Annual Report and Accounts 2014

 

Notes to the Financial Statements

11. Exceptionals
12. Finance Costs and Finance Income
13. Foreign Currency
14. Share of Associates’ Profit/(Loss) after Tax
15. Income Tax Expense

11. Exceptionals

 

Restated

 

2014

2013

 

£’000

£’000

 

 

 

Restructuring costs

(19,720)

(16,882)

Impairment of goodwill

(13,923)

-

Acquisition and related costs

(5,638)

(12,146)

Impairment of property, plant and equipment

(550)

-

Adjustments to deferred and contingent acquisition consideration

16,165

5,601

Gain arising from Taiwanese legal claim

6,962

-

Net profit on disposal of subsidiaries

5,294

-

Restructuring of Group defined benefit pension schemes

1,435

-

Legal and other operating exceptional items

(3,308)

(390)

Net operating exceptional items

(13,283)

(23,817)

 

 

Mark to market of swaps and related debt

(2,128)

(1,372)

Impairment of associate company investment and loan receivable from associate

-

(285)

Net exceptional items before taxation

(15,411)

(25,474)

 

 

Tax on Taiwanese legal claim

(5,255)

-

Net exceptional items after taxation

(20,666)

(25,474)

 

 

Non-controlling interest share of profit on disposal of subsidiary

(2,055)

-

Net exceptional items attributable to owners of the Parent

(22,721)

(25,474)

 

 

The analysis of the net operating exceptional items of £13.283 million (2013: £23.817 million) is as follows:

 

Exceptional operating income

31,101

5,601

Exceptional operating expense

(44,384)

(29,418)

 

(13,283)

(23,817)

 

 

 

The Group incurred an exceptional charge of £19.720 million in relation to restructuring of acquired and existing businesses. Most of this related to the costs of integration of previously acquired oil and LPG businesses, the relocation of DCC Healthcare’s Swedish health and beauty manufacturing activities to Britain, which was planned for at the time of the acquisition of those assets, and the closure of DCC Technology’s Irish DVD business.

There was a non-cash exceptional charge of £13.923 million relating to the impairment of subsidiary goodwill. Included in this charge is an impairment charge of £7.286 million in relation to the carrying value of MSE Limited, a subsidiary of DCC Technology, primarily arising on the closure of the company’s Irish DVD business. In addition, an impairment charge of £5.031 million was recognised in relation to Bottle Green Limited, a subsidiary of DCC Food & Beverage which was primarily due to weak demand in the current year whilst the recovery in profits is forecasted at a slower rate than previously anticipated. There was also a non-cash impairment of a property asset of £0.550 million.

Acquisition and related costs include the professional and tax costs (such as stamp duty) relating to the evaluation and completion of acquisition opportunities. During the year, acquisition and related costs amounted to £5.638 million.

Most of the Group’s debt has been raised in the US Private Placement market and swapped, using long term interest, currency and cross currency derivatives, to both fixed and floating rate sterling and euro. The level of ineffectiveness calculated under IAS 39 on the fair value and cash flow hedge relationships relating to fixed rate debt, together with gains or losses arising from marking to market swaps not designated as hedges, offset by foreign exchange translation gains or losses on the related fixed rate debt, is charged or credited as an exceptional item. In the year to 31 March 2014 this amounted to a total exceptional loss of £2.128 million.

There was a non-cash credit of £16.165 million for deferred and contingent acquisition consideration overprovided in previous years. In accordance with IFRS 3 (revised), deferred and contingent consideration is measured at fair value at the time of the business combination. If the amount of deferred and contingent consideration changes as a result of a post-acquisition event then the changed amount is recognised in the Income Statement.

In January 2004, the High Court in London awarded £12.2 million in damages and associated interim costs, together with interest, to DCC’s former British based mobility and rehabilitation subsidiary for breach of an exclusive supply agreement by a Taiwanese supplier. A further amount in respect of costs of £2.9 million was subsequently determined by the High Court to be payable. In order to enforce the High Court judgements, it has been necessary to pursue the collection of all outstanding amounts through the Taiwanese courts. In March 2012, DCC received the initial £12.2 million referred to above which was accounted for in DCC’s financial year ended 31 March 2012. In December 2013 and January 2014 a further aggregate amount of £6.962 million was recovered in respect of the accumulated interest on the £12.2 million from which there was a deduction of £5.255 million for Taiwanese withholding tax which is being challenged by DCC. The recovery of the £2.9 million, plus interest, continues to be pursued through the Taiwanese courts. DCC has not accrued the amount of this outstanding claim.

In March 2014, DCC Healthcare disposed of Virtus Inc., a small US based subsidiary which contract manufactures a range of mattress covers for hospital beds and stretchers and in February 2014 DCC Food & Beverage disposed of part of its chilled and frozen food distribution activities. The business activities disposed of accounted for less than 1% of DCC’s operating profit for the year ended 31 March 2014. The assets disposed of comprised non-current assets of £1.050 million and net current assets (including cash and cash equivalents of £2.828 million) of £7.233 million. In addition, net foreign currency translation losses previously recognised in the foreign currency translation reserve of £0.324 million were recycled to the Income Statement. The net cash inflow from these transactions was £11.073 million and resulted in a gain on disposal (before a non-controlling interest charge) on their book carrying values of £5.294 million.

There was a tax charge of £5.255 million, as referred to above, for Taiwanese withholding tax, which is being challenged by DCC and a non-controlling interest charge of £2.055 million relating to the net exceptional items. The cash impact in the year of net exceptional charges relating to the year to 31 March 2014 and the prior year was £21.097 million.

12. Finance Costs and Finance Income

 

Restated

 

2014

2013

 

£’000

£’000

Finance costs

 

On bank loans, overdrafts and Unsecured Notes

 

 

- repayable within 5 years, not by instalments

(19,817)

(21,372)

- repayable within 5 years, by instalments

(92)

(121)

- repayable wholly or partly in more than 5 years

(26,276)

(13,980)

On finance leases

(204)

(241)

Facility fees

(1,632)

(1,472)

Other interest

(2,130)

(1,120)

 

(50,151)

(38,306)

Other finance costs:

 

Net interest on defined benefit pension scheme liabilities (note 32)

(673)

(1,057)

Mark to market of swaps and related debt* (note 11)

(2,128)

(1,372)

 

(52,952)

(40,735)

Finance income

 

Interest on cash and term deposits

2,546

2,351

Net income on interest rate and currency swaps

26,830

22,925

Other income

37

15

 

29,413

25,291

 

 

Net finance cost

(23,539)

(15,444)

 

 

 

*Mark to market of swaps and related debt

Interest rate swaps designated as fair value hedges

(8,430)

(4,130)

Cross currency interest rate swaps designated as fair value hedges

(95,148)

22,029

Adjusted hedged fixed rate debt

101,589

(19,362)

Mark to market of swaps designated as fair value hedges and related debt

(1,989)

(1,463)

 

 

Currency movements on fixed rate debt not designated as hedged

9,399

(5,255)

Currency swaps not designated as hedges

(8,903)

5,346

Mark to market of undesignated swaps and related debt

496

91

 

 

Movement on cross currency interest rate swaps designated as cash flow hedges

(8,935)

(811)

Transferred to cash flow hedge reserve

8,300

811

 

(635)

-

 

 

Total mark to market of swaps and related debt

(2,128)

(1,372)

 

 

 

 

13. Foreign Currency

The exchange rates used in translating non-sterling Income Statement and Balance Sheet amounts into sterling were as follows:

 

Average rate

Closing rate

 

2014

2013

2014

2013

 

Stg£1=

Stg£1=

Stg£1=

Stg£1=

 

 

 

 

Euro

1.1847

1.2264

1.2074

1.1826

Danish Krone

8.8386

9.1366

9.0146

8.8162

Swedish Krona

10.3362

10.5862

10.8045

9.8806

Norwegian Krone

9.5103

9.1035

9.9674

8.8836

 

14. Share of Associates’ Profit/(Loss) after Tax

The Group’s share of associates’ profit/(loss) after tax is equity-accounted and is presented as a single line item in the Group Income Statement. The profit/(loss) after tax generated by the Group’s associates is analysed as follows:

 

Restated

 

2014

2013

 

£’000

£’000

Group share of:

Revenue

5,106

5,032

 

 

Operating profit

40

34

Impairment of associate company investment and loan receivable from associate

-

(285)

Profit/(loss) before finance costs

40

(251)

Finance costs (net)

(7)

(8)

Profit/(loss)

33

(259)

 

 

 

 

 

15. Income Tax Expense

 

Restated

 

2014

2013

(i) Income tax expense recognised in the Income Statement

£’000

£’000

 

 

 

Current taxation

 

 

Irish corporation tax at 12.5%

4,130

3,700

Exceptional taxation charge (note 11)

5,255

-

United Kingdom corporation tax at 23% (2013: 24%)

20,669

17,428

Other overseas tax

6,036

8,017

Over provision in respect of prior years

-

(682)

Total current taxation

36,090

28,463

 

 

Deferred tax

 

Irish at 12.5%

(3,797)

(2,299)

United Kingdom at 20% (2013: 23%)

(284)

(517)

Other overseas deferred tax

(2,345)

862

Over provision in respect of prior years

(2,409)

(221)

Total deferred tax credit

(8,835)

(2,175)

Total income tax expense

27,255

26,288

 

 

 

The deferred tax over provision in respect of prior years principally arose following substantially enacted legislation in the UK to reduce the UK tax rate to 20% with effect from 1 April 2015.

 

Restated

 

2014

2013

(ii) Deferred tax recognised directly in Equity

£’000

£’000

 

Defined benefit pension obligations

(152)

(1,506)

Cash flow hedges

(288)

(202)

 

(440)

(1,708)

 

(iii) Reconciliation of effective tax rate

 

 

 

Profit on ordinary activities before taxation

151,198

132,922

Add back: share of associates’ (profit)/loss after tax

(33)

259

Add back: amortisation of intangible assets

20,416

14,420

 

171,581

147,601

 

 

At the standard rate of corporation tax in Ireland of 12.5%

21,448

18,450

Adjustments in respect of prior years

(2,409)

(903)

Effect of earnings taxed at higher rates

9,328

12,101

Permanent and other differences

(2,188)

(273)

Income tax expense

26,179

29,375

Tax on exceptional gain

5,255

-

Deferred tax attaching to amortisation of intangible assets

(4,179)

(3,087)

Total income tax expense

27,255

26,288

 

 

 

 

2014

2013

 

%

%

Income tax expense as a percentage of profit before share of associates’ profit/(loss) after tax,

 

 

amortisation of intangible assets and net exceptionals

14.0%

17.0%

Impact of associates’ profit/(loss) after tax, amortisation of intangible assets and net exceptionals

4.0%

2.8%

Total income tax expense as a percentage of profit before tax

18.0%

19.8%

 

 

 

(iv) Factors that may affect future tax rates and other disclosures

No significant change is expected to the standard rate of corporation tax in the Republic of Ireland which is currently 12.5%. The standard rate of corporation tax in the UK reduced from 24% to 23% with effect from 1 April 2013. A tax rate of 21% applies with effect from 1 April 2014 and the UK March 2013 budget announcement included a further proposal to reduce the UK corporation tax rate to 20% with effect from 1 April 2015. As the legislation to give statutory effect to the reduction in the rate to 20% from 1 April 2015 had been substantially enacted as at the balance sheet date, account has been taken of this change in these financial statements.

The Group has not provided deferred tax in relation to temporary differences applicable to investments in subsidiaries on the basis that the Group can control the timing and realisation of these temporary differences and it is probable that the temporary difference will not reverse in the foreseeable future. No provision has been recognised in respect of deferred tax relating to unremitted earnings of subsidiaries as there is no commitment to remit earnings.