Interim Results

Morgan Crucible Co PLC 11 September 2001 THE MORGAN CRUCIBLE COMPANY plc INTERIM STATEMENT 2001 'Encouraging performance despite market weakness in a number of key sectors' 2001 2000 Change Group Turnover £m 540.3 526.0 2.7% Operating Profit* £m 47.5 49.5 (4.0%) Pre Tax Profit* £m 37.6 41.3 (9.0%) Underlying EPS* pence 10.9 11.6 (6.0%) * Before goodwill amortisation of £3.7m (2000 : £3.1m) and Corporate Exceptional Items of a loss of £2.3m (2000 : £18.3m profit). - Total Group Turnover ahead by 2.7% at £540.3 million (2000 : £526.0 million). - Organic sales growth marginally positive despite severe weakness across a number of key markets. - Underlying Operating Profit £2.0 million lower at £47.5 million (2000 : £ 49.5 million). - Underlying Pre Tax Profit lower by £3.7 million to £37.6 million (2000 : £ 41.3 million). - Underlying earnings per share 10.9 pence (2000: 11.6 pence). - Action taken to reduce costs and working capital particularly in businesses most impacted by market downturn. - Investment accelerated in fuel cell and multi-layer ceramic actuator development projects to support the Group's longer-term growth objectives. - Dividend maintained at 7.4 pence (2000 : 7.4 pence). Commenting on the results, Ian Norris, Group Chief Executive, said: 'The trading environment for the first six months has been challenging. We have focused successfully on maintaining our market share, whilst reducing costs. We have continued to invest in initiatives to deliver future growth, and remain confident that increased focus on markets with strong long-term growth potential will deliver improved returns for our shareholders. In the short-term, the sharpness of the slowdown experienced in a number of our markets makes projecting future demand particularly challenging. Conflicting messages as to when and at what pace to expect recovery, from both market observers as well as from changes in our own order book, add to the uncertainty. Against this background, our overall performance in the first half of this year has been encouraging. However, our order intake during July and August, months which are never the ideal indicators, provides no clear pointer towards second half recovery. In such circumstances we believe it is appropriate to be cautious. Therefore, we currently anticipate our underlying performance in the second half to be broadly in line with that of the first half.' Enquiries: Ian Norris, Group Chief Executive 020 7404 5959 (on 11.09.01) David Davies, Finance Director 01753 837000 (thereafter) Locksley Ryan, Harry Chathli, Brunswick 020 7404 5959 Growth in Organic Sales, as referred to in this statement, is calculated after adjusting for movements in foreign exchange rates as well as the impact of acquisitions and disposals. THE MORGAN CRUCIBLE COMPANY plc INTERIM STATEMENT 2001 Overview Morgan sales during the first half increased to £540.3 million (2000: £526.0 million). On a comparable basis, this represents positive organic growth. This has been achieved despite a considerable downturn in activity levels and reduction in customer inventories in a number of key market sectors. The automotive market, particularly in the United States, has shown major weakness with overstocked manufacturers cutting back on production in order to reduce their inventory levels. Likewise, many of the higher-tech markets, which helped fuel strong organic sales growth for a number of Morgan's businesses last year, have been adversely impacted. The markets for telecommunications equipment, semiconductor capital equipment and computer data storage have moved rapidly from strong double-digit growth to decline, which in some markets has exceeded 50%. We have responded to these challenges with three major initiatives: We have defended market share. Despite the pace of the slowdown in a number of key sectors, the Group's overall turnover still showed slight organic growth. Our businesses have worked hard not only to hold share but also to build share in markets that have been less adversely impacted. - We have taken appropriate actions to reduce our costs and to control inventories. - Our Mexican insulating fire brick facility has been temporarily shut down and production in our US facility has been cut by 40%. - Output at our disk drive sub contractor's facility in China has been severely restricted leading to 2500 lay-offs. - Summer vacation shutdowns across a number of our businesses have been extended. - Redundancies and temporary lay-offs have been implemented across a number of plants and markets. - We have remained focused on growth opportunities for the future. Investments in our development programmes for fuel cells and multi-layered electro-ceramic actuators have been increased. Plans are also well advanced to rationalise our technical ceramics facilities in California onto a new single location closer to our key customers in the semiconductor capital equipment market. We are confident that the restructured and refocused operations balanced between mature cash generation and high growth sectors will over the longer-term deliver attractive returns to our shareholders. Carbon Division Our Carbon Division comprises our Electrical and Engineered Carbon businesses together with our Magnetics business. Total sales for the division were £ 291.9 million (2000 : £276.8 million), an increase of 5.5% over the same period last year. Sales on a comparable basis before acquisitions, declined by 2.1% for the division as a whole. The Carbon Division achieved operating profits of £22.6 million (2000 : £27.1 million). On an underlying basis before goodwill amortisation, operating profits were £25.6 million (2000 : £29.8 million), a decrease of 14.1%. Underlying operating margins on the same basis for the division as a whole were 8.8% compared with 10.8% for the same period last year. Magnetics Sales of our Magnetics business were £117.7 million (2000 : £116.7 million), a reduction of 1.5% on a comparable basis from last year. Operating profit before goodwill amortisation was £7.6 million (2000 : £10.1 million) with operating margins at 6.5% (2000 : 8.7%). Margins were affected by under-utilisation of permanent magnet capacity in the USA, and one-off training costs associated with the implementation of the SAP system. Morgan is a major supplier of magnetic systems for the disk drive market, which has been adversely influenced by the decline in PC sales world-wide. Sales of inductive components into the telecommunications market, particularly in the USA, have also been affected by the downturn in this sector. Helping to compensate for this has been the continued robustness in our European markets, particularly for our high powered magnets for the advanced electric motor market. At the same period last year, our Magnetics business had achieved organic sales growth of 21%. Given the sharpness of the decline in the disk-drive and telecommunications markets, it is a creditable performance to have maintained sales so close to this level. With the current over capacity in some sectors, it was to be expected that competition would intensify and pricing pressures have also contributed to the decline in overall margins for this business. Our superconductor business performed particularly well during the first half. In July, Siemens revealed a new electric motor to the market which incorporates High Temperature Superconductors (HTS) provided by our Magnetics businesses. Our HTS products enable a cost-effective step change in the performance and energy efficiency of large-scale electric motors. We are a leading player in this new HTS technology with increasing business in significant projects in both the USA and Mexico. Utility companies are beginning to investigate the use of superconducting cables for their greatly improved efficiencies in power transmission. Electrical Carbon Sales in our Electrical Carbon business were £105.9 million (2000 : £97.9 million). Overall sales declined organically by 2.9%. Operating profit before goodwill amortisation was £11.4 million (2000 : £12.1 million) with operating margins at 10.8% (2000 : 12.4%). Sales to the automotive and consumer market were adversely impacted by the slowdown and severe destocking in the US automotive market, and showed a decline of 10.4% on a comparable basis. This decline was partly compensated by an improved performance from our industrial and rail traction markets, where organic growth of 1.9% was achieved. Increased rail traction brush shipments contributed to this improvement. The slowdown in the US automotive market, evident from the second half of last year, led us to implement a substantial cost reduction programme in January of this year. This helped to mitigate the impact of the sharp reduction in demand experienced in the first half of this year. However, the overall slowdown has had a negative impact on both capacity utilisation and operating margins. In May of this year, the Group acquired Multicraft Inc. in the USA. Strategically the Group has recognised the challenges faced by being a component supplier in the automotive and consumer markets world-wide. The combination of our electrical carbon, commutator and magnet technologies, together with Multicraft's design and low cost assembly capabilities, moves us to the position where we become an innovative design partner rather than a component supplier. No other competitor can offer this combination of know-how, and the support of our customers for this move is already being reflected in large orders for programmes which will become active in 2002 and 2003. Engineered Carbon Our Engineered Carbon business achieved sales of £68.3 million (2000 : £62.2 million), an increase of 9.8%. After adjusting for acquisitions and movements in foreign exchange, sales were marginally lower. Operating profit before goodwill amortisation was £6.6 million (2000 : £7.6 million) with operating margins at 9.7% (2000 : 12.2%). Within this, the mechanical carbon business performed well, supported by strong demand in Europe for pump seals and bearings. Specialty graphite sales in the first half were maintained at the same level as last year although the impact of the sharp slowdown in the semiconductor capital equipment market was felt later in the period. An increased level of research and development in our fuel cell programme has reduced operating margins. A fuel cell testing facility will shortly be commissioned at our UK research centre. Demand for our conventionally manufactured bi-polar plate for fuel cell systems remains in line with last year. We consider our machined graphite plate to be the industry benchmark against which new technologies will be judged. We are now in discussions with the leading manufacturers in this market regarding our new patented Electro-Etch (TM) rapid manufacturing process, which we believe could lead to a substantial first stage cost-reduction for bi-polar plates. Our coatings business was affected by slowdowns in both the US automotive market and the semi-conductor capital equipment market. Organic sales declined by 12.1% with operating margins also impacted. Our coatings business was strengthened with the acquisition of Diamonex earlier in the year. Diamonex brings the Group expertise in producing patented diamond wafers and diamond-like coatings for a range of materials. Ceramics Division The Ceramics Division includes the Group's Technical Ceramics and Insulating Ceramics businesses. Total sales for the division were £245.0 million (2000 : £224.6 million), an increase of 9.1% overall including organic growth of 3.6% over the same period last year. Operating profits for the Ceramics Division were £20.6 million (2000 : £18.2 million). On an underlying basis before goodwill amortisation, operating profits were £21.3 million (2000: £18.6 million), an increase of 14.5% compared to the same period last year. Operating margins, on an underlying basis for the division as a whole, were 8.7% (2000 : 8.3%). Technical Ceramics Sales of £84.2 million (2000 : £67.1 million) were achieved by our Technical Ceramics business, an organic growth of 12.4%. Operating profit before goodwill amortisation was £8.2 million (2000 : £6.2 million) with operating margins at 9.7% (2000 : 9.2%). This improvement in margin was achieved despite increasing the level of research and development spending in our electro-ceramic business. Organic sales of the advanced ceramics business moved ahead by an encouraging 10.9%. This was despite a sharp slowdown in activity from the semiconductor capital equipment and telecommunications markets. A strong performance in other markets more than offset this. Sales of laser and vacuum pump components for applications in the medical and defence markets performed well, as did high temperature components for the domestic ceramic markets. Despite current challenges, the semiconductor capital equipment market, served by both our Carbon and Ceramics Divisions, offers strong long-term growth potential in which the Group continues to invest. Our facilities in California will be consolidated onto an expanded modern site close to our key customers. Additionally, the acquisition of PMI in January of this year brings valuable high purity silicon carbide technology to our portfolio of advanced ceramic materials. This is of particular value to the technically demanding 300mm silicon wafer market, which is expected to lead the return to growth for this sector. Our electro-ceramics business achieved organic sales growth of 21.6%, assisted by strong sales of parking sensors to the automotive market where we are market-leaders in the supply of piezo ceramic sensors. Growth in this type of 'smart device' will be underpinned in the future by the increasing level of features being offered by manufacturers in even the most standard of models. The move towards 42 volt vehicle power systems over the next five years will further increase Morgan's opportunities in this market. The project to develop a new piezo ceramic driven read-write head for the data storage market continues in collaboration with one of the industry's leading suppliers. Our investment in the development of multi-layer ceramic actuators has also been substantially increased. Insulating Ceramics Our Insulating Ceramics business achieved sales of £160.8 million (2000 : £ 157.5 million), in line with last year on a comparable basis. Operating profit before goodwill amortisation was £13.1 million (2000 : £12.4 million) with operating margins at 8.1% (2000 : 7.9%). Crucible sales fell by 2.2% on a comparable basis, mainly affected by the weakness in the US automotive industry, but margins were improved as the recent substantial restructuring of this business began to show the anticipated benefits. Thermal ceramics sales were marginally above last year on a comparable basis. Lower orders from a weak steel sector were offset by improved demand from the petrochemical and power generation industries. Plans are in hand to further rationalise the cost base in the UK. This will facilitate the closure of our Neston facility and the consolidation of its activities onto an existing site. The strategic review of the thermal businesses has confirmed the long-term potential of the core insulation business and plans are being put in place for the continuing rationalisation of non-core activities. Financial Review Group operating profit before goodwill amortisation amounted to £47.5 million (2000 : £49.5 million). After charging goodwill amortisation of £3.7 million (2000 : £3.1 million), Group operating profit amounted to £43.8 million (2000 : £46.4 million). The increase in goodwill amortisation relates to acquisitions made during the period as well as revisions made to the goodwill arising on the acquisition of VAC GmbH. Acquisitions contributed £16.1 million to turnover and £1.8 million to Group operating profit before goodwill amortisation. Corporate exceptional items produced a loss of £2.3 million (2000 : £18.3 million profit) relating primarily to losses incurred on disposal of fixed assets. The gain last year arose mainly as a result of the disposal of certain non-core businesses. Net finance charges were £9.9 million (2000 : £8.2 million). Group borrowings have increased since the beginning of the year. This has offset the benefits of overall lower interest rates. Net interest expense is covered 4.8 times (2000 : 6.0 times) by operating profit before goodwill amortisation. The Group tax charge of £10.3 million (2000 : £15.3 million) gives an effective rate of 32.6% (2000 : 27.1%) after corporate exceptional items. Before these exceptional items, the effective group tax rate was 31.0%, in line with last year. Net cash inflow from operating activities was £38.8 million (2000 : £44.8 million). Operating profits at £43.8 million are 5.6% down on last year, and this has contributed to the reduced inflow. Net cash inflow has also been impacted by a higher level of working capital. The pace of reduction in activity in certain of our key markets was such that, despite prompt action to reduce manufacturing levels, we have seen growth in inventory levels of £11.6 million (2000 : £8.7 million). The two principal areas of increase are in the Magnetics and Insulating Ceramics businesses. Actions taken to reduce inventories include: - Temporary closure of our Mexican insulating fire brick facility, and a 40% reduction in output from our US facility. - Downsizing of our Chinese sub-contracted magnetic assembly plants with 2500 employees laid off. - Extended summer closures across several plants and businesses. - Reduced levels of raw material purchases. Working capital has increased in the short term as a result of this latter action with creditors being £24.9 million lower at period end (2000 : £3.0 million decrease). Free cashflow showed an outflow of £27.1 million (2000 : £18.4 million). Net capital expenditure of £29.3 million compares to £26.9 million last year. Investment continued at our Magnetics operations with the completion of a number of projects carried over from last year. The pace of second half capital investment will be reduced substantially compared to the prior year. A programme has also been initiated to dispose of surplus real estate during the second half of the year. This is expected to generate cash of at least £ 10 million for the full year. A net cash outflow of £47.1 million (2000 : £61.7 million net inflow) arose from acquisitions and disposals. This relates largely to £39.7 million on acquisitions completed during the period and £2.4 million deferred consideration relating to prior year acquisitions. Borrowings at the end of the period amounted to £296.2 million compared to £ 220.0 million at the end of 2000. Underlying earnings per share before goodwill amortisation were 10.9 pence (2000: 11.6 pence). Basic earnings per share on the same basis were 10.0 pence (2000 : 18.3 pence) including a net contribution of a loss of 0.9 pence (2000 : gain of 6.7 pence) from exceptional items. Interim Dividend The Board has declared an unchanged interim dividend of 7.4 pence per Ordinary share. The dividend will be paid on 7 January 2002 to Ordinary shareholders on the register of members at the close of business on 30 November 2001. Ordinary shareholders will be given the opportunity of acquiring shares in lieu of the cash dividend by means of a Dividend Reinvestment Plan. Forms of election and an explanatory circular will be posted to shareholders in November 2001. Outlook Our confidence in the ability of the Group to deliver sustainable and profitable growth in the longer-term remains intact, and we are encouraged by progress this year on a number of initiatives that offer substantial future potential. The balance of businesses within our portfolio has helped mitigate the worst effects of the current economic slowdown. We shall continue to maintain a balance as we work to strengthen the growth prospects of the Group. In the short-term, the sharpness of the slowdown experienced in a number of our markets makes projecting future demand particularly challenging. Conflicting messages as to when and at what pace to expect recovery, from both market observers as well as from changes in our own order book, add to the uncertainty. Against this background, our overall performance in the first half of this year has been encouraging. However, our order intake during July and August, months which are never the ideal indicators, provides no clear pointer towards second half recovery. In such circumstances we believe it is appropriate to be cautious. Therefore, we currently anticipate our underlying performance in the second half to be broadly in line with that of the first half. 11 September 2001 Dr. E. B. Farmer CBE, Chairman Ian P. Norris, Group Chief Executive Registered Office: On behalf of the Board Morgan House Madeira Walk Windsor Berkshire SL4 1EP Registered in England No.286773 CONSOLIDATED PROFIT STATEMENT FOR THE SIX MONTHS ENDED 4 JULY 2001 Restated Restated Note Six Six months Year months 2001 2000 2000 £m £m £m Turnover Continuing operations 520.8 501.4 1,020.8 Acquisitions 16.1 - - Discontinued operations 3.4 24.6 30.3 Group turnover 2 540.3 526.0 1,051.1 Operating profit before goodwill amortisation Continuing operations 45.1 48.4 102.6 Acquisitions 1.8 - - Discontinued operations 0.6 1.1 1.8 Group operating profit before goodwill 47.5 49.5 104.4 amortisation Goodwill amortisation (3.7) (3.1) (5.8) Operating profit Continuing operations 42.0 45.3 96.9 Acquisitions 1.2 - - Discontinued operations 0.6 1.1 1.7 Group operating profit 2 43.8 46.4 98.6 Corporate exceptional items 3 Continuing operations - Disposal of fixed assets (2.2) 0.1 (1.2) - Loss on closure of business - - (2.0) Discontinued operations - Profit on sale of businesses 0.1 18.2 21.4 - Loss on sale of businesses (0.2) - (8.0) (2.3) 18.3 10.2 Profit on ordinary activities before 41.5 64.7 108.8 interest and taxation Net finance charges and similar items (9.9) (8.2) (16.2) Profit on ordinary activities before 31.6 56.5 92.6 taxation Taxation 4 (10.3) (15.3) (30.5) Profit on ordinary activities after 21.3 41.2 62.1 taxation Equity minority interest (0.8) (0.8) (1.7) Net profit attributable to The Morgan 20.5 40.4 60.4 Crucible Company plc Preference dividends on non-equity shares (1.0) (1.0) (2.1) Ordinary dividends on equity shares (17.2) (17.2) (36.9) Retained profit for the period 2.3 22.2 21.4 Earnings per share 5 Underlying earnings per share - before goodwill amortisation 10.9p 11.6p 25.0p - after goodwill amortisation 9.3p 10.3p 22.5p Basic earnings per share - before goodwill amortisation 10.0p 18.3p 27.6p - after goodwill amortisation 8.4p 17.0p 25.1p Diluted earnings per share 8.4p 17.0p 24.9p Underlying diluted earnings per share 9.3p 10.3p 22.4p STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE SIX MONTHS ENDED 4 JULY 2001 Six months Six months Year 2001 2000 2000 £m £m £m Net profit attributable to shareholders 20.5 40.4 60.4 Foreign currency translation 2.2 9.7 8.3 Total recognised gains and losses relating to 22.7 50.1 68.7 the period CONSOLIDATED BALANCE SHEET AS AT 4 JULY 2001 Note Six Six months Year months 2001 2000 2000 £m £m £m Fixed assets Goodwill 140.2 116.0 112.6 Tangible assets 507.6 484.6 493.4 Other investments 17.3 12.2 18.5 665.1 612.8 624.5 Current assets Stocks 211.9 187.0 196.4 Debtors 260.3 248.4 252.8 Cash at bank and in hand 84.2 112.1 93.6 556.4 547.5 542.8 Current liabilities 6 373.0 424.8 400.8 Net current assets 183.4 122.7 142.0 Total assets less current liabilities 848.5 735.5 766.5 Creditors - amounts falling due after more than one year Term loans 262.5 134.3 181.2 Exchangeable redeemable preference shares 4.4 10.1 7.5 Grants for capital expenditure 1.7 2.0 1.8 268.6 146.4 190.5 Provisions for liabilities and charges 113.2 125.7 114.8 381.8 272.1 305.3 466.7 463.4 461.2 Capital and reserves Called up share capital (including 88.3 88.2 88.3 non-equity interests) Share premium account 44.5 44.2 44.3 Revaluation reserve 9.8 15.9 11.2 Other reserves 1.5 0.7 1.6 Profit and loss account 307.6 299.8 301.6 451.7 448.8 447.0 Minority interest Equity 14.9 14.6 14.1 Non-equity 0.1 - 0.1 15.0 14.6 14.2 466.7 463.4 461.2 MOVEMENT IN SHAREHOLDERS' FUNDS FOR THE SIX MONTHS ENDED 4 JULY 2001 Six months Six months Year 2001 2000 2000 £m £m £m Net profit attributable to shareholders 20.5 40.4 60.4 Goodwill written back to profit and loss - 2.2 2.4 Dividends (18.2) (18.2) (39.0) 2.3 24.4 23.8 New share capital 0.2 - 0.2 Foreign currency translation 2.2 9.7 8.3 Net increase to shareholders' funds 4.7 34.1 32.3 Opening shareholders' funds 447.0 414.7 414.7 Closing shareholders' funds 451.7 448.8 447.0 CONSOLIDATED CASHFLOW STATEMENT FOR THE SIX MONTHS ENDED 4 JULY 2001 Six months Six months Year 2001 2000 2000 Note £m £m £m £m £m £m Net cash inflow from a 38.8 44.8 114.8 operating activities Returns on investments and servicing of finance Interest received 6.2 4.7 9.6 Interest paid (15.6) (11.9) (25.8) Preference dividends paid (1.0) (1.0) (2.1) (10.4) (8.2) (18.3) Taxation (9.0) (10.9) (18.7) Capital expenditure and financial investment Purchase of tangible fixed (30.9) (28.7) (70.9) assets Proceeds on sale of 1.6 1.8 4.0 tangible fixed assets Insurance proceeds on - - 4.4 tangible fixed assets Purchase of investments (0.3) (5.6) (11.6) (29.6) (32.5) (74.1) Acquisitions and disposals Acquisition of subsidiary (39.7) - (5.6) undertakings Deferred consideration for (2.4) (2.5) (3.7) prior year acquisitions Disposal of businesses (5.0) 64.2 63.4 (47.1) 61.7 54.1 Equity dividends paid (17.2) (17.2) (36.9) Cash (outflow)/ inflow before use of liquid resources (74.5) 37.7 20.9 Management of liquid resources Decrease in cash on deposit 23.9 68.0 79.4 Financing Increase in share capital 0.2 - 0.2 Net increase/(decrease) in 67.3 (115.4) (115.2) bank loans Repurchase of exchangeable redeemable preference shares (4.3) (2.4) (5.2) 63.2 (117.8) (120.2) Net increase/(decrease) in cash 12.6 (12.1) (19.9) Reconciliation to net borrowings Net increase/(decrease) in 12.6 (12.1) (19.9) cash Cashflow from (increase)/ (67.3) 115.4 115.2 decrease in loans Cashflow from decrease in (23.9) (68.0) (79.4) deposits Cashflow from repurchase of exchangeable 4.3 2.4 5.2 redeemable preference shares Change in net borrowings (74.3) 37.7 21.1 resulting from cashflows Issue of exchangeable redeemable preference shares (1.0) - (0.3) Bank loans acquired with (0.3) - - acquisitions Exchange movement (0.6) (10.5) (8.5) Movement in net borrowings (76.2) 27.2 12.3 during the period Opening net borrowings (220.0) (232.3) (232.3) Closing net borrowings (296.2) (205.1) (220.0) CONSOLIDATED FREE CASHFLOW FOR THE SIX MONTHS ENDED 4 JULY 2001 Six Six months months Year 2001 2000 2000 Note £m £m £m Operating cashflow a 38.8 44.8 114.8 Net interest paid (9.4) (7.2) (16.2) Taxation paid (9.0) (10.9) (18.7) Net dividends (18.2) (18.2) (39.0) Post dividend cashflow 2.2 8.5 40.9 Net capital expenditure on tangible fixed (29.3) (26.9) (62.5) assets Free cashflow (27.1) (18.4) (21.6) a. Reconciliation of operating Six Six profit to net cash inflow from operating months months Year activities 2001 2000 2000 Continuing Discontinued Total £m £m £m £m £m Operating profit 43.2 0.6 43.8 46.4 98.6 Loss on closure of business - - - - (1.2) 43.2 0.6 43.8 46.4 97.4 Depreciation 25.6 - 25.6 22.4 43.5 Amortisation of goodwill 3.7 - 3.7 3.1 5.8 (Profit)/loss on sale of (0.1) - (0.1) 0.7 0.9 plant and machinery (Increase)/decrease in stocks (12.0) 0.4 (11.6) (8.7) (18.6) Decrease/(increase) in 0.5 0.5 1.0 (12.6) (26.5) debtors (Decrease)/increase in (23.1) (1.8) (24.9) (3.0) 18.7 creditors Increase/(decrease) in 1.3 - 1.3 (3.5) (6.4) provisions Net cash inflow from 39.1 (0.3) 38.8 44.8 114.8 operating activities NOTES 1. Basis of preparation The interim financial information, which has been approved by the Board of Directors, has been prepared on a consistent basis with the accounting policies set out in the Group's 2000 annual report and accounts. Operating exceptionals, principally comprising redundancy and reorganisation costs, are no longer separately disclosed as they are not considered material to the statement. The results and balance sheet for the year 2000 are an abridged version of the full accounts which received an unqualified report by the auditors and have been filed with the Registrar of Companies. 2. Segmental information Product group Turnover Operating profit Six Six Six Six months months Year months months Year 2001 2000 2000 2001 2000 2000 £m £m £m £m £m £m Carbon 291.9 276.8 563.8 25.6 29.8 64.5 Ceramics 245.0 224.6 457.0 21.3 18.6 38.1 536.9 501.4 1,020.8 46.9 48.4 102.6 Discontinued 3.4 24.6 30.3 0.6 1.1 1.8 operations 540.3 526.0 1,051.1 47.5 49.5 104.4 Goodwill (3.7) (3.1) (5.8) amortisation Group operating 43.8 46.4 98.6 profit 2. Segmental information (Continued) Geographical area The analysis shown below is based on the location of the contributing companies Turnover Operating Profit Six Six months Year Six months Six Year months months 2001 2000 2000 2001 2000 2000 £m £m £m £m £m £m United Kingdom Sales in the UK 26.1 27.1 53.1 Sales overseas 36.8 35.8 70.9 Total United 62.9 62.9 124.0 4.3 4.2 6.6 Kingdom Rest of Europe 205.8 191.5 391.7 19.4 18.8 39.2 The Americas 248.8 233.0 478.3 18.0 19.4 42.5 Far East and 57.0 56.6 117.0 4.2 5.1 12.3 Australasia Middle East and Africa 5.9 5.4 11.6 1.0 0.9 2.0 580.4 549.4 1,122.6 46.9 48.4 102.6 Discontinued 3.4 24.6 30.3 0.6 1.1 1.8 operations Inter-segment sales (43.5) (48.0) (101.8) 540.3 526.0 1,051.1 47.5 49.5 104.4 Goodwill (3.7) (3.1) (5.8) amortisation Group operating 43.8 46.4 98.6 profit The analysis shown below is based on the location of the customer Turnover Six months Six months Year 2001 2000 2000 £m £m £m United Kingdom 38.5 38.2 76.9 Rest of Europe 184.0 162.0 326.3 The Americas 230.0 216.5 442.4 Far East and Australasia 75.1 76.5 157.8 Middle East and Africa 9.3 8.2 17.4 536.9 501.4 1,020.8 Discontinued operations 3.4 24.6 30.3 540.3 526.0 1,051.1 3. Corporate exceptional items In 2001, the exceptional loss arose principally on the sale of fixed assets whereas, in 2000, the exceptional profit related mainly to the disposal of the Power Industry Products businesses. 4. Taxation Six months Six months Year 2001 2000 2000 £m £m £m United Kingdom taxes 4.3 3.6 14.9 Overseas taxes 6.0 11.7 15.6 Total taxation 10.3 15.3 30.5 The total taxation charge for the six months to 4 July 2001 of £10.3 million (2000 : £15.3 million) includes a tax credit on exceptional items of £0.2 million (2000 : £2.3 million tax charge), and relates to the disposal of fixed assets. The interim taxation charge is calculated by applying the Directors' best estimate of the annual tax rate to the profit for the period. 5. Earnings per Ordinary share Restated Restated Six months Six months Year a. Basic and underlying earnings per share 2001 2000 2000 £m £m £m Profit after tax and minority interest 20.5 40.4 60.4 Preference dividend (1.0) (1.0) (2.1) Basic earnings after goodwill 19.5 39.4 58.3 amortisation Goodwill amortisation 3.7 3.1 5.8 Basic earnings before goodwill 23.2 42.5 64.1 amortisation Adjusted by all post tax exceptional 2.1 (15.5) (6.2) items Underlying earnings - before goodwill amortisation 25.3 27.0 57.9 - after goodwill amortisation 21.6 23.9 52.1 Weighted average number of Ordinary 231,930,758 231,871,750 231,884,681 shares Underlying earnings per share - before goodwill amortisation 10.9p 11.6p 25.0p - after goodwill amortisation 9.3p 10.3p 22.5p Basic earnings per share 10.0p 18.3p 27.6p - before goodwill amortisation - after goodwill amortisation 8.4p 17.0p 25.1p The Directors have disclosed an underlying earnings per share as, in their opinion, this better reflects the real performance of the Group and assists comparison with the results of previous periods. Restated Restated b. Diluted earnings Six months Six months Year 2001 2000 2000 £m £m £m Profit after tax and minority 20.5 40.4 60.4 interest Preference dividend as calculated - (1.0) - under FRS14 Diluted earnings 20.5 39.4 60.4 Adjusted by all post tax 2.1 (15.5) (6.2) exceptional items Underlying diluted earnings 22.6 23.9 54.2 Weighted average number of Ordinary 231,930,758 231,871,750 231,884,681 shares Dilutive effect of share option 556,191 185,595 261,705 schemes Dilutive effect if Preference shares converted 10,259,858 - 10,259,858 Weighted average number of diluted 242,746,807 232,057,345 242,406,244 shares Diluted earnings per share 8.4p 17.0p 24.9p Underlying diluted earnings per 9.3p 10.3p 22.4p share 6. Current liabilities Current liabilities include bank loans and overdrafts of £113.5 million (4 July 2000 : £172.8 million; 4 January 2001 : £124.9 million). Independent review report of the auditors to The Morgan Crucible Company plc We have been instructed by the Company to review the financial information for the six months ended 4 July 2001 set out on pages 6 to 11. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the Directors. The Listing Rules of the Financial Services Authority require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999 /4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data, and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom Auditing Standards, and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 4 July 2001. London ERNST & YOUNG LLP 11 September 2001 This Interim Statement will be dispatched to all registered holders of Ordinary shares and Preference shares. Copies of this statement may be obtained from the Secretary at the Registered Office of the Company, Morgan House, Madeira Walk, Windsor, Berkshire, SL4 1EP.

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