Interim Results
Morgan Crucible Co PLC
10 September 2002
10 September 2002
THE MORGAN CRUCIBLE COMPANY plc
INTERIM STATEMENT 2002
Six Months Six Months Six Months
First Half Second Half First Half
2002 2001 2001
Group Turnover+ £m 449.5 469.3 520.7
Operating Profit+* £m 16.0 18.1 45.4
Net Finance Charge £m 6.6 9.3 9.9
Pre-tax Profit* £m 9.1 7.5 37.6
Underlying EPS* pence 2.2 1.6 10.9
Dividend per share pence Nil Nil 7.4
+On a continuing basis
*Before goodwill amortisation and exceptional items.
• Cost reduction programme progressing well and on target to reduce cost
base by an annualised £10 million by the end of 2002 and an increased £33
million by mid 2004.
• Working capital management and debt reduction remains a clear priority.
• Planned debt reduction by disposals and product portfolio adjustment.
• Continuing commitment to our global business structure which maintains
a balance between growth and cash generation.
Commenting on the results, Ian Norris, Group Chief Executive, said:
'Although there was a difficult start to the year, our performance in the second
quarter improved substantially. However, the timing of a significant market
upturn remains uncertain. Whilst the early months of the second half are
traditionally slow, we believe that given normal seasonal order patterns and no
other adverse influences, the strength of our replacement and after sales demand
positions us well to achieve progress during the remainder of the year.'
Enquiries:
Ian Norris, Group Chief Executive 020 7404 5959 (on 10.09.02)
Nigel Young, Finance Director 01753 837000 (thereafter)
Jon Coles, Harry Chathli, Brunswick 020 7404 5959
THE MORGAN CRUCIBLE COMPANY plc
INTERIM STATEMENT 2002
Overview
At the time of our preliminary results in March and again at our Annual General
Meeting in June we stated that we continued to view the immediate future with
caution. Whilst our markets remain generally depressed, trading in the second
quarter improved. We have maintained the pace of our wide-ranging cost
reduction programme, progressively reducing our cost base and increasing
competitiveness.
This programme, which was announced in February, is progressing to plan and will
reduce Morgan's operating cost base by an increased annualised £33.0 million by
mid 2004. It is anticipated that annualised savings of £10.0 million will be
achieved by the end of 2002. In the short term despite a 4% fall in sales
compared to the second half of last year, we have achieved an operating profit
(before goodwill and operating exceptionals) of £16.0 million on continuing
businesses.
In the second half of last year we introduced initiatives to improve cash
management and reduce working capital which enabled us to generate a positive
free cash flow of £19.7 million in that period. Those initiatives remain a
major focus for the Group and have generated further reductions in stocks and
debtors in the first half of the year of £7.1 million. At the end of June net
debt of £295.1 million is at a similar level as at this time last year despite
the cash effects of our restructuring programme (£7.6 million) and the payment
of last year's ordinary interim dividend in January this year (£17.2 million).
We are committed to reducing our net debt position substantially over the next
twelve months. Banking facilities which were due to expire during the period
have been extended to 2003. We remain committed to a portfolio of businesses
that will maintain a balance between cash generation and long term growth.
We have a pipeline of developing products and have continued to invest in
technology to achieve growth with technically differentiated products. A new
technology management structure is operational throughout the Group to optimise
this process.
There is an increasing requirement for higher performance, stronger, lighter,
smaller, smarter and higher purity engineered materials. It is the solution to
these requirements which we provide to our customers. Our strength in carbon,
ceramics and magnetic materials technologies, combined with our ability to
process these materials in volume around the world, positions Morgan as a leader
in providing the highest levels of material solutions for tomorrow's products.
Demands for products which are environmentally friendly and energy efficient are
driving the requirement for higher value added materials solutions. We are able
to provide these by using the strength of our combined materials technologies.
Operating Review
In the Operating Review all references to operating profit are stated before
goodwill amortisation and operating exceptionals
The electrical carbon business saw a good improvement in orders during the
second quarter. This was led by demand from the replacement and after market
sectors which form over 80% of total sales within the industrial and rail
traction markets. New market opportunities are developing well in the auto and
consumer business. Sales were £102.9 (2001 : £105.9 million) and operating
profit was £7.6 million (2001 : £11.4 million).
Our magnetics business continued to experience difficult trading conditions,
particularly in the domestic German market and in the telecommunications and
disc drive sectors. Sales were £95.7million (2001 : £117.7 million), 1.7% down
over the second half of 2001, and produced an operating loss of £1.2 million
(2001 : £7.6 million profit). The programme to reduce the breakeven point and
optimise the portfolio of this business is on schedule.
Sales in our engineered carbon business, adversely impacted by weak demand from
OEM customers, were £56.7 million (2001 : £68.3 million) producing an operating
profit of £2.0 million (2001 : £6.6 million). Expenditure on fuel cell
development has been maintained and is making exciting progress supporting our
confidence in its longer term potential.
Our technical ceramics business has been particularly hard hit by low demand
from the semiconductor equipment and telecoms sectors. Medical and
microelectronics markets were satisfactory. Sales were £65.7 million (2001 :
£81.8 million) and operating profit was £1.8 million (2001 : £8.6 million).
Development expenditure for our piezo ceramic products is providing considerable
market opportunities for both traditional industrial markets and high growth
technology markets.
Sales in our insulating ceramics business were £128.5 million (2001 : £147.0
million) and operating profit was £5.8 million (2001 : £11.2 million).
Significant restructuring has already been carried out within this business
including the disposal of a number of non-core activities. There were signs of
increased demand in the second quarter from a number of market sectors led by a
resumption of customer requirement for deferred maintenance and capacity
refurbishment.
Financial Review
Group operating profit for our continuing businesses before goodwill
amortisation and operating exceptionals amounted to £16.0.million (2001 : £45.4
million).
Operating exceptional costs in the period were £28.3 million (2001 : nil) and
goodwill amortisation was £3.9 million (2001 : £3.7 million). The restructuring
programme costs remain in line with the original budget and will deliver the
forecast annualised £33 million cost savings by mid 2004.
Corporate exceptional charges were £9.7 million (2001 : £2.3 million). This
amount includes the loss on sale of the loss making silicate ceramics business
in Barcelona, property disposals and the sale of the thermal ceramics building
products business in Belgium.
Net finance charges of £6.6 million (2001 : £9.9 million) benefited from
improved cash control and lower interest rates.
The tax charge was £2.3 million (2001 : £10.3 million). Before all exceptional
items and goodwill the effective tax rate was 29.7% (2001 : 32.6%). The
comparative figures have been restated to reflect the new standard FRS19
(Deferred Tax) which has been adopted in the current period.
Underlying earnings per share before goodwill amortisation was 2.2 pence (2001:
10.9 pence).
Net cash inflow from operating activities was £29.7 million (2001 : £38.8
million). This includes an adverse cash impact of £7.6 million from the cost
reduction programme. Working capital reduction programmes continue throughout
the Group.
Free cash flow, which includes the payment of last year's ordinary interim
dividend of £17.2m, showed an outflow of £16.6 million (2001 : £27.1 million).
Net capital expenditure was reduced to £17.4 million (2001 : £29.3 million).
Capital investment has been and will continue to be limited to essential
projects.
Borrowings at the end of the period amounted to £295.1 million (2001 : £296.2
million).
Interim Dividend
In view of the current economic conditions across our markets together with a
need to invest in the cost reduction programme, the Board has decided not to
declare an interim dividend. It is the intention of the Board to return to an
appropriate policy of dividend payments when trading conditions are
significantly improved.
Outlook
Our major cost reduction programme continues to improve competitiveness and
places us in a good position to resume profitable organic growth when markets
recover.
Although there was a difficult start to the year, our performance in the second
quarter improved substantially. However, the timing of a significant market
upturn remains uncertain. Whilst the early months of the second half are
traditionally slow, we believe that given normal seasonal order patterns and no
other adverse influences, the strength of our replacement and after sales demand
positions us well to achieve progress during the remainder of the year.
Dr. Bruce Farmer, CBE, Chairman 10 September 2002
Ian P. Norris, Group Chief Executive
On behalf of the Board Registered Office:
Morgan House
Madeira Walk
Windsor
Berkshire
SL4 1EP
Registered in England No. 286773
CONSOLIDATED PROFIT STATEMENT
for the six months ended 4 July 2002 Restated Restated
Unaudited Unaudited
Six months Six months Year
2002 2001 2001
Note £m £m £m
Turnover
Continuing operations 449.5 520.7 990.0
Discontinued operations 0.9 19.6 34.5
Group turnover 2 450.4 540.3 1,024.5
Operating profit before goodwill amortisation and operating
exceptionals
Continuing operations 16.0 45.4 63.5
Discontinued operations (0.3) 2.1 0.8
15.7 47.5 64.3
Operating exceptionals (28.3) - -
Operating (loss)/profit before goodwill amortisation (12.6) 47.5 64.3
Goodwill amortisation (3.9) (3.7) (7.7)
Operating (loss)/profit
Continuing operations (16.2) 41.7 55.8
Discontinued operations (0.3) 2.1 0.8
Group operating (loss)/profit 2 (16.5) 43.8 56.6
Corporate exceptional items 3
Discontinued operations
-Profit on sale of businesses - 0.1 -
-Loss on sale of businesses (7.4) (0.2) -
Continuing operations
-Disposal of fixed assets (0.1) (2.2) (6.4)
-Loss on sale of an operation (2.2) - (8.5)
-Loss on closure of business - - (2.7)
(9.7) (2.3) (17.6)
(Loss)/profit on ordinary activities
before interest and taxation (26.2) 41.5 39.0
Net finance charges and similar items (6.6) (9.9) (19.2)
(Loss)/profit on ordinary activities before taxation (32.8) 31.6 19.8
Taxation 4 (2.3) (10.3) (12.5)
(Loss)/profit on ordinary activities after taxation (35.1) 21.3 7.3
Equity minority interest (0.2) (0.8) (1.4)
Net (loss)/profit attributable to The Morgan Crucible Company plc (35.3) 20.5 5.9
Preference dividends on non-equity shares (1.1) (1.0) (2.1)
Ordinary dividends on equity shares - (17.2) (17.2)
Retained (loss)/profit for the period (36.4) 2.3 (13.4)
Earnings per share 5
Underlying earnings per share
- before goodwill amortisation 2.2p 10.9p 12.5p
- after goodwill amortisation 0.5p 9.3p 9.2p
Underlying diluted earnings per share 0.5p 9.3p 9.2p
After all post tax exceptional items:
Basic earnings per share
- before goodwill amortisation (14.0p) 10.0p 5.0p
- after goodwill amortisation (15.7p) 8.4p 1.6p
Diluted earnings per share (15.7p) 8.4p 1.6p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
for the six months ended 4 July 2002 Six months Six months Year
2002 2001 2001
£m £m £m
Net (loss)/profit attributable to shareholders (35.3) 20.5 5.9
Foreign currency translation (7.8) 2.2 (1.4)
Prior year adjustment - Deferred Tax (21.8)
Total recognised gains and losses relating to the period (64.9) 22.7 4.5
CONSOLIDATED BALANCE SHEET
as at 4 July 2002
Restated Restated
Unaudited Unaudited
Six months Six months Year
2002 2001 2001
Note £m £m £m
Fixed assets
Intangible assets - goodwill 134.9 140.2 138.4
Tangible assets 460.5 507.6 490.3
Investment in associated undertakings 1.2 - 1.2
Other investments 21.9 17.3 21.9
618.5 665.1 651.8
Current assets
Stocks 173.7 211.9 185.0
Debtors - due within one year 193.8 236.1 199.4
- due after one year 22.9 24.2 23.8
Total debtors 216.7 260.3 223.2
Cash at bank and in hand 66.6 84.2 72.7
457.0 556.4 480.9
Current liabilities 6 291.5 373.0 321.6
Net current assets 165.5 183.4 159.3
Total assets less current liabilities 784.0 848.5 811.1
Creditors - amounts falling due after more than one year
Borrowings 262.1 262.5 255.2
Exchangeable redeemable preference shares 3.5 4.4 4.5
Grants for capital expenditure 0.9 1.7 1.5
266.5 268.6 261.2
Provisions for liabilities and charges 138.5 135.0 128.4
405.0 403.6 389.6
NET ASSETS 379.0 444.9 421.5
Capital and reserves
Called up share capital (including non-equity interests) 88.3 88.3 88.3
Share premium account 44.4 44.5 44.4
Revaluation reserve 9.5 9.8 10.4
Other reserves 1.4 1.5 1.4
Profit and loss account 224.9 285.8 265.8
368.5 429.9 410.3
Minority interest
Equity 10.4 14.9 11.1
Non-equity 0.1 0.1 0.1
10.5 15.0 11.2
CAPITAL EMPLOYED 379.0 444.9 421.5
MOVEMENT IN SHAREHOLDERS' FUNDS
for the six months ended 4 July 2002
Six months Six months Year
2002 2001 2001
£m £m £m
Net (loss)/profit attributable to shareholders (35.3) 20.5 5.9
Repayment of capital investment - - (0.2)
Dividends (1.1) (18.2) (19.3)
(36.4) 2.3 (13.6)
New share capital - 0.2 0.1
Goodwill written back to profit and loss account from reserves 2.4 - -
Foreign currency translation (7.8) 2.2 (1.4)
Net (decrease)/increase to shareholders' funds (41.8) 4.7 (14.9)
Opening shareholders' funds - (originally £447.0m for half year 2001
and full year 2001, before FRS19 adjustment) 410.3 425.2 425.2
Closing shareholders' funds 368.5 429.9 410.3
CONSOLIDATED CASHFLOW STATEMENT
for the six months ended 4 July 2002
Six months Six months Year
Unaudited Unaudited
2002 2001 2001
Note £m £m £m £m £m £m
Net cash inflow from operating activities (a) 29.7 38.8 109.4
Returns on investments and servicing of finance
Interest received 1.6 6.2 3.2
Interest paid (8.6) (15.6) (22.9)
Preference dividends paid (1.0) (1.0) (2.1)
(8.0) (10.4) (21.8)
Taxation (3.7) (9.0) (14.1)
Capital expenditure and financial investments
Purchase of tangible fixed assets (19.0) (30.9) (57.6)
Proceeds on sale of tangible fixed assets 1.6 1.6 13.6
Purchase of investments (0.1) (0.3) (5.7)
Disposal of investments - - 0.4
(17.5) (29.6) (49.3)
Acquisitions and disposals
Acquisition of subsidiary undertakings - (39.7) (41.5)
Net cash acquired - - (0.6)
Deferred consideration for prior year (3.3) (2.4) (3.8)
acquisitions
Disposal of businesses (0.1) (5.0) (3.8)
(3.4) (47.1) (49.7)
Equity dividends paid (17.2) (17.2) (36.9)
Cash (outflow) before use of liquid
resources and financing (20.1) (74.5) (62.4)
Management of liquid resources 4.3 23.9 24.1
Financing
Increase in share capital - 0.2 0.1
Increase in bank loans 25.5 67.3 89.6
Repayment of bank loans (8.2) - (42.4)
Repurchase of exchangeable redeemable
preference shares (1.9) (4.3) (4.1)
15.4 63.2 43.2
Net (decrease)/increase in cash (0.4) 12.6 4.9
Reconciliation of net cashflow to
movement in net borrowings
Net (decrease)/increase in cash (0.4) 12.6 4.9
Cashflow from (increase) in loans (17.3) (67.3) (47.2)
Cashflow from (decrease) in deposits (4.3) (23.9) (24.1)
Cashflow from repurchase of exchangeable
redeemable preference shares 1.9 4.3 4.1
Change in net borrowings resulting from
cashflows (20.1) (74.3) (62.3)
Issue of exchangeable redeemable preference
shares (0.9) (1.0) (1.1)
Bank loans acquired with acquisitions - (0.3) (0.7)
Bank loans reduced with disposals (0.5) - 8.6
Exchange movement 2.5 (0.6) (0.6)
Movement in net borrowings during the period (19.0) (76.2) (56.1)
Opening net borrowings (276.1) (220.0) (220.0)
Closing net borrowings (295.1) (296.2) (276.1)
CONSOLIDATED FREE CASHFLOW
for the six months ended 4 July 2002
Six months Six months Year
Unaudited Unaudited
2002 2001 2001
Note £m £m £m
Net cash inflow from operating activities (a) 29.7 38.8 109.4
Net interest paid (7.0) (9.4) (19.7)
Taxation (3.7) (9.0) (14.1)
Net dividends paid (18.2) (18.2) (39.0)
Post dividend cashflow 0.8 2.2 36.6
Net capital expenditure (17.4) (29.3) (44.0)
Free cashflow (16.6) (27.1) (7.4)
(a) Reconciliation of operating (loss)/profit to net cash inflow from operating activities
Six
months Six
Contin- Discon- 2002 months Year
uing tinued Total 2001 2001
£m £m £m £m £m
Operating (loss)/profit (16.2) (0.3) (16.5) 43.8 56.6
Depreciation 24.3 0.1 24.4 25.6 48.0
Amortisation of goodwill 3.9 - 3.9 3.7 7.7
Loss on sale/write off of assets 13.7 - 13.7 (0.1) 0.3
Decrease/(increase) in stocks 4.8 (0.1) 4.7 (11.6) 6.7
Decrease/(increase) in debtors 2.2 0.2 2.4 1.0 22.5
Increase/(decrease) in creditors (9.8) (0.9) (10.7) (24.9) (33.5)
Increase/(decrease) in provisions 7.8 - 7.8 1.3 1.1
Net cash inflow from operating activities 30.7 (1.0) 29.7 38.8 109.4
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 2001 annual report and accounts. FRS19
(Deferred Tax) has been applied as a prior year adjustment.
Operating exceptionals are separately disclosed as they are considered
material to the statement and include redundancy and reorganisation costs.
The results and balance sheet for the year 2001 (as restated) 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
2002 2001 2001 2002 2001 2001
£m £m £m £m £m £m
Electrical Carbon 102.9 105.9 210.0 7.6 11.4 17.0
Magnetics 95.7 117.7 215.1 (1.2) 7.6 5.8
Engineered Carbon 56.7 68.3 127.3 2.0 6.6 8.4
Technical Ceramics 65.7 81.8 149.9 1.8 8.6 13.5
Insulating Ceramics 128.5 147.0 287.7 5.8 11.2 18.8
Continuing operations 449.5 520.7 990.0 16.0 45.4 63.5
Discontinued operations 0.9 19.6 34.5 (0.3) 2.1 0.8
450.4 540.3 1,024.5 15.7 47.5 64.3
Operating exceptionals (28.3) - -
Goodwill amortisation (3.9) (3.7) (7.7)
Group operating (loss)/profit (16.5) 43.8 56.6
The discontinued operation in 2002 is Morgan Matroc Barcelona and in 2001
the Aerotech business of MBM. The operating exceptionals of £28.3 million
comprise, Electrical Carbon £3.1 million, Magnetics £3.8 million,
Engineered Carbon £3.0 million, Technical Ceramics £2.5 million and
Insulating Ceramics £15.9 million.
Geographical area
The analysis shown below is based on the location of the contributing
companies:
Turnover Operating profit
Six Six Six Six
months months Year months months Year
2002 2001 2001 2002 2001 2001
£m £m £m £m £m £m
United Kingdom
Sales in the UK 21.0 26.1 48.5
Sales overseas 31.9 36.8 67.6
Total United Kingdom 52.9 62.9 116.1 2.6 4.3 4.4
Rest of Europe 182.4 203.4 398.6 5.3 19.9 26.3
The Americas 202.1 248.8 469.3 4.8 18.0 24.9
Far East and Australasia 48.2 43.2 81.4 2.7 2.2 6.0
Middle East and Africa 5.2 5.9 11.3 0.6 1.0 1.9
490.8 564.2 1,076.7 16.0 45.4 63.5
Discontinued operations 0.9 19.6 34.5 (0.3) 2.1 0.8
Inter-segment sales (41.3) (43.5) (86.7)
450.4 540.3 1,024.5 15.7 47.5 64.3
Operating Exceptionals (28.3)
Goodwill amortisation (3.9) (3.7) (7.7)
Group operating (loss)/profit (16.5) 43.8 56.6
The analysis shown below is based on the location of the customer:
Turnover
Six months Six months Year
2002 2001 2001
£m £m £m
United Kingdom 33.3 38.3 73.7
Rest of Europe 156.9 182.2 341.4
The Americas 191.5 229.8 433.7
Far East and Australasia 59.5 61.1 123.0
Middle East and Africa 8.3 9.3 18.2
449.5 520.7 990.0
Discontinued operations 0.9 19.6 34.5
450.4 540.3 1,024.5
3. Corporate exceptional items
In 2002, the exceptional loss related mainly to the disposal of Morgan
Matroc Barcelona whereas, in 2001 the exceptional loss arose principally on
the partial disposal of Shinagawa (21%) and various property disposals.
4. Taxation
Six months Six months Year
2002 2001 2001
£m £m £m
United Kingdom taxes 0.1 4.3 10.2
Overseas taxes 2.2 6.0 2.3
Total taxation 2.3 10.3 12.5
The total taxation charge for the six months to 4 July 2002 of £2.3 million
(2001 : £10.3 million) includes a tax credit on exceptional items of £0.4
million (2001 : £0.2 million tax credit).
The interim taxation charge is calculated by applying the Directors' best
estimate of the annual tax rate to the taxable profit for the period.
5. Earnings per Ordinary share
Six months Six months Year
a. Basic and underlying earnings per share 2002 2001 2001
£m £m £m
(Loss)/profit after tax and minority interest (35.3) 20.5 5.9
Preference dividend (1.1) (1.0) (2.1)
Basic earnings after goodwill amortisation (36.4) 19.5 3.8
Goodwill amortisation 3.9 3.7 7.7
Basic earnings before goodwill amortisation (32.5) 23.2 11.5
Adjusted by all post tax exceptional items 37.6 2.1 17.6
Underlying earnings - before goodwill amortisation 5.1 25.3 29.1
- after goodwill amortisation 1.2 21.6 21.4
Weighted average number of Ordinary shares 231,988,242 231,930,758 231,958,292
Underlying earnings per share - before goodwill amortisation 2.2p 10.9p 12.5p
- after goodwill amortisation 0.5p 9.3p 9.2p
Basic earnings per share - before goodwill amortisation (14.0p) 10.0p 5.0p
- after goodwill amortisation (15.7p) 8.4p 1.6p
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.
b. Diluted earnings Six months Six months Year
2002 2001 2001
£m £m £m
(Loss)/profit after tax and minority interest (35.3) 20.5 5.9
Preference dividend as calculated under FRS14 (1.1) - (2.1)
Diluted earnings (36.4) 20.5 3.8
Adjusted by all post tax exceptional items 37.6 2.1 17.6
Underlying diluted earnings 1.2 22.6 21.4
Weighted average number of Ordinary shares 231,988,242 231,930,758 231,958,292
Dilutive effect of share option schemes - 556,191 292,752
Dilutive effect if Preference shares converted - 10,259,858 -
Weighted average number of diluted shares 231,988,242 242,746,807 232,251,044
Diluted earnings per share (15.7p) 8.4p 1.6p
Underlying diluted earnings per share 0.5p 9.3p 9.2p
6. Current liabilities
Current liabilities include bank loans and overdrafts of £96.1 million
(4 July 2001 : £113.5 million; 4 January 2002 : £89.1 million).
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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