REG - Morgan Adv Mat PLC - Full-year results for period ended 31 Dec 2017 <Origin Href="QuoteRef">MGAMM.L</Origin> - Part 3
27/02/2018 07:05
- Part 3: For the preceding part double click ID:nRSa9845Fb
50.4 122.4
Closing net debt((1)) (181.3) (242.5)
1. Definitions of these non-GAAP measures can be found in the glossary of
terms on page 33, reconciliations of the statutory results to the adjusted
measures can be
found on
pages 9 to 13.
9. Financial risk management
Fair Values
The fair values of financial assets and liabilities, together with the
carrying amounts shown in the Balance sheet, are as follows:
Year ended Year ended
31 December 2017 31 December 2016
Carrying Amount Fair value Carrying Amount Fair value
£m £m £m £m
Financial assets and liabilities at amortised cost
4.32% Euro Senior Notes 2017 - - (17.3) (17.5)
6.12% US Dollar Senior Notes 2017 - - (142.1) (146.3)
6.26% US Dollar Senior Notes 2019 (55.6) (57.9) (60.8) (65.4)
1.18% Euro Senior Notes 2023 (22.2) (21.8) (21.3) (21.0)
3.17% US Dollar Senior Notes 2023 (11.2) (10.7) (12.2) (11.7)
1.55% Euro Senior Notes 2026 (22.3) (21.5) (21.4) (20.8)
3.37% US Dollar Senior Notes 2026 (72.1) (67.4) (79.0) (73.1)
1.74% Euro Senior Notes 2028 (8.9) (8.5) (8.6) (8.3)
Bank and other loans (38.8) (38.8) (1.3) (1.3)
Obligations under finance leases (0.6) (0.6) (0.9) (0.9)
Trade and other payables (97.9) (97.9) (100.5) (100.5)
Loans and receivables 174.7 174.7 184.5 184.5
Cash and cash equivalents 50.4 50.4 122.4 122.4
(104.5) (100.0) (158.5) (159.9)
Available-for-sale financial instruments
Available-for-sale financial assets 0.9 0.9 0.5 0.5
Derivatives and other items at fair value
Forward exchange contracts used for hedging 0.4 0.4 (2.0) (2.0)
Cross currency swaps - - (7.2) (7.2)
(103.2) (98.7) (167.2) (168.6)
The 4.32% Senior notes were repaid on 30 June 2017, the 6.12% Senior notes
were repaid in December 2017.
The following summarises the major methods and assumptions used in estimating
the fair values of financial instruments reflected in the preceding
table.
Equity
securities
Fair value is based on quoted market prices at the balance sheet
date.
Derivatives
Forward exchange contracts are marked to market either using listed market
prices or by discounting the contractual forward price and deducting the
current spot rate.
Interest-bearing loans and
borrowings
Fair value is calculated based on discounted expected future principal and
interest cash flows. The interest rates used to determine the fair value of
loans and borrowings are 1.6-4.2% (2016: 1.1-4.2%) and finance leases 4.2%
(2016:
4.1%).
Finance lease
liabilities
The fair value is estimated as the present value of future cash flows,
discounted at market interest rates for homogeneous lease agreements. The
estimated fair values reflect changes in interest
rates.
Trade and other
receivables/payables
For receivables/payables with a remaining life of less than one year, the
notional amount is deemed to reflect the fair value. All other
receivables/payables are discounted to determine the fair
value.
Cash and cash equivalents, trade and other payables and loans and
receivables
The Group has disclosed the fair value of cash and cash equivalents, current
loans and receivables and current payables at their carrying amount, given
their notional amount is deemed to be their fair
value.
Fair value
hierarchy
The table below analyses financial instruments carried at fair value, by
valuation method. The different levels have been defined as
follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or
liabilities
Level 2: inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (ie as prices) or
indirectly (ie derived from
prices)
Level 3: inputs for the asset or liability that are not based on observable
market data (unobservable inputs).
Year ended 31 December 2017 Year ended 31 December 2016
Level 1 Level 2 Level 1 Level 1 Level 2 Total
£m £m £m £m £m £m
Available-for-sale financial assets 0.9 - 0.9 0.5 - 0.5
Derivative financial assets - 1.0 1.0 - 2.1 2.1
0.9 1.0 1.9 0.5 2.1 2.6
Derivative financial liabilities - 0.6 0.6 - 11.3 11.3
The table below analyses financial instruments disclosed at fair value, by
valuation method:
Year ended 31 December 2017 Year ended 31 December 2016
Level 1 Level 2 Total Level 1 Level 2 Total
£m £m £m £m £m £m
4.32% Euro Senior Notes 2017 - - - - (17.5) (17.5)
6.12% US Dollar Senior Notes 2017 - - - - (146.3) (146.3)
6.26% US Dollar Senior Notes 2019 - (57.9) (57.9) - (65.4) (65.4)
1.18% Euro Senior Notes 2023 - (21.8) (21.8) - (21.0) (21.0)
3.17% US Dollar Senior Notes 2023 - (10.7) (10.7) - (11.7) (11.7)
1.55% Euro Senior Notes 2026 - (21.5) (21.5) - (20.8) (20.8)
3.37% US Dollar Senior Notes 2026 - (67.4) (67.4) - (73.1) (73.1)
1.74% Euro Senior Notes 2028 - (8.5) (8.5) - (8.3) (8.3)
Obligations under finance leases - (0.6) (0.6) - (0.9) (0.9)
- (188.4) (188.4) - (365.0) (365.0)
There have been no transfers between level 1 and level 2 during 2017 and 2016
and there were no level 3 financial instruments in either 2017 or 2016.
10. Employee benefits
31 December 31 December 31 December 31 December 31 December
2017 2017 2017 2017 2017
UK USA Europe Rest of World Total
£m £m £m £m £m
Pension plans and employee benefits
Present value of unfunded defined benefit obligations - (8.3) (35.2) (2.7) (46.2)
Present value of funded defined benefit obligations (593.7) (138.4) (2.0) (10.0) (744.1)
Fair value of plan assets 427.7 135.6 0.5 8.5 572.3
Net obligations (166.0) (11.1) (36.7) (4.2) (218.0)
Movements in present value of defined benefit obligation
At 1 January 2017 (588.7) (155.9) (37.9) (12.3) (794.8)
Current service cost (2.0) (0.1) (0.7) (1.7) (4.5)
Interest cost (14.9) (6.0) (0.6) (0.2) (21.7)
Actuarial gains/(losses)
Experience gains/(losses) on plan obligations (3.0) (1.0) 0.5 0.4 (3.1)
Changes in financial assumptions - gain/(loss) (16.8) (7.7) 0.1 0.1 (24.3)
Changes in demographic assumptions - gain/(loss) 9.2 1.3 - - 10.5
Benefits paid 23.0 8.9 1.3 1.0 34.2
Contributions by members (0.5) - - - (0.5)
Past service costs / (credits) - - - - -
Curtailments and settlements - - - - -
Acquisitions/Disposals - - 1.6 - 1.6
Exchange adjustments - 13.8 (1.5) - 12.3
At 31 December 2017 (593.7) (146.7) (37.2) (12.7) (790.3)
Movements in fair value of plan assets
At 1 January 2017 408.2 106.9 0.4 8.2 523.7
Interest on plan assets 10.4 4.2 0.1 0.1 14.8
Actuarial gains/(losses) 19.8 7.5 0.1 (0.5) 26.9
Contributions by employer 12.1 37.0 1.2 1.5 51.8
Contributions by members 0.5 - - - 0.5
Administration expenses (0.3) - - - (0.3)
Benefits paid (23.0) (8.9) (1.3) (1.0) (34.2)
Curtailments and settlements - - - - -
Acquisitions/Disposals - - - - -
Exchange adjustments - (11.1) - 0.2 (10.9)
At 31 December 2017 427.7 135.6 0.5 8.5 572.3
Actual return on assets 30.2 11.7 0.2 (0.4) 41.7
Principal actuarial assumptions at 31 December 2017 were:
Discount rate 2.38 3.65 1.60 3.20
Inflation (UK: RPI/CPI) 3.12/2.02 n/a 1.70 n/a
The Group expects to contribute £16.3 million to its pension schemes
in 2018.
The fair values of the assets were as follows:
31 December 31 December 31 December 31 December 31 December
2017 2017 2017 2017 2017
UK USA Europe Rest of World Total
£m £m £m £m £m
Equities and growth assets 157.7 6.8 - - 164.5
Bonds and LDI 87.3 124.0 - - 211.3
Matching insurance policies 181.3 - 0.5 6.0 187.8
Other 1.4 4.8 - 2.5 8.7
Total 427.7 135.6 0.5 8.5 572.3
31 December 31 December 31 December 31 December 31 December
2016 2016 2016 2016 2016
UK USA Europe Rest of World Total
£m £m £m £m £m
Pension plans and employee benefits
Present value of unfunded defined benefit obligations - (9.4) (35.9) (2.5) (47.8)
Present value of funded defined benefit obligations (588.7) (146.5) (2.0) (9.8) (747.0)
Fair value of plan assets 408.2 106.9 0.4 8.2 523.7
Net obligations (180.5) (49.0) (37.5) (4.1) (271.1)
Principal actuarial assumptions at 31 December 2016 were: % % % %
Discount rate 2.62 4.16 1.60 2.90
Inflation (UK: RPI/CPI) 3.20/2.10 n/a 1.70 n/a
Glossary
Cash flow from operations* Cash generated from operations before cash flows from restructuring costs and
other items.
See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on
pages 9 to 13.
Constant currency Constant currency revenue and Group headline operating profit are derived by
translating the prior year results at current year average exchange rates.
See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on
pages 9 to 13.
Corporate costs Corporate costs consist of the costs of the central head office.
Free cash flow before acquisitions and dividends* Cash generated from operations less net capital expenditure, net interest paid
and tax paid.
See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on
pages 9 to 13.
Group earnings before interest, tax and amortisation (EBITA) * EBITA is defined as Group operating profit before specific adjusting items and
amortisation of intangible assets.
Segment - Divisional and global business unit - EBITA is stated before
unallocated corporate costs.
See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on
pages 9 to 13.
Group earnings before interest, tax, depreciation and amortisation (EBITDA)* EBITDA is defined as operating profit before specific adjusting items,
amortisation of intangible assets, restructuring costs and other items, and
depreciation.
See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on
pages 9 to 13.
Group headline operating profit* Operating profit adjusted to exclude specific adjusting items and amortisation
of intangible assets.
See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on
pages 9 to 13.
Headline earnings per share (EPS)* Headline earnings per share is defined as operating profit adjusted to exclude
specific adjusting items and amortisation of intangible assets, plus share of
profit of associate less net financing costs, income tax expense and
non-controlling interests, divided by the weighted average number of ordinary
shares during the period.
See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on
pages 9 to 13.
Net debt* Interest-bearings loans and borrowings and bank overdrafts less cash and cash
equivalents.
See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on
pages 9 to 13.
Group Organic The Group results excluding acquisition and disposal impacts at constant
currency.
Restructuring costs and other items Include the costs of restructuring activity and gain on disposal of property.
See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on
pages 9 to 13.
Return on invested capital (ROIC)* Group headline operating profit (operating profit excluding specific adjusting
items and
amortisation of intangible assets) divided by the 12-month average adjusted
net assets (excludes long term employee benefits, deferred tax assets and
liabilities, current tax payable, provisions, cash and cash equivalents and
interest-bearing loans and borrowings.
See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on
pages 9 to 13.
Revenue growth Revenue growth is defined as current year revenue translated using current
year average exchange rates divided by prior year revenue translated using
prior year average exchange rates.
Specific adjusting items See note 4 to the financial statements for further details
This information is provided by RNS
The company news service from the London Stock Exchange
74.5 42.0 50.5
UK (the Group's country of domicile) 57.7 67.6 117.1 120.6
France 29.1 31.2 17.0 14.9
Other Asia, Australasia, Middle East and Africa 193.0 186.2 49.3 50.8
Other Europe 141.7 140.8 23.5 21.3
Other North America 33.7 31.6 5.6 5.6
South America 34.0 31.9 9.5 10.0
1,021.5 989.2 526.5 554.8
Revenue from external customers is based on geographic location of the end-customer. Segment assets are based on
geographical location of the assets. No customer represents greater than 10% of revenue.
Segment revenue by end market
2017 £m 2016£m
Industrial 491.1 449.2
Transportation 222.9 214.3
Petrochemical 85.5 84.2
Energy 63.2 66.2
Security and defence 51.4 62.6
Electronics 57.2 57.2
Healthcare 50.2 55.5
1,021.5 989.2
Intercompany sales to other segments
Thermal Ceramics Molten Metal Systems Thermal ProductsDivision ElectricalCarbon Seals and Bearings Technical Ceramics Carbon and TechnicalCeramics Division Composites and DefenceSystems
2017£m 2016£m 2017£m 2016£m 2017£m 2016£m 2017£m 2016£m 2017£m 2016£m 2017£m 2016£m 2017£m 2016£m 2017£m 2016£m
Intercompany sales to other segments 0.5 0.1 0.1 0.1 0.6 0.2 1.3 1.0 1.4 0.4 0.2 0.2 2.9 1.6 - -
4. Specific adjusting items
In the consolidated Income statement the Group presents specific adjusting items separately. In the judgment of the
Directors, due to the nature and value of these items they should be disclosed separately from the underlying results of
the Group to allow the reader to obtain a proper understanding of the financial information and the best indication of
underlying performance of the Group.
Year ended 31 December 2017 Year ended31 December2016
£m £m
Specific adjusting items:
Net pension settlement credit - 6.8
Impairment of intangible assets - (8.5)
Net profit on disposal of business 45.7 -
Total specific adjusting items before income tax 45.7 (1.7)
Income tax (charge)/credit from specific adjusting items 0.9 (2.8)
Income tax (charge)/credit resulting from US tax reform rate change and mandatory repatriation charge 4.1 -
Total specific adjusting items after income tax 50.7 (4.5)
2017:
Net profit on disposal of business:
On 31 March 2017, the Group completed the sale of its UK Electro-Ceramics business, comprising the two sites at Ruabon and
Southampton. The Group also announced the closure of its US Electro-Ceramics business, which formed the remainder of the
Group's Electro-Ceramics business.
The Group reflected a profit on disposal of £26.8 million associated with this transaction. A deferred tax asset of £1.5
million was recognised in connection with the closure of the US business.
On 31 March 2017, the Group completed the sale of its global Rotary Transfer Systems. The business is principally located
at two manufacturing sites; Antweiler, Germany and Chalon, France.
The Group reflected a profit on disposal of £18.9 million associated with this transaction. An income tax charge of £0.6
million was recognised in respect of this disposal.
US Tax Cuts and Jobs Act:
As a consequence of the enactment of H.R.1 commonly referred to as the Tax Cuts and Jobs Act in the US a credit of £4.1
million was recognised. This comprised of the revaluation of tax balances to reflect the reduction in the federal tax
rates offset by an income tax charge for mandatory repatriation tax for overseas subsidiaries of US companies.
2016:
Net pension settlement credit
The Group has completed the final termination and payment of all earned benefits for one of its North American defined
benefit plans.
The Group has also completed a one-time lump-sum cash out payment to certain former, deferred and vested employees of the
Morgan US Employees' Retirement Plan in settlement of the benefits promised by the Group.
As a result of these changes the Group has recognised a net pension settlement credit of £6.8 million, after deduction of
transaction costs. An income tax charge of £2.8 million was recognised in respect of the net pension settlement credit.
Impairment of intangible assets
As a result of the continued reduction in demand in the defence market, a review of the carrying value of the remaining
intangible assets of Composites and Defence Systems resulted in an impairment charge of £8.5 million, relating to a full
impairment of the Composites and Defence Systems technology intangible asset. This impairment was calculated by looking at
the fair value of the assets less cost of disposal.
5. Net finance and income expense
Year ended 31 December 2017 Year ended31 December2016
£m £m
Recognised in profit or loss
Amounts derived from financial instruments 0.2 0.3
Interest income on bank deposits measured at amortised cost 1.6 2.0
Finance income 1.8 2.3
Interest expense on financial liabilities measured at amortised cost (17.4) (15.2)
Net interest on IAS 19 obligations (6.9) (7.1)
Finance expense (24.3) (22.3)
Net financing costs recognised in profit or loss (22.5) (20.0)
Recognised directly in equity
Cash flow hedges:
Effective portion of changes in fair value of cash flow hedges 2.6 (3.7)
Transferred to profit or loss 0.4 0.8
Effective portion of change in fair value of net investment hedge - (17.7)
Foreign currency translation differences for foreign operations (11.0) 37.4
(8.0) 16.8
6. Taxation - Income tax expense
Taxation - Income tax expense
Recognised in the Income statement
Year ended 31 December 2017 £m Year ended31 December2016 £m
Current tax
Current year 23.5 27.8
Adjustments for prior years 0.1 (3.3)
23.6 24.5
Deferred tax
Current year (1.7) 1.6
Adjustments for prior years - 3.3
(1.7) 4.9
Total income tax expense in income statement 21.9 29.4
Reconciliation of effective tax rate
2017£m 2017% 2016£m 2016%
Profit before tax 135.8 87.9
Income tax using the domestic corporation tax rate 26.1 19.2 17.6 20.0
Effect of different tax rates in other jurisdictions 8.2 6.0 8.8 10.0
Local taxes including withholding tax suffered 4.5 3.3 3.3 3.7
Impact of US Tax Cuts and Jobs Act (4.1) (3.0)
Permanent differences 0.8 0.6 1.5 1.7
Non taxable disposals (2.9) (2.1)
Utilisation of UK unrecognised capital losses on disposal of UK Electro Ceramics business (6.2) (4.6)
Movements related to unrecognised temporary differences (3.9) (2.9) (1.5) (1.7)
Adjustments in respect of prior years 0.1 0.1 - -
Other (0.7) (0.5) (0.3) (0.3)
21.9 16.1 29.4 33.4
Income tax recognised directly in equity
Tax effect on components of other comprehensive income:
Deferred tax associated with defined benefit schemes 1.8 (0.6)
and share schemes
Total tax recognised directly in equity 1.8 (0.6)
The effective rate of tax before specific adjusting items is 29.9% (2016: 29.7%).
7. Earnings per share
The calculation of basic/diluted earnings per share from continuing operations at 31 December 2017 was based on the net
profit attributable to equity shareholders of £107.6 million (2016: £52.3 million, 2015: £33.9 million), and a weighted
average number of shares outstanding during the year of 285.0 million (2016: 284.9 million, 2015: 285.1 million). The
calculation of the weighted average number of shares excludes the shares held by The Morgan General Employee Benefit Trust,
on which the dividends are waived.
Headline earnings per ordinary share* is defined as operating profit adjusted to exclude specific adjusting items and
amortisation of intangible assets, plus share of profit of associate less net financing costs, income tax expense and
non-controlling interests, divided by the weighted average number of ordinary shares during the period. This measure of
earnings is shown because the Directors consider that it gives a better indication of headline performance.
The diluted earnings per share calculation takes into account the dilutive effect of share incentives. The diluted,
weighted average number of shares is 286.7 million (2016: 285.1 million). Diluted earnings per share is 37.5 pence (2016:
18.3 pence).
Year ended 31 December 2017 Year ended 31 December 2016
£m £m
Profit for the period attributable to equity shareholders 107.6 52.3
Specific adjusting items (45.7) 1.7
Amortisation of intangible assets 7.3 7.9
Tax effect of the above (5.0) 2.8
Non-controlling interests' share of the above adjustments - -
Adjusted profit for the period 64.2 64.7
Year ended 31 December 2017 Year ended 31 December 2016
Pence Pence
Earnings per Ordinary share 37.8p 18.4p
Specific adjusting items (16.0)p 0.6p
Amortisation of intangible assets 2.5p 2.7p
Tax effect of the above (1.8)p 1.0p
Non-controlling interests' share of the above adjustments - -
Headline earnings per share(1) 22.5p 22.7p
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 33, reconciliations of the
statutory results to the adjusted measures can be
found on pages 9 to 13.
8. Cash and cash equivalents reconciled to net debt
Year ended 31 December 2017 Year ended 31 December 2016
£m £m
Bank balances 44.7 61.4
Cash deposits 5.7 61.0
Cash and cash equivalents 50.4 122.4
Reconciliation of cash and cash equivalents to net debt(1)
Year ended December 2017 Year ended 30 December 2016
£m £m
Opening borrowings (364.9) (265.8)
(Increase)/decrease in borrowings 114.1 (63.4)
Payment of finance lease liabilities 0.3 0.3
Effect of movements in foreign exchange on borrowings 18.8 (36.0)
Closing borrowings (231.7) (364.9)
Cash and cash equivalents 50.4 122.4
Closing net debt(1) (181.3) (242.5)
1. Definitions of these non-GAAP measures can be found in the glossary of terms on page 33, reconciliations of the
statutory results to the adjusted measures can be
found on pages 9 to 13.
9. Financial risk management
Fair Values
The fair values of financial assets and liabilities, together with the carrying amounts shown in the Balance sheet, are as follows:
Year ended31 December 2017 Year ended 31 December 2016
Carrying Amount Fair value Carrying Amount Fair value
£m £m £m £m
Financial assets and liabilities at amortised cost
4.32% Euro Senior Notes 2017 - - (17.3) (17.5)
6.12% US Dollar Senior Notes 2017 - - (142.1) (146.3)
6.26% US Dollar Senior Notes 2019 (55.6) (57.9) (60.8) (65.4)
1.18% Euro Senior Notes 2023 (22.2) (21.8) (21.3) (21.0)
3.17% US Dollar Senior Notes 2023 (11.2) (10.7) (12.2) (11.7)
1.55% Euro Senior Notes 2026 (22.3) (21.5) (21.4) (20.8)
3.37% US Dollar Senior Notes 2026 (72.1) (67.4) (79.0) (73.1)
1.74% Euro Senior Notes 2028 (8.9) (8.5) (8.6) (8.3)
Bank and other loans (38.8) (38.8) (1.3) (1.3)
Obligations under finance leases (0.6) (0.6) (0.9) (0.9)
Trade and other payables (97.9) (97.9) (100.5) (100.5)
Loans and receivables 174.7 174.7 184.5 184.5
Cash and cash equivalents 50.4 50.4 122.4 122.4
(104.5) (100.0) (158.5) (159.9)
Available-for-sale financial instruments
Available-for-sale financial assets 0.9 0.9 0.5 0.5
Derivatives and other items at fair value
Forward exchange contracts used for hedging 0.4 0.4 (2.0) (2.0)
Cross currency swaps - - (7.2) (7.2)
(103.2) (98.7) (167.2) (168.6)
The 4.32% Senior notes were repaid on 30 June 2017, the 6.12% Senior notes were repaid in December 2017.
The following summarises the major methods and assumptions used in estimating the fair values of financial instruments
reflected in the preceding table.
Equity securities
Fair value is based on quoted market prices at the balance sheet date.
Derivatives
Forward exchange contracts are marked to market either using listed market prices or by discounting the contractual forward
price and deducting the current spot rate.
Interest-bearing loans and borrowings
Fair value is calculated based on discounted expected future principal and interest cash flows. The interest rates used to
determine the fair value of loans and borrowings are 1.6-4.2% (2016: 1.1-4.2%) and finance leases 4.2% (2016: 4.1%).
Finance lease liabilities
The fair value is estimated as the present value of future cash flows, discounted at market interest rates for homogeneous
lease agreements. The estimated fair values reflect changes in interest rates.
Trade and other receivables/payables
For receivables/payables with a remaining life of less than one year, the notional amount is deemed to reflect the fair
value. All other receivables/payables are discounted to determine the fair value.
Cash and cash equivalents, trade and other payables and loans and receivables
The Group has disclosed the fair value of cash and cash equivalents, current loans and receivables and current payables at
their carrying amount, given their notional amount is deemed to be their fair value.
Fair value hierarchy
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been
defined as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly (ie as prices) or indirectly (ie derived from prices)
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Year ended 31 December 2017 Year ended 31 December 2016
Level 1 Level 2 Level 1 Level 1 Level 2 Total
£m £m £m £m £m £m
Available-for-sale financial assets 0.9 - 0.9 0.5 - 0.5
Derivative financial assets - 1.0 1.0 - 2.1 2.1
0.9 1.0 1.9 0.5 2.1 2.6
Derivative financial liabilities - 0.6 0.6 - 11.3 11.3
The table below analyses financial instruments disclosed at fair value, by valuation method:
Year ended 31 December 2017 Year ended 31 December 2016
Level 1 Level 2 Total Level 1 Level 2 Total
£m £m £m £m £m £m
4.32% Euro Senior Notes 2017 - - - - (17.5) (17.5)
6.12% US Dollar Senior Notes 2017 - - - - (146.3) (146.3)
6.26% US Dollar Senior Notes 2019 - (57.9) (57.9) - (65.4) (65.4)
1.18% Euro Senior Notes 2023 - (21.8) (21.8) - (21.0) (21.0)
3.17% US Dollar Senior Notes 2023 - (10.7) (10.7) - (11.7) (11.7)
1.55% Euro Senior Notes 2026 - (21.5) (21.5) - (20.8) (20.8)
3.37% US Dollar Senior Notes 2026 - (67.4) (67.4) - (73.1) (73.1)
1.74% Euro Senior Notes 2028 - (8.5) (8.5) - (8.3) (8.3)
Obligations under finance leases - (0.6) (0.6) - (0.9) (0.9)
- (188.4) (188.4) - (365.0) (365.0)
There have been no transfers between level 1 and level 2 during 2017 and 2016 and there were no level 3 financial
instruments in either 2017 or 2016.
10. Employee benefits
31 December2017UK 31 December2017USA 31 December2017Europe 31 December2017Rest of World 31 December2017Total
£m £m £m £m £m
Pension plans and employee benefits
Present value of unfunded defined benefit obligations - (8.3) (35.2) (2.7) (46.2)
Present value of funded defined benefit obligations (593.7) (138.4) (2.0) (10.0) (744.1)
Fair value of plan assets 427.7 135.6 0.5 8.5 572.3
Net obligations (166.0) (11.1) (36.7) (4.2) (218.0)
Movements in present value of defined benefit obligation
At 1 January 2017 (588.7) (155.9) (37.9) (12.3) (794.8)
Current service cost (2.0) (0.1) (0.7) (1.7) (4.5)
Interest cost (14.9) (6.0) (0.6) (0.2) (21.7)
Actuarial gains/(losses)
Experience gains/(losses) on plan obligations (3.0) (1.0) 0.5 0.4 (3.1)
Changes in financial assumptions - gain/(loss) (16.8) (7.7) 0.1 0.1 (24.3)
Changes in demographic assumptions - gain/(loss) 9.2 1.3 - - 10.5
Benefits paid 23.0 8.9 1.3 1.0 34.2
Contributions by members (0.5) - - - (0.5)
Past service costs / (credits) - - - - -
Curtailments and settlements - - - - -
Acquisitions/Disposals - - 1.6 - 1.6
Exchange adjustments - 13.8 (1.5) - 12.3
At 31 December 2017 (593.7) (146.7) (37.2) (12.7) (790.3)
Movements in fair value of plan assets
At 1 January 2017 408.2 106.9 0.4 8.2 523.7
Interest on plan assets 10.4 4.2 0.1 0.1 14.8
Actuarial gains/(losses) 19.8 7.5 0.1 (0.5) 26.9
Contributions by employer 12.1 37.0 1.2 1.5 51.8
Contributions by members 0.5 - - - 0.5
Administration expenses (0.3) - - - (0.3)
Benefits paid (23.0) (8.9) (1.3) (1.0) (34.2)
Curtailments and settlements - - - - -
Acquisitions/Disposals - - - - -
Exchange adjustments - (11.1) - 0.2 (10.9)
At 31 December 2017 427.7 135.6 0.5 8.5 572.3
Actual return on assets 30.2 11.7 0.2 (0.4) 41.7
Principal actuarial assumptions at 31 December 2017 were:
Discount rate 2.38 3.65 1.60 3.20
Inflation (UK: RPI/CPI) 3.12/2.02 n/a 1.70 n/a
The Group expects to contribute £16.3 million to its pension schemes in 2018.
The fair values of the assets were as follows:
31 December2017UK 31 December2017USA 31 December2017Europe 31 December2017Rest of World 31 December2017Total
£m £m £m £m £m
Equities and growth assets 157.7 6.8 - - 164.5
Bonds and LDI 87.3 124.0 - - 211.3
Matching insurance policies 181.3 - 0.5 6.0 187.8
Other 1.4 4.8 - 2.5 8.7
Total 427.7 135.6 0.5 8.5 572.3
31 December2016UK 31 December2016USA 31 December2016Europe 31 December2016Rest of World 31 December2016Total
£m £m £m £m £m
Pension plans and employee benefits
Present value of unfunded defined benefit obligations - (9.4) (35.9) (2.5) (47.8)
Present value of funded defined benefit obligations (588.7) (146.5) (2.0) (9.8) (747.0)
Fair value of plan assets 408.2 106.9 0.4 8.2 523.7
Net obligations (180.5) (49.0) (37.5) (4.1) (271.1)
Principal actuarial assumptions at 31 December 2016 were: % % % %
Discount rate 2.62 4.16 1.60 2.90
Inflation (UK: RPI/CPI) 3.20/2.10 n/a 1.70 n/a
Glossary Cash flow from operations* Cash generated from operations before cash flows from restructuring costs and other items. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13. Constant currency Constant currency revenue and Group headline operating profit are derived by translating the prior year results at current year average exchange rates. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13. Corporate costs Corporate
costs consist of the costs of the central head office. Free cash flow before acquisitions and dividends* Cash generated from operations less net capital expenditure, net interest paid and tax paid. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13. Group earnings before interest, tax and amortisation (EBITA) * EBITA is defined as Group operating profit before specific adjusting items and amortisation of intangible assets. Segment - Divisional and global business
unit - EBITA is stated before unallocated corporate costs. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13. Group earnings before interest, tax, depreciation
and amortisation (EBITDA)* EBITDA is defined as operating profit before specific adjusting items, amortisation of intangible assets, restructuring costs and other items, and depreciation. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13. Group headline operating profit* Operating profit adjusted to exclude specific adjusting items and amortisation of intangible assets. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13.
Headline earnings per share (EPS)* Headline earnings per share is defined as operating profit adjusted to exclude specific adjusting items and amortisation of intangible assets, plus share of profit of associate less net financing costs, income tax expense and non-controlling interests, divided by the weighted average number of ordinary shares during the period. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13. Net debt* Interest-bearings loans and borrowings and
bank overdrafts less cash and cash equivalents. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13. Group Organic The Group results excluding acquisition and disposal impacts at constant currency. Restructuring costs and other items Include the costs of restructuring activity and gain on disposal of property. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13. Return on invested capital (ROIC)* Group headline operating
profit (operating profit excluding specific adjusting items and amortisation of intangible assets) divided by the 12-month average adjusted net assets (excludes long term employee benefits, deferred tax assets and liabilities, current tax payable, provisions, cash and cash equivalents and interest-bearing loans and borrowings. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13. Revenue growth Revenue growth is defined as current year revenue translated using current
year average exchange rates divided by prior year revenue translated using prior year average exchange rates. Specific adjusting items See note 4 to the financial statements for further details
Cash flow from operations* Cash generated from operations before cash flows from restructuring costs and other items. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13.
Constant currency Constant currency revenue and Group headline operating profit are derived by translating the prior year results at current year average exchange rates. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13.
Corporate costs Corporate costs consist of the costs of the central head office.
Free cash flow before acquisitions and dividends* Cash generated from operations less net capital expenditure, net interest paid and tax paid. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13.
Group earnings before interest, tax and amortisation (EBITA) * EBITA is defined as Group operating profit before specific adjusting items and amortisation of intangible assets. Segment - Divisional and global business unit - EBITA is stated before unallocated corporate costs. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13.
Group earnings before interest, tax, depreciation EBITDA is defined as operating profit before specific adjusting items, amortisation of intangible assets, restructuring costs and other items, and depreciation. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13.
and amortisation (EBITDA)*
Group headline operating profit* Operating profit adjusted to exclude specific adjusting items and amortisation of intangible assets. See Definitions and reconciliations of Non-GAAP Measures to GAAP Measures on pages 9 to 13.
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