| |
Intangible assets
Goodwill
At the end of 2009, the carrying amount of goodwill was $436.0 million (2008: $415.9 million). During 2009, we recognised additional goodwill on acquisitions of $26.8 million but the impairment of Rolastar reduced the carrying amount of goodwill by $8.7 million.
Other intangible assets
At the end of 2009, the carrying amount of other intangibles was $78.0 million (2008: $108.8 million). Additions during 2009 were $14.3 million (2008: $48.4 million) and the amortisation charge for the period was $25.6 million (2008: $26.0 million). Also during 2009, the carrying amount of other intangible assets was reduced by $22.0 million due to impairments.
Applied research and development is important to the Group’s manufacturing businesses and there are centres in the US, Europe and Japan that focus on the introduction of new and improved products, the application of technology to reduce unit and operating costs and to improve services to customers. During 2009, research and development expenditure was $78.6 million (2008: $92.7 million), of which $0.6 million (2008: $0.6 million) was capitalised.
Property, plant and equipment
Property, plant and equipment amounted to $1,122.8 million at the end of 2009 (2008: $1,167.3 million), including $6.3 million (2008: $9.9 million) held under finance leases. Additions during 2009 were $115.2 million (2008: $180.6 million) and the depreciation charge for the period was $172.2 million (2008: $203.1 million). Also during 2009, the carrying amount of property, plant and equipment was reduced by $26.8 million due to impairments.
With the exception of the assets held under finance leases, which are secured by a lessor’s charge over the leased assets, and secured borrowings of $0.9 million, the Group’s property, plant and equipment was not subject to any encumbrances.
The Group’s manufacturing facilities, distribution centres and offices are located in a number of countries, with a large proportion in North America. The Group owns the majority of these facilities and continues to improve and replace them to meet the needs of its individual operations. At the end of 2009, I&A operated from 102 facilities in 23 countries. Building Products operated from 56 facilities, predominantly in North America. The following table shows the geographic analysis of the Group’s property, plant and equipment at the end of 2009.
| |
Carrying amount |
 |
|
|
| |
$m |
% |
|
|
|
| US |
458.9 |
40.9% |
| UK |
51.5 |
4.6% |
| Rest of Europe |
152.2 |
13.6% |
| Rest of the world: |
|
|
| – Canada |
166.3 |
14.8% |
| – China |
110.4 |
9.8% |
| – Mexico |
52.9 |
4.7% |
| – Other countries |
130.6 |
11.6% |
|
|
|
| |
460.2 |
40.9% |
|
|
|
| Total |
1,122.8 |
100.0% |
|
|
|
Due to the diverse nature of the business, at the end of 2009, there was no individual facility, the loss of which would have a material adverse impact on the Group’s operations. Equally, there are no plans to construct, expand or improve facilities that would, on completion or cancellation, significantly affect the Group’s operations.
Post-employment benefits
Pensions
The Group operates a number of defined benefit pension plans, principally in the UK and the US, of which most are funded. All of the plans are closed to new entrants. During 2009, management took further action to reduce the Group’s pension exposures when it closed the principal pension plans in North America to future service accrual and the deferred pension benefits accrued under them were frozen. As a result, most of the Group’s pension plans are now closed to future service accrual by current employees. Funded plans receive contributions from the Group and, where they remain eligible, current employees, at rates determined by independent actuaries taking into account any funding objectives prescribed by local legislation.
In 2009, the current service cost recognised in respect of the plans was $6.7 million (2008: $8.7 million) and the net finance cost was $1.6 million (2008: $7.6 million).
At the end of 2009, the present value of the benefit obligation was $1,116.0 million (2008: $1,018.1 million). Excluding the effects of currency exchange rate changes, the obligation increased by $58.2 million during 2009. Although a gain of $35.3 million was recognised on the amendments to the plans in the US and Canada, this was outweighed by a net actuarial loss of $101.4 million, which was principally caused by lower discount rates.
At the end of 2009, the fair value of the plan assets was $924.5 million (2008: $862.1 million). Excluding the effect of currency exchange rate changes, the plan assets increased by $20.0 million during 2009. Although the return on plan assets was $44.2 million, benefits paid exceeded contributions made to the plans by $23.9 million.
On an actuarial basis, the net deficit in the plans was $191.5 million (2008: $156.0 million) but, for accounting purposes, the Group was unable to recognise surpluses on certain of the plans amounting to $8.6 million (2008: $24.6 million). Accordingly, the net pension liability recognised in the financial statements was $200.1 million (2008: $180.6 million).
During 2009, the Group contributed $52.7 million (2008: $45.4 million) to the defined benefit plans and expects to contribute approximately $40 million during 2010.
| |
2009
$m |
2008
$m |
|
|
|
| Plan assets |
924.5 |
862.1 |
| Benefit obligation |
(1,116.0) |
(1,018.1) |
|
|
|
| Deficit in the plans |
(191.5) |
(156.0) |
| Effect of the asset ceiling |
(8.6) |
(24.6) |
|
|
|
| Net pension liability |
(200.1) |
(180.6) |
|
|
|
The Group considers the net pension liability to be similar to debt. Management of the risks associated with the Group’s defined benefit pension plans is the responsibility of the Group’s treasury function. Our primary objective is to identify and manage the risks associated with both the assets and liabilities of the defined benefit pension plans and we continue to work with the trustees of our pension plans to improve the management of our defined benefit pension risks.
The principal risks affecting the present value of the benefit obligation are: interest rate risk, inflation risk and mortality risk.
Management of the plan assets is the responsibility of trustee boards, over which the Group has varying degrees of influence depending on local regulations. The Group has made the trustee boards aware of its preference that, where plan assets are invested so as to match the cash flow and risk profiles of the benefit obligations, these arrangements are effective, and that other plan assets not so invested are held in investment grade bonds or broad-based local equity indices.
|
|
 |
For some years now, the Group’s US plans have hedged the interest rate risk implicit in their benefit obligations. At the end of 2009, the benefit obligation of the US plans amounted to $601.9 million, of which 93.5% was hedged using a combination of bonds and interest rate swaps with an average duration of 10.1 years.
For the Group as a whole, we estimate that a 0.5% decrease in market interest rates would increase the benefit obligation by 3.2%, or $35.9 million. Only 18.3% of the benefit obligation of $1,116.0 million at the end of 2009 is exposed to future salary increases. We estimate that a 0.5% increase in the salary scale would increase the benefit obligation by 0.3%, or $3.2 million.
Unless the benefit obligation is subject to a buy-out or buy-in, it is not practical to mitigate the effects of mortality risk. We estimate that if the average life expectancy of plan members increased by one year at age 65, the benefit obligation would increase by 2.5%, or $28.1 million.
During 2009, the expense recognised in relation to defined contribution pension plans was $33.4 million (2008: $37.9 million).
Other benefits
The Group provides other post-employment benefits, principally health and life-insurance cover, to certain of its employees in North America through a number of unfunded plans. At the end of 2009, management closed the Gates plan in the US to new retirees and reduced the benefits payable to existing beneficiaries.
In 2009, the current service cost recognised in respect of the plans was $0.4 million (2008: $0.5 million) and the interest cost was $9.0 million (2008: $10.5 million).
At the end of 2009, the liability recognised in respect of these plans was $142.1 million (2008: $147.7 million). Excluding the effect of currency exchange rate changes, the liability fell by $9.2 million. Although a gain of $27.7 million was recognised on the amendments to the Gates plan, this was largely offset by a net actuarial loss of $24.0 million, which was principally caused by lower discount rates.
Benefits paid were $14.9 million (2008: $13.0 million).
|
|
 |
Taxation
The Group’s central tax function is responsible for planning and managing the tax affairs of the Group efficiently within the various local tax jurisdictions in which we operate, so as to achieve the lowest cash tax charge in compliance with local tax regulations.
At the end of 2009, the Group recognised income tax liabilities amounting to $94.7 million (2008: $81.4 million), including a provision for uncertain tax positions of $79.5 million (2008: $63.5 million). Income tax recoverable was $49.0 million (2008: $47.6 million).
At the end of 2009, the Group recognised a net deferred tax asset of $57.6 million, including $21.7 million in respect of tax losses and tax credits. Deferred tax assets of $783.7 million were not recognised in respect of tax losses and tax credits carried forward because it is not considered probable that taxable profits will be available against which they can be utilised. Deferred tax liabilities were not recognised on retained profits of foreign subsidiaries and associates amounting to $3,225.7 million because the Group is able to control the remittance of those profits to the UK and it is probable that they will not be remitted in the foreseeable future. Income tax may be payable on these amounts if there is a change in circumstances.
Contractual obligations
Off-balance sheet arrangements
|
|
Earliest period in which payment/(receipt) due |
|
|
|
|
|
|
| |
Total
$ million |
Less than
1 year
$ million |
1 – 3
years
$ million |
3 – 5
years
$ million |
After
5 years
$ million |
|
|
|
|
|
|
| Bank and other loans: |
|
|
|
|
|
| – Principal |
646.1 |
0.6 |
242.1 |
0.3 |
403.1 |
| – Interest payments(1) (2) |
187.2 |
44.4 |
68.7 |
49.4 |
24.7 |
| Derivative financial instruments: |
|
|
|
|
|
| – Payments(2) (3) |
983.6 |
868.4 |
51.3 |
46.4 |
17.5 |
| – Receipts(2) (3) |
(1,033.8) |
(891.0) |
(68.8) |
(49.3) |
(24.7) |
| Finance leases |
6.6 |
1.3 |
1.2 |
0.8 |
3.3 |
| Operating leases |
241.0 |
46.2 |
65.2 |
46.8 |
82.8 |
| Post-employment benefits(4) |
38.6 |
38.6 |
– |
– |
– |
| Purchase obligations(5) |
34.5 |
34.1 |
0.3 |
0.1 |
– |
|
|
|
|
|
|
| Total(6) |
1,103.8 |
142.6 |
360.0 |
94.5 |
506.7 |
|
|
|
|
|
|
| (1) |
Future interest payments include payments on fixed and floating rate debt and are presented before the effect of interest rate derivatives. |
| (2) |
Floating rate interest payments and payments and receipts on the floating rate legs of interest rate derivatives are estimated based on market interest rates prevailing as at 2 January 2010. |
| (3) |
Receipts and payments on foreign currency derivatives are estimated based on market exchange rates prevailing as at 2 January 2010. |
| (4) |
Post-employment benefit obligations represent the Group’s expected cash contributions to its defined benefit plans in 2010. It is not practicable to present expected cash contributions for subsequent years because they are determined annually on an actuarial basis to provide for current and future benefits. |
| (5) |
A ‘purchase obligation’ is an agreement to purchase goods or services that is enforceable and legally-binding on the Group and that specifies all significant terms, including: the fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. |
| (6) |
We have not included in the table the Group’s provision for uncertain tax positions of $79.5 million because it is not practicable to reliably estimate the timing of the related cash outflows in future years as these cash flows will only be determined after final audit by the tax authorities of previously-filed tax returns. |
Off-balance sheet arrangements
The Group has not entered into any transaction, agreement or other contractual arrangement that is considered to be an off-balance sheet arrangement that is required to be disclosed under applicable regulations, other than operating lease commitments that are analysed in note 44 to the consolidated financial statements.
|
|
