2.1 Basis of accounting
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS") and, with the exception of defined benefit pension plans, certain provisions and derivative financial instruments, under the historical cost convention.
2.2 Impact of Cookson Group demerger on comparative financial information disclosure
The effect of adopting the principles of reverse acquisition to account for the Scheme of Arrangement, by which the demerger of Cookson Group plc was implemented, results in a continuation of the consolidated financial statements of Cookson, now renamed Vesuvius. As a consequence of this, the comparative financial statements of Vesuvius include the full results of the Alent group of companies up to the date of the demerger becoming effective on 19 December 2012. In preparing the disclosure of the results of Vesuvius for 2012, the following approach has been applied:
- The costs incurred by Vesuvius within its central headquarters for 2012 have been allocated in full between the underlying trading results of continuing and discontinued operations in arriving at the results for Vesuvius as a whole.
- As Vesuvius Holdings Limited (formerly Cookson Group plc) remained with Vesuvius plc after the demerger, all of the borrowings and associated financial derivatives entered into by Cookson in the period up to the date of demerger have been treated as belonging to Vesuvius in the comparative financial statements, with the consequence that all of the finance costs relating to those Cookson borrowings have been reported as finance costs of Vesuvius. Borrowings and borrowing costs relating to local debt arrangements established by individual Cookson Group companies other than Cookson Group plc have been reported according to whether they were part of the Alent or Vesuvius group structure. This approach has also been applied to financial assets (net cash) and the related finance income.
- Tax charges in the comparative financial statements have been determined based on the tax charges recorded by Vesuvius companies in local statutory accounts, together with certain adjustments relating to those entities made for Group consolidation purposes. The tax charges recorded in the Group income statement for 2012 have been affected by the tax arrangements within the former Cookson Group and are not necessarily representative of the tax charges that would have been reported had Vesuvius been an independent group throughout 2012, nor of tax charges that may arise thereafter.
As a consequence of the above, the pre-demerger historical financial performance of Vesuvius in its comparative 2012 financial statements comprises the full consolidated financial performance of Cookson Group plc, albeit that in the income statements the total Group results have been analysed between continuing (Vesuvius companies only) and discontinued (Alent and Precious Metals Processing) operations.
The demerger of Alent was reflected in the Vesuvius financial statements as the sale, by Vesuvius, of the consolidated Alent business on 19 December 2012. Hence the 2012 income statement of Vesuvius includes, within "discontinued operations", the trading performance of Alent up to 19 December 2012, together with the profit on the ''sale'' of Alent. Similarly, the trading results of the Precious Metals Processing division (including the US operations, which were sold in 2012) have been included within discontinued operations in the comparative financial statements.
2.3 Basis of consolidation
The consolidated financial statements of the Group incorporate the financial statements of the Company and entities controlled by the Company (its "subsidiaries"). Control exists when the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing whether control exists, potential voting rights that are currently exercisable are taken into account. The results of subsidiaries acquired or disposed of during the year are included in the Group income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those detailed herein to ensure that the Group financial statements are prepared on a consistent basis. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's interest therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination together with the non-controlling interests' share of profit or loss and each component of other comprehensive income since the date of the combination. Total comprehensive income is attributed to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
2.4 Going concern
The Directors have prepared cash flow forecasts for the Group for a period in excess of 12 months from the date of approval of the 2013 financial statements. These forecasts reflect an assessment of current and future end-market conditions and their impact on the Group's future trading performance. The forecasts show that the Group will be able to operate within the current committed debt facilities and show continued compliance with the Company's financial covenants. On the basis of the exercise described above and the Group's available committed debt facilities, the Directors consider that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt a going concern basis in preparing the financial statements of the Group and the Company.
2.5 Functional and presentation currency
The financial statements are presented in millions of pounds sterling, which is the functional currency of the Company, and rounded to one decimal place. Foreign operations are included in accordance with the policies set out in note 30.1.
2.6 Disclosure of "Separately reported items"
IAS 1, Presentation of Financial Statements, provides no definitive guidance as to the format of the income statement, but states key lines which should be disclosed. It also encourages the disclosure of additional line items and the reordering of items presented on the face of the income statement when appropriate for a proper understanding of the entity's financial performance. In accordance with IAS 1, the Company has adopted a columnar presentation for its Group income statement, to separately identify Headline Performance results, as the Directors consider that this gives a better view of the underlying results of the ongoing business. As part of this presentation format, the Company has adopted a policy of disclosing separately on the face of its Group income statement, within the column entitled "Separately reported items", the effect of any components of financial performance for which the Directors consider separate disclosure would assist both in a better understanding of the financial performance achieved and in making projections of future results. In its adoption of this policy, the Company applies an even-handed approach to both gains and losses and aims to be both consistent and clear in its accounting and disclosure of such items.
Both materiality and the nature and function of the components of income and expense are considered in deciding upon such presentation. Such items may include, inter alia, the financial effect of exceptional items which occur infrequently, such as major restructuring activity, initial recognition and subsequent increase, decrease and amortisation of deferred tax assets, together with items always reported separately, such as amortisation charges relating to intangible assets, profits or losses arising on the disposal of continuing or discontinued operations and the taxation impact of the aforementioned exceptional items and items reported separately.
2.7 New and revised IFRS
During the year, the Group has adopted IAS 19 (revised), Employee Benefits ("IAS 19(R)") which makes changes to the recognition, measurement and disclosure of defined benefit pension schemes. The impact can be summarised as follows which has required a restatement of the prior period's consolidated results:
- The net finance cost relating to employee benefits plans has been previously presented gross within finance income and finance expense within the Group income statement. The amount is now considered to be a single finance cost on the net pension liability. Prior period comparatives have been restated.
- IAS 19(R) requires the net pension interest charge to be calculated by applying a high quality corporate bond yield to the net defined benefit liability/asset. This has resulted in the net pension interest charge for 2012 of £0.6m, as previously reported, to become £0.1m with an equal and opposite effect on the remeasurement of the net defined benefit liability in the Group statement of comprehensive income. The impact on the net pension interest charge for 2013 is broadly similar to that for 2012.
- Operating costs have been increased by £1.5m for 2013 (2012: £1.7m), as a result of the requirement to include pension scheme administration costs in operating costs. Such costs include the PFI levy and actuarial, legal and trustee charges which, under the previous IAS 19, were allowed to be included within net finance costs.
In addition, during the period, the Group adopted a number of other new standards and amendments which became effective, none of which had a material impact on the Group's net cash flow, financial position, total comprehensive income or earnings per share. A number of other new and amended IFRS were issued during the year which do not become effective until after 1 January 2014 and which have not been early adopted. None of these are likely to have a material impact on the Group's net cash flows, financial position, total comprehensive income or earnings per share.