Interim Results

Yule Catto & Co PLC 31 August 2000 HIGHLIGHTS: - Turnover of continuing operations at £259.4m contains good organic growth. - Constant currency profit before taxation close to last year. - Significant reduction in borrowings. - Further dividend increase of 4.4%. - Restructuring of the group well advanced. Commenting on the results, Alex Walker, Chief Executive, said: 'The steep rise in the well-publicised price of petroleum-based raw materials masks what has been an important phase in the development of Yule Catto, during which we have strengthened our financial base and continued repositioning of the group in sectors that will deliver future growth. In common with others in our industry, the short term impact of high input costs remains a preoccupation.' For further information, please contact: Mr Alex Walker, Chief Executive 01279 442791 Mr Sean Cummins, Finance Director 01279 442791 FINANCIAL HIGHLIGHTS Continuing operations 2000 1999 Six months to 30 June Notes £000 £000 Total turnover 1 259,407 226,103 Ebitda 1,2 40,281 38,543 Total operating profit 1,3 30,733 30,843 Profit before taxation 3 23,343 24,913 Net borrowings 152,376 164,358 Free cash flow before dividends 4,704 167 Adjusted earnings per share 4 10.8p 11.4p Earnings per share - FRS3 6.5p 7.9p Dividends per share 4.7p 4.5p Notes: 1. Including attributable share of joint ventures 2. Earnings before interest, tax, depreciation and amortisation. 3. Before amortisation of goodwill. 4. Adjusted earnings per share excludes the amortisation of goodwill. CHAIRMAN'S STATEMENT Overview Good progress has been achieved in restructuring the group, reducing debt, increasing dividends paid to shareholders and investing in future growth initiatives. Exchange rate movements continue to have an adverse translation effect on the consolidation of overseas results. A favourable product mix, improvements in productivity and the benefits of new products have generally offset the impact of a very difficult raw material environment resulting in a constant currency profit within 2% of last year at £23.3 million. The increase of 4.4% in the interim dividend reflects your Board's confidence in the future prospects for our group. Review of Operations Polymer chemicals The rising cost of major raw materials experienced towards the end of 1999 persisted relentlessly throughout the first half of 2000. We have enjoyed strong volume growth but despite achieving improvements in selling prices, unit margins have inevitably come under pressure. Emulsion resins saw volumes advance in all territories with the continuing growth in the Far East particularly pleasing. Auxiliary polymers benefited from a buoyant PVC market and the increased market penetration of newer products. We continue to expand into more technically demanding applications for synthetic latex and we are pleased to confirm that the Malaysian government has granted an advantageous taxation status to the recently announced expansion at our facility in Kluang. The investment will provide exciting growth opportunities to an already flourishing business. In the meantime, the coming months will continue to be challenging for the division as a whole, with third quarter input prices high and the timing of the inevitable fall providing the greatest uncertainty. Pharma & fine chemicals With margins in line with expectations, sales of generic actives continue to produce excellent profits for the group but volume was held back by customer destocking. We have invested in additional marketing and technical expertise, which will be supported by a new pilot plant facility. This will increase the pace of development of our diversified pipeline of generic and ethical drug intermediates and provide a strong platform for future growth. The benefits of this investment are already emerging with sales of ethical products substantially increased in the period. New contracts with major flavour and fragrance houses have ensured a high level of utilisation of our new facility dedicated to odour critical products. The progress of our Dutch company stalled in the second quarter as an explosion at a supplier resulted in a critical raw material being temporarily unavailable. Consequently production has been limited to half of its normal capacity, with recommencement of raw material supply anticipated during the third quarter. Performance chemicals New pyrazole product introductions directed at hair dye applications have enjoyed a rapid take-up with further launches expected later in the year. Sales to the timber treatment industry were at a high level as were sales of other speciality inorganic products. Volume growth in pigments has been particularly strong following further recovery in the Asian market enhanced by a successful penetration into China. Investment in kiln rebuilds has improved efficiency, capacity and product quality. The higher profit also reflects the benefit of restructuring undertaken during last year. Building products After a slow start to the year, the division has seen an improving order intake which, coupled with a restructuring within the office partitions sector will recover profitability in the second half. Discontinued operations During the last six months we have made significant progress on the realignment of the group's activities to provide more focus on Speciality Chemicals. We successfully sold our business involvement in rooflights and plastic sheet distribution in May for £53.1 million, producing an exceptional profit on disposal of £20.5 million. In early July we announced the sale of our flat roof waterproofing operation and further changes to the group's portfolio are expected in the second half of the year. Cash Flow Cash management remains a key priority for the group and it is pleasing to report that net debt has fallen to £152.4 million, primarily driven by our disposal exercise but further assisted by a free cash flow from operations of £4.7 million. The significant rise in raw material cost and the resultant selling price increases have placed pressure on working capital. However, sound management action has largely counteracted the impact. Additional capacity and process improvements have been the focus of a greater level of expenditure on fixed assets, which will progressively increase as we commence construction of our synthetic latex facility in Malaysia. We have purchased 5,035,773 shares in the open market for cancellation at a cost of £10 million. Further to the approval granted at the Annual General Meeting on 23 May 2000 it is the intention of your Directors to continue to purchase shares for cancellation whilst market sentiment causes the shares to trade significantly below their long term value. Dividend The interim dividend of 4.7 pence per ordinary share will be paid on 22 November 2000 to members on the register at the close of business on 6 October 2000. The dividend reinvestment plan introduced last year will be offered until further notice. e-Commerce Following a successful implementation of integrated IT systems throughout the group, we are concentrating on maximising the benefits of internet technology. The group's strategy is being developed by a dedicated team focused upon delivering the best solutions for the various markets in which we operate. Changes to the Board of Directors Following an unforeseeable increase in commitment required to satisfy other business interests, John Napier has regrettably resigned from the Board with immediate effect. Outlook Near term trading conditions are overshadowed by high raw material prices and while there are signs that the pressures may ease they will be a feature of much of the remainder of this year. We shall continue to restructure the group, invest in technology, processes and new products to come through the current industry cycle confident that shareholders will benefit. Looking further ahead, the work undertaken to reposition the group will produce positive results and deliver exciting growth prospects. A E Richmond-Watson 31 August 2000 CONSOLIDATED PROFIT & LOSS ACCOUNT for the six months ended 30 June 2000 6 months ended 30 June 2000 Continuing Discontinued operations operations Total Unaudited Unaudited Unaudited £000 £000 £000 Turnover of company and subsidiaries 236,589 22,008 258,597 Share of turnover of joint ventures 22,818 1,510 24,328 ------- ------- ------- Total turnover 259,407 23,518 282,925 ======= ======= ======= Operating profit Existing operations 27,218 1,514 28,732 Amortisation of goodwill (6,490) - (6,490) ------- ------- ------- Operating profit of company and subsidiaries 20,728 1,514 22,242 Share of operating profit of joint ventures 3,515 150 3,665 ------- ------- ------- Total operating profit 24,243 1,664 25,907 Sale and termination of businesses - 30,332 30,332 Interest payable (net) (7,390) - (7,390) ------- ------- ------- Profit on ordinary activities before taxation 16,853 31,996 48,849 Taxation on profit on ordinary activities (6,419) (10,379) (16,798) ------- ------- ------- Profit on ordinary activities after taxation 10,434 21,617 32,051 Minority interests (665) - (665) ------- ------- ------- Profit attributable to shareholders 9,769 21,617 31,386 Ordinary dividends (6,879) - (6,879) ------- ------- ------- Retained profit for the financial year 2,890 21,617 24,507 ======= ======= ======= Operating profit before amortisation 30,733 1,664 32,397 Profit before taxation (excluding amortisation and sale and termination of businesses) 23,343 1,664 25,007 Earnings per share - Adjusted 10.8p 0.5p 11.3p - FRS3 6.5p 14.3p 20.8p Dividends per ordinary share 4.7p - 4.7p CONSOLIDATED PROFIT & LOSS ACCOUNT continued for the six months ended 30 June 2000 6 months ended 30 June 1999 Continuing Discontinued operations operations Total Unaudited Unaudited Unaudited £000 £000 £000 Turnover of company and subsidiaries 178,955 31,889 210,844 Share of turnover of joint ventures 47,148 2,360 49,508 ------- ------- ------- Total turnover 226,103 34,249 260,352 ======= ======= ======= Operating profit Existing operations 20,947 2,202 23,149 Amortisation of goodwill (5,294) - (5,294) ------- ------- ------- Operating profit of company and subsidiaries 15,653 2,202 17,855 Share of operating profit of joint ventures 9,896 294 10,190 ------- ------- ------- Total operating profit 25,549 2,496 28,045 Sale and termination of businesses - - - Interest payable (net) (5,930) - (5,930) ------- ------- ------- Profit on ordinary activities before taxation 19,619 2,496 22,115 Taxation on profit on ordinary activities (6,852) (686) (7,538) ------- ------- ------- Profit on ordinary activities after taxation 12,767 1,810 14,577 Minority interests (482) - (482) ------- ------- ------- Profit attributable to shareholders 12,285 1,810 14,095 Ordinary dividends (6,941) - (6,941) ------- ------- ------- Retained profit for the financial year 5,344 1,810 7,154 ======= ======= ======= Operating profit before amortisation 30,843 2,496 33,339 Profit before taxation (excluding amortisation and sale and termination of businesses) 24,913 2,496 27,409 Earnings per share - Adjusted 11.4p 1.2p 12.6p - FRS3 7.9p 1.2p 9.1p Dividends per ordinary share 4.5p - 4.5p CONSOLIDATED PROFIT & LOSS ACCOUNT continued for the six months ended 30 June 2000 12 months ended 31 December 1999 Total Audited £000 Turnover of company and subsidiaries 442,433 Share of turnover of joint ventures 89,758 ------- Total turnover 532,191 ======= Operating profit Existing operations 48,319 Amortisation of goodwill (10,796) ------- Operating profit of company and subsidiaries 37,523 Share of operating profit of joint ventures 17,738 ------- Total operating profit 55,261 Sale and termination of businesses - Interest payable (net) (11,847) ------- Profit on ordinary activities before taxation 43,414 Taxation on profit on ordinary activities (14,908) ------- Profit on ordinary activities after taxation 28,506 Minority interests (1,571) ------- Profit attributable to shareholders 26,935 Ordinary dividends (17,246) ------- Retained profit for the financial year 9,689 ======= Operating profit before amortisation 66,057 Profit before taxation (excluding amortisation and sale and termination of businesses) 54,210 Earnings per share - Adjusted 24.5p - FRS3 17.5p Dividends per ordinary share 11.2p CONSOLIDATED BALANCE SHEET as at 30 June 2000 30 June 30 June 31 December 2000 1999 1999 Unaudited Unaudited Audited £000 £000 £000 Fixed assets Goodwill 231,891 191,985 240,020 Tangible fixed assets 156,640 143,730 160,942 Investment in joint ventures 12,538 25,114 14,053 Investments 64 44 48 ------- ------- ------- 401,133 360,873 415,063 ------- ------- ------- Current assets Stocks 55,610 58,373 58,237 Debtors 111,493 108,495 115,099 Bank and cash balances 6,446 6,960 9,521 ------- ------- ------- 173,549 173,828 182,857 Creditors - due within one year Borrowings (37,662) (40,816) (34,382) Dividends (17,212) (17,110) (10,336) Other creditors (128,943) (105,969) (125,136) ------- ------- ------- Net current (liabilities)/assets (10,268) 9,933 13,003 ------- ------- ------- Total assets less current liabilities 390,865 370,806 428,066 Creditors - due after one year Borrowings (121,160) (130,502) (177,513) Other creditors (576) (1,571) (1,912) Provisions for liabilities and charges (8,711) (5,521) (9,884) ------- ------- ------- Net assets 260,418 233,212 238,757 ======= ======= ======= Capital and reserves Called up share capital 14,930 15,424 15,427 Reserves 240,405 213,256 218,341 ------- ------- ------- Shareholders' funds 255,335 228,680 233,768 Minority interests 5,083 4,532 4,989 ------- ------- ------- Capital employed 260,418 233,212 238,757 ======= ======= ======= CONSOLIDATED CASH FLOW STATEMENT for the six months ended 30 June 2000 6 months 6 months 12 months ended ended ended 30 June 30 June 31 December 2000 1999 1999 Unaudited Unaudited Audited £000 £000 £000 Net cash inflow from operating activities 28,184 20,378 69,818 Dividends received from joint ventures 1,251 1,327 6,963 Returns on investments and servicing of finance Net interest paid (8,753) (7,967) (12,940) Dividends paid to minority interests (824) (886) (1,393) ------- ------- ------- Net cash outflow from returns on investments and servicing of finance (9,577) (8,853) (14,333) ------- ------- ------- Taxation (4,894) (4,683) (9,079) ------- ------- ------- Capital expenditure and financial investment Purchase of tangible fixed assets (10,439) (8,079) (17,723) Sale of tangible fixed assets 199 95 741 Investments net of disposals (20) (18) (2) ------- ------- ------- (10,260) (8,002) (16,984) ------- ------- ------- Free cash flow before dividends 4,704 167 36,385 Acquisitions and disposals Sale and purchase of businesses 53,133 - (56,684) Equity dividends paid - - (17,079) ------- ------- ------- Cash inflow/(outflow) before management of liquid resources and financing 57,837 167 (37,378) Financing Issue of ordinary share capital 32 323 381 Purchase of own shares (9,979) - - Exchange movements 2,108 1,681 1,152 ------- ------- ------- Movement in net borrowings 49,998 2,171 (35,845) ======= ======= ======= NOTES TO THE FINANCIAL STATEMENTS 30 June 2000 1. Analysis of total turnover 6 months ended 30 June 2000 Continuing Discontinued operations operations Total Unaudited Unaudited Unaudited £000 £000 £000 Analysis by activity Polymer Chemicals 113,121 - 113,121 Pharma & Fine Chemicals 49,362 - 49,362 Performance Chemicals 82,698 - 82,698 Building Products 14,226 23,518 37,744 ------- ------- ------- 259,407 23,518 282,925 ======= ======= ======= 6 months ended 30 June 1999 Continuing Discontinued operations operations Total Unaudited Unaudited Unaudited £000 £000 £000 Analysis by activity Polymer Chemicals 85,989 - 85,989 Pharma & Fine Chemicals 53,688 - 53,688 Performance Chemicals 73,143 - 73,143 Building Products 13,283 34,249 47,532 ------- ------- ------- 226,103 34,249 260,352 ======= ======= ======= 2. Analysis of profit 6 months ended 30 June 2000 Continuing Discontinued operations operations Total Unaudited Unaudited Unaudited £000 £000 £000 Analysis by activity Polymer Chemicals 13,887 - 13,887 Pharma & Fine Chemicals 8,668 - 8,668 Performance Chemicals 10,572 - 10,572 Building Products (135) 1,664 1,529 Holding companies (2,149) - (2,149) Interest payable by joint ventures (110) - (110) ------- ------- ------- 30,733 1,664 32,397 ======= ======= ======= 6 months ended 30 June 1999 Continuing Discontinued operations operations Total Unaudited Unaudited Unaudited £000 £000 £000 Analysis by activity Polymer Chemicals 13,853 - 13,853 Pharma & Fine Chemicals 10,876 - 10,876 Performance Chemicals 8,816 - 8,816 Building Products (16) 2,496 2,480 Holding companies (2,475) - (2,475) Interest payable by joint ventures (211) - (211) ------- ------- ------- 30,843 2,496 33,339 ======= ======= ======= 3. These accounts have been prepared on the basis of the accounting policies set out in the group's audited accounts for the year ended 31 December 1999. 4. The financial information for the year ended 31 December 1999 has been extracted from the statutory accounts, which have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain any statement under section 237 of the Companies Act 1985. 5. This statement will be sent to all shareholders by 1 September 2000 and can be obtained by the public from the company's registered office at Temple Fields, Harlow, Essex CM20 2BH. 6. An interim dividend of 4.7p (4.5p) per share, totalling £7.0 million (£6.9 million) has been declared by the directors. 7. Earnings per ordinary share are based on the attributable profit for the period and the weighted average number of shares in issue during the period - 150.9 million (154.2 million). 8. Adjusted earnings per share excludes the sale and termination of businesses and the amortisation of goodwill.

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