Document

Sensitivity of operating profit to 1% decrease in the strength of Sterling:

2017 Increase of Operating Profit £'000

2016 Increase of Operating Profit £'000

2015 Increase of Operating Profit £'000

USD cash flows

EUR cash flows

YEN cash flows

0001653477-19-000075.txt : 20190412 0001653477-19-000075.hdr.sgml : 20190412 20190412162304 ACCESSION NUMBER: 0001653477-19-000075 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20190213 ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20190412 DATE AS OF CHANGE: 20190412 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Ingevity Corp CENTRAL INDEX KEY: 0001653477 STANDARD INDUSTRIAL CLASSIFICATION: CHEMICALS & ALLIED PRODUCTS [2800] IRS NUMBER: 474027764 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-37586 FILM NUMBER: 19746527 BUSINESS ADDRESS: STREET 1: 5255 VIRGINIA AVENUE CITY: NORTH CHARLESTON STATE: SC ZIP: 29406 BUSINESS PHONE: 8437402300 MAIL ADDRESS: STREET 1: 5255 VIRGINIA AVENUE CITY: NORTH CHARLESTON STATE: SC ZIP: 29406 8-K/A 1 capaacquisitionform8-ka.htm 8-K/A Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________________________________________

FORM 8-K/A

(Amendment #1)

_______________________________________________________________________

CURRENT REPORT

Pursuant to Section 13 or 15 (d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 13, 2019

__________________________________________________________________________

INGEVITY CORPORATION

(Exact name of registrant as specified in its charter)

__________________________________________________________________________




Delaware	001-37586	47-4027764
(State of other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

5255 Virginia Avenue
North Charleston, South Carolina 29406
(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area code: 843-740-2300

Not Applicable

(Former name or former address, if changed since last report)

_____________________________________________________________________________________________________



Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o

_____________________________________________________________________________________________________

EXPLANATORY NOTE

On February 13, 2019, Ingevity Corporation (the “Company”) completed its previously announced acquisition ("Capa Acquisition") of the Capa^tm caprolactone division, through the purchase of Perstorp UK Ltd. from Perstorp Holding AB, a company registered in Sweden that develops, manufactures, and sells specialty chemicals. The aggregate preliminary purchase price for the acquisition was €578.9 million, or $652.5 million, excluding debt assumed of €100.4 million, or $113.1 million. At closing, the assumed debt was settled with an affiliate of the counterparty, Perstorp Holding AB. The Company funded the acquisition through a combination of borrowings under its existing credit facilities and cash on hand.

On February 13, 2019, the Company filed a Current Report on Form 8-K (the "Original Report") with the Securities and Exchange Commission to report the completion of the Acquisition.

This Current Report on Form 8-K/A amends the Original Report to include (i) audited Balance Sheets as of December 31, 2017 and 2016 and the related audited Income Statements, Statements of Changes in Equity, and Cash Flow Statements for the years ended December 31, 2017, 2016, and 2015 of Perstorp UK Ltd., (ii) unaudited Balance Sheets as of September 30, 2018 and December 31, 2017 and the related unaudited Income Statements, Statements of Changes in Equity, and Cash Flow Statements for the nine months ended September 30, 2018 and 2017 of Perstorp UK Ltd., and (iii) unaudited Pro Forma Condensed Combined Financial Information as of and for the nine months ended September 30, 2018 and unaudited Pro Forma Condensed Combined Statement of Operations for year ended December 31, 2017 related to the acquisition, as required by Items 9.01(a) and 9.01(b) of Form 8-K.

ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS


(a)	Financial Statements of the Business Acquired


(i)	Audited Balance Sheets as of December 31, 2017 and 2016 and the related audited Income Statements, Statements of Changes in Equity, and Cash Flow Statements for the years ended December 31, 2017, 2016, and 2015 of the Perstorp UK Ltd. are attached as Exhibit 99.1 to this Current Report on Form 8-K/A.


(ii)	Unaudited Balance Sheet as of September 30, 2018 and December 31, 2017 and the related unaudited Income Statements, Statements of Changes in Equity, and Cash Flow Statements for the nine month periods ended September 30, 2018 and 2017 of Perstorp UK Ltd. are attached as Exhibit 99.2 to this Current Report on Form 8-K/A.


(b)	Pro Forma Financial Information

The following unaudited pro forma condensed combined financial information related to the Capa Acquisition is attached as Exhibit 99.3 to this Current Report on Form 8-K/A.


(i)	Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2018.


(ii)	Unaudited Pro Forma Condensed Combined Statement of Operations for the nine months ended September 30, 2018 and the year ended December 31, 2017.


(d)	Exhibits



Exhibit No.	Description of Exhibit
23.1	Consent of PricewaterhouseCoopers LLP, Independent Auditor.
99.1	Audited Balance Sheet as of December 31, 2017 and 2016 and the related audited Income Statements, Statements of Changes in Equity, and Cash Flow Statements for the years ended December 31, 2017, 2016, and 2015 of Perstorp UK Ltd.
99.2	Unaudited Balance Sheet as of September 30, 2018 and December 31, 2017 and the related unaudited Income Statements, Statement of Changes in Equity, and Cash Flows Statement for the nine month periods ended September 30, 2018 and 2017 of Perstorp UK Ltd.
99.3	Unaudited Pro Forma Condensed Combined Financial Information.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



INGEVITY CORPORATION
(Registrant)

By:	/S/ JOHN C. FORTSON
	John C. Fortson
	Executive Vice President, Chief Financial Officer and Treasurer

Date: April 12, 2019

EX-23.1 2 ex231consent.htm EXHIBIT 23.1 Exhibit

Exhibit 23.1

Consent of Independent Auditors

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-211430 and 333-218185) of Ingevity Corporation of our report dated February 8, 2019 relating to the financial statements of Perstorp UK LTD, which appears in this Current Report on Form 8-K/A.

/s/ PricewaterhouseCoopers LLP

London, UK

April 12, 2019

EX-99.1 3 ex9912017financials3years.htm EXHIBIT 99.1 Exhibit

Exhibit 99.1

PERSTORP UK LTD.

Financial Statements

for the three years ended 31 December 2017

Company Registered Number: 2715398

PERSTORP UK LTD.

Report of Independent Auditors

To the Directors of Perstorp Holding AB

We have audited the accompanying financial statements of Perstorp UK LTD, which comprise the balance sheets as of 31 December 2017 and 2016, and the related income statement, statement of changes in equity, and cash flow statement for each of the three years in the period ended 31 December 2017.

Managements Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Perstorp UK LTD as of 31 December 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended 31 December 2017, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Emphasis of Matter

As discussed in Note 1 to the financial statements, the Company has restated its 2017, 2016 and 2015 financial statements to correct an error. Our opinion is not modified with respect to this matter.

/s/ PricewaterhouseCoopers LLP

Manchester, United Kingdom

8 February 20l9

PERSTORP UK LTD.

Income statement

for the year ended 31 December 2017



	Note	2017 £'000		2016 £'000		2015 £'000
Revenue	4	119,480		88,919		73,880

Cost of sales		(74,861	)	(52,547	)	(46,144	)

Gross Profit		44,619		36,372		27,736

Distribution Costs		(16,262	)	(13,003	)	(11,873	)
Administration expenses		(6,453	)	(6,158	)	(4,552	)
Other operating (expense)/income	6	(1,044	)	735		19

Operating profit		20,860		17,946		11,330

Finance income	7	4,485		2,727		938
Finance costs	8	(10,659	)	(26,288	)	(12,794	)
Profit/(loss) before tax	5	14,686		(5,615	)	(526	)

Income tax (charge)/credit - Current	9	(482	)	41		316
Income tax (charge)/credit - Deferred	9	(524	)	862		(118	)

Profit/(loss) for the year		13,680		(4,712	)	(328	)

The notes on pages 5 to 23 are an integral part of these financial statements.

The company incurred no other comprehensive income/expense in either year other than amounts included in the Income Statement above, and therefore no separate Statement of Comprehensive Income has been presented.

PERSTORP UK LTD.

Balance sheet as at 31 December 2017



	Note	Restated* 2017 £'000		Restated* 2016 £'000
Assets
Non-current Assets
Property, plant, and equipment	10	54,694		54,495
Total Tangible assets	10	54,694		54,495

Goodwill	11	26,186		26,186
Customer relationships	11	2,361		4,556
REACH cost	11	586		489
Total Intangible assets		29,133		31,231

Deferred tax assets	12	4,678		4,647
Total non-current assets		88,505		90,373

Current assets
Inventories	13	7,412		5,682
Trade and other receivables	14	37,357		20,900
Total current assets		44,769		26,582

Liabilities
Current liabilities
Trade and other payables	15	(16,623	)	(10,078	)
Obligations under finance leases	16	(12	)	(12	)
Borrowings	17	(1,342	)	(1,340	)
Total current liabilities		(17,977	)	(11,430	)

Net current assets		26,792		15,152

Non-current liabilities
Borrowings	17	(83,153	)	(87,604	)
Obligations under finance leases	16	—		(12	)
Deferred tax liabilities	12	(4,139	)	(3,584	)
Total non-current liabilities		(87,292	)	(91,200	)

Net assets		28,005		14,325

Equity attributable to owners of the parent
Share capital	18	29,702		29,702
Accumulated losses		(1,697	)	(15,377	)

Total equity		28,005		14,325

* See note 1 for further details.

The notes on page 5 to 23 are an integral part of these financial statements.

The financial statements on pages 2 to 23 were authorised for issue by the board of directors on 8 February 2019 and were

signed on its behalf.

/s/ P Shelly /s/ Magnus Heimburg

Managing Director Chief Financial Officer

Perstorp UK Ltd. Perstorp Holding AB

Company Registered Number: 2715398

PERSTORP UK LTD.

Statement of changes in equity for the year ended 31 December 2017



	Share Capital £'000	Accumulated Losses £'000		Total equity £'000
At 1 January 2015	29,702	(10,337	)	19,365
Profit/(Loss) for the financial year, being total comprehensive income	—	(328	)	(328	)
At 31 December 2015	29,702	(10,665	)	19,037

At 1 January 2016	29,702	(10,665	)	19,037
Profit/(Loss) for the financial year, being total comprehensive income	—	(4,712	)	(4,712	)
At 31 December 2016	29,702	(15,377	)	14,325

At 1 January 2017	29,702	(15,377	)	14,325
Profit/(Loss) for the financial year, being total comprehensive income	—	13,680		13,680
At 31 December 2017	29,702	(1,697	)	28,005

Cash flow statement

for the year ended 31 December 2017



	Note	Restated* 2017 £'000		Restated*2016 £'000		Restated*2015 £'000
Cash flows from operating activities
Cash generated from operations	24	30,826		28,903		23,969
Interest paid		(10,086	)	(11,913	)	(10,500	)
Income tax received		41		274		42
Net cash generated from operating activities		20,781		17,264		13,511

Cash flows from investing activities
Purchase of property, plant and equipment and intangible assets		(6,354	)	(1,066	)	(920	)
Interest received		35		21		14
Net cash (used in)/generated from investing activities		(6,319	)	(1,045	)	(906	)

Cash flows from financing activities
(Increase)/decrease in amounts owed from/to group companies in relation to cash pooling arrangement		(14,462	)	9,781		(12,605	)
Repayments of loan borrowings		—		(26,000	)	—
Net cash used in financing activities		(14,462	)	(16,219	)	(12,605	)

Net increase/(decrease) in cash and cash equivalents		—		—		—
Cash and cash equivalents at beginning of the year		—		—		—

Cash and cash equivalents at end of the year		—		—		—

* See note 1 for further details.

PERSTORP UK LTD.

NOTES TO THE FINANCIAL STATEMENTS

1 Summary of Significant accounting policies

Perstorp UK Ltd. is a private limited company incorporated and domiciled in the United Kingdom, and is registered in England

and Wales. The company is limited by shares. The company’s registered address is Perstotp UK Ltd., Baronet Road, Warrington, Cheshire, WA4 6HA, UK.

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

1.1 Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the IASB (IFRS).

The preparation of financial statements in conformity with IFRSs requires the use of a number of significant accounting estimates. It also requires management to exercise its judgement in the process of applying the company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 2.

Sale of business

The Company’s owners, Perstorp AB, are in the process of completing the sale of the Company to lngevity Corporation. These financial statements have been prepared in anticipation of that sale.

Going concern

As described above, the Company’s owners, Perstorp AB, are in the process of completing the sale of the Company to Ingevity Corporation. The Company has received a letter from Perstorp AB confirming that they will provide adequate financial support as required to enable the Company to continue to discharge its liabilities in the normal course of business for at least twelve months from the date of approval of these financial statements or until the sale of the Company completes. The Company has also received a letter of financial support from Ingevity Corporation confirming that, in the event the sale of the Company is completed, they will provide adequate financial support as required to enable the Company to continue to discharge its liabilities in the normal course of business for at least twelve months from the date of approval of these financial statements. Therefore, these financial statements have been prepared on a going concern basis.

Restatement

During the preparation of these financial statements, management noted that in the UK statutory accounts, amounts that had been previously shown as cash and cash equivalents (2017 £28.6m, 2016 £14.7m and 2015 £21.7m) should have been presented as amounts due from group undertakings (Note 14). The impact of this error is therefore that cash and cash equivalents as of 31 December 2017, 2016 and 2015 are now nil and trade and accounts receivables increased by these amounts. In 2017 this has resulted in restated outflows of £14.5m amounts owed from/to group companies in relation to cash pooling arrangements, recognised within financing activities on the statement of cash flows, (2016 £9.8m inflows, 2015 £12.6m outflows).

1.2 Recent accounting developments

(a) New standards amendments and interpretations to existing standards.

The following new standards, amendments and interpretations are mandatory for the first time for the financial year beginning 1 January 2017.

The company has adopted the following new standards, amendments or interpretations. None of these standards and interpretations have had any material effect on the company’s results.

• Amendments to lAS 12, ‘Income taxes’ on Recognition of deferred tax assets for unrealised losses (effective for annual periods beginning on or after 1 January 2017);

(b) New standards amendments and interpretations not yet adopted.

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2017 reporting period and have not been early adopted by the Company. The Company’s assessment of the impact of these new standards and interpretations is set out below:

PERSTORP UK LTD.

IFRS 9 Financial Instruments

IFRS 9 addresses the classification, measurement and de-recognition of financial assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for financial assets. This standard is mandatory for financial years commencing on or after 1 January 2018.

The Company is working towards the implementation of IFRS 9 on 1 January 2018. It anticipates that the classification and measurement basis for its financial assets and liabilities will be largely unchanged by adoption of IFRS 9.

The main impact of adopting IFRS 9 is likely to arise from the implementation of the expected loss model. The expected impact at 1 January 2018 is to decrease retained earnings by £114k. No material impact on profit for future periods is expected from the adoption of IFRS 9.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The standard replaces lAS 18, 'Revenue', and lAS 11, ‘Construction contracts', and related interpretations. The standard is effective for annual periods beginning on or after 1 January 2018, and earlier application is permitted. The Company is working towards the implementation of IFRS 15 on 1 January 2018 and has carried out a review of existing contractual arrangements as part of this process. The Company does not anticipate any changes for the recognition of its current revenue streams.

IFRS 16 Lease Accounting

IFRS 16 ‘Leases’ has been issued by the IASB but is not yet adopted by the Company. It is effective from 1 January 2019. Our work on implementing the new lease model prescribed is progressing as planned, and we continue to consider the implications of the standard on the Company’s results and financial position.

1.3 Segment reporting

The company’s operations are fully integrated. All products are sold to customers at a level far removed from the end user via automakers, coatings producers and so forth. The same product can often be used for a wide spectrum of different applications.

The chief operating decision maker, defined as the directors, make decisions based on the underlying management data, which is the data presented in the financial statements. The directors consider the operations of the entity to represent one trading segment and therefore a segmental analysis has not been disclosed.

1.4 Intangible assets

Goodwill comprises the amount by which the acquisition value exceeds the fair value at the date of acquisition of the identifiable net assets acquired. Goodwill is reported as an intangible asset. Goodwill is not amortised but tested annually for impairment, or when there is a triggering event.

Other intangible assets were recognised at fair value as part of the acquisition by the Company of the Caprolactones business from Solvay in January 2008.

Intangible assets (excluding goodwill) are reported at their acquisition value/purchase cost less accumulated amortisation. The acquisition value/purchase cost is linearly amortised in order to divide the cost over the life span of the intangible asset which have been determined to be:



Customer relationships	9-11 years
Non-compete agreement	6 years
Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) Registration	20 years

Assets with an indeterminate useful life, such as goodwill, are not depreciated or amortised but are subject to annual testing of impairment requirements. Assets with a determined useful life are assessed for a reduction in value whenever events or changes in conditions indicate that the book value may not be recoverable. Impairment is recognised in the amount by which the asset’s book value exceeds its recoverable value and it will be immediately reported as an expense. Impairment is never recovered for goodwill.

PERSTORP UK LTD.

1.5 Property, plant and equipment

Property, plant and equipment is reported at cost less accumulated depreciation. The cost includes expenses that are directly attributable to the acquisition of the asset. Additional costs are added to the asset’s reported value or are reported as a separate asset, depending upon which is appropriate, but only if it is probable that the future economic benefits associated with the asset accrue to the company and the cost can be measured reliably. All other forms of expenses for repair and maintenance are reported as costs in the income statement during the period they arise.

Straight line depreciation is applied based on the assets acquisition value and estimated useful life. The following depreciation

periods are used:



Buildings	10-25 years
Plant and equipment	1-20 years
Land is not depreciated

The residual value and useful life of assets are reviewed and adjusted if appropriate at each balance sheet date. Assets are impairment tested when external or internal circumstances dictate such impairment testing, and are adjusted as necessary. An asset's book value is immediately impaired to its recoverable amount if the asset's book value exceeds its estimated recoverable amount.

Gains and losses on divestment are determined by comparing the sales proceeds and the book value and are reported in the income statement under the headings of other operating income or other operating expenses.

1.6 Inventories

Raw materials, supplies and goods purchased for resale are valued at purchase cost. Finished goods are valued at the cost of production. The cost of production comprises the direct cost of materials, direct manufacturing expenses, appropriate allocations of material and manufacturing overheads, and an appropriate share of the depreciation used for production. It includes the share of expenses for company pension plans and discretionary employee benefits that are attributable to production. Administrative costs are included where they are attributable to production. Inventories are valued using the weighted-average cost method. Costs and overheads allocated are based on normal operating activity.

If the purchase or production cost is higher than the net realisable value, inventories are written down to net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

1.7 Income Tax

Reported taxes in the income statement include current tax, adjustment of prior year current tax and changes in deferred tax. The calculation of tax and the assessment of all current and deferred tax liabilities and receivables are made in accordance with the UK tax regulations and tax rates that have been substantially enacted.

Deferred income tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in The financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax assets are only reported when it is probable that future taxable profit will be available against which the temporary differences can be utilised.

1.8 Foreign currency

Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates ("the functional currency”). The financial statements are presented in Sterling (£'000s) which is the company’s functional and presentation currency.

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Translation differences are recognised in profit or loss.

PERSTORP UK LTD.

1.9 Revenue recognition

Revenue from the sales of goods is reported in accordance with sales terms and thereby in the period when all significant risks and benefits attributable to the goods are transferred to the purchaser in accordance with the sales agreement.

Reported revenue is the fair value of what has been received or will be received for sold goods and services within the company’s business with deductions for VAT, discounts and returns. Revenue is recognised when the risks and rewards pass to the customer in accordance with the agreed sales terms. For the majority of sales the transfer of risks and rewards occurs when goods reach the nearest shipping port to the company.

1.10 Leased assets

Assets held under finance leases where substantially all the benefits and risks of ownership are transferred to the company, are capitalised as property, plant and equipment in the balance sheet and are depreciated over the useful economic life of the asset or the term of the lease, whichever is shorter. At The commencement of the lease term, finance leased assets and liabilities are recognised at the higher of the present value of minimum lease payments or the fair value of the leased asset, both determined at the inception of the lease. The interest element of the rental obligations is charged to the profit and loss account over the period of the lease and represents a constant proportion of the balance of capital repayments outstanding.

Rentals in respect of operating leases, under which substantially all the benefits and risks of ownership remain with the lessors, are charged to the profit and loss account on a straight line basis over the period of the lease.

1.11 Pension costs

The company has defined-contribution pension plans. The characteristic of a defined-contribution pension plan is that the company pays a fixed contribution to a separate legal entity. After the premium is paid the company has no other legal or informal obligations to pay additional amounts. Therefore there are no provisions or contingent liabilities in the balance sheet for the pension plans.

1.12 Remuneration for redundancy

Remuneration is paid for redundancy when an employee’s employment is terminated before normal retirement or when the employee accepts voluntary redundancy and expensed in the income statement during the period in which the cost is incurred.

1.13 Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the company will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the counterparty, probability that the counterparty will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired.

The amount of the provision is the difference between the carrying amount and the present value of estimated future cash flows of the asset, discounted, where material, at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the Income Statement within ‘administrative costs’. When a trade receivable is uncollectable, it is written off against the allowance account for trade receivable.

1.14 Trade payables

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest method.

1.15 Borrowings

Borrowings are recognised initially at fair value, net of transactions costs, and subsequently at amortised cost using the effective interest method. Borrowing expenses are reported in the income statement based upon the period to which they relate, including borrowing costs. Borrowings are classified as interest-bearing long-term or short-term liabilities in the balance sheets depending upon the due date. Borrowing costs are not capitalised.

1.16 Share capital

Ordinary share capital is treated as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds.

PERSTORP UK LTD.

2 Significant estimates and judgements made

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

2.1 Critical accounting estimates and assumptions

The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

Impairment testing of goodwill: The Company tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 1.4. The recoverable amounts of cash-generating units (CGUs) have been determined based on value-in-use calculations. These calculations require the use of estimates such as growth forecasted in revenue, the marginal contribution of sales, and discount rate. For further details, see note 11.

Valuation of deferred tax assets: The deferred tax assets are in relation to carry-forward tax losses. The Company has concluded that the deferred assets will be recoverable, using the estimated future taxable income based on the approved business plans and budgets.

3 Risk Management

3.1 Financial Risk

The company faces a number of financial risks including, currency risk, financing risk, liquidity risk, interest rate risk and counter-party risk.

3.1.1 Currency risk

The currency risk is the risk that the company’s earnings and net assets will be adversely affected by fluctuations in exchange rates. Within the Perstorp group currency risk is managed on a group-wide basis. The sensitivity of the company’s operations to the significant currencies which impact its operations is set out below.



Sensitivity of operating profit to 1% increase in the strength of Sterling:	2017 Loss of Operating Profit £'000		2016 Loss of Operating Profit £'000		2015 Loss of Operating Profit £'000
USD cash flows	(657	)	(399	)	(318	)
EUR cash flows	(116	)	(93	)	(66	)
YEN cash flows	(84	)	(34	)	(28	)

3.1.2 Financing risk

Financing risk refers to the risk that the company would not be able to attain necessary financing to deliver on its strategic plans and also the risk that the cost of financing may increase where borrowings are attained at variable rates of interest. The company is financed by intercompany borrowings at a fixed rate of interest which mitigates financing risk.

3.1.3 Liquidity risk

PERSTORP UK LTD.

Liquidity risk is managed by checking that the company has sufficient liquid funds as part of the group’s agreed credit facilities. Both company and group management closely monitor liquidity forecasts. The table below analyses the financial instruments of the company by the time remaining from the balance sheet date up to the agreed due date:



Maturity analysis for financial instruments: 2017	0-1 yrs £'000	1-2 yrs £'000	2-5 yrs £'000

Borrowings from related parties	—	—	83,153
Amounts due to related parties	2,548	—	—
Finance Lease	12	—	—
Trade payables	11,574	—	—



Maturity analysis for financial instruments: 2016	0-1 yrs £'000	1-2 yrs £'000	2-5 yrs £'000

Borrowings from related parties	87,604	—	—
Amounts due to related parties	1,933	—	—
Finance Lease	12	12	—
Trade payables	6,375	—	—

The borrowings from related parties is on a one month rolling facility basis and can be rolled over for a period exceeding one year if necessary.

3.1.4 Interest rate risk

The interest rate risk is the risk that an increase in market interest rates will have an adverse impact on earnings. The table

below shows the sensitivity of earnings to an increase in the interest rate:



Sensitivity to 1% increase in the interest rate	2017 Increase in interest cost £'000	2016 Increase in interest cost £'000	2015 Increase in interest cost £'000
Interest payable on loans denominated in USD	555	609	505
Interest payable on loans denominated in EUR	277	267	230
Interest payable on loans denominated in GBP	—	—	260



Sensitivity to 1% decrease in the interest rate	2017 Decrease in interest cost £'000		2016 Decrease in interest cost £'000		2015 Decrease in interest cost £'000
Interest payable on loans denominated in USD	(555	)	(609	)	(505	)
Interest payable on loans denominated in EUR	(277	)	(267	)	(230	)
Interest payable on loans denominated in GBP	—		—		(260	)

3.1.5 Counterparty risk

Counterparty risk relates to the credit risk that might arise when a counterparty cannot fulfill its commitments and thus causes a financial loss to the company. The company has a set credit control policy, the main purpose of which is to prevent credit risks and minimise bad debt losses. The credit policy sets a framework for how to approve credit, who has responsibility and how deliveries may be approved in the event of a limit being exceeded or of a customer having credit that falls due for payment. Internal guidelines also include procedures for monitoring outstanding receivables before and after the maturity date depending upon materiality and the individual customer’s risk profile.

PERSTORP UK LTD.

3.2 Operational risk

3.2.1 Access to raw materials

To secure delivery of raw materials and spread the risks the company operates a purchasing policy which requires that procurement of the most critical raw materials is made from several suppliers where possible. Procurement is secured through long-term delivery agreements. The company operates in the global chemicals market with suppliers who meet the highest environmental and safety requirements, but as far as possible the company aims to minimise transport by buying in local markets.

3.2.2 Production disruptions

Disruptions in the company’s plants can result in a loss of income, in the short term because the company cannot deliver expected volumes to customers and in the long term because it may lead to alternative products being used for the same application. Regular technical inspections are made of equipment to reduce the risk of a disruption and regular maintenance programmes are performed to reduce the risk of equipment deteriorating beyond use. Through the group function the company ensures that it has comprehensive insurance coverage in case of an unforeseen event.

3.2.3 European Union

The Directors’ are aware of the uncertainty associated with the United Kingdom leaving the European Union following the outcome of the June 2016 referendum. A local Brexit team has been established to monitor and mitigate risk as developments of the various scenarios become known.

3.3 Capital risk management

The company’s objectives when managing capital are to safeguard the company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the company may return capital to shareholders, issue new shares or sell assets to reduce debt.

Perstorp UK Ltd’s capital requirements have been centrally managed by Perstorp A.B., who has provided funding so as to safeguard Perstorp UK Ltd’s ability to continue as a going concern and optimise returns for the Group. Perstorp UK Ltd’s capital requirements are comprised of share capital and loans provided by Perstorp A.B. (Perstorp UK Ltd is not subject to financial covenants in any of its significant financing agreements).



	2017	2016
Share Capital	29,702	29,702
Loans payable to Perstorp AB	84,495	88,944

4 Revenue



Sales divided by type:	2017 £'000	2016 £'000	2015 £'000
Net external sales of goods	84,932	61,429	47,815
Sales of goods to related parties	34,548	27,490	26,065
Total revenue	119,480	88,919	73,880

PERSTORP UK LTD.

5 Profit/(loss) before tax



	2017 £'000	2016 £'000	2015 £'000
Profit/(loss) before income tax is stated after charging:
Depreciation of property plant and equipment	5,954	5,513	5,506
Staff costs (note 19)	5,893	5,342	5,441
Amortisation of intangible assets (included within distribution costs, note 11)	2,225	2,384	2,378
Auditors' remuneration for audit services - UK	46	31	33
Operating lease rentals:
Land and buildings	110	110	115
Plant and machinery	99	63	62

6 Other operating (expense)/income



	2017 £'000		2016 £'000	2015 £'000
Foreign exchange (losses)/gain on operational transactions	(1,044	)	735	19
Total Operating (expense)/income	(1,044	)	735	19

7 Finance Income



	2017 £'000	2016 £'000	2015 £'000
Gains on translation of foreign currency denominated loans	4,450	—	—
Gains on translation of foreign currency bank accounts	—	2,706	924
Bank interest receivable	35	21	14
Total Finance Income	4,485	2,727	938

8 Finance costs



	2017 £'000		2016 £'000		2015 £'000
Interest on bank borrowings	(6	)	—		(1	)
Interest expense on current liabilities	(673	)	(404	)	(737	)
Interest on loans from related parties	(9,400	)	(11,793	)	(9,866	)
Losses on translation of foreign currency denominated loans	—		(14,083	)	(2,182	)
Losses on translation of foreign currency bank accounts	(570	)	—		—
Bank charges	(10	)	(8	)	(8	)
	(10,659	)	(26,288	)	(12,794	)

PERSTORP UK LTD.

9 Income tax charge/(credit)



Analysis of charge/(credit) for the year all relating to continuing operations	2017 £'000	2016 £'000		2015 £'000
Current tax
Corporation Tax charge	482	—		—
Adjustment in respect of prior periods	—	(41	)	(316	)

Current tax	482	(41	)	(316	)

Deferred Income tax (note 12)
Current year	499	(954	)	(85	)
Adjustment in respect of prior periods	25	86		190
Change in corporation tax rate applicable to deferred tax	—	6		13
Deferred Tax	524	(862	)	118

Income tax charge/(credit)	1,006	(903	)	(198	)

The tax assessed for the year is lower than the standard rate of corporation tax in the UK (19.25%) (2016: 20.00%) (2015:

20.25%). The differences are explained below:



	2017 £'000		2016 £'000		2015 £'000
Profit/(loss) before income tax	14,686		(5,615	)	(526	)
Profit/(loss) on ordinary activities multiplied by the standard rate of corporation tax in the UK of 19.25% (2016: 20.00%) (2015: 20.25%)	2,827		(1,123	)	(99	)

Effects of:
Non-deductible expenses	14		—		3
Losses not recognised	10		—		—
Brought forward losses recognised	(1,804	)	—		—
Adjustment in respect of prior periods	25		45		(126	)
Difference between the tax rate in the period and the year end and prior year end deferred tax rate	(66	)	175		24

Tax charge/(credit)	1,006		(903	)	(198	)

Changes to the UK corporation tax rates were substantially enacted as part of Finance Bill 2016 (on September 2016). These include reductions to the main rate, to reduce the rate to 17% from 1 April 2020. Deferred taxes at the balance sheet date have been measured using the enacted tax rates and reflected in these financial statements.

PERSTORP UK LTD.

10 Property, plant and equipment



	Land £'000	Buildings £'000		Plant and equipment £'000		Total £'000
Cost At 1 January 2016	1,187	5,823		86,633		93,643
Additions	—	26		939		965
Disposals	—	—		(1,278	)	(1,278	)
Re-classification	—	(520	)	520		—
At 31 December 2016	1,187	5,329		86,814		93,330
Additions	—	—		6,227		6,227
Disposals	—	—		(173	)	(173	)
Re-classification	—	99		(99	)	—
At 31 December 2017	1,187	5,428		92,769		99,384
Accumulated depreciation At 1 January 2016	—	(1,282	)	(32,899	)	(34,181	)
Charge for the year	—	(249	)	(5,264	)	(5,513	)
Disposals	—	—		859		859
At 31 December 2016	—	(1,531	)	(37,304	)	(38,835	)
Charge for the year	—	(252	)	(5,702	)	(5,954	)
Disposals	—	—		99		99
At 31 December 2017	—	(1,783	)	(42,907	)	(44,690	)
Net Book Value At 1 January 2016	1,187	4,541		53,734		59,462
At 31 December 2016	1,187	3,798		49,510		54,495
At 31 December 2017	1,187	3,645		49,862		54,694

The cost of fixed assets above includes assets held under finance leases (within buildings) amounting to £66k (2016: £66k).

No borrowing costs have been capitalised on additions in 2017 and 2016.

Depreciation has been charged in the income statement as follows:



	2017 £'000	2016 £'000	2015 £'000
Cost of goods sold	5,954	5,513	5,506
Total	5,954	5,513	5,506

PERSTORP UK LTD.

11 Intangible assets



	Goodwill £'000	Customer relationships £'000		Non-compete agreement £'000	REACH costs £'000		Total £'000
Cost At 1 January 2016	26,186	25,551		—	480		52,217
Additions	—	—		—	102		102
At 31 December 2016	26,186	25,551		—	582		52,319
Additions	—	—		—	127		127
At 31 December 2017	26,186	25,551		—	709		52,446
Accumulated amortisation At 1 January 2016	—	(18,640	)	—	(64	)	(18,704	)
Charge for the year	—	(2,355	)	—	(29	)	(2,384	)
At 31 December 2016	—	(20,995	)	—	(93	)	(21,088	)
Charge for the year	—	(2,195	)	—	(30	)	(2,225	)
At 31 December 2017	—	(23,190	)	—	(123	)	(23,313	)
Net book value At 1 January 2016	26,186	6,911		—	416		33,513
At 31 December 2016	26,186	4,556		—	489		31,231
At 31 December 2017	26,186	2,361		—	586		29,133

The cost of amortisation of Intangible assets for the year of £2,225k (2016: £2,384k, 2015 £2,378k) has been included within distribution costs in the income statement.

Following the acquisition of the Caprolactones business from Solvay in January 2008, a fair value was established for both the customer relationships of the Caprolactones business and a non-compete agreement with the Solvay group. Both of these intangible assets are amortised on a straight-line basis over a period of 9-11 years for customer relationships and 6 years for the non-compete agreement. The non-compete agreement was fully written down in the prior years.

During the year the company has capitalised costs of £127k (2016: £102k) directly related to the REACH registration of the company’s products. REACH stands for Registration Evaluation Authorization and Restriction of Chemicals. All substances that are used within the EU must be registered and evaluated from toxicological and eco- toxicological standpoints. The costs are being amortised over a 20 year period which has been decided taking into account the technological and commercial life cycles of the chemical substance and the related products of the company.

Management considers that the company as a whole should be regarded as a cash-generating unit as it has only one manufacturing site and produces only one category of product, Caprolactones. The recoverable amount for the cash generating unit has been established on the basis of a calculation of value in use. The calculation is based on an estimate of future cash flow, in accordance with financial five-year plans that have been approved by management. Cash flows beyond this five-year period are extrapolated using an estimated long term growth rate. Key assumptions used in the impairment reviews for, 2016 and 2017 were as follows:



	2017	2016
Sales growth rate Jan - Dec	5%	12%
Marginal contribution of sales	5%	6%
Long-term growth rate	2%	2%
Pre-tax discount rate	13.62%	13.75%

The current production capacity at the site is able to accommodate all forecast growth in the strategic plan without need for significant capital expenditure.

The directors and management have not identified any impairment indicators.

PERSTORP UK LTD.

12 Deferred tax assets and liabilities



Recognised deferred tax assets and liabilities	Assets		Liabilities
	2017 £'000	2016 £'000	2017 £'000		2016 £'000
Property plant and equipment	—	—	(2,359	)	(1,982	)
Intangibles	—	—	(1,780	)	(1,602	)
Losses	4,678	4,647	—		—
Total	4,678	4,647	(4,139	)	(3,584	)



Movement in deferred tax during the year	1 January 2017 £'000		Recognised in income £'000		31 December 2017 £'000
Property plant and equipment	(1,982	)	(377	)	(2,359	)
Intangibles	(1,602	)	(178	)	(1,780	)
Losses	4,647		31		4,678
Total	1,063		(524	)	539



Movement in deferred tax during the previous year	1 January 2016 £'000		Recognised in income £'000		31 December 2016 £'000
Property plant and equipment	(3,764	)	1,782		(1,982	)
Intangibles	(1,508	)	(94	)	(1,602	)
Losses	5,473		(826	)	4,647
Total	201		862		1,063

The value of unutilised tax loss carry forwards is capitalised where it is expected that the carry forwards will be utilised in the foreseeable future due to sufficient taxable profits being earned. The level of deferred tax asset recognised is based on foreseeable taxable profits forecast as at each balance sheet date.

The value of unrecognised losses as at 31 December 2017 is £2,000k (2016: £11,370k, 2015; £11,370k).

13 Inventories



	2017 £'000		2016 £'000
Raw materials and consumables	2,518		2,404
Finished goods and good for resale	5,442		3,649
Less: provision for impairment of inventories	(548	)	(371	)
At 31 December	7,412		5,682

The amount of inventories included in cost of sales amounted to £59,305k (2016: £37,430k, 2015: £31,505k). The movement on the inventory impairment reserve (2017 £548k, 2016 £371k & 2015 £354k) during the year impacts upon the earnings for the year in the income statement within cost of sales.

PERSTORP UK LTD.

14 Trade and other receivables



	2017 £'000	2016 £'000
Trade receivables	3,858	2,810
Prepayments	190	925
Receivables from related parties	3,884	1,801
Amounts due from group undertakings	28,562	14,669
Corporation Tax	—	41
VAT	782	471
Emission Allowances (EUETS)	81	151
Other receivables	—	32
At 31 December	37,357	20,900

The receivables from related parties are settled after 30 days and are subject to the intercompany netting process.



Analysis of trade receivables	2017 £'000		2016 £'000
Not due receivables	3,677		2,519
Due receivables:
1-10 days	216		223
11-30 days	3,856		1,670
31-60 days	122		3
61-90 days	(175	)	180
91 days >	46		16
Total trade receivables	7,742		4,611

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The company does not hold any collateral as security.

The fair values of trade and other receivables do not differ from the values shown above.

The intercompany receivables contains an amount of £28.6m which relates to cash pooling arrangements within the Perstorp

group. In the UK statutory accounts this amount has been shown in the past as part of the cash and cash equivalents (2017

£28.6m, 2016 £14.7m).

15 Trade and other payables



	2017 £'000	2016 £'000
Trade payables	11,574	6,375
Amounts due to related parties	2,548	1,933
Corporation Tax	482	—
Other tax and social security	140	149
Accrued expenses	1,879	1,621
Balance at 31 December	16,623	10,078

The fair values of trade and other payables do not differ from the values shown above.

The amounts due to related parties are unsecured, interest free and are payable on demand.

PERSTORP UK LTD.

16 Obligations under finance leases

Obligations under finance leases are as follows.



	2017 £'000	2016 £'000
Gross obligations under finance leases	12	24
Present value of lease obligations	12	24

Net obligations under finance leases fall due as follows.



	2017 £'000	2016 £'000
Within one year	12	12
Within two to five years	—	12
Present value of lease obligations	12	24

17 Borrowings



	2017 £'000	2016 £'000
Current borrowings

Borrowings from related parties - Perstorp Financial Services AB	—	—
Accrued interest due to related parties	1,342	1,340
Balance at 31 December	1,342	1,340
Non-current borrowings:

Borrowings from related parties - Perstorp Financial Services AB	83,153	87,604
Balance as at 31 December	83,153	87,604
Total borrowings	84,495	88,944

The total assets of the company have been pledged as security for the loans in addition to other pledged assets within the group.

There have been no defaults during the year of principal, interest or redemption terms of the loans payable.

The current borrowings are on a rolling facility and will be extended if necessary.



Currency composition and interest rates of borrowings as at 31 December 2017:	Amount in currency '000s	Sterling equivalent £'000	Effective interest rate (%)
Borrowings from related parties:
Loan denominated in EUR owed to ultimate parent company	31,182	27,659	9.88	%
Loan denominated in EUR owed to ultimate parent company	74,857	55,494	12.02	%
Total	106,039	83,153

PERSTORP UK LTD.



Currency composition and interest rates of borrowings as at 31 December 2016:	Amount in currency '000s	Sterling equivalent £'000	Effective interest rate (%)
Borrowings from related parties:
Loan denominated in EUR owed to ultimate parent company	31,182	26,686	10.76	%
Loan denominated in EUR owed to ultimate parent company	74,857	60,918	12.13	%
Total	106,039	87,604

The loans of the company are arranged within the group facility on market terms.

The carrying value of borrowings as of the balance sheet date is not materially different from the fair value.

18 Share Capital



	2017		2016
	Number '000	£'000	Number '000	£'000
Authorised:
Ordinary shares of £1 each	10	10	10	10
Ordinary A shares of €1 each	40,000	29,692	40,000	29,692
Total	40,010	29,702	40,010	29,702
Allotted, called up and fully paid:
Ordinary shares of £1 each	10	10	10	10
Ordinary A shares of €1 each	40,000	29,692	40,000	29,692
Total	40,010	29,702	40,010	29,702

The ordinary A €1 shares have the same rights and are subject to the same restrictions as the ordinary £1 shares and they rank pari passu in all respects.

19 Key management compensation and directors’ remuneration



	2017 £'000	2016 £'000	2015 £'000
Staff costs (including directors' remuneration) for the company during the year were as follows:
Wages and salaries	4,535	4,058	4,172
Social security costs	541	472	474
Other pension costs (note 20)	817	812	795
Total	5,893	5,342	5,441

PERSTORP UK LTD.

Key management includes directors (executive and non-executive). The compensation paid (or payable) for employee services

is shown below:

Retirement benefits are accruing under the money purchase pension scheme in respect of qualifying services for two directors (2016: two, 2015: two).

The remuneration paid (or payable) for employee services to the highest paid director is shown below:

20 Pension Expense

The net pension cost is allocated within the income statement as follows:



	2017 £'000	2016 £'000	2015 £'000
Cost of sales	688	665	650
Distribution costs	103	115	117
Administration costs	26	32	28
Total	817	812	795

21 Operating leases

The company has lease agreements in respect of properties, vehicles, and plant and equipment, for which the payments extend over a number of years as detailed below:

The future aggregate minimum lease payments under noncancellable operating leases are as follows:



	2017		2016		2015
	Land and buildings £'000	Vehicles, plant and equipment£'000	Land and buildings £'000	Vehicles, plant and equipment£'000	Land and buildings £'000	Vehicles, plant and equipment£'000
Within one year	23	85	110	40	110	33
Within two to five years	60	161	68	64	163	39
After five years	15	—	15	—	15	—
Total	98	246	193	104	288	72

PERSTORP UK LTD.



	2017		2016		2015
	Land and buildings £'000	Vehicles, plant and equipment£'000	Land and buildings £'000	Vehicles, plant and equipment£'000	Land and buildings £'000	Vehicles, plant and equipment£'000
Minimum lease payment	110	99	110	63	115	62

22 Related party transactions

Perstorp UK Ltd is 100% owned by Perstorp Holding AB, which is 100% owned by Luxembourg based Financiere Foret S.A.R.L.

Remuneration to the company’s board of directors is reported in note 19.

Sales of services are made on a cost plus basis for sales, marketing and administration services.

Royalties are incurred on patents and trademarks owned by the immediate holding company and they are charged at a market rate. Services are purchased from related parties on a cost plus basis. Management, sales, marketing, legal, technical and administration services are purchased.

The following balances were held with related parties at the end of the year:



	2017 £'000	2016 £'000
Receivables from related parties:
Fellow subsidiary company	3,878	1,788
Immediate parent company	6	13
Total	3,884	1,801
Payables to related parties:
Fellow subsidiary company	348	318
Immediate parent company	2,144	1,483
Ultimate parent company	56	132
Total	2,548	1,933

In addition to the above balances, there are borrowings from related parties which are disclosed in note 17.

The following transactions were carried out with related parties during the year:



	2017 £'000	2016 £'000	2015 £'000
Sales of goods:
Fellow subsidiary company	34,548	27,490	26,065
Total	34,548	27,490	26,065
Sales of services:
Fellow subsidiary company	271	212	178
Immediate parent company	75	393	304
Total	346	605	482

PERSTORP UK LTD.



	2017 £'000	2016 £'000	2015 £'000
Purchase of goods:
Fellow subsidiary company	1,119	930	758
Total	1,119	930	758
Purchase of services:
Fellow subsidiary company	1,205	2,180	1,088
Immediate parent company	5,959	4,660	3,913
Ultimate parent company	316	287	277
Total	7,480	7,127	5,278
Royalties payable:
Immediate parent company	7,739	5,921	5,313
Total	7,739	5,921	5,313
Interest payable:
Fellow subsidiary company	9,400	11,793	9,866
Total	9,400	11,793	9,866

Trade terms for related party sales and purchased are subject to the group netting process. All sales/purchases are invoiced at month end netted off 30 days from date of invoice.

23 Ultimate parent company

The company is a wholly owned subsidiary undertaking of Perstorp AB, incorporated in Sweden. The largest and smallest group of which Perstorp UK Ltd. is a member is that headed by Perstorp Holding AB, which is the ultimate parent company. Perstorp Holding AB is incorporated in Sweden and is controlled by the French private equity firm, PAI Partners, which owns close to 100% of the shares in Luxembourg based Financiere Foret S.A.R.L, which in turn owns 100% of the shares in Perstorp Holding AB. PAI Partners, which is an unincorporated partnership, is considered by the directors to be the ultimate controlling company.

24 Reconciliation of profit/(loss) before tax to net cash flow from operations



	2017 £'000		2016 £'000		2015 £'000
Profit/(loss) before tax	14,686		(5,615	)	(526	)

Adjustments for:
Depreciation (including loss in assets disposed)	6,028		5,932		5,506
Amortisation of intangible assets	2,225		2,384		2,378
(lncrease)/Decrease in inventories	(1,730	)	163		381
(Increase) in trade and other receivables	(2,564	)	(106	)	6,070
Increase in trade and other payables	6,533		2,817		(1,970	)

Income tax due included in opening Debtors	(41	)	(233	)	274
Income tax due included in closing Creditors	(482	)	—		—
Finance income	(4,485	)	(2,727	)	(938	)
Finance costs	10,656		26,288		12,794
Cash generated from operations	30,826		28,903		23,969

PERSTORP UK LTD.

25 Post Balance Sheet Events

On 10 December 2018, it was announced that Perstorp UK Ltd was being sold to Ingevity Corporation.

EX-99.2 4 ex9922018interimfinancials.htm EXHIBIT 99.2 Exhibit

Exhibit 99.2

PERSTORP UK LTD.

Interim Financial Statements

for the period ended 30 September 2018

Company Registered Number: 2715398

PERSTORP UK LTD.

Income statement

for the period ended 30 September 2018



	Note	Sept 2018 £'000		Sept 2017 £'000
Revenue	3	96,817		87,093

Cost of sales		(57,747	)	(54,296	)

Gross Profit		39,070		32,797

Distribution Costs		(12,463	)	(11,565	)
Administration expenses		(5,112	)	(4,577	)
Other operating (expense)/income		148		(853	)

Operating profit		21,643		15,802

Finance income	5	183		4,323
Finance costs	6	(9,002	)	(8,110	)
Profit/(loss) before tax		12,824		12,015

Income tax (charge)/credit - Current	7	(561	)	(435	)
Income tax (charge)/credit - Deferred	7	(1,927	)	(429	)

Profit/(loss) for the year		10,336		11,151

The notes on pages 4 to 16 are an integral part of these financial statements.

PERSTORP UK LTD.

Balance sheet as at 30 September 2018



	Note	Sept 2018 £'000		Restated* Dec 2017 £'000
Assets
Non-current Assets
Tangible assets
Property, plant, and equipment	8	57,828		54,694

Intangible assets
Goodwill	9	26,186		26,186
Customer relationships	9	727		2,361
REACH cost	9	590		586
Total Intangible assets		27,503		29,133

Deferred income tax assets		3,069		4,678
Total non-current assets		88,400		88,505

Current assets
Inventories		6,693		7,412
Trade and other receivables	10	51,221		37,357
Total current assets		57,914		44,769

Liabilities
Current liabilities
Trade and other payables	11	(14,946	)	(16,623	)
Obligations under finance leases		(12	)	(12	)
Borrowings	12	(3,541	)	(1,342	)
Total current liabilities		(18,499	)	(17,977	)

Net current assets		39,415		26,792

Non-current liabilities
Borrowings	12	(85,017	)	(83,153	)
Deferred income tax liabilities		(4,457	)	(4,139	)
Total non-current liabilities		(89,474	)	(87,292	)


Net assets		38,341		28,005

Equity attributable to owners of the parent
Share capital		29,702		29,702
Accumulated profit/(losses)		8,639		(1,697	)

Total equity		38,341		28,005

* Please refer to note 1 for details.

The notes on page 4 to 16 are an integral part of these financial statements.

The financial statements on pages 1 to 16 were authorised for issue by the board of directors on 8 February 2019 and were

signed on its behalf.

/s/ P Shelly /s/ Magnus Heimburg

Managing Director Chief Financial Officer

Perstorp UK Ltd. Perstorp Holding AB

Company Registered Number: 2715398

PERSTORP UK LTD.

Statement of changes in equity for the period ended 30 September 2018



	Share Capital £'000	Accumulated Losses £'000		Total equity £'000
At 1 January 2017	29,702	(15,377	)	14,325
Profit for the financial period, being total comprehensive income	—	11,151		11,151
At 30 September 2017	29,702	(4,226	)	25,476

At 1 January 2018	29,702	(1,697	)	28,005
Profit for the financial period, being total comprehensive income	—	10,336		10,336
At 30 September 2018	29,702	8,639		38,341

Cash flow statement

for the period ended 30 September 2018



	Note	Sept 2018 £'000		Restated* Sept 2017 £'000
Cash flows from operating activities
Cash generated from operations		22,545		18,325
Interest paid		(4,939	)	(5,437	)
Income tax paid		(1,090	)	—
Income tax received		38		41
Net cash generated from operating activities		16,554		12,929

Cash flows from investing activities
Purchase of property, plant and equipment and intangible assets		(7,097	)	(3,277	)
Interest received		91		25
Net cash (used in)/generated from investing activities		(7,006	)	(3,252	)

Cash flows from financing activities
Increase/(decrease) in amounts owed from/to group companies in relation to cash pooling arrangement		(9,548	)	(9,677	)
Repayments of loan borrowings		—		—
Net cash used in financing activities		(9,548	)	(9,677	)

Net increase/(decrease) in cash and cash equivalents		—
Cash and cash equivalents at beginning of the period		—

Cash and cash equivalents at end of the period		—

* Please refer to note 1 for details.

PERSTORP UK LTD.

NOTES TO THE FINANCIAL STATEMENTS

1 Summary of Significant accounting policies

Perstorp UK Ltd. is a private limited company incorporated and domiciled in the United Kingdom, and is registered in England and Wales. The company is limited by shares. The company’s registered address is Perstorp UK Ltd., Baronet Road, Warrington, Cheshire, WA4 6HA, UK.

1.1 Basis of preparation

These condensed interim financial statements for the nine months ended 30 September 2018 have been prepared in accordance with lAS 34, 'Interim financial reporting’, as issued by the IASB. The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2017, which have been prepared in accordance with IFRSs as issued by the lASB.

Sale of business

The Company’s owners, Perstorp AB, are in the process of completing the sale of the Company to Ingevity Corporation. These financial statements have been prepared in anticipation of that sale.

Going concern

As described above, the Company’s owners, Perstorp AB, are in the process of completing the sale of the Company to Ingevity Corporation. The Company has received a letter from Perstorp AB confirming that they will provide adequate financial support as required to enable the Company to continue discharge its liabilities in the normal course of business for at least twelve months from the date of approval of these financial statements or until the sale of the Company completes. The Company has also received a letter of financial support from Ingevity Corporation confirming that, in the event the sale of the Company is completed, they will provide adequate financial support as required to enable the Company to continue to discharge its liabilities in the normal course of business for at least twelve months from the date of approval of these financial statements. Therefore, these financial statements have been prepared on a going concern basis.

Restatement

During the preparation of these financial statements, management noted that in the UK statutory accounts, amounts that had been previously shown as cash and cash equivalents (2018 £38.2m, 2017 £28.6m) should have been presented as amounts due from group undertakings (Note 10). The impact of this error is therefore that cash and cash equivalents as of 30 September 2018 and 31 December 2017 are now nil and trade and accounts receivables increased by these amounts. In 2018 this has resulted in restated outflows of £9.5m amounts owed from/to group companies in relation to cash pooling arrangements, recognised within financing activities on the statement of cash flows, (September 2017 £9.7m outflows).

1.2 Recent Account Developments

(a) New standards amendments and interpretations to existing standards.

On 1 January 2018 the Company adopted IFRS 9 ‘Financial Instruments’, which replaced lAS 39 ‘Financial Instruments - Recognition and Measurement’. The Group has not restated comparative information for prior periods as the impact of adoption is wholly immaterial.

• Classification and Measurement: There have been no changes to the classification or measurement of the

Company's financial assets or liabilities.

• Impairment: From 1 January 2018 the Company implemented an expected credit loss impairment model for financial

assets. For trade receivables, our calculation methodology has been updated to consider expected losses based on

ageing profile and shared credit risk characteristics. The impact of the adoption has resulted in a reduction to brought

forward retained earnings of £114k. This adjustment has not been recorded as the amount is immaterial.

PERSTORP UK LTD.

The adoption of IFRS 15 Revenue from Contracts with Customers from 1 January 2018 resulted in the company adopting the 5 step model to test when revenue should be recognised in accordance with the new standard. This resulted in no changes to the amounts of revenue recognised in the financial statements.

(b) New standards amendments and interpretations not yet adopted.

IFRS 16 ‘Leases’ has been issued by the IASB but is not yet adopted by the Company. It is effective from 1 January 2019. Our work on implementing the new lease model prescribed is progressing as planned, and we continue to consider the impact of the standard on the Company’s results and financial position which we do not expect to be material.

1.3 Segment reporting

1.4 Intangible assets

Other intangible assets were recognised at fair value as part of the acquisition by the Company of the Caprolactones business from Solvay in January 2008.



Customer relationships	9-11 years
Non-compete agreement	6 years
Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) Registration	20 years

1.5 Property, plant and equipment

Straight line depreciation is applied based on the assets acquisition value and estimated useful life. The following depreciation

periods are used:



Buildings	10-25 years
Plant and equipment	1-20 years
Land is not depreciated

PERSTORP UK LTD.

1.6 Inventories

Raw materials, supplies and goods purchased for resale are valued at purchase cost. Finished goods are valued at the cost of production. The cost of production comprises the direct cost of materials, direct manufacturing expenses, appropriate allocations of material and manufacturing overheads, and an appropriate share of the depreciation and write-downs of assets used for production. It includes the share of expenses for company pension plans and discretionary employee benefits that are attributable to production. Administrative costs are included where they are attributable to production. Inventories are valued using the weighted-average cost method. Costs and overheads allocated are based on normal operating activity.

1.7 Income Tax

Deferred income tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax assets are only reported when it is probable that future taxable profit will be available against which the temporary differences can be utilised.

1.8 Foreign currency

Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates ("the functional currency”). The financial statements are presented in Sterling (£000s) which is the company’s functional and presentation currency.

1.9 Revenue recognition

Revenue from the sales of goods are recognised when control of the products has transferred, in accordance with the sales agreement. For the majority of sales, the control of products is transferred when goods reach the nearest shipping port to the company. Reported revenue is the fair value of what has been received or will be received for sold goods and services within the company’s business with deductions for VAT, discounts and returns.

IFRS 15 replaces the provisions of lAS 18 and lAS 11 that relate to revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers.

The adoption of IFRS 15 Revenue from Contracts with Customers from 1 January 2018 resulted in changes in accounting policies, but no adjustments to the amounts recognised in the financial statements. The new accounting policies are set out above.

PERSTORP UK LTD.

1.10 Leased assets

Assets held under finance leases where substantially all the benefits and risks of ownership are transferred to the company, are capitalised as property, plant and equipment in the balance sheet and are depreciated over the useful economic life of the asset or the term of the lease, whichever is shorter. At the commencement of the lease term, finance leased assets and liabilities are recognised at the higher of the present value of minimum lease payments or the fair value of the leased asset, both determined at the inception of the lease. The interest element of the rental obligations is charged to the profit and loss account over the period of the lease and represents a constant proportion of the balance of capital repayments outstanding.

1.11 Pension costs

1.12 Remuneration for redundancy

1.13 Trade receivables

The company holds the trade receivables with the objective of collecting the contractual cash flows, and so it recognises them initially at fair value, and measures them subsequently at amortised cost using the effective interest method, less provision for impairment. Due to the short-term nature of the trade receivables, their carrying amount is considered to be the same as their fair value.

The company applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables. Details about the company’s impairment policies and the calculation of the loss allowance are provided in note 1.2 (a).

The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the Income Statement within ‘administrative costs’. When a trade receivable is uncollectable, it is written off against the allowance account for trade receivable.

1.14 Trade payables

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest method.

1.15 Borrowings

1.16 Share capital

Ordinary share capital is treated as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds.

1.17 Cash and cash equivalents

Cash and cash equivalents include cash and bank balances and other short-term investments maturing within three months and that can easily be converted into cash.

PERSTORP UK LTD.

2 Significant estimates and judgements made

2.1 Critical accounting estimates and assumptions

Valuation of deferred tax assets: The deferred tax assets are in relation to carry-forward tax losses, The Company has concluded that the deferred assets will be recoverable, using the estimated future taxable income based on the approved business plans and budgets.

3 Revenue



	Sept 2018 £'000	Sept 2017 £'000

Net External Sales of Goods	71,074	60,634
Sales of Goods to Related Parties	25,743	26,459

Total revenue	96,817	87,093

4 Profit/(loss) before tax



	Sept 2018 £'000	Sept 2017 £'000
Profit/(loss) before income tax is stated after charging:
Depreciation of property plant and equipment	3,933	4,435
Staff costs	4,533	4,197
Amortisation of intangible assets	1,661	1,671
Auditors' remuneration for audit services - UK	26	25
Operating lease rentals:
Land and buildings	83	83
Plant and machinery	83	74

5 Finance Income



	Sept 2018 £'000	Sept 2017 £'000
Gains on translation of foreign currency denominated loans	—	4,298
Gains on translation of foreign currency bank accounts	91	—
Bank interest receivable	92	25

Total	183	4,323

PERSTORP UK LTD.

6 Finance costs



	Sept 2018 £'000		Sept 2017 £'000
Interest on bank borrowings	—		(6	)
Interest expense on current liabilities	(451	)	(460	)
Interest on loans from related parties	(6,677	)	(7,059	)
Losses on translation of foreign currency denominated loans	(1,864	)	—
Losses on translation of foreign currency bank accounts	—		(578	)
Bank charges	(10	)	(7	)
Total	(9,002	)	(8,110	)

7 Income tax charge/(credit)



Analysis of charge/(credit) for the period all relating to continuing operations	Sept 2018 £'000		Sept 2017 £'000

Current tax
Corporation Tax charge	(561	)	(435	)

Deferred Income tax
Current year	(1,927	)	(429	)

Income tax charge/(credit)	(2,488	)	(864	)

The effective tax rate used was 18% for 2018 (19% for 2017).

8 Property, plant and equipment



	Land £'000	Buildings £'000		Plant and equipment £'000		Total £'000
Cost At 1 January 2018/ 31 December 2017	1,187	5,428		92,768		99,383
Additions	—	—		7,067		7,067
Disposals	—	—				—
At 30 September 2018	1,187	5,428		99,835		106,450
Accumulated depreciation At 1 January 2018/ 31 December 2017	—	(1,783	)	(42,906	)	(44,689	)
Charge for the period	—	(187	)	(3,746	)	(3,933	)
Disposals	—	—		—		—
At 30 September 2018	—	(1,970	)	(46,652	)	(48,622	)
Net Book Value At 31 December 2017	1,187	3,645		49,862		54,694
At 30 September 2018	1,187	3,458		53,183		57,828

No borrowing costs have been capitalised on additions in 2018 and 2017.

PERSTORP UK LTD.

Depreciation has been charged in the income statement as follows:



	Sept 2018 £'000	Sept 2017 £'000
Cost of goods sold	3,933	4,435
	3,933	4,435

9 Intangible assets



	Goodwill £'000	Customer relationships £'000		Non-compete agreement £'000	REACH costs £'000		Total £'000
Cost At 1 January 2018/31 December 2017	26,186	25,551		—	709		52,446
Additions	—	—		—	31		31
At 30 September 2018	26,186	25,551		—	740		52,477
Accumulated amortisation At 1 January 2018/31 December 2017	—	(23,190	)	—	(123	)	(23,313	)
Charge for the period	—	(1,634	)	—	(27	)	(1,661	)
At 30 September 2018	—	(24,824	)	—	(150	)	(24,974	)
Net book value At 1 December 2017	26,186	2,361		—	586		29,133
At 30 September 2018	26,186	727		—	590		27,503

The cost of amortisation of Intangible assets for the year of £1,661k (September 2017: £1,671k) has been included within distribution costs in the income statement.

The directors and management have considered and assessed reasonably possible changes for key assumptions above and

have not identified any instances that could cause the carrying amount of the CGU to exceed its recoverable amount.

10 Trade and other receivables



	Sept 2018 £'000	Restated Dec 2017 £'000
Trade receivables	5,740	3,858
Prepayments	879	190
Receivables from related parties	4,012	3,884
Corporation Tax	10	—
Amounts due from group undertakings	38,203	28,562
VAT	2,100	782
Emission Allowances (EUETS)	277	81
Total	51,221	37,357

PERSTORP UK LTD.

The receivables from related parties are settled 30 days from invoice date and are subject to the intercompany netting process.



Analysis of trade receivables	Sept 2018 £'000		Dec 2017 £'000
Not due receivables	5,648		3,677
Due receivables:
1-10 days	180		216
11-30 days	4,061		3,856
31-60 days	(67	)	122
61-90 days	(42	)	(175	)
91 days >	(28	)	46
Total trade receivables	9,752		7,742

The intercompany receivables contains an amount of £38.2m which relates to cash pooling arrangements within the Perstorp group. In the UK statutory accounts this amount has been shown in the past as part of the cash and cash equivalents (2017 £28.6m).

IFRS 9 replaces the provisions of lASB 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. The adoption of IFRS 9 Financial Instruments from 1 January 2018 resulted in changes in accounting policies and adjustments to the amounts recognised in the financial statements. The new accounting policies are set out in note 1. In accordance with the transitional provisions in paragraph 7.2.15 and 7.2.26 of IFRS 9, comparative figures have not been restated.

Perstorp UK’s financial assets comprise of trade receivables from sales of inventory.

The company applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables.

To measure the expected credit losses, trade receivables have been grouped based on days past due and shared credit risk characteristics. On that basis, the loss allowance as at 30 September 2018 and 31 December 2017 was determined as follows

for trade receivables:



30 September 2018	Net £'000		Expected Loss Rate		Lifetime Loss £'000
Current	5,648		0.18	%	10
Due 1-5 Days	144		0.40	%	1
Due 6-10 Days	97		2.00	%	2
Due 11-30 Days	257		4.00	%	10
Due 31-60 Days	6		8.00	%	—
Due 61-90 Days	—		16.00	%	—
Due 91-180 Days	—		32.00	%	—
Due > 180 Days	51		64.00	%	33
Less Credit Notes	(463	)
Total	5,740				56

PERSTORP UK LTD.



31 December 2017	Net £'000		Expected Loss Rate		Lifetime Loss £'000
Current	4,114		0.18	%	7
Due 1-5 Days	221		0.40	%	1
Due 6-10 Days	6		2.00	%	—
Due 11-30 Days	56		4.00	%	2
Due 31-60 Days	204		8.00	%	16
Due 61-90 Days	2		16.00	%	—
Due 91-180 Days	270		32.00	%	86
Due > 180 Days	—		64.00	%	—
Less Credit Notes	(1,015	)			—
Total	3,858				112

The loss allowance is £56k for trade receivables during the nine months to 30 September 2018 the increase would have been £56k lower under the incurred loss model of IAS 39.

Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, significant financial difficulties of the counterparty, probability that the counterparty will enter bankruptcy or financial reorganisation, and default or delinquency in payments.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The company does not hold any collateral as security.

The fair values of trade and other receivables do not differ from the values shown above.

11 Trade and other payables



	Sept 2018 £'000	Dec 2017 £'000
Trade payables	10,526	11,574
Amounts due to related parties	2,249	2,548
Corporation Tax	—	482
Other tax and social security	141	140
Accrued expenses	2,030	1,879
Total	14,946	16,623

The fair values of trade and other payables do not differ from the values shown above.

The amounts due to related parties are unsecured, interest free and are payable on demand.

PERSTORP UK LTD.

12 Borrowings



	Sept 2018 £'000	Dec 2017 £'000
Current borrowings

Accrued interest due to related parties - Perstorp Financial Services AB	3,541	1,342
Closing Balance	3,541	1,342
Non-current borrowings:

Borrowings from related parties - Perstorp Financial Services AB	85,017	83,153
Closing Balance	85,017	83,153
Total borrowings	88,558	84,495

The total assets of the company have been pledged as security for the loans in addition to other pledged assets within the group. There have been no defaults during the period of principal, interest or redemption terms of the loans payable. The current borrowings are on a rolling facility and will be extended if necessary.



Currency composition and interest rates of borrowings Sept 2018:	Amount in currency '000s	Sterling equivalent £'000	Effective interest rate (%)
Borrowings from related parties:
Loan denominated in EUR owed to ultimate parent company	31,182	27,734	6.72	%
Loan denominated in USD owed to ultimate parent company	74,857	57,283	8.40	%
Total	106,039	85,017



Currency composition and interest rates of borrowings Dec 2017:	Amount in currency '000s	Sterling equivalent £'000	Effective interest rate (%)
Borrowings from related parties:
Loan denominated in EUR owed to ultimate parent company	31,182	27,659	9.88	%
Loan denominated in EUR owed to ultimate parent company	74,857	55,494	12.02	%
Total	106,039	83,153

The loans of the company are arranged within the group facility on market terms.

The carrying value of borrowings as of the balance sheet date is not materially different from the fair value.

13 Related party transactions

Perstorp UK Ltd is 100% owned by Perstorp Holding AB, which is 100% owned by Luxembourg based Financiere Foret S.A.R.L.

Sales of services are made on a cost plus basis for sales, marketing and administration services.

All intercompany sales and purchases are subject to the company netting process, paid 30 days from date of invoice.

PERSTORP UK LTD.

The following balances were held with related parties at the end of the period:



	Sept 2018 £'000	Dec 2017 £'000
Receivables from related parties:
Fellow subsidiary company	3,975	3,878
Immediate parent company	37	6
	4,012	3,884
Payables to related parties:
Fellow subsidiary company	339	348
Immediate parent company	1,869	2,144
Ultimate parent company	41	56
	2,249	2,548

In addition to the above balances, there are borrowings from related parties which are disclosed in note 12.

The following transactions were carried out with related parties during the year:



	Sept 2018 £'000	Sept 2017 £'000
Sales of goods:
Fellow subsidiary company	25,691	26,458
	25,691	26,458
Recharge of services:
Fellow subsidiary company	258	190
Immediate parent company	338	56
	596	246



	Sept 2018 £'000	Sept 2017 £'000
Purchase of goods:
Fellow subsidiary company	1,044	832
	1,044	832
Purchase of services:
Fellow subsidiary company	1,072	834
Immediate parent company	4,330	4,207
Ultimate parent company	201	183
	5,603	5,224
Royalties payable:
Immediate parent company	6,239	5,505
	6,239	5,505
Interest payable:
Fellow subsidiary company	6,677	7,059
	6,677	7,059

PERSTORP UK LTD.

14 Ultimate parent company

The company is a wholly owned subsidiary undertaking of Perstorp AB, incorporated in Sweden. The largest and smallest group of which Perstorp UK Ltd. is a member is that headed by Perstorp Holding AB, which is the ultimate parent company. Perstorp Holding AB is incorporated in Sweden and is controlled by the French private equity firm, PAI Partners, which owns close to 100% of the shares in Luxembourg based Financiere Foret S.A.R,L, which in turn owns 100% of the shares in Perstorp Holding AB. PAl Patners, which is an unincorporated partnership, is considered by the directors to be the ultimate controlling company.

15 Reconciliation of profit /loss before tax to net cash flow from operations



	Sept 2018 £'000		Sept 2017 £'000
Profit/(loss) before tax	12,824		12,015

Adjustments for:
Depreciation	3,933		4,436
Amortisation of intangible assets	1,661		1,671
(lncrease)/Decrease in inventories	718		(2,398	)
(Increase) in trade and other receivables	(4,213	)	(5,745	)
Increase in trade and other payables	(1,459	)	4,600

Income tax due included in Debtors	—		(41	)
Income tax due included in Creditors	262		—
Finance income	(183	)	553
Finance costs	9,002		3,234
Cash generated from operations	22,545		18,325

16 Post Balance Sheet Events

On 10 December 2018, it was announced that Perstorp UK Ltd was being sold to Ingevity Corporation.

EX-99.3 5 ex993-unauditedproformacapa.htm EXHIBIT 99.3 Exhibit

Exhibit 99.3

INGEVITY CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED

FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the acquisition of the Capa™ Caprolactone division ("Capa") of Perstorp Holding AB (the "Seller") by Ingevity Corporation (“Ingevity”, or the “Company”). The acquisition of Capa was completed on February 13, 2019 through the purchase of all outstanding equity in Perstorp UK Ltd. which was previously held by the Seller for a total of €578.9 million, less debt assumed plus accrued interest (the “Capa Acquisition”). The Company funded the Capa Acquisition through a combination of borrowings under Ingevity’s revolving credit facilities and cash on hand. The unaudited pro forma condensed combined financial information gives effect to the Capa Acquisition.

The unaudited pro forma condensed combined financial statements as of September 30, 2018 and for the nine months ended September 30, 2018 and for the year ended December 31, 2017, respectively, combine the historical condensed consolidated balance sheet and condensed consolidated statements of operations of Ingevity with the historical condensed balance sheet and condensed income statement of Perstorp UK Ltd. as of September 30, 2018 and for the nine months ended September 30, 2018 and for the year ended December 31, 2017. The historical condensed income statement of Perstorp UK Ltd. substantially represents the historical operating results of Capa, as it was operated as a subsidiary of the Seller.

The unaudited pro forma condensed combined balance sheet as of September 30, 2018 is presented as if the Capa Acquisition had occurred on that date. The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2018 and the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2017, are presented as if the Capa Acquisition had occurred on January 1, 2017, the first day of Ingevity’s 2017 fiscal year.

The attached unaudited pro forma condensed consolidated financial information gives effect to the Capa Acquisition under the acquisition method of accounting in accordance with Financial Accounting Standards Board Accounting Standard Codification ("ASC") Topic 805, Business Combinations ("ASC 805"). The historical financial information has been adjusted in the unaudited pro forma condensed consolidated financial information to give effect to pro forma adjustments that are (1) directly attributable to the Capa Acquisition, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact. The pro forma adjustments are based on information available to management and assumptions that management believes are factually supportable. The unaudited pro forma condensed consolidated financial information is for illustrative and informational purposes only and is not necessarily indicative of Ingevity’s future financial position.

The unaudited pro forma condensed consolidated financial statements have been prepared by management in accordance with Article 11 of the United States Securities and Exchange Commission's Regulation S-X and are not necessarily indicative of the financial position or results of operations that would have been realized had the Capa Acquisition occurred as of the dates indicated, nor are they meant to be indicative of any anticipated financial position or future results of operations that Ingevity will experience after the Capa Acquisition. In the accompanying unaudited pro forma condensed consolidated financial information, Perstorp UK Ltd.’s financial information has been adjusted from International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") to accounting principles generally accepted in the United States of America ("U.S. GAAP") including reclassifications to conform to Ingevity's presentation, and the assets and liabilities have been adjusted to reflect their estimated fair values. The accompanying unaudited pro forma condensed consolidated financial information does not include any expected cost savings, operating synergies, or revenue growth which may be realized subsequent to the Capa Acquisition or the impact of any nonrecurring activity and one-time transaction-related costs. The ultimate recognition of such costs would affect amounts in the unaudited pro forma condensed consolidated financial information, and such costs could be material.

The estimated fair values used for the purpose of adjusting for the Capa Acquisition within the unaudited pro forma condensed consolidated financial information are preliminary as the determination of fair value of the assets acquired and liabilities assumed requires extensive use of estimates and management's judgment. Since the Capa Acquisition was completed on February 13, 2019, Ingevity's access to Capa's information has been limited, and therefore certain assumptions were used in making these estimates. Final valuations will be performed, and management anticipates that the values assigned to the assets acquired and liabilities assumed will be adjusted during the one-year measurement period following the date of completion of the Capa Acquisition if new information arises that provide insights into facts that existed at the acquisition date. Differences between

these preliminary estimates and the final acquisition accounting may occur and could have a material impact on the accompanying unaudited pro forma condensed consolidated financial information.

Additionally, Perstorp UK Ltd.’s financial information has been translated from Pounds Sterling (“GBP”) to United States Dollars ("USD") using the average spot rate applicable during the periods presented for the unaudited pro forma condensed combined statements of operations and the period-end spot rate for the unaudited pro forma condensed combined balance sheet. The transaction spot rate was used to translate the pro forma purchase consideration. The respective rates used are as follows:



		USD / 1 GBP
Year ended December 31, 2017	Average Spot Rate	1.2890
Nine months ended September 30, 2018	Average Spot Rate	1.3519
September 30, 2018	Period-end Spot Rate	1.3033

		USD / 1 EUR
February 13, 2019	Transaction Spot Rate	1.1270

The unaudited pro forma condensed combined financial statements should be read in conjunction with the following:


•	The accompanying notes to the unaudited pro forma condensed combined financial statements


•	Audited Balance Sheet as of December 31, 2017 and 2016 and the related audited Income Statements, Statements of Changes in Equity, and Cash Flow Statements for the years ended December 31, 2017, 2016, and 2015 of Perstorp UK Ltd. in Exhibit 99.1 of this Form 8-K/A


•	Unaudited Balance Sheet as of September 30, 2018 and December 31, 2017 and the related unaudited Income Statements, Statement of Changes in Equity, and Cash Flows Statement for the nine month periods ended September 30, 2018 and 2017 of Perstorp UK Ltd. in Exhibit 99.2 of this Form 8-K/A


•	Ingevity’s historical consolidated financial statements and any related notes included in Form 10-Q as of and for the period ended September 30, 2018


•	Ingevity’s historical audited consolidated financial statements and any related notes included in Form 10-K as of and for the year ended December 31, 2017

INDEX TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)



Unaudited Pro Forma Condensed Combined Balance Sheet	4
Unaudited Pro Forma Condensed Combined Statement of Operations	5
Notes to the Unaudited Pro Forma Condensed Consolidated Combined Financial Information	7



INGEVITY CORPORATION
Unaudited Pro Forma Condensed Combined Balance Sheet
As of September 30, 2018

(in millions)	Historical Ingevity		Perstorp UK Ltd. (Note 1)		Pro Forma Adjustments (Note 2)				Ingevity Pro Forma
Assets
Cash and cash equivalents	$	57.5	$	—	$	(51.6	)	A	$	5.9
Accounts receivable, net	140.4		12.7		13.0			B	166.1
Inventories, net	194.3		8.7		5.0			C	208.0
Prepaid and other current assets	28.6		54.1		(49.8		)	D	32.9
Current assets	420.8		75.5		(83.4		)		412.9
Property, plant and equipment, net	498.9		75.3		9.8			E	584.0
Goodwill	130.6		34.1		271.9			F	436.6
Other intangibles, net	129.2		0.9		290.4			G	420.5
Deferred income taxes	2.9		—		—				2.9
Restricted investment	70.7		—		—				70.7
Other assets	38.8		—		1.3			G	40.1
Total Assets	$	1,291.9	$	185.8	$	490.0			$	1,967.7
Liabilities
Accounts payable	$	108.7	$	16.7	$	(0.7	)	K	$	124.7
Accrued expenses	26.2		2.6		—				28.8
Accrued payroll and employee benefits	32.5		0.1		—				32.6
Notes payable and current maturities of long-term debt	4.9		4.7		(4.7		)	H	4.9
Income taxes payable	7.5		—		(4.4		)	I	3.1
Current liabilities	179.8		24.1		(9.8		)		194.1
Long-term debt including capital lease obligations	744.0		110.8		524.2			H	1,379.0
Deferred income taxes	31.2		1.8		45.4			I	78.4
Other liabilities	14.2		—		—				14.2
Total Liabilities	969.2		136.7		559.8				1,665.7
Equity
Total Equity	322.7		49.1		(69.8		)	J	302.0
Total Liabilities and Equity	$	1,291.9	$	185.8	$	490.0			$	1,967.7

The accompanying notes are an integral part of the unaudited pro forma condensed combined financial information.



INGEVITY CORPORATION
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Nine Months Ended September 30, 2018

(in millions, except per share data)	Historical Ingevity			Pine Chemicals Business¹			Perstorp UK Ltd. (Note 1)		Pro Forma Adjustments (Note 2)				Ingevity Pro Forma
Net sales	$	855.0		$	20.2		$	130.9	$	—			$	1,006.1
Cost of sales	535.8			13.4			82.2		(0.4		)	E	631.0
Gross profit	319.2			6.8			48.7		0.4				375.1
Selling, general and administrative expenses	96.5			3.7			9.6		9.0			G	118.8
Research and technical expenses	16.3			—			0.5		—				16.8
Restructuring and other (income) charges, net	(0.6		)	—			—		—				(0.6		)
Acquisition-related costs	4.3			(4.3		)	—		—				—
Other (income) expense, net	2.7			—			9.3		(9.5		)	K	2.5
Interest expense, net	21.8			0.9			11.9		6.3			H	40.9
Income (loss) before income taxes	178.2			6.5			17.4		(5.4		)		196.7
Provision (benefit) for income taxes	38.5			1.3			3.4		(1.8		)	I	41.4
Net income (loss)	139.7			5.2			14.0		(3.6		)		155.3
Less: Net income (loss) attributable to noncontrolling interests	12.7			—			—		—				12.7
Net income (loss) attributable to Ingevity stockholders	$	127.0		$	5.2		$	14.0	$	(3.6	)		$	142.6
Per share data
Basic earnings (loss) per share attributable to Ingevity stockholders	$	3.02											$	3.39
Diluted earnings (loss) per share attributable to Ingevity stockholders	$	2.98											$	3.35
Weighted average shares outstanding (in thousands)
Basic	42,070												42,070
Diluted	42,624												42,624

1) We closed the acquisition of the Pine Chemicals Business on March 8, 2018. The balances for the pro forma condensed combined statement of operations represent the actual results of the Georgia-Pacific, LLC pine chemicals business, net of pro forma adjustments, for the period of January 1 through March 7, 2018. Actual results after March 7, 2018 are included in the historical Ingevity balances for the nine months ended September 30, 2018.

The accompanying notes are an integral part of the unaudited pro forma condensed combined financial information.



INGEVITY CORPORATION
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2017

(in millions, except per share data)	Historical Ingevity		Pine Chemicals Business¹			Perstorp UK Ltd. (Note 1)		Pro Forma Adjustments (Note 2)				Ingevity Pro Forma
Net sales	$	972.4	$	100.6		$	154.0	$	—			$	1,227.0
Cost of sales	643.4		72.0			102.1		(1.3		)	E	816.2
Gross profit	329.0		28.6			51.9		1.3				410.8
Selling, general and administrative expenses	106.4		19.4			12.0		12.2			G	150.0
Research and technical expenses	19.8		—			0.8		—				20.6
Separation costs	0.9		—			—		—				0.9
Restructuring and other (income) charges, net	3.7		—			—		—				3.7
Acquisition-related costs	7.1		(7.1		)	—		—				—
Other (income) expense, net	0.5		—			12.4		(11.1		)	K	1.8
Interest expense, net	15.8		14.2			8.0		17.4			H	55.4
Income (loss) before income taxes	174.8		2.1			18.7		(17.2		)		178.4
Provision (benefit) for income taxes	29.6		0.5			1.3		(7.5		)	I	23.9
Net income (loss)	145.2		1.6			17.4		(9.7		)		154.5
Less: Net income (loss) attributable to noncontrolling interests	18.7		—			—		—				18.7
Net income (loss) attributable to Ingevity stockholders	$	126.5	$	1.6		$	17.4	$	(9.7	)		$	135.8
Per share data
Basic earnings (loss) per share attributable to Ingevity stockholders	$	3.00										$	3.22
Diluted earnings (loss) per share attributable to Ingevity stockholders	$	2.97										$	3.19
Weighted average shares outstanding (in thousands)
Basic	42,130											42,130
Diluted	42,529											42,529

1) The Pine Chemicals Business balances for the pro forma condensed combined statement of operations were derived from Exhibit 99.3 of Ingevity's Form 8-K/A filed May 10, 2018, which includes the acquisition of the pine chemicals business from Georgia-Pacific, LLC.

The accompanying notes are an integral part of the unaudited pro forma condensed combined financial information.

Notes to the Unaudited Pro Forma Condensed

Combined Financial Information
(in millions, except share data)

Notes to the Unaudited Condensed Combined Financial Statements


1.	Adjustments to Perstorp UK Ltd.’s Historical Financial Statements

Ingevity’s unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of the United States Securities and Exchange Commission's Regulation S-X. The Perstorp UK Ltd. historical balance sheet as of September 30, 2018, income statement for the nine months ended September 30, 2018, and income statement for the year ended December 31, 2017 were prepared in accordance with IFRS as issued by the IASB and presented in GBP. Therefore, certain adjustments are reflected in the financial information below to translate Perstorp UK Ltd.'s financial statements from GBP to USD and to convert from IFRS to U.S. GAAP. Ingevity evaluated accounting policies of Perstorp UK Ltd, and after adjusting from IFRS to U.S. GAAP presentation, the accounting policies and presentation aligns with that of Ingevity, so no adjustments were required for the tables presented below.

Certain adjustments and reclassifications have been made to the historical presentation of Perstorp UK Ltd. financial information to conform the financial statements to the presentation used in the unaudited pro forma condensed financial information. A summary of adjustments and reclassifications are included below:



Perstorp UK Ltd. Balance Sheet Reconciliation
September 30, 2018
Perstorp UK Ltd.			Ingevity Corporation
Financial Statement Caption	9/30/2018		Financial Statement Caption
in millions	GBP
Trade and other receivables
Trade receivables	£	5.7	Accounts receivable, net
Prepayments	0.9		Prepaid and other current assets
Receivables from related parties	4.0		Accounts receivable, net
Amounts due from group undertakings	38.2		Prepaid and other current assets
VAT	2.1		Prepaid and other current assets
Emission Allowances (EUETS)	0.3		Prepaid and other current assets
Total Trade and other receivables	51.2
Inventories	6.7		Inventories, net
Property, plant, and equipment	57.8		Property, plant and equipment, net
Goodwill	26.2		Goodwill
Customer relationships	0.7		Other intangibles, net
REACH Costs	0.6		Other intangibles, net
Deferred income tax assets	3.1		Deferred income taxes ¹
Trade and other payables
Trade payables	10.5		Accounts payable
Amounts due to related parties	2.3		Accounts payable
Other tax and social security	0.1		Accrued payroll and employee benefits
Accrued expenses	2.0		Accrued expenses
Total Trade and other payables	14.9
Borrowings - Current	3.6		Notes payable and current maturities of long-term debt
Borrowings - Non-current	85.0		Long-term debt including capital lease obligations
Deferred income tax liabilities	4.5		Deferred income taxes ¹
Total Equity	38.3		Total Equity
1) Deferred income taxes are presented net to conform with jurisdictional netting, consistent with Ingevity presentation.



Perstorp UK Ltd. Income Statement Reconciliation
Nine Months Ended September 30, 2018 and Twelve Months Ended December 31, 2017

Perstorp UK Ltd.						Ingevity Corporation Financial Statement Caption
Financial Statement Caption	9/30/2018			12/31/2017		Ingevity Corporation Financial Statement Caption
in millions	GBP			GBP
Revenue	£	96.8		£	119.5	Net sales
Cost of sales	57.7			74.9		Cost of sales
Distribution costs
Freight costs	3.1			4.3		Cost of sales
Royalty expense	7.0			8.6		Other (income) expense, net
Commission expense	0.1			0.2		Selling, general and administrative expenses
Sales & marketing expense	2.3			3.2		Selling, general and administrative expenses
Total Distribution costs	12.5			16.3
Administration expenses
Administrative expenses	4.7			5.9		Selling, general and administrative expenses
Research and development costs	0.4			0.6		Research and technical expenses
Total Administration expenses	5.1			6.5
Other operating expenses/(income)	(0.1		)	1.0		Other (income) expense, net
Finance income	0.2			4.5		Interest expense, net
Finance expense	9.0			10.7		Interest expense, net
Income tax charge/(credit) - current	0.6			0.5		Provision (benefit) for income taxes
Income tax charge/(credit) - deferred	1.9			0.5		Provision (benefit) for income taxes
Profit/(loss) for the period	10.3			13.6		Net income (loss)



Perstorp UK Ltd. Balance Sheet Reconciliation
As of September 30, 2018

(in millions)	Perstorp UK Ltd. IFRS (GBP)		1(a) Perstorp UK Ltd. IFRS (USD)		1(b) IFRS to U.S. GAAP Adjustments (USD)			Perstorp UK Ltd. as Adjusted U.S. GAAP (USD)
Assets
Cash and cash equivalents	£	—	$	—	$	—		$	—
Accounts receivable, net	9.7		12.7		—			12.7
Inventories, net	6.7		8.7		—			8.7
Prepaid and other current assets	41.5		54.1		—			54.1
Current assets	57.9		75.5		—			75.5
Property, plant and equipment, net	57.8		75.3		—			75.3
Goodwill	26.2		34.1		—			34.1
Other intangibles, net	1.3		1.7		(0.8		)	0.9
Total Assets	£	143.2	$	186.6	$	(0.8	)	$	185.8
Liabilities and Equity
Accounts payable	£	12.8	$	16.7	$	—		$	16.7
Accrued expenses	2.0		2.6		—			2.6
Accrued payroll and employee benefits	0.1		0.1		—			0.1
Notes payable and current maturities of long-term debt	3.6		4.7		—			4.7
Current liabilities	18.5		24.1		—			24.1
Long-term debt including capital lease obligations	85.0		110.8		—			110.8
Deferred income taxes ¹	1.4		1.8		—			1.8
Total Liabilities	104.9		136.7		—			136.7
Equity
Total Equity	38.3		49.9		(0.8		)	49.1
Total Liabilities and Equity	£	143.2	$	186.6	$	(0.8	)	$	185.8

1) Deferred income taxes are presented net to conform with jurisdictional netting, consistent with Ingevity presentation.



Perstorp UK Ltd. Income Statement Reconciliation
For the Nine Months Ended September 30, 2018

(in millions, except per share data)	Perstorp UK Ltd. IFRS - (GBP)		1(a) Perstorp UK Ltd. IFRS (USD)		1(b) IFRS to U.S. GAAP Adjustments (USD)		Perstorp UK Ltd. as Adjusted U.S. GAAP (USD)
Net sales	£	96.8	$	130.9	$	—	$	130.9
Cost of sales	60.8		82.2		—		82.2
Gross profit	36.0		48.7		—		48.7
Selling, general and administrative expenses	7.1		9.6		—		9.6
Research and technical expenses	0.4		0.5		—		0.5
Other (income) expense, net	6.9		9.3		—		9.3
Interest expense, net	8.8		11.9		—		11.9
Income (loss) before income taxes	12.8		17.4		—		17.4
Provision (benefit) for income taxes	2.5		3.4		—		3.4
Net income (loss)	£	10.3	$	14.0	$	—	$	14.0



Perstorp UK Ltd. Income Statement Reconciliation
For the Year Ended December 31, 2017

(in millions, except per share data)	Perstorp UK Ltd. IFRS - (GBP)		1(a) Perstorp UK Ltd. IFRS (USD)		1(b) IFRS to U.S. GAAP Adjustments (USD)			Perstorp UK Ltd. as Adjusted U.S. GAAP (USD)
Net sales	£	119.5	$	154.0	$	—		$	154.0
Cost of sales	79.2		102.1		—			102.1
Gross profit	40.3		51.9		—			51.9
Selling, general and administrative expenses	9.3		11.9		0.1			12.0
Research and technical expenses	0.6		0.8		—			0.8
Other (income) expense, net	9.6		12.4		—			12.4
Interest expense, net	6.2		8.0		—			8.0
Income (loss) before income taxes	14.6		18.8		(0.1		)	18.7
Provision (benefit) for income taxes	1.0		1.3		—			1.3
Net income (loss)	£	13.6	$	17.5	$	(0.1	)	$	17.4


a.	Foreign Currency Translation

Perstorp UK Ltd.’s financial information to be used in the unaudited pro forma condensed combined financial information was translated to USD for presentation purposes. Perstorp UK Ltd.’s income statement for the nine months ended September 30, 2018 was translated to USD using the average rate for the first nine months of 2018, which was 1.3519 USD per GBP. Perstorp UK Ltd.’s income statement for the year ended December 31, 2017 was translated to USD using the average rate for 2017, which was 1.2890 USD per GBP. Perstorp UK Ltd.’s balance sheet as of September 30, 2018 was translated to USD using the spot rate at September 30, 2018, which was 1.3033 USD per GBP.


b.	IFRS to U.S. GAAP Adjustments

Perstorp UK Ltd. makes payments related to the Registration Evaluation Authorization and Restriction of Chemicals (“REACH”) regulation. The REACH regulation specifies that all chemical substances that are used within the European Union must be registered and evaluated. Perstorp UK Ltd. historically has capitalized these costs as intangible assets and amortized the costs over a 20 year period.

An adjustment was made to remove $0.8 million of capitalized REACH costs. An adjustment of $0.1 million was made to increase selling, general and administrative expenses in 2017 to reflect the reversal of historical REACH amortization, offset by REACH payments made in 2017. The net adjustment to conform Perstorp UK Ltd.’s basis of accounting under IFRS to U.S. GAAP for the nine months ended September 30, 2018 was less than $0.1 million.


2.	Pro Forma Adjustments

Acquisition Purchase Consideration and Preliminary Purchase Price Allocation

The following table illustrates each component of the consideration paid as part of the Capa Acquisition:



in millions	EUR	USD¹
Cash paid to Seller
Cash purchase price	468.8	528.4
Accrued interest on assumed debt²	7.6	8.6
Total Cash paid to Seller	476.4	537.0
Assumed net debt as of September 30, 2018	102.5	115.5
Total pro forma purchase consideration	578.9	652.5

1) Cash balances herein were in EUR and translated to USD using the spot rate on February 13, 2019 of 1.1270 USD per EUR.
2) Under the Sale and Purchase Agreement, additional consideration was to be remitted to the Sellers in the form of interest accrued on the cash purchase price prior to the close of the Capa Acquisition. The interest accrued at an annual rate of 4% until certain merger conditions were met, and increased to 6% at the time of such conditions being met, up to the Capa Acquisition close.

Pro forma purchase price allocation adjustments have been made for the purpose of providing pro forma financial information based on current estimates and currently available information. These amounts are preliminary and subject to revision based on final determination of fair value and the final allocation of the purchase price to the assets and liabilities of Perstorp UK Ltd., and the revision could be material. The table below summarizes the preliminary allocation of purchase price to the assets acquired and liabilities assumed for purposes of the pro forma financial information as if the Capa Acquisition closed on September 30, 2018:



in millions	Amount
Current assets	$	34.9
Property, plant, and equipment, net	85.1
Other intangibles, net	292.6
Total assets acquired	412.6
Current liabilities	(23.4)
Non-current liabilities	(110.8)
Deferred income taxes	(47.4)
Total liabilities assumed	(181.6)
Net identifiable assets acquired	231.0
Goodwill	306.0
Total consideration transferred	$	537.0


A.	Cash and cash equivalents

Cash and cash equivalents are adjusted as follows:



in millions	Amount
Proceeds from draw on revolver debt (Refer to Note 2(H))	$	635.0
Cash paid to Seller	(537.0		)
Repayment of assumed Perstorp UK Ltd. intercompany debt and interest (Refer to Note 2(H))	(115.5		)
Reclassification of historical cash pooling balances due to Seller (Refer to Note 2(D))	49.8
Payment for transferred intellectual property (Refer to Note 2(G) & (K))	(45.6		)
Cash paid for factored receivables (Refer to Note 2(B))	(13.0		)
Cash paid for acquisition-related transaction costs (Refer to Note 2(J))	(8.7		)
Cash paid related to loss on purchase price hedge (Refer to Note 2(J))	(16.6		)
Total pro forma adjustment to cash and cash equivalents	$	(51.6	)


B.	Accounts receivable

Perstorp UK Ltd. historically factored a portion of its accounts receivable in connection with a factoring arrangement with an affiliate of the Seller. In connection with the Capa Acquisition, Perstorp UK Ltd. repurchased $13.0 million of its previously factored accounts receivable. A pro forma adjustment was made to reflect the reacquisition of these accounts receivable which were not reflected in the historical balance sheet as of September 30, 2018.


C.	Inventories, net

The inventory balance was adjusted upward by $5.0 million to reflect the preliminary fair value of $13.7 million as of the Capa Acquisition date.


D.	Prepaid and other current assets

Perstorp UK Ltd. historically recorded cash balances subject to the Seller’s group cash pooling arrangement as a receivable due from an affiliate of the Seller. In connection with the Capa Acquisition, Perstorp UK Ltd. exited the cash pooling program. The $49.8 million adjustment represents the reclassification of these amounts from prepaid and other current assets to cash. The cash associated with this pooling arrangement was utilized to pay for the factored receivables (Refer to Note 2(B)) and transferred intellectual property (Refer to Note 2(G)).


E.	Property, plant and equipment, net

Property, plant and equipment were adjusted as follows:



					Depreciation expense
in millions, expects years data	Preliminary Fair Value			Estimated weighted average life in years	Nine months ended September 30, 2018			Year ended December 31, 2017
Machinery and equipment	$	63.4		10	$	4.8		$	6.3
Buildings and leasehold improvements	4.9			28	0.1			0.2
Construction in process	16.8			N/A	—			—
Property, plant, and equipment	$	85.1			$	4.9		$	6.5
Less: Historical Perstorp UK Ltd. net book value or depreciation expense	(75.3		)		(5.3		)	(7.8		)
Net pro forma adjustment to property, plant, and equipment	$	9.8			$	(0.4	)	$	(1.3	)

The reduction in depreciation expense primarily relates to the realignment of the useful lives of acquired property, plant and equipment to Ingevity's policy for the remaining economic useful life.


F.	Goodwill

Reflects the preliminary purchase price allocation and recognition of goodwill described above. Goodwill was adjusted based on the preliminary purchase price allocation as follows:



in millions	Amount
Preliminary acquisition goodwill	$	306.0
Less: Perstorp UK Ltd. historical goodwill	(34.1		)
Net pro forma adjustment to goodwill	$	271.9


G.	Other intangibles, net and Other assets

The preliminary amounts assigned to the identifiable intangible assets, the estimated useful lives, and the estimated amortization expense related to these identifiable intangible assets are as follows:



					Amortization expense
in millions	Preliminary Fair Value			Average Estimated Remaining Useful Life in Years	Nine months ended September 30, 2018			Year ended December 31, 2017
Customer contracts and relationships	$	159.0		17	$	7.0		$	9.4
Brands ^1,2	67.0			Indefinite	—			—
Developed Technology ²	64.8			12	4.1			5.4
Noncompetition agreements	0.5			3	0.1			0.2
Total	$	291.3			$	11.2		$	15.0
Less: Perstorp UK LTD net book value	(0.9		)		(2.2		)	(2.8		)
Net pro forma adjustment to other intangibles, net	$	290.4			$	9.0		$	12.2

1) Primarily represents trade names. Includes the trade names associated with the caprolactone monomer and related derivatives discussed further in Note 2(K).
2) Includes the $45.6 million purchase of intellectual property associated with caprolactone monomer and related derivatives pursuant to the Intellectual Property Transfer Agreement between Perstorp UK Ltd. and the Seller entered in conjunction with the Capa Acquisition. Further discussed in Note 2(K).

Additionally, a favorable lease agreement, with a value of $1.3 million and an indefinite useful life, is presented as Other assets.


H.	Debt and Interest Expense

The Company funded the Capa Acquisition through combination of borrowings under its existing credit facilities and cash on hand. For the preparation of the unaudited condensed combined pro forma financial information, interest expense on the credit facility was estimated using an interest rate of 3.75% and assuming the incremental amount of debt outstanding of $635.0 million remained constant throughout the period. The interest rate used to prepare this pro forma adjustment is reflective of the interest rate associated with our credit facility at the time that the Capa Acquisition was completed. An increase or decrease in interest rates of 0.125% would change pro forma interest expense by $0.6 million and $0.8 million for the nine months ended September 30, 2018 and year ended December 31, 2017, respectively.



in millions	Amount
Proceeds from draw on revolver debt	$	635.0
Repayment of assumed Perstorp UK Ltd. intercompany debt	(115.5		)
Net pro forma adjustment	$	519.5

Net pro forma adjustment to notes payable and current maturities of long-term debt	$	(4.7	)
Net pro forma adjustment to long-term portion of debt	524.2
Total pro forma adjustment to notes payable and current maturities of long-term debt	$	519.5



	Interest expense
in millions	Nine months ended September 30, 2018			Year ended December 31, 2017
Interest expense on new long term debt	$	17.8		$	23.8
Less: Interest expense related to Perstorp UK Ltd. historical debt	(11.5		)	(6.4		)
Total pro forma adjustment to interest expense	$	6.3		$	17.4


I.	Provision (Benefit) for Income Taxes and Deferred Taxes

The pro forma balance sheet was adjusted to reflect the income tax impact of the loss on the purchase price hedge and acquisition-related transaction costs on tax balances as of September 30, 2018. The adjustment resulted in recognition of a deferred tax asset of $0.2 million, which was netted with the existing deferred tax liability, and reduced the income tax payable by $4.4 million. In addition, the pro forma balance sheet includes the recognition of deferred income tax liabilities associated with the net pro forma adjustment to property, plant and equipment, net and other intangibles, net as discussed in Notes 2(E) and 2(G), respectively. Deferred income tax liabilities of $45.6 million were calculated utilizing the statutory tax rate applicable over the expected useful lives of the assets acquired.

The pro forma statement of operations was adjusted to reflect income tax impact of pro forma adjustments calculated using the U.S. statutory blended federal and state rate of 23.60% for the nine months ended September 30, 2018 and 36.81% for the year ended December 31, 2017 for items related directly to the Company and the U.K. statutory rates of 19.00% for the period ended September 30, 2018 and 19.25% for the year ended December 31, 2017 for items related directly to Perstorp UK Ltd.



	Nine months ended September 30, 2018								Year ended December 31, 2017
in millions	Pro forma adjustment to Profit (loss) before income taxes			Tax Rate		Provision (benefit) for income taxes			Pro forma adjustment to Profit (loss) before income taxes			Tax Rate		Provision (benefit) for income taxes
United States¹	$	(17.8	)	23.6	%	$	(4.2	)	$	(23.8	)	36.8	%	$	(8.8	)
United Kingdom²	12.4			19.0	%	2.4			6.6			19.3	%	1.3
Total	$	(5.4	)			$	(1.8	)	$	(17.2	)			$	(7.5	)

1) The Pro forma adjustment to Profit (loss) before income taxes for the Company is related to interest expense on new long term debt. Further discussed in Note 2(H).
2) The Pro forma adjustment to Profit (loss) before income taxes for Perstorp UK Ltd. is related to adjustments recorded for depreciation expense, amortization expense, interest expense, and royalty expense. These items are further discussed in Notes 2(E), 2(G), 2(H), and 2(K).


J.	Equity

Total equity was adjusted as follows:



in millions	Amount
Elimination of Perstorp's historical equity	$	(49.1	)
Acquisition-related transactions costs, net of a current tax benefit of $0.5 and deferred tax benefit of $0.2¹	(8.0		)
Loss on purchase price hedge, net of tax benefit of $3.9²	(12.7		)
Total pro forma adjustment to equity	$	(69.8	)

1) Represents acquisition-related transaction costs incurred in conjunction with the completion of the acquisition.
2) In order to minimize exposure to adverse changes in the EUR to USD exchange rate from December 10, 2018 (the date Ingevity entered into the Sale and Purchase Agreement) to February 13, 2019 (the Capa Acquisition close date), Ingevity entered into foreign currency forward contracts (“FX forward contracts”). The FX forward contracts provided Ingevity the ability to fix the EUR to USD exchange rate, thereby limiting Ingevity’s exposure to foreign currency rate fluctuations. Over the period from December 10, 2018 to February 13, 2019, the USD strengthened against the EUR by 0.85% percent to an exchange rate of 1.1270 USD per EUR at February 13, 2019. The strengthening of the USD against the EUR results in a lower USD purchase price for Perstorp. Offsetting this lower purchase price was a mark-to-market loss on the FX forward contracts. The loss on the FX forward contracts pursuant to U.S. GAAP is required to be expensed immediately. The FX forward contracts loss recognized in the fourth quarter of 2018 was $3.9 million. An additional $12.7 million of loss was recognized during 2019.


K.	Royalty Payments

As stipulated by the Capa Acquisition purchase agreement, on February 8, 2019, Perstorp UK Ltd. entered into an Intellectual Property Transfer Agreement ("IP Transfer Agreement") with the Seller related to the caprolactone monomer and related derivatives business. Prior to entering into the IP Transfer Agreement, Perstorp UK Ltd. had made royalty payments to the Seller for use of the caprolactone monomer and related derivatives intellectual property. The royalty payments were recognized as expense in Other (income) expense, net in the amount of $9.5 million and $11.1 million in for the nine months ended September 30, 2018 and the twelve months ended December 31, 2017, respectively. This adjustment reverses the historical expense and related payable of $0.7 million, associated with the royalty payments on the historical Perstorp income statement and balance sheet, respectively. See Note 2(G) for the pro forma adjustment recognizing the incremental amortization expense associated with the acquired intellectual property that was transfered as part of the Capa Acquisition.