 to 4.30 | | | 2.50 to 3.50 | |
Rate of future pension increases | | | % | | | 1.80 to 3.00 | | | 1.80 to 2.50 | |
Expected long term rate of return on scheme assets | | | % | | | 5.50 to 9.70 | | | 6.00 to 6.43 | |
|
|
|
|
|
|
|
|
|
| |
| |
| Pensions in payment and deferred pensions for the SPH Scheme have been valued at a net 2.75% discount rate (2004: 3.5%). |
| |
| For the CES and SPH Schemes the overall expected long term rate of return on assets is a weighted average of the returns expected from the individual asset categories. The latter are based upon economic and market expectations. |
| |
| The combined defined benefit obligations at the end of the period for the other schemes were determined using the following assumptions: |
| | | | | | | | | | |
| | | | | 2005 | | 2004 | |
|
|
|
|
|
|
|
| |
Discount rate | | | % | | | 4.00 to 6.00 | | | 4.75 to 5.40 | |
Rate of future pensionable salary increases | | | % | | | 2.50 to 4.30 | | | 2.50 to 3.60 | |
Rate of future pension increases | | | % | | | 2.00 to 4.00 | | | 1.80 to 2.60 | |
Expected long term rate of return on scheme assets | | | % | | | 5.00 to 9.50 | | | 5.50 to 6.16 | |
|
|
|
|
|
|
|
|
|
| |
| |
| Pensions in payment and deferred pensions for the SPH Scheme have been valued at a net 2% discount rate (2004: 2.75%). |
| |
| The expected funding strain on the CES Scheme, arising as a direct consequence of the UK restructuring programme announced in April 2003, is £17m as measured on the SFAS 87 and SFAS 88 assumptions. This amount was provided in the 2003 consolidated income statement as a restructuring and impairment cost and has not been shown as a termination benefit under SFAS 87 and SFAS 88. The full cost of the funding strain is being met by Corus. |
154 Corus Report & Accounts and Form 20-F 2005
Supplementary information for North American investors
The disclosure requirements for the other schemes under SFAS 132 (Revised 2003), as calculated under SFAS 87 and SFAS 88 and measured at the period end date, are as follows:
| | | | | | | |
| | | 2005
£m | | | 2004
£m | |
|
|
|
|
|
|
| |
Change in benefit obligation: | | | | | | | |
Benefit obligation at beginning of period | | | 4,056 | | | 3,659 | |
Extension of coverage (a) | | | 332 | | | — | |
Service cost | | | 89 | | | 34 | |
Interest cost | | | 211 | | | 193 | |
Employee contributions | | | 22 | | | 23 | |
Actuarial movement | | | 473 | | | 296 | |
Other changes | | | 24 | | | — | |
Disposal of group undertakings | | | (33 | ) | | — | |
Exchange rate movements | | | (90 | ) | | 31 | |
Benefits paid | | | (212 | ) | | (180 | ) |
|
|
|
|
|
|
| |
Benefit obligation at end of period | | | 4,872 | | | 4,056 | |
|
|
|
|
|
|
| |
Change in scheme assets: | | | | | | | |
Fair value of scheme assets at beginning of period | | | 3,905 | | | 3,496 | |
Extension of coverage (a) | | | 221 | | | — | |
Actual return on scheme assets | | | 624 | | | 485 | |
Employer contributions | | | 61 | | | 50 | |
Employee contributions | | | 22 | | | 23 | |
Exchange rate movements | | | (84 | ) | | 31 | |
Benefits paid | | | (212 | ) | | (180 | ) |
|
|
|
|
|
|
| |
Fair value of scheme assets at end of period | | | 4,537 | | | 3,905 | |
|
|
|
|
|
|
| |
Reconciliation of funded status: | | | | | | | |
Fair value of scheme assets at end of period | | | 4,537 | | | 3,905 | |
Projected benefit obligation | | | (4,872 | ) | | (4,056 | ) |
|
|
|
|
|
|
| |
Funded status | | | (335 | ) | | (151 | ) |
Unrecognised net loss at date of initial application of SFAS 87 | | | 4 | | | 7 | |
Unrecognised prior service cost | | | 88 | | | 53 | |
Other unrecognised net loss | | | 251 | | | 169 | |
|
|
|
|
|
|
| |
Net amount recognised | | | 8 | | | 78 | |
|
|
|
|
|
|
| |
Of which: | | | | | | | |
Prepaid pension cost | | | 306 | | | 277 | |
Accrued benefit liability (excluding additional minimum liability) | | | (298 | ) | | (199 | ) |
|
|
|
|
|
|
| |
Net amount recognised | | | 8 | | | 78 | |
|
|
|
|
|
|
| |
Amounts recognised in the statement of financial position consist of: | | | | | | | |
Accrued benefit liability (including additional minimum liability) | | | (364 | ) | | (259 | ) |
Intangible asset | | | 5 | | | 7 | |
Accumulated other comprehensive income | | | 61 | | | 53 | |
|
|
|
|
|
|
| |
Accrued benefit liability (excluding additional minimum liability) | | | (298 | ) | | (199 | ) |
|
|
|
|
|
|
| |
| |
(a) | During the period the Group increased the coverage of those pension schemes and benefit arrangements subject to accounting under SFAS 87, as described in (iv) above, to ensure all Group arrangements were reflected in the US GAAP reconciliation. |
For these other Schemes the end of period ABO totalled £4,499m (2004: £3,747m). The CES Scheme represented £757m of this balance, exceeding the fair value of plan assets of this scheme, which were £634m (2004: £538m).
In each of the years presented above Corus has recognised a minimum pension liability. US GAAP requires the employer to recognise an additional minimum pension liability to the extent that the ABO exceeds the fair value of the plan assets and this shortfall is not covered by the pension liability already recognised in the balance sheet. This results in a charge to other accumulated comprehensive income equal to the additional minimum pension liability but adjusted to take account of the intangible asset, which represents the unrecognised transition obligation.
Investment strategies for these schemes are generally set by their respective trustees, after taking advice from their investment advisers. The strategies are reviewed periodically and reflect the funding position of the schemes, and an assessment of the risks inherent over the long term in various asset classes. In order to reduce risk, the assets of the schemes are diversified by asset class and by geography.
| |
Corus Report & Accounts and Form 20-F 2005 155 |
Supplementary information for North American investors
New US accounting standards
Recently issued accounting pronouncements implemented during the year
In March 2005, the Financial Accounting Standards Board (FASB) issued Interpretation No. (FIN) 47, ‘Accounting for Conditional Asset Retirement Obligations’ an interpretation of FASB Statement No. 143. FIN 47 clarifies that SFAS 143, ‘Accounting for Asset Retirement Obligations’, requires that an entity recognise a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. FIN 47 is effective no later than the end of fiscal years ending after 15 December 2005. The adoption of FIN 47 has not had a material impact on the Group’s results of operations or financial position.
Recently issued accounting pronouncements not yet implemented
In November 2004, the FASB issued SFAS 151 ‘Inventory Costs’ to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognised as current period charges. In addition, SFAS 151 requires that the allocation of fixed production overheads to inventory values be based on the normal capacity of the production facilities. SFAS 151 is effective for costs incurred in respect of inventories for reporting periods beginning after 15 June 2005. The adoption of SFAS 151 is not expected to have a material effect on the results or net assets of the Group.
In December 2004, the FASB issued SFAS 153 ‘Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29’ which, for periods beginning after 15 June 2005, no longer allows the exemption included in APB Opinion No. 29 (APB 29) which permitted certain non-monetary exchanges of similar productive assets to be accounted for at book value with no gain or loss being recognised. Under SFAS 153 such non-monetary transactions have to be accounted for at fair value, recognising any gain or loss, if the transaction meets a commercial substance criterion and the fair value is determinable. SFAS 153 did not affect the guidance in APB 29 for non-monetary exchanges of inventory. The adoption of SFAS 153 is not expected to have a material effect on the results or net assets of the Group.
In December 2004, the FASB issued SFAS 123(R) ‘Share-Based Payment’ which is a revision of SFAS 123 ‘Accounting for Stock-Based Compensation’ and supersedes APB Opinion No. 25 ‘Accounting for Stock Issued to Employees’. Generally the valuation methods contained in SFAS 123(R) are similar to those in SFAS 123, but SFAS 123(R) requires all share-based payments to employees, including grants of employee share options, to be charged to the statement of income. Pro-forma disclosure is no longer an alternative. With limited exceptions, the amount charged to the statement of income for share options will be measured based on the grant date fair value of the option amortised over the period to the date of vesting of the award. SFAS 123(R) is effective for annual reporting periods beginning after 15 June 2005. The adoption of SFAS 123(R) is not expected to have a material effect on the results or net assets of the Group.
In May 2005, the FASB issued SFAS 154 ‘Accounting Changes and Error Corrections’, which is effective for periods beginning after 15 December 2005. This statement replaces APB Opinion No. 20 ‘Accounting Changes’ (APB 20) and SFAS 3 ‘Reporting Accounting Changes in Interim Financial Statements’. APB 20 previously required that most voluntary changes in accounting principle be recognised by including, in net income of the period of the change, the cumulative effect of changing to the new accounting principle. SFAS 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period specific effects or the cumulative effect of the change. The adoption of SFAS 154 is not expected to have a material effect on the results or net assets of the Group.
In February 2006, the FASB issued SFAS 155 ‘Accounting for Certain Hybrid Financial Instruments’, an amendment of SFAS 133 and 140. SFAS 155 nullifies the guidance from the FASB’s Derivatives Implementation Group (DIG) in Issue D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets, which deferred the application of the bifurcation requirements of SFAS 133 for certain beneficial interests. SFAS 155 provides a fair value measurement option for certain hybrid financial instruments that contain an embedded derivative that would otherwise require bifurcation and requires that beneficial interests in securitized financial assets be analysed to determine whether they are freestanding derivatives or whether they are hybrid instruments that contain embedded derivatives requiring bifurcation. SFAS 155 also provides clarification on specific points related to derivative accounting. SFAS 155 is effective for fiscal years beginning after 15 September 2006. The Group does not currently expect SFAS 155 to have a material impact on its financial position, results of operations or cash flows.
In June 2005 EITF 05-05 ‘Accounting for Early Retirement or Post-employment Programs with Specific Features (Such As Terms Specified in Altersteilzeit Early Retirement arrangements)’ (EITF 05-05) was issued. EITF 05-05 provides specific guidance on how to account for such features and is effective for fiscal years beginning after 15 December 2005. The Group is currently assessing the impact of this consensus.
| |
156 Corus Report & Accounts and Form 20-F 2005 |
Financial summary
With effect from 2 January 2005, Corus is preparing its consolidated financial statements, for the first time, in accordance with IFRS. Also, it has taken advantage of the exemption allowed by the United States Securities and Exchange Commission to present one year of comparative data. Accordingly, financial data for the 2001, 2002 and 2003 fiscal years has been omitted from the following presentation. The consolidated income statement and consolidated balance sheet five year history will be built up as further IFRS reporting continues.
Consolidated income statement
| | | | | | | |
| | | 2004
£m | | | 2005
£m | |
|
|
|
|
|
|
| |
Group turnover | | | | | | | |
United Kingdom | | | 2,614 | | | 2,706 | |
Other European | | | 4,983 | | | 5,418 | |
North America | | | 923 | | | 870 | |
Other areas | | | 812 | | | 1,146 | |
|
|
|
|
|
|
| |
| | | 9,332 | | | 10,140 | |
Total operating cost | | | (8,670 | ) | | (9,460 | ) |
|
|
|
|
|
|
| |
Group operating profit | | | 662 | | | 680 | |
Finance costs | | | (129 | ) | | (132 | ) |
Finance income | | | 13 | | | 31 | |
Share of post-tax profits of joint ventures and associates | | | 21 | | | 1 | |
|
|
|
|
|
|
| |
Profit before taxation | | | 567 | | | 580 | |
Taxation | | | (126 | ) | | (129 | ) |
|
|
|
|
|
|
| |
Profit after taxation | | | 441 | | | 451 | |
|
|
|
|
|
|
| |
Attributable to: | | | | | | | |
Equity holders of the parent | | | 447 | | | 452 | |
Minority interests | | | (6 | ) | | (1 | ) |
|
|
|
|
|
|
| |
| | | 441 | | | 451 | |
|
|
|
|
|
|
| |
| | | | | | | |
Basic earnings per ordinary share in pence | | | 10.07 | | | 10.17 | |
Dividend per ordinary share in pence | | | — | | | 0.5 | |
|
|
|
|
|
|
| |
Basic earnings per ADS in £ | | | 1.01 | | | 1.01 | |
Dividend per ADS in pence | | | — | | | 0.5 | |
|
|
|
|
|
|
| |
Amounts in accordance with US GAAP | | | | | | | |
Profit for financial period | | | 344 | | | 389 | |
Profit per ADS in £ | | | 0.77 | | | 0.87 | |
|
|
|
|
|
|
| |
Consolidated balance sheet
| | | | | | | |
| | | 2004
£m | | | 2005
£m | |
|
|
|
|
|
|
| |
Non-current assets | | | 3,577 | | | 3,496 | |
Current assets | | | 3,714 | | | 4,446 | |
|
|
|
|
|
|
| |
TOTAL ASSETS | | | 7,291 | | | 7,942 | |
|
|
|
|
|
|
| |
Current liabilities | | | (2,397 | ) | | (2,467 | ) |
Non-current liabilities | | | (1,836 | ) | | (2,097 | ) |
|
|
|
|
|
|
| |
TOTAL LIABILITIES | | | (4,233 | ) | | (4,564 | ) |
|
|
|
|
|
|
| |
NET ASSETS/TOTAL EQUITY | | | 3,058 | | | 3,378 | |
|
|
|
|
|
|
| |
Total equity in accordance with US GAAP: | | | | | | | |
Capital stock | | | 1,864 | | | 1,870 | |
Other reserves | | | 1,661 | | | 2,021 | |
|
|
|
|
|
|
| |
| | | 3,525 | | | 3,891 | |
|
|
|
|
|
|
| |
| |
Corus Report & Accounts and Form 20-F 2005 157 |
Financial summary
Other information
| | | | | | | | | | | | | | | | | |
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| |
Sales of the carbon steel divisions outside the UK | | £m | | | | | | | | | | | | | | | |
EU (excluding UK) | | | | 2,848 | | | 2,733 | | | 3,154 | | | 3,963 | | | 4,343 | |
Europe (excluding EU) | | | | 261 | | | 291 | | | 322 | | | 309 | | | 379 | |
North America | | | | 706 | | | 716 | | | 607 | | | 744 | | | 660 | |
South America | | | | 52 | | | 34 | | | 72 | | | 62 | | | 113 | |
Africa | | | | 100 | | | 78 | | | 83 | | | 103 | | | 117 | |
Asia | | | | 370 | | | 376 | | | 611 | | | 523 | | | 777 | |
Australasia | | | | 19 | | | 19 | | | 27 | | | 32 | | | 33 | |
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| | | | 4,356 | | | 4,247 | | | 4,876 | | | 5,736 | | | 6,422 | |
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Sales of the aluminium division | | £m | | | | | | | | | | | | | | | |
UK | | | | 104 | | | 87 | | | 63 | | | 70 | | | 53 | |
EU | | | | 644 | | | 604 | | | 636 | | | 682 | | | 675 | |
Other European | | | | 93 | | | 30 | | | 41 | | | 29 | | | 21 | |
North America | | | | 171 | | | 165 | | | 174 | | | 179 | | | 210 | |
Asia | | | | 51 | | | 53 | | | 58 | | | 71 | | | 85 | |
Other areas | | | | 22 | | | 18 | | | 20 | | | 21 | | | 21 | |
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| | | | 1,085 | | | 957 | | | 992 | | | 1,052 | | | 1,065 | |
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Sales of the stainless steel division | | £m | | | | | | | | | | | | | | | |
UK | | | | 9 | | | — | | | — | | | — | | | — | |
EU (excluding UK) | | | | 47 | | | — | | | — | | | — | | | — | |
Europe (excluding EU) | | | | 6 | | | — | | | — | | | — | | | — | |
North America | | | | 12 | | | — | | | — | | | — | | | — | |
South America | | | | — | | | — | | | — | | | — | | | — | |
Africa | | | | — | | | — | | | — | | | — | | | — | |
Asia | | | | 5 | | | — | | | — | | | — | | | — | |
Australasia | | | | 1 | | | — | | | — | | | — | | | — | |
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| | | | 80 | | | — | | | — | | | — | | | — | |
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158 Corus Report & Accounts and Form 20-F 2005 |
Financial summary
US GAAP selected financial data
Consolidated income statement data
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| | | 2001
£m | | | 2002
£m | | | 2003
£m | | | 2004
£m | | | 2005
£m | |
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Turnover | | | 7,699 | | | 7,188 | | | 7,953 | | | 9,332 | | | 10,140 | |
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Operating (loss)/profit including joint ventures and associates | | | (531 | ) | | (398 | ) | | (195 | ) | | 551 | | | 579 | |
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Continuing operations – net income | | | (543 | ) | | (351 | ) | | (216 | ) | | 285 | | | 396 | |
Discontinued operations – (loss)/profit from operations | | | (27 | ) | | (25 | ) | | (129 | ) | | 59 | | | (7 | ) |
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(Loss)/income before cumulative effect of change in accounting policy | | | (570 | ) | | (376 | ) | | (345 | ) | | 344 | | | 389 | |
Cumulative effect of change in accounting policy | | | — | | | (22 | ) | | — | | | — | | | — | |
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Net (loss)/income available for appropriation | | | (570 | ) | | (398 | ) | | (345 | ) | | 344 | | | 389 | |
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Basic (loss)/profit per ADS in £ | | | (1.77 | ) | | (1.24 | ) | | (1.05 | ) | | 0.77 | | | 0.87 | |
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During December 2003, Corus undertook a placing and open offer for 1,304m ordinary shares. This offer was deemed to include a bonus element since it was offered at a discount against the market value at that time. Therefore, in accordance with SFAS 128, the inherent bonus factor of 1.029 was used to calculate earnings per ADS and to restate the prior periods presented.
Consolidated balance sheet data
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| | | 2001
£m | | | 2002
£m | | | 2003
£m | | | 2004
£m | | | 2005
£m | |
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Total assets | | | 7,781 | | | 7,128 | | | 7,065 | | | 7,841 | | | 8,513 | |
Long term borrowings | | | (1,503 | ) | | (1,119 | ) | | (948 | ) | | (1,075 | ) | | (1,326 | ) |
Creditors, provisions and minority interests | | | (2,854 | ) | | (2,909 | ) | | (2,943 | ) | | (3,241 | ) | | (3,296 | ) |
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Net assets | | | 3,424 | | | 3,100 | | | 3,174 | | | 3,525 | | | 3,891 | |
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Capital stock | | | 1,569 | | | 1,572 | | | 1,863 | | | 1,864 | | | 1,870 | |
Other reserves | | | 1,855 | | | 1,528 | | | 1,311 | | | 1,661 | | | 2,021 | |
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Shareholders’ funds | | | 3,424 | | | 3,100 | | | 3,174 | | | 3,525 | | | 3,891 | |
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Corus Report & Accounts and Form 20-F 2005 159 |
This Page Intentionally Left Blank
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160 Corus Report & Accounts and Form 20-F 2005 |
Ancillary information
History and development of Corus
Since 1945, the UK steel industry has undergone fundamental changes of structure and ownership. It was nationalised in 1949, substantially denationalised from 1953 onwards and then largely renationalised in 1967, when BSC was formed from 14 of the major UK steel producing companies. On 5 December 1988, HM Government disposed of substantially all of the equity of British Steel in an offering made in the UK, the United States, Canada, Europe and Japan. British Steel’s ordinary shares were traded on the London Stock Exchange and, in the form of American Depositary Shares (ADSs), evidenced by American Depositary Receipts (ADRs), on the New York Stock Exchange up to and including 5 October 1999.
On 6 October 1999, British Steel merged with Koninklijke Hoogovens to form a new group whose parent company is Corus Group plc. On that date British Steel became a wholly-owned subsidiary of Corus Group plc. On 8 October 1999, British Steel was re-registered as a private company.
The merger was implemented by the acquisition of British Steel by Corus Group plc, the new UK holding company, pursuant to a Scheme of Arrangement of British Steel under section 425 of the Companies Act 1985 and a public offer by Corus for the Hoogovens ordinary shares.
Under the terms of the merger, on 6 October 1999, British Steel shareholders received one ordinary share in Corus in exchange for each British Steel ordinary share held and either 35p in cash or 35p in nominal amount of Corus Floating Rate Unsecured Loan Notes 2006 (Loan Notes) per existing British Steel share (approximately £694m in total). Holders of British Steel ADSs received Corus ADSs representing ten ordinary shares in Corus and US$5.8205 cash for each ADS held. Hoogovens ordinary shareholders received 29.18 Corus ordinary shares in exchange for each Hoogovens ordinary share. Upon completion of the merger, the former British Steel shareholders held approximately 65% and the former Hoogovens ordinary shareholders held approximately 35% of the issued ordinary share capital of Corus. Hoogovens convertible bonds, which were convertible into Hoogovens ordinary shares, became exchangeable for Corus ordinary shares upon completion of the merger.
Corus was incorporated in the name of BSKH plc in England and Wales on 16 July 1999 and was established for the purpose of the merger. The name was subsequently changed to Corus Group plc on 28 September 1999, prior to the merger. The corporate headquarters are in London. The address and telephone number of Corus and its agent in the USA are shown on page 172.
From 6 October 1999, Corus ordinary shares were traded on the London Stock Exchange. They were also traded, in the form of ADSs, evidenced by ADRs, on the New York Stock Exchange.
On 12 November 2003 the Company announced a placing and open offer of 5 new ordinary shares for 12 old ordinary shares to raise approximately £307m before expenses (£291m after expenses). 1,304m new ordinary shares were offered at a price of 23.5p per share. This share issue was approved at an Extraordinary General Meeting on 5 December 2003, and proceeds were received on 11 December 2003.
Prior to the issue of the new ordinary shares, the nominal value of 50p of each old ordinary share exceeded the proposed issue price of 23.5p per new ordinary share. As a matter of company law, it was not possible for the Company to issue shares at less than their nominal value and, therefore, in order to effect the placing and open offer the existing issued ordinary shares were subdivided and converted from one old ordinary share of 50p into one new ordinary share of 10p and one deferred share of 40p, and each existing but unissued ordinary share was converted into five new ordinary shares of 10p. This resulted in 9,478,827,378 new ordinary shares and 3,130,418,153 deferred shares being created under a share capital reorganisation.
Prior to October 2003, Corus Group consisted of 20 main business units, focused on specific markets, products and processes. From October 2003, these business units were structured into four main divisions and a speciality portfolio: Strip Products, Long Products, Aluminium, Distribution & Building Systems, and Speciality Portfolio. Subsequently the Speciality Portfolio was disbanded and the constituent business units were reallocated to the four main divisions. The Group has reported on this basis from 2004.
Aluminium businesses
In March 2002 Corus announced that, following a reappraisal of its position in the global aluminium industry, it was to offer its Aluminium businesses for sale. On 16 August 2002 Corus announced that it had agreed to sell a 20% interest it had in the Aluminerie Alouette smelter in Canada to Alcan for US$165m (approximately £107m) in cash, with a consideration for working capital on completion. This sale took place in September 2002.
On 23 October 2002 Corus announced that it had agreed in principle to the sale of its Aluminium rolled products and extrusions businesses to Pechiney S.A. for €861m (approximately £543m). It was intended that a definitive sale and purchase agreement would be entered into following completion of internal consultation, advice and approval processes. However, the Supervisory Board of Corus Nederland BV decided on 10 March 2003 to reject the recommendation to proceed with the sale. On 11 March 2003 Corus Group plc announced it would commence proceedings before the Enterprise Chamber of the Amsterdam Court of Appeal to seek redress in respect of this decision. However, this request was unsuccessful and, as no appeal procedure was available to resolve the issue in time for the sale to proceed, Corus accepted the Court’s decision as final. Pechiney was informed that Corus would not now proceed with the sale and, as a result, a break fee of €20m was paid to Pechiney in 2003.
On 5 February 2004 Corus announced it was entering the early stages of a process to actively consider the options for its Aluminium businesses, which may lead to discussions with third parties. Corus has further announced on 16 March 2006 that it has signed a letter of intent for Aleris International Inc. to acquire Corus’ Aluminium rolled products and extrusions businesses for a gross consideration of €826m (approximately £570m).
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Corus Report & Accounts and Form 20-F 2005 161 |
Ancillary information
Stainless steel products
In September 2000, a proposed merger between Outokumpu Steel Oyj and Avesta Sheffield was announced. This merger was completed on 22 January 2001, creating AvestaPolarit Oyj Abp, one of the world’s largest stainless steel producers. Until 1 July 2002, Corus had a 23% holding in AvestaPolarit Oyj Abp. Corus had a holding in Avesta Sheffield prior to the merger of 51%.
On 1 July 2002, Corus announced the sale of its stake in AvestaPolarit Oyj Abp to Outokumpu Oyj for €6.55 per share in cash, plus €25m in cash as consideration for the termination of the shareholders’ agreement between Corus and Outokumpu Oyj entered into in connection with the formation of AvestaPolarit Oyj Abp in January 2001. The total proceeds amounted to approximately €555m (approximately £356m).
Prior to Corus’ sale of its holding in AvestaPolarit Oyj Abp, AvestaPolarit Oyj Abp had an annual stainless steel melting capacity of about 2mt. It produced a range of grades of stainless steel, typically each with different properties, by varying the levels of chromium, nickel and molybdenum. Molten steel was typically cast into either slabs or billets. These slabs were then generally rolled into coil or into heavy plate. The coil processing systems in Tornio, Avesta, Nyby, Kloster and Sheffield were the core business of AvestaPolarit Oyj Abp. Hot rolled coil was subject to further processing for use in both household and industrial applications, including the food, petrochemical and construction industries. Cold rolled coil was also used as the feedstock for the manufacture of welded pipe and tube, fittings and precision strip. Tubes and fittings were used primarily for the transport of corrosive gases in the process industry and precision strip was used for cutting edge applications, heat exchangers and a wide range of other end uses. Billets were typically rolled into bar or rod which could be drawn into smaller diameter bar or wire. The heavy plate was commonly used in the pulp and paper industry, oil and gas, power plants and chemical tankers.
AvestaPolarit Oyj Abp had sales and distribution channels in 52 countries, including company owned sales units and a number of independent outlets.
Exchange rates
On 23 March 2006 the noon buying rate in New York City for cable transfers in pounds sterling as certified for customs purposes by the Federal Reserve Bank of New York (the ‘Noon Buying Rate’) was US$1.737 to £1.00.
The following table sets forth, for periods and dates indicated, certain information concerning the Noon Buying Rate, expressed in US dollars per £1.00:
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Financial period ended | | Average (a) | | High | | Low | | Period
End | |
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29 December 2001 | | 1.440 | | 1.505 | | 1.373 | | 1.448 | |
28 December 2002 | | 1.502 | | 1.604 | | 1.409 | | 1.602 | |
3 January 2004 | | 1.635 | | 1.790 | | 1.550 | | 1.790 | |
1 January 2005 | | 1.833 | | 1.948 | | 1.754 | | 1.916 | |
31 December 2005 | | 1.820 | | 1.929 | | 1.714 | | 1.719 | |
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Month ended | | | | High | | Low | | | |
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30 September 2005 | | | | 1.842 | | 1.762 | | | |
31 October 2005 | | | | 1.786 | | 1.748 | | | |
30 November 2005 | | | | 1.776 | | 1.714 | | | |
31 December 2005 | | | | 1.774 | | 1.719 | | | |
31 January 2006 | | | | 1.789 | | 1.719 | | | |
28 February 2006 | | | | 1.781 | | 1.734 | | | |
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(a) | The average of the Noon Buying Rates on the last day of each month during the applicable period. |
EC regulatory regime
Since the expiry of the Treaty of Paris on 23 July 2002, all steel products have been subject to the Treaty of Rome, which is of indefinite duration. The European Commission is responsible for implementing the objectives of EC Treaties.
State aid
With the expiry of the Treaty of Paris on 23 July 2002, the EU has become subject to a single state aid regime under the Treaty of Rome. Specific policies are in place in relation to aid for research and development, environmental improvement, training, regional investment, and rescue and restructuring. The steel industry, however, continues to be subject to more rigorous controls, with a prohibition on regional investment aid, and rescue and restructuring aid, with the exception of limited help with plant closures. The European Commission has a duty to enforce these rules by investigating notifications of financial injections by governments of EU member states and pursuing allegations of direct and indirect subsidies made against such governments.
Pricing
Following the expiry of the Treaty of Paris on 23 July 2002, there are no longer any regulations specific to the pricing of steel products.
Competition
The Treaty of Rome and the EEA Agreement contain provisions prohibiting anti-competitive practices and agreements which relate, among other things, to the fixing or determination of prices, the restriction or control of production or the sharing of markets subject, in certain cases, to specified exemptions. In addition, both the Treaty of Rome and the EEA Agreement contain provisions prohibiting the abuse of a dominant position. The European Commission, which has strong powers of investigation and enforcement over anti-competitive agreements and conduct, has indicated its opposition to any establishment by all EU industries of arrangements contrary to the EC rules on competition. Under the UK Enterprise Act 2002, individuals can be criminally liable for being involved in certain types of cartels. Since 1 May 2004, the designated competition authorities and courts of all EU Member States are empowered to apply EU law regulating anti-competitive agreements and conduct directly.
162 Corus Report & Accounts and Form 20-F 2005
Ancillary information
Sanctions
The European Commission and ESA have powers to control anti-competitive practices, agreements and conduct, and also certain concentrations with a EU or EEA dimension, which are found to significantly impede competition, by imposing fines and making orders to stop illegal practices or requiring undertakings to make appropriate disposals. While the maximum level of fines for anti-competitive agreements or conduct is 10% of group turnover worldwide, fines are usually related to the volume of EC or EFTA trade in the products involved. The European Commission and ESA may act or be compelled to act on the basis of complaints by third parties. In addition to the measures that can be taken by the European Commission under the Treaty of Rome and the ESA under the EEA Agreement, third parties may, in certain circumstances, bring proceedings in national courts to obtain injunctions to restrain Treaty or EEA Agreement infringements or to obtain damages to compensate them for losses caused by Treaty or EEA Agreement infringements.
Trade associations and other voluntary arrangements
Within the EU there has historically been close cooperation between the steel industry, the European Commission and governments.
Eurofer is the trade association to which all major European steel producers including Corus belong, either directly or through national trade associations. Eurofer, through its main committees, supplies and coordinates advice and information to its members and in turn represents them to, amongst others, the European Commission. These representations cover a wide range of issues where there is a need for a common industry voice, and include international trade policies (see following section), social and environmental control issues, research and development matters, market conditions and various aspects of the sale and marketing of steel products. They relate to most major steel products.
Corus is also a member of other trade associations and other industry groups in respect of its other products and activities, for example, the European Aluminium Association.
International trade restrictions
Steel is an internationally traded material. Such trade is governed by the rules of the World Trade Organisation (WTO) that allow for trade remedies such as anti-dumping and countervailing actions to be taken against unfairly traded imports. Since 1992, a number of such actions have been initiated in the US and other countries against certain steel products from a number of producers including Corus. Where material, details of legal proceedings involving Corus relating to these actions are given under ‘Legal proceedings’ below. Such actions are much less prevalent in aluminium; Corus has no involvement in any such actions relating to its aluminium activities.
Trade restrictions remain in place and additional duties are payable on Corus’ sales into the US of certain carbon steel plates and certain stainless steel bars from the UK. However, these actions and restrictions have had no material effect on total Corus sales or results. A five year ‘sunset’ review of the US measures affecting certain carbon steel plate is currently underway. A similar review of the anti-dumping order affecting certain stainless steel bars will commence in early 2007. These reviews could result in the cases being terminated and the restrictions against such sales being removed.
An anti-dumping investigation by the US authorities into certain imports of hot rolled coil, launched in November 2000, resulted in additional anti-dumping duties being applied on Corus sales into the US of hot rolled steel from the Netherlands. The US Department of Commerce (DOC) determined a final dumping margin of 2.59% in the investigation and cash deposits at this rate became payable on all Corus sales of hot rolled steel from the Netherlands into the US. The DOC has now completed two annual Administrative Reviews of this case to determine the actual duty liability on subject sales made during the periods under review and the new duty deposit rates on US sales going forward. The current duty deposit rate on US sales is 4.42%. More details of the reviews are provided under ‘Legal proceedings’ below. This order is continuing to be challenged by Corus in the US courts and is also one of those included by the EU in its complaint to the WTO about US zeroing practice (see ‘Legal proceedings’ below for details). A five year ‘sunset’ review of the hot rolled order is also due to be initiated in August 2006, which could result in the case being terminated.
In March 2002, following a Section 201 Safeguards investigation by the US International Trade Commission (ITC), President Bush took action to impose tariffs of between 8% and 30% on US imports of a number of steel products and a system of quotas and tariffs on slab products. These measures were due to remain in force until March 2005, being progressively reduced each year, but were terminated with effect from 5 December 2003 following a ruling by the WTO Appellate Body that the US measures were inconsistent with WTO rules. From this date, all imports into the US, including Corus sales, have been free from any additional Section 201 duties or restrictions.
Underlying such steel trade disputes has been the need to tackle the key issues of excess inefficient capacity and subsidies. An initiative launched through the OECD in September 2001 to tackle such problems was a positive development that received both industry and government support. However, the discussions on a possible steel subsidy agreement failed to make any real progress and, in June 2004, governments decided to suspend the discussions when it became clear they would be unable to reach agreement. Informal contacts continued and, in October 2005, the situation was again reviewed with agreement that discussions should remain in suspension. Although the OECD will continue to review the situation, it seems unlikely that talks will be resurrected, at least in the short term.
Corus Report & Accounts and Form 20-F 2005 163
Ancillary information
Legal proceedings
As discussed above, an anti-dumping investigation by the US authorities into certain imports of hot rolled steel, launched in November 2000, resulted in additional anti-dumping duties being applied on Corus sales into the US of hot rolled steel from the Netherlands. The US DOC determined a final dumping margin of 2.59% in the investigation and cash deposits at this rate became payable on all Corus sales of hot rolled steel from the Netherlands into the US. Corus lodged a number of appeals against the rulings in this case with the US Court of International Trade (CIT) and, subsequently, with the US Court of Appeals for the Federal Circuit (CAFC). Corus’ appeal relating to ‘zeroing’ (see below for explanation) was denied by the CAFC. Corus tried to challenge this ruling by petitioning the US Supreme Court for a Writ of Certiorari, asking them to review the CAFC’s decision, but this petition was denied. As a consequence, Corus’ legal challenge in relation to the original investigation has now come to an end, although Corus is continuing to pursue the issue of ‘zeroing’ in relation to both the first and second Administrative Reviews (see below).
The first and second annual Administrative Reviews of the hot rolled case have now been completed by the DOC to determine the actual duty liability on sales subject to the order made during the periods under review and the new duty deposit rate on US sales going forward. In the first annual Administrative Review (covering the sale of product entering the US from May 2001 to October 2002), the DOC issued a preliminary decision of a duty rate of 5.34%, which was revised downwards in its final determination to 4.80%. Corus lodged a number of appeals against the findings of this review with the CIT and subsequently with the CAFC. A ruling by the CAFC is expected by May 2006.
In the second annual Administrative Review (covering entries from November 2002 to October 2003) the DOC issued a preliminary determination of a duty rate of 4.61%, which was revised downwards in its final determination to 4.42%. Corus has also launched an appeal to the CIT in respect of this review. A ruling by the CIT is expected by August 2006.
The third annual Administrative Review (covering entries from November 2003 to October 2004) was withdrawn. The fourth annual Administrative Review (covering November 2004 to October 2005) is now underway.
A five year ‘sunset’ review of the hot rolled anti-dumping order is due to be initiated in August 2006, which could result in the case being terminated. The hot rolled investigation that resulted in the anti-dumping order on hot rolled steel from the Netherlands is also one of those included by the EU in its complaint to the WTO about US ‘zeroing’ practice (see below).
On behalf of the EU, the European Commission is pursuing a complaint under the dispute settlement procedures of the WTO against the use by the US DOC of ‘zeroing’ in calculating anti-dumping margins. This is the practice whereby sales made at prices higher than fair market value are excluded from the calculation of dumping margins and has the effect of inflating dumping margins. There is already WTO jurisprudence that ‘zeroing’ is WTO-incompatible. The EU complaint covers the use of ‘zeroing’ in both original investigations and administrative reviews. The WTO panel that was established to review the complaint issued its findings in October 2005. The panel unanimously found that the US methodology of ‘zeroing’ in original investigations was incompatible with WTO rules. The EU’s claims in relation to the use of ‘zeroing’ in reviews was rejected, but one member dissented from this aspect of the panel’s findings, determining instead that the use of ‘zeroing’
in reviews was also incompatible with WTO rules. The EU has now appealed the panel’s ruling on reviews to the WTO Appelate Body, which is due to issue its decision by April 2006. The US has also appealed. If the EU’s appeal is upheld by the WTO, and US practice is changed, this could result in much lower, or even zero, anti-dumping margins, which could lead to certain US anti-dumping cases, including that affecting Corus sales of hot rolled steel from the Netherlands, being terminated.
In December 1994 the European Commission inspected various tube and pipe producers including British Steel. British Steel, together with certain other tube manufacturers, received Statements of Objections in January 1999 from the European Commission concerning alleged anti-competitive behaviour with regard to the supply of some seamless and large diameter pipes, to which British Steel replied in April 1999. An oral hearing took place in June 1999. The European Commission intimated that it did not propose proceeding with the allegations concerning large diameter pipes after that hearing. In December 1999 fines were imposed on various of the producers, including a fine of €12.6m (£8m) on Corus, which was taken into account in the 1999 financial statements. Corus appealed the European Commission’s decision in March 2000 together with other tube manufacturers and a hearing took place in March 2003. On 8 July 2004 the European Court of First Instance published its judgement, which resulted in a reduction of the fine to €11.7m. Corus was reimbursed the amount of the reduction, with interest, in September 2004 and decided not to make any further appeal.
On 8 November 2001 an explosion occurred at the no.5 blast furnace at Port Talbot works, which led to three employee fatalities, several employees suffering severe burns and the total loss of the blast furnace. Some contractors’ employees also suffered injuries. The accident was initially investigated by the police but the investigation was subsequently passed to the Health & Safety Executive. On 15 February 2006, the Health & Safety Executive served two summonses on Corus for alleged breaches of s.2(1) and s.3(1) of the Health & Safety at Work Act 1974. The first hearing of the case is scheduled for 12 April 2006 at Neath Magistrate’s Court. Any convictions are likely to result in fines being levied, although these would not be material in the context of the Group. Corus has admitted its civil liability for the incident. Twenty six civil claims for death and personal injury have been made against Corus. Should all the relevant claimants succeed in their claims, Corus’ liability could amount to several million pounds, although Corus has insurance cover in place that it expects will be able to meet these claims in full.
Following appeals by Corus Staal BV, a wholly-owned subsidiary of Corus, challenging the allocation of emissions allowances under the Dutch National Allocation Plan, the Raad van State (the highest court in the Netherlands in these matters) rendered its final judgement on 9 September 2005 and rejected all objections that Corus Staal BV had brought against its allocation. Accordingly, the original decision in respect of Corus Staal BV’s allocation of emissions allowances remains intact. It is not possible for Corus to appeal this decision further.
164 Corus Report & Accounts and Form 20-F 2005
Ancillary information
Significant changes
Significant changes since the balance sheet date are detailed in Note 40 to the consolidated accounts.
Material contracts
The following contracts (not being contracts entered into in the ordinary course of business) have been entered into in the two years preceding the date of this document and are or may be material or contain a provision under which a member of Corus has an obligation or entitlement which is or may be material to such a member or any other member of Corus.
Securitisation programme
On 15 April 2002, Corus UK Limited and Corus Engineering Steels Limited entered into a receivables securitisation programme arranged by ING Bank NV, under which certain obligations of Corus UK Limited and Corus Engineering Steels Limited were guaranteed by Corus.
The initial facility level of £185m was increased to £275m on 15 September 2004 when the maturity of the programme was also extended to 2009.
The securitisation is a conduit transaction, in which receivables may be sold daily to a special purpose vehicle (SPV) sponsored by ING and incorporated in Jersey. The SPV is funded by loans (in the form of discount notes) advanced either by an ING conduit company incorporated in Delaware or a Lloyds TSB conduit company incorporated in Jersey. These conduit companies fund themselves in turn in the US and other commercial paper markets. This commercial paper funding has a credit rating and is supported by a back-up liquidity facility, intended to ensure the continuation of the funding even if there is disruption in the commercial paper markets.
Once the receivables are sold to the SPV, Corus UK continues to collect payments from customers as servicer on behalf of the SPV and Corus UK as if the receivables had not been sold. There is an agreed monthly settlement date at which time funds collected by Corus UK as servicer in respect of receivables sold in previous months are paid to the SPV and in exchange the SPV pays cash for new receivables sold to it by Corus UK.
Slab supply contract
The Teesside site has been refocused as a slab exporter and Corus entered into an agreement effective from 2 January 2005 with a consortium of re-rolling companies (Duferco International Investment Holdings (Guernsey) Ltd, Marcegaglia S.p.A, Grupo Imsa S.A. and Dongkuk Steel Co.) to supply slab under a ten year off-take contract. Under this agreement, the consortium takes slab at cost in 2005 and 2006 that is surplus to Corus’ internal requirements, and approximately 78% of output thereafter. The consortium will pay Corus US$157m (US$73m in 2005/06 and US$84m in deferred payments over the life of the contract) in addition to the cost of the acquired slab and will contribute approximately 76% of the expected capital expenditure requirements (US$100m) of Teesside Cast Products to enable identified improvements to be implemented. This contract has operated successfully through the year.
Exchange controls
Whilst there are currently no UK exchange control laws, decrees or regulations that would directly affect the transfer of capital or payment of dividends, interest and other payments to US citizens or residents who are holders of Corus securities, except as otherwise set out below under ‘Taxation of US Holders’, certain transactions involving the issue or transfer of shares or debentures in foreign subsidiaries of UK companies require the consent of the UK treasury. There are no limitations on holding or voting applicable to foreign owners of ordinary shares, which do not apply equally to UK owners of such ordinary shares.
Taxation of US Holders
The following is a discussion of certain material US federal income tax consequences and UK tax consequences of the ownership and disposition of ADSs and ordinary shares of Corus. The following discussion is limited to shareholders and ADS holders that are US Holders. For these purposes, a ‘US Holder’ is a beneficial owner of ordinary shares or ADSs that holds such ordinary shares or ADSs as capital assets and is one of the following:
| |
• | a citizen or individual resident of the United States; |
| |
• | a corporation (or an entity treated as a corporation for US federal income tax purposes) created or organised under the laws of the United States or any state thereof; |
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• | an estate whose income is subject to US federal income tax regardless of its source; or |
| |
• | a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more US persons have the authority to control all substantial decisions of the trust. |
The following summary is of a general nature and does not address all of the tax consequences that may be relevant to a US Holder in light of each holder’s particular situation. For example, this summary does not apply to US expatriates, insurance companies, collective investment schemes, banks, tax-exempt organisations, regulated investment companies, real estate investment trusts, financial institutions, persons subject to the alternative minimum tax, securities broker-dealers, persons who hold their ordinary shares or ADSs as part of a straddle, hedging transaction or conversion transaction or acquire their ordinary shares or ADSs in the course of a trade, persons who own directly, indirectly or by attribution 10% or more of Corus’ outstanding share capital or voting stock, persons who acquired their ordinary shares or ADSs pursuant to the exercise of employee stock options or otherwise as compensation or persons whose functional currency is not the US dollar.
If a partnership (or other entity treated as a partnership for US federal income tax purposes) holds ordinary shares or ADSs, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. A partner in a partnership that holds ordinary shares or ADSs is urged to consult its own tax advisor regarding the specific tax consequences of owning and disposing of ordinary shares or ADSs.
Corus Report & Accounts and Form 20-F 2005 165
Ancillary information
This summary is based upon:
| |
• | existing UK tax law and UK Revenue practice, and US law, including the US Internal Revenue Code of 1986, as amended (the ‘Internal Revenue Code’), Treasury regulations, rulings, judicial decisions, administrative pronouncements and USInternal Revenue Service practice, all as currently in effect, and all of which are subject to change or changes in interpretation at any time, possibly with retroactive effect; and |
| |
• | the US-UK Income Tax Convention that entered into force on 31 March 2003, as amended by a Protocol (the ‘Treaty’). |
US Holders are advised to consult their own tax advisors regarding the specific UK and US federal, state and local tax consequences of owning and disposing of ordinary shares or ADSs in light of their particular circumstances as well as any consequences arising under the laws of any other taxing jurisdiction.
For US federal income tax purposes, a US Holder of ADSs should be treated as owning the underlying ordinary shares represented by those ADSs. The following discussion (except where otherwise expressly noted) applies equally to US Holders of ordinary shares and US Holders of ADSs. Furthermore, deposits or withdrawals by a US Holder of ordinary shares for ADSs, or of ADSs for ordinary shares, will not be subject to US federal income tax.
Taxation of dividends
Corus is not currently required to withhold at source any amount in respect of UK tax from dividend payments it makes.
For US federal income tax purposes, the gross amount of a distribution paid to a US Holder with respect to ordinary shares or ADSs will be taxable as dividend income to the US Holder, based on the US dollar value of the distribution calculated by reference to the spot rate in effect on the date the distribution is actually or constructively received by the US Holder, in the case of ordinary shares, or by the Depositary, in the case of ADSs. Dividends distributed by Corus generally will be categorised as foreign source ‘passive income’ or, for certain US Holders, foreign source ‘financial services income’ for purposes of computing allowable foreign tax credits for US tax purposes. For taxable years beginning after 31 December 2006, dividend income generally will constitute ‘passive category income’ or, in the case of certain US Holders ‘general category income’. Dividends distributed by Corus will not be eligible for the dividends received deduction allowed to corporate shareholders in respect of dividends received from US corporations.
The amount of any distribution paid in foreign currency will be included in a US Holder’s gross income in an amount equal to the US dollar value of the foreign currency calculated by reference to the spot rate in effect on the date of receipt by the US Holder, or the date of receipt by the Depositary in the case of ADSs, regardless of whether the foreign currency is converted into US dollars. If the foreign currency is converted into US dollars on the date of receipt, a US Holder generally should not be required to recognise foreign currency gain or loss in respect of the dividend. If the foreign currency received in the distribution is not converted into US dollars on the date of receipt, a US Holder will have a basis in the foreign currency equal to its US dollar value on the date of receipt. Any gain or loss recognised upon a subsequent conversion or other disposition of the foreign currency will be treated as US source ordinary income or loss. Special rules govern the manner in which accrual method taxpayers are required (or may elect) to determine the US dollar amount includible in income in the case of taxes withheld in a foreign currency. Certain of these
rules have changed effective 1 January 2005. Accrual basis taxpayers therefore are urged to consult their own tax advisors regarding the requirements and elections applicable in this regard.
Certain US Holders (including individuals) are eligible for reduced rates of US federal income tax (currently a maximum of 15%) in respect of ‘qualified dividend income’ received in taxable years beginning before 1 January 2009, provided that the holders meet certain holding period and other requirements. For this purpose, qualified dividend income generally includes dividends paid by non-US corporations if, among other things, (i) the shares (or ADSs) with respect to which the dividend has been paid are readily tradable on an established securities market in the United States, or (ii) the non-US corporation is eligible for the benefits of a comprehensive US income tax treaty (such as the Treaty) which provides for the exchange of information. Corus believes that dividends paid with respect to its ordinary shares or ADSs should constitute qualified dividend income for US federal income tax purposes. However, this is a factual matter and is subject to change. Corus anticipates that its dividends will be reported as qualified dividends on Forms 1099-DIV delivered to US Holders. US Holders of ordinary shares or ADSs are urged to consult their own tax advisors regarding the availability to them of the reduced dividend tax rate in light of their own particular situation and the computations of their foreign tax credit limitation with respect to any qualified dividends paid to them, as applicable.
The United States Treasury has expressed concern that parties to whom ADSs are released may be taking actions that are inconsistent with the claiming of reduced tax rates in respect of qualified dividends by US Holders of ADSs. Accordingly, the analysis of the availability of qualified dividend treatment could be affected by future actions that may be taken by the United States Treasury with respect to ADSs.
Taxation of capital gains
A US Holder who is neither resident nor, in the case of an individual, ordinarily resident in the UK will not be liable for UK tax on chargeable gains realised on the disposal of ordinary shares or ADSs unless (i) such US Holder (in the case of an individual) carries on a trade, profession or vocation in the UK through a branch or agency and has used, held or acquired the ordinary shares or ADSs for the purposes of such trade, profession or vocation or such branch or agency or (ii) such US Holder (in the case of a body corporate) carries on a trade in the UK through a permanent establishment and has used, held or acquired the ordinary shares or ADSs in or for the purposes of the trade or for the purposes of such permanent establishment. Any US Holders who fall within one of the above exceptions should consult their own tax advisors as to the consequences of holding and disposing of ordinary shares or ADSs for the purposes of UK taxation of chargeable gains.
A US Holder who is an individual and who is only temporarily resident out of the UK for UK tax purposes at the date of disposal of ordinary shares or ADSs may be liable to UK tax on chargeable gains on becoming resident or ordinarily resident in the UK again, in respect of disposals made while he was temporarily resident outside the UK, subject to any available exemptions or reliefs.
An individual who is domiciled in the US for UK tax purposes (‘US Citizen’) and who is resident or ordinarily resident in the UK, a US corporation which is resident in the UK by reason of being managed and controlled in the UK or a US citizen who, or US corporation which, is carrying on a trade, profession or vocation in the UK and may be subject to UK tax on a gain as set out above,
166 Corus Report & Accounts and Form 20-F 2005
Ancillary information
may be liable for both UK and US tax on a gain on the disposal of ordinary shares or ADSs. However, a US Holder who is subject to UK tax on capital gains realised or accrued in relation to the ordinary shares or ADSs may be entitled to a foreign tax credit, subject to certain limitations, against any US federal tax liability that is due in respect of such gain.
Upon the sale or exchange of ordinary shares or ADSs, US Holders generally will recognise capital gain or loss for US federal income tax purposes in an amount equal to the difference between the US dollar value of the amount realised and their adjusted tax basis (determined in US dollars) in the ordinary shares or ADSs. Such gain or loss generally will be US source gain or loss and will be treated as long-term capital gain or loss if the ordinary shares or ADSs have been held for more than one year at the time of disposition. The deductibility of capital losses is subject to significant limitations. Capital gains realised by US Holders who are individuals generally will be subject to US federal income tax at preferential rates if specified minimum holding periods are met.
Passive Foreign Investment Company considerations
For US federal income tax purposes a non-US corporation will be classified as a Passive Foreign Investment Company (a ‘PFIC’) for any taxable year if at least 75% of its gross income consists of passive income (such as dividends, interest, rents, royalties, and gains on certain commodities and securities transactions), or at least 50% of the average value of its assets consist of assets that produce, or are held for the production of, passive income. Corus believes it should not be treated as a PFIC for the year ended 31 December 2005 and that it should not become a PFIC in the future. However, since PFIC status is a factual determination that must be made annually and depends upon the composition of a company’s income, assets and the market value of its ordinary shares as well as the interpretation of regulations as to which there is little or no authority, there is no assurance Corus will not be considered a PFIC for any future taxable year. If Corus were characterised as a PFIC for any taxable year, US Holders would suffer adverse US federal income tax consequences. These consequences may include having gains realised on the disposition of ordinary shares and ADSs treated as ordinary income rather than capital gains and being subject to punitive interest charges on certain dividends and on the proceeds of the sale or other disposition of the ordinary shares. In addition, dividends paid by a corporation classified as a PFIC in the year of the dividend or the corporation’s previous taxable year, do not qualify as ‘qualified dividend income’ and are not eligible for the reduced rate of taxation described above. US Holders should consult their own tax advisors regarding the potential application of the PFIC rules to their ownership of ordinary shares and ADSs.
US information reporting and backup withholding
Dividend payments with respect to ordinary shares or ADSs and proceeds from the sale or other disposition of the ordinary shares or ADSs may be subject to information reporting to the IRS and possible US backup withholding at a current rate of 28%. Backup withholding will not apply to a holder that furnishes a correct taxpayer identification number or certificate of foreign status and makes any other required certification or if the holder is otherwise exempt from backup withholding. US Holders that are required to establish their exempt status generally must provide such certification on 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 (generally on IRS Form W-8BEN) in connection with payments received in the United States or through certain US-related financial intermediaries.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against the holder’s US federal income tax liability, and the holder may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing of the appropriate claim for refund with the IRS and furnishing any required information.
UK inheritance tax
Ordinary shares or ADSs held by an individual who is domiciled for the purposes of the US-UK double taxation convention relating to estate and gift taxes (‘the Estate and Gift Tax Convention’) in the United States and is not, for the purposes of the Estate and Gift Tax Convention, a national of the UK, will not generally be subject to UK inheritance tax on the individual’s death or on a transfer of ordinary shares or ADSs provided that the ordinary shares or ADSs do not form part of the property of a permanent establishment situated in the UK or pertain to a fixed base situated in the UK used for the performance of independent personal services. If the ordinary shares or ADSs are transferred to or held in a settlement they will not be subject to inheritance tax, provided that at the time when the settlement was made the settlor was domiciled for the purposes of the Estate and Gift Tax Convention in the United States and was not for purposes of the Estate and Gift Tax Convention a national of the UK. In the exceptional case where ordinary shares or ADSs are subject both to inheritance tax and to US federal gift or estate tax, the Estate and Gift Tax Convention generally provides for tax paid in the UK to be credited against tax payable in the United States or for tax paid in the United States to be credited against tax payable in the UK, based on priority rules set forth in the Estate and Gift Tax Convention.
Corus Report & Accounts and Form 20-F 2005 167
Ancillary information
UK stamp duty and UK stamp duty reserve tax
An instrument of transfer of an ADS is not subject to stamp duty reserve tax and, provided that it is executed and kept at all times outside the UK, no stamp duty will, in practice, need to be paid. However, if such an instrument is brought into the UK, then in addition to stamp duty being payable (at 0.5% of the consideration for the transfer), an interest charge will also be due calculated from the date which is thirty days after the instrument was executed and a penalty charge will also be due if the instrument is not presented for stamping within thirty days of the day on which it is first received in the UK. An agreement to transfer ADSs in the form of ADRs will not give rise to a liability to stamp duty reserve tax or stamp duty.
Any dealings in ordinary shares will normally be subject to stamp duty or stamp duty reserve tax. The conveyance or transfer on sale of ordinary shares will usually be liable to ad valorem stamp duty, generally at the rate of 0.5% (rounded up if necessary to the next multiple of £5) of the amount or value of the consideration paid. Stamp duty will normally be paid by the purchaser or transferee of the ordinary shares. An unconditional agreement to transfer ordinary shares will normally give rise to a charge to stamp duty reserve tax, at the rate of 0.5% of the amount or value of the consideration payable for such ordinary shares, but such liability will be cancelled, or any stamp duty reserve tax paid refunded, if the agreement is completed by a duly stamped instrument of transfer within six years of the date of the agreement or, if the agreement was conditional, the date on which the agreement became unconditional. Stamp duty reserve tax will normally be the liability of the purchaser or transferee of the ordinary shares.
Under the CREST system for paperless share transfers, no stamp duty or stamp duty reserve tax will arise on a transfer of ordinary shares into the system, unless the transfer into CREST is itself for consideration in money or money’s worth, in which case a liability to stamp duty reserve tax will arise, usually at the rate of 0.5% of the amount or value of consideration given. Transfers of ordinary shares within CREST are generally liable to stamp duty reserve tax at the rate of 0.5% of the amount or value of the consideration payable rather than stamp duty, and stamp duty reserve tax on relevant transactions settled within the system or reported through it for regulatory purposes will be collected and accounted for to the UK Revenue by CRESTCo (such stamp duty reserve tax generally being payable by the purchaser or transferee).
Where ordinary shares are issued or transferred to issuers of depositary receipts or providers of clearance services (or their nominees or agents), stamp duty or stamp duty reserve tax (as appropriate) may be payable, in the case of stamp duty, at the rate of 1.5% (rounded up, if necessary, to the next multiple of £5) of the amount or value of the consideration provided or the value of the ordinary shares or, in the case of stamp duty reserve tax, at the rate of 1.5% of the amount or value of the consideration payable (if in money or money’s worth) or the value of the ordinary shares. Where such stamp duty or stamp duty reserve tax (as appropriate) is payable, such amounts may be charged by the depositary or clearance service to the shareholder to whom the ordinary shares would otherwise have been issued or to whom the ordinary shares are being transferred. Clearance services may opt, under certain conditions, for the normal rates of stamp duty and stamp duty reserve tax (0.5%) to apply to an issue or transfer of ordinary shares into, and to transactions within, the service. Where this is the case, the above charge at the higher rate of 1.5% will not apply to an issue or transfer of ordinary shares into that clearance service.
The above statements are intended as a general guide to the current stamp duty and stamp duty reserve tax position. Certain categories of person are not liable to stamp duty or stamp duty reserve tax and others may be liable at a higher rate as mentioned above or may, although not primarily liable for the tax, be required to notify and account for it.
Special rules apply to agreements made by market intermediaries and to certain sale and repurchase and stock borrowing arrangements. Agreements to transfer ordinary shares to charities will not give rise to stamp duty or stamp duty reserve tax.
168 Corus Report & Accounts and Form 20-F 2005
Information for shareholders
Documents on display
The following documents referred to in this report may be inspected at the Securities and Exchange Commission’s public reference facilities at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C., 20549.
Dividends
Cash dividends paid by Corus are in pounds sterling and exchange rate fluctuations affect the US dollar amounts received by ADR holders on conversion. The table below sets out the dividends paid and payable per share in pence and per ADS in dollars.
| | | | | | | | | | |
| | | Dividends per ordinary share | |
Period ended | | | Interim
(pence) | | | Final
(pence) | | | Total
(pence) | |
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|
|
|
|
|
|
|
|
| |
29 December 2001 | | | nil | | | nil | | | nil | |
28 December 2002 | | | nil | | | nil | | | nil | |
3 January 2004 | | | nil | | | nil | | | nil | |
1 January 2005 | | | nil | | | nil | | | nil | |
31 December 2005 | | | 0.5 | | | 1.0 | * | | 1.5 | * |
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|
|
|
|
|
|
|
| |
| | | | | | | | | | |
| | | Dividends per ADS | |
Period ended | | | Interim
(US$) | | | Final
(US$) | | | Total
(US$) | |
|
|
|
|
|
|
|
|
|
| |
29 December 2001 | | | nil | | | nil | | | nil | |
28 December 2002 | | | nil | | | nil | | | nil | |
3 January 2004 | | | nil | | | nil | | | nil | |
1 January 2005 | | | nil | | | nil | | | nil | |
31 December 2005 | | | 0.09 | | | | * | | | * |
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|
|
|
|
|
|
|
|
| |
| |
* | Qualifying holders of ordinary shares on the register on 21 April 2006 are entitled to receive the final dividend which will be paid on 19 May 2006, subject to approval at the Annual General Meeting. The US$ amount of the final dividend will be paid to holders of ADSs and will be based on the exchange rate prevailing on 19 May 2006, the date of payment to holders of ordinary shares. |
Future dividends will be paid in accordance with the covenants of the new €800 million bank facility entered into on 24 February 2005, if and when determined as appropriate by the Board. Dividends of up to 50% of net distributable earnings from ordinary activities are permitted, subject to a Group EBITDA/net interest cover of at least 4.5 times.
At the Annual General Meeting on 27 April 2001 Corus was granted authority by its shareholders to offer any holders of ordinary shares the right to elect to receive ordinary shares credited as fully paid, instead of cash, in respect of the whole of any dividend (a scrip dividend alternative). The authority granted covers any dividend declared up to 27 April 2006.The directors are seeking to renew the authority and retain the ability to offer any holders of ordinary shares the right to elect to receive ordinary shares credited as fully paid, instead of cash, in respect of the whole of any dividend. This authority will cover any dividend declared on or before 9 May 2011. The directors have no present intention to exercise this authority.
The offer and listing
Since the merger between British Steel and Hoogovens, Corus, successor to British Steel plc, has principally traded on the LSE. In addition, Corus ordinary shares have been listed on the Amsterdam Stock Exchange (now Euronext NV) under the Ticker Symbol CORS. Corus ADSs have been listed on the New York Stock Exchange and trade under Ticker Symbol CGA. The Bank of New York is the ADR depositary.
In December 2003, consequent upon having received shareholder approval at an Extraordinary General Meeting, the nominal capital of Corus was increased from £2,200,000,000 to £2,250,000,000 and the issued share capital was subdivided and converted from 3,130,418,153 old ordinary shares of 50p each into 3,130,418,153 new ordinary shares of 10p each and 3,130,418,153 deferred shares of 40p each.
The subdivision and conversion of the shares enabled Corus to effect a placing and open offer on the basis of five new ordinary shares being offered for every twelve old ordinary shares held. The placing and open offer resulted in 1,304,340,897 new ordinary shares being issued, credited as fully paid, ranking pari passu with the existing new ordinary shares in issue on 8 December 2003.
In total, 4,434,759,050 new ordinary shares were issued and listed on 8 December 2003 on the LSE and Euronext under their existing ticker symbols. A change in per-share nominal value to Corus ADSs was effected and they continue to be traded under the existing Ticker Symbol on the NYSE. The deferred shares have not been listed and are not freely transferable, which has rendered them effectively worthless. It is intended that they will be cancelled and an appropriate reserve created in due course.
Corus Report & Accounts and Form 20-F 2005 169
Information for shareholders
The following table sets forth the high and low sales prices for the ordinary shares during the periods indicated, based on mid-market prices of old ordinary shares prior to 5 December 2003 and new
ordinary shares subsequent to that date at close of business on the LSE and the high and low sales prices for ADSs as reported on the NYSE composite tape.
| | | | | | | | | | | | | |
| | LSE | | NYSE | |
| |
|
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| |
| | | High | | | Low | | | High | | | Low | |
| | | (pence per Ordinary share) | | (US dollars per ADS) | |
|
|
|
|
| |
(Corus old ordinary shares up to 5 December 2003 | | | | | | | | | | | | | |
Corus new ordinary shares from 5 December 2003) | | | | | | | | | | | | | |
Year ended 29 December 2001 | | | 82 | 3/4 | | 40 | | | 12 | 1/2 | | 5 | 5/8 |
Year ended 28 December 2002 | | | 90 | | | 22 | | | 13 | 1/4 | | 3 | 1/2 |
Year ended 3 January 2004 | | | 37 | 3/4 | | 4 | | | 6 | | | | 5/8 |
Year ended 1 January 2005 | | | 56 | 1/4 | | 29 | 1/2 | | 10 | 3/4 | | 5 | 3/8 |
Year ended 31 December 2005 | | | 62 | | | 40 | | | 11 | 3/4 | | 7 | 3/8 |
| | | | | | | | | | | | | |
Quarters ended | | | | | | | | | | | | | |
3 April 2004 | | | 46 | 1/4 | | 33 | | | 8 | 7/8 | | 6 | 1/8 |
3 July 2004 | | | 43 | 1/4 | | 29 | 1/2 | | 8 | | | 5 | 3/8 |
2 October 2004 | | | 53 | | | 37 | 3/4 | | 9 | 5/8 | | 7 | 1/4 |
1 January 2005 | | | 56 | 1/4 | | 47 | 1/4 | | 10 | 3/4 | | 8 | 5/8 |
2 April 2005 | | | 62 | | | 50 | 1/4 | | 11 | 3/4 | | 9 | 1/2 |
2 July 2005 | | | 55 | 1/2 | | 40 | | | 10 | 1/2 | | 7 | 3/8 |
1 October 2005 | | | 52 | 3/4 | | 42 | | | 9 | 3/8 | | 7 | 1/2 |
31 December 2005 | | | 59 | 1/4 | | 45 | 3/4 | | 10 | 1/2 | | 8 | 1/4 |
| | | | | | | | | | | | | |
Months ended | | | | | | | | | | | | | |
30 September 2005 | | | 52 | 3/4 | | 47 | 3/4 | | 9 | 3/8 | | 8 | 3/4 |
31 October 2005 | | | 52 | 1/4 | | 45 | 3/4 | | 9 | 1/8 | | 8 | 1/4 |
30 November 2005 | | | 55 | 3/4 | | 48 | 1/2 | | 9 | 3/4 | | 8 | 3/8 |
31 December 2005 | | | 59 | 1/4 | | 58 | | | 10 | 1/2 | | 10 | |
31 January 2006 | | | 72 | | | 59 | | | 12 | 3/4 | | 10 | 1/8 |
28 February 2006 | | | 74 | | | 68 | 1/4 | | 13 | | | 11 | 7/8 |
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170 Corus Report & Accounts and Form 20-F 2005
Information for shareholders
Analysis of shareholdings at 31 December 2005
| | | | | | | | | | | | | | | |
| | Holdings | | Ordinary shares held | |
| |
| |
| |
By size of holding | | Number | | Percentage | | Number | | Percentage | |
|
|
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|
|
|
|
|
| |
1 | – | 100 | | | 4,598 | | | 3.54 | | | 328,426 | | | 0.01 | |
101 | – | 500 | | | 39,318 | | | 30.32 | | | 16,208,650 | | | 0.36 | |
501 | – | 1,000 | | | 41,505 | | | 32.00 | | | 32,291,972 | | | 0.73 | |
1,001 | – | 5,000 | | | 35,248 | | | 27.17 | | | 73,682,763 | | | 1.66 | |
5,001 | – | 10,000 | | | 4,467 | | | 3.44 | | | 32,265,011 | | | 0.72 | |
10,001 | – | 50,000 | | | 3,519 | | | 2.71 | | | 69,128,939 | | | 1.55 | |
50,001 | – | 100,000 | | | 301 | | | 0.23 | | | 21,228,953 | | | 0.48 | |
100,001 | – | 1,000,000 | | | 450 | | | 0.35 | | | 156,416,125 | | | 3.51 | |
1,000,001 | – | Highest | | | 317 | | | 0.24 | | | 4,050,536,750 | | | 90.98 | |
|
|
|
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|
|
|
|
|
|
|
|
|
|
| |
| | | | | 129,723 | | | 100.00 | | | 4,452,087,589 | | | 100.00 | |
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| | | | | | | | | | | | | |
| | Holdings | | Ordinary shares held | |
| |
| |
| |
By category of shareholder | | Number | | Percentage | | Number | | Percentage | |
|
|
|
|
|
|
|
|
| |
Male | | | 74,775 | | | 57.65 | | | 155,757,454 | | | 3.49 | |
Female | | | 41,695 | | | 32.14 | | | 61,471,045 | | | 1.38 | |
Joint Account | | | 10,819 | | | 8.34 | | | 20,253,686 | | | 0.46 | |
Bank | | | 11 | | | 0.01 | | | 121,851,037 | | | 2.74 | |
Nominee Company | | | 2,076 | | | 1.60 | | | 3,494,896,484 | | | 78.50 | |
Insurance Company | | | 1 | | | 0.00 | | | 400 | | | 0.00 | |
Pension Fund | | | 11 | | | 0.01 | | | 55,983 | | | 0.00 | |
Other Limited Company | | | 278 | | | 0.21 | | | 567,705,268 | | | 12.76 | |
Other Corporate Body | | | 56 | | | 0.04 | | | 30,029,540 | | | 0.67 | |
Public Limited Company | | | 1 | | | 0.00 | | | 66,692 | | | 0.00 | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | | 129,723 | | | 100.00 | | | 4,452,087,589 | | | 100.00 | |
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At 31 December 2005 there were 20,224,215 ADSs representing Corus ordinary shares outstanding held of record by 655 registered holders of ADSs whose shareholdings represented approximately 4.54% of total outstanding ordinary shares on that date. Currently there are approximately 638 recorded holders of ADSs. Corus is
aware that many ADSs are held of record by brokers and nominees and accordingly the above numbers are not necessarily representative of the actual number of persons who are the beneficial holders of ADSs or the number of ADSs beneficially held by such persons.
Corus Report & Accounts and Form 20-F 2005 171
Information for shareholders
Shareholder enquiries
Ordinary shares
Administrative enquiries concerning shareholdings, such as dividend payments, notification of change of address or the loss of a share certificate should be addressed to:
Lloyds TSB Registrars, The Causeway, Worthing, West Sussex BN99 6DA. Telephone: 0870 600 3961
Shareholders can obtain details of their shareholdings via a web-based enquiry service: www.shareview.co.uk – you will need your eight digit shareholder reference number.
American Depositary Receipts (ADRs)
Corus’ ordinary shares are listed on the New York Stock Exchange in the form of American Depositary Shares (ADSs), evidenced by ADRs, and trade under ticker symbol CGA.
Each ADS is equivalent to 10 ordinary shares. Enquiries regarding ADR holders’ accounts and payment of dividends should be directed to the Depositary:
The Bank of New York, Investor Services, P.O. Box 11258, Church Street Station, New York, NY 10286-1258
Toll Free telephone # for domestic callers: 1-888-BNY-ADRS (1-888-269-2377)
International callers can call: 1-212-815-3700
Email: shareowners@bankofny.com
Website for shareholder inquiries www.stockbny.com
The Bank of New York’s ADR website www.adrbny.com
Other enquiries
Other general information about the Group’s business and copies of the Corporate responsibility report may be obtained from:
UK
The Secretary’s Office, Corus, 30 Millbank, London SW1P 4WY. FREEPHONE 0800 484113
Netherlands
Communications and Public Affairs, Corus, P.O. Box 10.000, 1970 CA IJmuiden, The Netherlands. Telephone: +31 (0)251 49 19 52
Email: supportdeskcpa@corusgroup.com
Annual General Meeting
The Annual General Meeting of shareholders will be held at The Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE on Tuesday 9 May 2006 at 11.00am.
Details of the business to be considered at the Annual General Meeting are set out in the Notice of Meeting.
Voting for overseas shareholders
ADR holders may instruct The Bank of New York as to how the ordinary shares represented by their ADRs should be voted by completing and returning the voting card in accordance with the instructions printed thereon.
Holders of shares traded on Euronext can request a proxy form from the ABN AMRO Servicedesk. Telephone: +31 (0)765 79 94 55
Share price information
The latest Corus share price is available from the Financial Times Cityline Service. Telephone:
0906 8433311
Website
The Corus website address is www.corusgroup.com
Financial Calendar
Q1 2006 results announcement: May 2006
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Dividend | | |
Proposed final dividend: | 1p per share | |
Ex-dividend: | 19 April 2006 | |
Record date: | 21 April 2006 | |
Payment date: | | |
Ordinary shareholders | 19 May 2006 | |
ADR holders | 30 May 2006 | |
Dividend mandate
Shareholders who do not currently have their dividends paid directly to a bank or building society account and who wish to do so should complete a mandate form obtainable from the Registrar, as above. Tax vouchers are sent to the shareholders’ registered address under this arrangement, unless requested otherwise.
Form 20-F
The Company is subject to the reporting requirements of the US Securities and Exchange Commission (SEC). In compliance with these regulations, the Company will file its Report & Accounts and Form 20-F with the SEC in March 2006.
172 Corus Report & Accounts and Form 20-F 2005
Glossary
Term used in the Report & Accounts and Form 20-F |
Accounts |
Allotted |
Associate |
|
Borrowings |
Called up |
Capital allowances |
Consolidated statement of recognised income and expense |
Employment costs |
Finance lease |
Freehold |
Gearing |
Group, or consolidated, accounts |
Joint venture |
|
Nominal value |
Operating profit |
Profit |
Profit attributable to equity holders of the Company |
Profit on disposal of property, plant and equipment |
Reserves |
Secured |
Share capital |
Share premium account |
|
Shares in issue |
Total assets |
Total equity |
Trade debtors |
Turnover or revenue |
|
US equivalent or definition |
Financial statements |
Issued |
A business which is not a subsidiary or a joint venture, but in which the Group has a shareholding and exercises significant influence |
Liabilities |
Ordinary shares, issued and fully paid |
Tax depreciation |
Statement of changes in stockholders’ equity |
Payroll costs |
Capital lease |
Ownership with absolute rights in perpetuity |
Leverage |
Consolidated financial statements |
A business which is jointly controlled by the group and one or more external partners |
Par value |
Net operating income |
Income (or earnings) |
Net income attributable to ordinary shareholders |
Gain on disposal of non-current assets |
Stockholders’ equity other than capital stock |
Pledged as collateral |
Ordinary shares, capital stock or common stock issued and fully paid |
Additional paid-in capital relating to proceeds of sale of stock in excess of par value or paid-in surplus (not distributable) |
Shares outstanding |
Total identifiable assets |
Stockholders’ equity |
Trade receivable (net) |
Sales |
US equivalent refers to the most comparable US term to that used in the Report & Accounts and Form 20-F. It should not be assumed that the terms used in the Report & Accounts and Form 20-F and the US equivalent are identical.
Corus Report & Accounts and Form 20-F 2005 173
Glossary
| |
Technical terms | Explanation |
Bars | Long steel products that are rolled from billets; merchant bar and reinforcing bar (rebar) being two common categories. The former is used to fabricate furniture, stair railings, and farm equipment and the latter to strengthen concrete in highways, bridges, and buildings. |
Billet | A semi-finished product that is used for long products: bars, channels or other structural shapes. Billets are normally 2 to 7 inches square. |
Bloom | A semi-finished product with a rectangular cross-section that is more than 8 inches. This large cast steel shape is broken down in the mill to produce the familiarI-beams, H-beams, and sheet piling. |
Coated products | Steel (generally flat products) coated with metal, plastic laminates or organic paints. |
Cold reduced coil | Cold reduced flat products supplied in coils. |
Continuous casting | The process whereby semi-finished products are obtained directly from liquid steel. |
Crude steel | Steel at its first stage of solidification, i.e. ingots and continuously cast semi-finished products. |
Electrical steels | Flat products with guaranteed properties relating to magnetic losses, induction or permeability. |
Extrusion | The process of shaping aluminium by forcing it to flow through a shaped opening in a die. |
Flat products | Products of rectangular cross-section, e.g. plates, strip and most coated products. |
Hot rolled coil | Hot rolled flat products supplied in coils. |
Ingots | Solid products obtained by pouring liquid steel into moulds to produce shapes which are suitable for hot rolling or for forging into semi-finished or finished steel products. |
Liquid steel | The molten steel output of a steelmaking furnace, excluding slag. |
Long products | Classification of steel products that includes bar, rod and structural products, that are long, rather than flat. |
Manned capacity | The production capacity of a particular process at a given manning level. |
Plates | Sheet steel with a width of more than 8 inches, with a thickness ranging from ¼inch to more than 1 foot. |
Seamless tubes | Tubes formed by piercing and rolling an ingot or semi-finished product so that the resulting hollow has a uniform surface without the seam which appears in welded tubes. |
Sections | Long products with certain cross-section shapes, usually resembling the letters H,I, L, T, U or Z. |
Semi-finished products | Products of solid cross-section, i.e. billets, blooms and slabs, which have not been worked except by continuous casting or primary hot rolling. |
Sheet steel | Thin, flat-rolled steel. Coiled sheet steel accounts for nearly 50% of all steel shipped domestically and is created in a hot-strip mill by rolling a cast slab flat while maintaining the side dimensions. |
Slab | The most common type of semi-finished steel. Traditional slabs measure 2 to 10 inches thick, 30 to 85 inches wide and average about 20 feet long. |
Strip | Flat products manufactured in a continuous or semi-continuous strip mill. |
Tinplate | Cold reduced coil electrolytically coated with tin. |
Vacuum Degassing | An advanced steel refining facility that removes oxygen, hydrogen and nitrogen under low pressures (in a vacuum) to produce ultra-low-carbon steel for demanding electrical and automotive applications. |
Welded tubes | Tubes formed by bending a flat product to tubular shape and closing the seam by welding. |
174 Corus Report & Accounts and Form 20-F 2005
Definitions
The following terms have the meanings set out alongside unless the context indicates otherwise:
| |
Avesta Sheffield | Avesta Sheffield AB (publ), a company quoted on the Stockholm Stock Exchange, until 23 February 2001. |
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British Steel | British Steel Limited (formerly British Steel plc) and/or, where the context so requires, British Steel Limited (formerly British Steel plc) and its subsidiaries and/or BSC. |
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BSC or the Corporation | the statutory corporation known as British Steel Corporation which operated the business of Corus UK prior to 5 September, 1988, and/or, where the context so requires, British Steel Corporation and its subsidiaries. |
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Capital expenditure | Expenditure on property, plant and equipment unless otherwise specified. |
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CES | Corus Engineering Steels Holdings Limited, formerly British Steel Engineering Steels Holdings Limited and UES Holdings Limited and/or, where the context so requires, its subsidiaries. |
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Combined Offer | the offer for sale by HM Government of the whole of the issued Ordinary share capital of British Steel plc. |
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Companies Act | UK Companies Act 1985, as amended by the Companies Act 1989. |
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Corus | Corus Group plc or, where the context so requires, Corus Group plc and its subsidiaries. |
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Corus UK | Corus UK Limited (formerly British Steel Limited and British Steel plc) and/or, where the context so requires, Corus UK Limited and its subsidiaries and/or BSC. |
| |
deferred shares | Corus deferred shares of 40p each. |
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EC | the European Community and/or, where the context so requires, the European Communities, which include the ECSC and the EC. |
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ECSC | the European Coal and Steel Community. |
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EEA | the European Economic Area established by an agreement (as adjusted by a protocol) between the EC and certain countries of EFTA (excluding Switzerland), which entered into force in 1994 and as amended (‘the EEA Agreement’). |
| |
EFTA | the European Free Trade Association founded in 1960 and whose current members include Iceland, Liechtenstein, Norway and Switzerland. |
| |
ESA | the EFTA Surveillance Authority that is a body set up under the EEA Agreement with responsibility for ensuring compliance with the provisions of the EEA Agreement within EFTA. |
| |
EU | the European Union which was established by the 12 Member States of the EC by the Treaty of Maastricht (signed Maastricht 1992, enacted 1993), and subsequently enlarged with the addition of Austria, Finland and Sweden which acceded to full membership on 1 January 1995 and Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia which acceded to full membership on 1 May 2004. |
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Group | Corus Group plc and its subsidiaries. |
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Head Office | the administrative office of Corus located at 30 Millbank, London SW1P 4WY, United Kingdom. |
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HM Government | Her Majesty’s Government of the United Kingdom. |
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KH or Hoogovens | Corus Nederland BV (formerly Koninklijke Hoogovens NV) and/or, where the context so requires, Corus Nederland BV and its subsidiaries. |
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London Stock Exchange or LSE | London Stock Exchange plc. |
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Main carbon steel products | the basket of carbon steel products within the Corus product range as supplied to consumers and stockholders used for the evaluation of UK demand and market shares. Semi-finished products and certain other mainly project-focused products are excluded. |
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new ordinary shares | Corus ordinary shares of 10p each. |
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OECD | Organisation for Economic Cooperation and Development, an international organisation of 30 member countries that examines the economic, social and governance issues of a globalised economy. |
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old ordinary shares | Corus ordinary shares of 50p each. |
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Ordinary shares | Ordinary shares of Corus, being old ordinary shares or new ordinary shares as the context requires. |
Corus Report & Accounts and Form 20-F 2005 175
Definitions
| |
stockholders | steel stockists that typically purchase steel products from high-volume producers, such as Corus, and break bulk or process such purchases for subsequent resale. |
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tonne or t | a metric ton (1,000 kilograms) equal to 2,204.6 pounds. |
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Treaty of Paris | the Treaty establishing the ECSC (signed Paris 1951, enacted 1952, expired 23 July 2002). |
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Treaty of Rome | the Treaty establishing the EC (signed Rome 1957, enacted 1958, and amended, inter alia, by the Treaty of Maastricht). |
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UK | United Kingdom. |
176 Corus Report & Accounts and Form 20-F 2005
Cross reference to Form 20-F
The information in this document that is referenced in the following table is included in Corus Group plc’s 2005 Form 20-F and is filed with the Securities and Exchange Commission.
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Item | | | Page |
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1 | Identity of Directors, senior management and advisers | | n/a |
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2 | Other statistics and expected timetable | | n/a |
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3 | Key information | | |
| Selected financial data | | |
| Share capital (Note 28) | | 127 to 131 |
| Financial summary | | 157 to 159 |
| Supplementary information for North American investors | | 148 to 156 |
| Dividends | | 169 |
| Exchange rates | | 162 |
| Risk factors | | 80 to 87 |
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4 | Information on the Company | | |
| The business, its objectives and strategy | | 10 |
| History and development of Corus | | 161 |
| Aluminium businesses | | 161 |
| Stainless steel products | | 162 |
| Restoring success | | 10 to 13 |
| Capital structure and treasury policy | | 49 & 50 |
| Capital expenditure | | 15 & 16 |
| Strip Products Division | | 24 & 25 |
| Long Products Division | | 28 & 29 |
| Distribution & Building Systems Division | | 31 |
| Aluminium Division | | 36 |
| Central and other | | 37 |
| Acquisitions and disposals | | 45 & 46 |
| Business overview | | |
| Products and their markets – carbon steel divisions | | |
| Carbon steel market | | 16 to 21 & 158 |
| Segmental analysis (Note 1) | | 104 to 107 |
| Products and their markets | | |
| Strip Products Division | | 22 & 23 |
| Long Products Division | | 26 & 27 |
| Distribution & Building Systems Division | | 30 |
| Products and their markets – aluminium division | | |
| Global aluminium market | | |
| (including Dynamics of the business) | | 33 to 35 & 158 |
| Segmental analysis (Note 1) | | 104 to 107 |
| Products and market | | 32 & 33 |
| Aluminium businesses | | 161 |
| Products and their markets – stainless steel products | | 162 |
| Sales | | 158 |
| The international market environment | | |
| EC regulatory regime | | 162 & 163 |
| Trade associations and other voluntary arrangements | | 163 |
| International trade restrictions | | 163 |
| Raw materials | | 21 |
| Patents, trademarks and licences (Technology) | | 42 to 44 |
| Organisational structure | | |
| Group reporting structure | | 16 |
| The Executive committee | | 66 |
| Principal divisional activities | | 67 |
| Principal subsidiary undertakings (Note 41) | | 144 & 145 |
| Principal equity accounting investments (Note 41) | | 145 |
| Property, plant and equipment | | 38 |
| Material plans | | 38 |
| Environment and the community | | 40 & 41 |
| Insurance | | 45 |
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4A | Unresolved staff comments | | n/a |
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5 | Operating and financial review and prospects | | |
| Critical accounting policies | | 46 to 48 |
| Operating results | | |
| Performance in the period | | 14 to 37 |
| Business risk management etc | | 44 to 48 |
| Financial review | | 49 to 53 |
| Borrowings (Note 20) | | 119 to 121 |
| Differences between IFRS and US GAAP | | 148 to 156 |
| Liquidity and capital resources | | |
| Financial review | | 49 to 53 |
| Future capital expenditure (Note 31) | | 133 |
| General purpose of future capital expenditure | | |
| The Corus Way and UK restructuring | | 10 to 13 |
| Capital expenditure | | 15 & 16 |
| Research and development, patents and licenses, etc Technology | | 42 to 44 |
| Trend information | | |
| Review of the period | | 10 to 48 |
| Financial review | | 49 to 53 |
| Off balance sheet arrangements | | |
| Contingencies (Note 33) | | 134 |
| Tabular disclosure of contractual obligations | | 51 |
| Safeharbour | | 9 |
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6 | Directors, senior management and employees | | |
| Directors and senior management | | |
| Directors’ report | | 54 to 63 |
| The Board | | 64 & 65 |
| The Executive committee | | 66 |
| Compensation | | |
| Report on remuneration | | 68 to 79 |
| Bonus descriptive information | | 69 to 79 |
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Item | | | Page |
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6 | Directors, senior management and employees | | |
| Board practices | | |
| Directors’ report | | 54 to 63 |
| The Board | | 64 & 65 |
| Report on remuneration | | 68 & 69 |
| Board committees | | 57 & 58 |
| The organisation of the Group | | |
| Day to day management | | 60 |
| Employees | | |
| People | | 39 & 40 |
| Segmental analysis (Note 1) – average numbers | | 104 to 107 |
| Share ownership | | |
| Report on remuneration | | 68 to 79 |
| Share capital (Note 28) | | 127 to 131 |
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7 | Major shareholders and related party transactions | | |
| Major shareholders | | |
| Directors’ report | | 54 |
| ADS information | | 171 |
| Related party transactions | | |
| Joint ventures and associated undertakings (Note 39) | | 143 |
| Loans to directors | | 75 |
| Other transactions – Directors | | 59 |
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8 | Financial information | | |
| Consolidated statements and other financial information | | |
| Presentation of financial statements | | 92 to 159 |
| International Financial Reporting Standards | | 8 |
| Exports from UK and overseas sales | | 106, 107 & 158 |
| Legal proceedings | | 164 |
| Dividends | | 111 & 169 |
| Significant changes | | 165 |
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9 | The offer and listing | | 169 |
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10 | Additional information | | |
| Memorandum and Articles of Association | | |
| Directors’ report | | 60 to 62 |
| Material contracts | | 165 |
| Exchange controls | | 165 |
| Taxation of US Holders | | 165 to 168 |
| Documents on display | | 169 |
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11 | Quantative and qualitative disclosures about market risk | | |
| Business risk management | | 44 & 45 |
| Directors’ report | | 54 to 63 |
| Financial review | | 49 to 53 |
| Borrowings etc (Notes 20, 21, 23 & 24) | | 119 to 124 |
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12 | Description of securities other than equity securities | | n/a |
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13 | Defaults, dividend arrearages and delinquencies | | None |
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14 | Material modifications to the rights of security holders and use of proceeds | | None |
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15 | Controls and procedures | | |
| Disclosure controls and procedures | | |
| Directors’ report | | 60 |
| Internal control | | |
| Directors’ report | | 59 & 60 |
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16A | Audit committee financial expert | | |
| Directors’ report | | 57 |
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16B | Code of ethics | | |
| Directors’ report | | 59 |
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16C | Principal accountant fees and service (Note 2) | | |
| Fees | | 109 |
| Audit committee pre-approval and procedures | | 109 |
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16D | Exemptions from the Listings Standards for Audit Committees | | n/a |
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16E | Purchase of equity securities by the issuer and affiliated purchasers | | |
| Share capital (Note 28) | | 127 |
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17 | Financial statements | | n/a |
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18 | Financial statements | | |
| Report of independent registered public accounting firm | | 91 |
| Consolidated income statement | | 92 |
| Consolidated balance sheet | | 93 |
| Consolidated statement of recognised income and expense | | 94 |
| Consolidated cash flow statement | | 95 |
| Presentation of accounts and accounting policies | | 96 to 103 |
| Notes to the consolidated accounts | | 104 to 147 |
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19 | Exhibits | | n/a |
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| Corus Group plc
30 Millbank
London
SW1P 4WY
United Kingdom
T +44 (0)20 7717 4444
F +44 (0)20 7717 4455
Registered in England No. 3811373
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