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Introduction |
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Financial highlights |
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Routes to market |
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Chairman’s statement |
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Chief executive’s review |
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Operating review |
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Finance director’s review |
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Directors |
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For a printer friendly version of this Annual Report website plus PDFs of the rest of the document please visit the PDF download section . |
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The drivers of shareholder value described above resulted in underlying profit before tax increasing by 23% to £224.1 million and underlying earnings per share rising 31.8% to 31.5p. Subject to shareholder approval of the recommended final dividend, the Board is proposing an 8.2% increase in the dividend for the year to 12.5p, covered 2.5 times by underlying earnings. The compound growth in our dividend since 1995/96 is 6.55% per annum.
The strong financial performance this year was only partially reflected by the 16% increase in our year end share price to 313p, restricting total shareholder return in the year to 20.4%.
Associates and joint ventures
The decline in our share of operating profits from associates and joint ventures, from £13.0 million in 1998/99 to £6.2 million in 1999/00, is attributable to the conversion of our minority shareholding in BPB Gyproc to full control and to a £2 million write-off of our share in our joint venture investment to manufacture high grade alpha plaster in North America.
Taxation
The group’s effective tax rate of 34.1% was similar to last year. The effect of reductions in tax rates in the UK and France was offset by lower capital expenditure in our established businesses and unrelieved taxable losses in our emerging markets.
Tax paid in the year of £18.1 million was £48.3 million lower than last year, benefiting from one-off receipts of some £40 million relating to the recovery of prior year payments in Germany and advance corporation tax in the UK.
Following changes to the double tax relief rules announced in the UK Budget in March the group, in common with many other UK-based multinational companies, potentially faces an increased tax burden as a result of doing business overseas. The impact of this measure is being assessed in the light of the government’s recent decision to defer implementation of the changes until April 2001.
Treasury and funding
The group’s treasury function provides a centralised service to manage interest rate and foreign currency exposures as well as funding and cash management. Group treasury is not a profit centre and only undertakes transactions to manage commercial risks and exposures. It acts within Board approved policies, follows controlled reporting procedures and is the subject of routine internal control reviews.
During the year, the group obtained external debt ratings from both Moodys (A3) and Standard & Poors (BBB+). The decision to obtain debt ratings recognises that external measures of a group's creditworthiness are becoming increasingly important in obtaining the lowest cost funding in many debt markets. Following receipt of these ratings and an extensive series of presentations to investors in Europe, the group successfully accessed the European debt capital markets for the first time with the issue of a €400 million 10 year 6.5% bond in March 2000. This represents a new source of debt funding for BPB, allowing us to diversify away from sole reliance on bank facilities. It has also extended the maturity profile of our debt.
The group currently has access to around £765 million of committed debt facilities. Approximately £525 million of this comprises bank facilities, £300 million maturing within one year and £225 million maturing in two to five years. The balance of £240 million comprises the sterling equivalent of the euro bond debt and expires in approximately ten years. The bank debt is subject to normal financial covenants, but the bond debt has no financial covenants attaching. The group expects to be able to meet both its short and medium term funding requirements from these debt facilities.
Net debt of £253.6 million at the year end (1999 £270.6 million) comprised gross debt of £321.3 million offset by cash and short term deposits of £67.7 million. Interest cover was 19 times profit before interest (1999 36 times), the year-on-year reduction reflecting the full year impact of the increase in debt in the final quarter of 1998/99.
At the year end 32% (1999 35%) of the group’s overseas capital invested excluding goodwill was hedged, principally through foreign currency borrowings, and 73% (1999 67%) of the group’s core interest cost was fixed with an average maturity of 5.4 years (1999 3.9 years).
More detailed information on the group’s treasury policies, together with further information on financial instruments and derivatives, is provided in note 22 to the financial statements on pages 40 to 42.
Internal control
Our approach to internal control is increasingly business risk driven. In accordance with objectives agreed by the audit committee and/or Board, the internal control manager leads risk profiling exercises with the active involvement of operational management. Having regard to the findings of this work, both internal and external resources are used to carry out a wide-ranging assurance programme, with the results reported to the audit committee and/or Board on a regular basis. In the past year this programme has focused mainly on operations in our key emerging markets in eastern Europe, South America and south east Asia, and on new businesses or those undergoing the greatest change, such as the Scandinavian businesses acquired last year.
Whilst our new approach to internal control is consistent with the Turnbull guidance issued to listed companies in September 1999, we have taken advantage of the transitional approach for disclosure as permitted by the Financial Services Authority and only reported formally on internal financial controls in the corporate governance report on page 24.
Introduction of the euro
As BPB has a significant presence in the euro zone, we are implementing the necessary changes to business processes and positioning ourselves to take advantage of the opportunities provided by the introduction of the single currency. In the short term, the group does not anticipate that the costs associated with the introduction of the euro will be material.
Year 2000 compliance
The group experienced no significant computer issues with the advent of the new millennium. In total we spent approximately £7 million over the last three years in ensuring that our systems were compliant and we now benefit from the many enhancements to IT systems made during our preparations for the Year 2000.
Accounting developments
BPB takes a prudent and commercial view in developing and applying its accounting policies, including keeping up to date with the work of the Accounting Standards Board and giving careful consideration to the early adoption of Financial Reporting Standards (FRS’s).
The only significant matter of note arising from our adoption of the two new accounting standards introduced this year, FRS15 ‘Tangible Fixed Assets’ and FRS16 ‘Current Taxation’, is the requirement to depreciate all mineral reserves. Previously we charged no depreciation where mineral deposits had an estimated remaining life in excess of 20 years. The financial impact has been to increase our annual depreciation charge by almost £2 million.
Peter Sydney-Smith
1 June 2000
Return on capital invested and weighted average cost of capital %
Total shareholder return indexed change in year end share plus dividend – source Datastream
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