Preliminary Results

Yule Catto & Co PLC 14 March 2001 YULE CATTO & COMPANY PLC Preliminary Results for the year ended 31 December 2000 Yule Catto is an international producer of speciality chemicals, which are supplied to global customers, ranging from manufacturers of medical gloves, paint and adhesives to the pharmaceuticals and cosmetics industries HIGHLIGHTS * Group reshaped by sale of Building Products companies and closure of loss making subsidiaries * Increase in turnover of continuing operations to £473.6m (1999: £433.6m); assisted by first full year of 100% ownership of Synthomer * Results affected by high monomer costs and shortage of a key raw material * Profit before taxation, amortisation of goodwill and exceptional items of £36.2m * Borrowings reduced by £37.6m to £164.8m * Further increase in dividends of 4% to 11.6 pence per share Anthony Richmond-Watson, Chairman, comments: 'Decisive restructuring has been undertaken and major capital investment will come on stream early next year. In our particular markets demand remains solid and we are seeing an improvement in results over the fourth quarter of last year. We are confident that the group is positioned to deliver good long-term performance'. 14 March 2001 ENQUIRIES: YULE CATTO Tel: 01279 442791 Alex Walker, Chief Executive Sean Cummins, Finance Director COLLEGE HILL Tel: 020 7457 2020 Gareth David Email: gareth.david@collegehill.com Justine Warren Email: justine.warren@collegehill.com YULE CATTO & COMPANY PLC Preliminary Results for the year ended 31 December 2000 RESULTS SUMMARY Continuing Continuing operations operations Total Total 2000 1999 2000 1999 audited audited Audited Audited £'000 £'000 £000 £000 Total Turnover 473,599 433,589 511,993 532,191 Earnings before taxation, interest depreciation and amortisation 65,502 72,363 66,752 82,553 Operating profit before amortisation 48,750 59,229 48,065 66,057 Total operating profit 35,795 48,433 35,110 55,261 Profit before taxation and amortisation * 36,837 47,382 36,152 54,210 Profit on ordinary activities before 21,548 36,586 15,979 43,414 taxation Profit/(loss) attributable to 10,942 22,081 (2,845) 26,935 shareholders Net borrowings 164,785 202,374 Free cash flow before dividends 10,255 36,385 Adjusted earnings per ordinary share 17.2p 21.3p 16.9p 24.5p Earnings per ordinary share - FRS3 7.3p 14.3p (1.9)p 17.5p Dividends on ordinary shares: 4.7p 4.5p Interim paid November Final proposed/paid 6.9p 6.7p Total dividend 11.6p 11.2p Note: Subject to shareholders' approval, the final dividend of 6.9 pence will be payable on 5 July 2001 to those shareholders registered on 17 April 2001. * Excludes sale and termination of businesses and costs of fundamental restructuring YULE CATTO & COMPANY PLC Preliminary Results for the year end 31 December 2000 CHAIRMAN'S STATEMENT Yule Catto achieved major advances last year in the realignment of its operations towards being a focussed speciality chemical group, despite particularly difficult market conditions. Having acquired full ownership of the synthetic latex operations of Synthomer in the final quarter of 1999, we embarked on a disposal exercise directed at our non-core Building Products division. We are pleased to report that total cash inflow of the initiative at £62.4 million exceeded our original expectation, fully covering the additional investment in Synthomer. Mid year we made a modest initial investment in India, which provides a low cost capability to undertake a wide range of chemical syntheses and produce multi-stage organic intermediates. More recently we confirmed our withdrawal from the highly competitive market for printing and textile dyes through the closure of Holliday Dyes & Chemicals Limited and ceased manufacturing in China where competitive activity precluded achievement of a positive financial return, even in the medium term. We end the year with a greater proportion of turnover concentrated in more technically demanding applications, which provides a solid platform for future profit growth. Turnover of £512.0 million was slightly below the level achieved last year. Profit performance in 2000 provided a number of challenges, with reported results being adversely affected by an estimated £18 million in two specific areas. The sharp increase in the cost of our major raw materials, supported by the continuing strength in the price of oil, inevitably caused a squeeze on margins. Volume demand was strong across many of our market sectors but whilst selling price increases were achieved, monomer costs continued to rise throughout the year to unprecedented levels, reducing profitability by £14 million. Production at our Dutch fragrance facility was limited to less than half its normal capacity for much of the year due to a critical raw material being unavailable following an explosion at the supplier's premises. The ensuing lost sales and production inefficiencies caused profit to fall by around £4 million. The resultant depressed profit before exceptionals and amortisation of goodwill at £36.2 million masked the benefits of new product introductions, a favourable product mix and improvements in productivity across a number of our businesses. As a consequence of the reshaping undertaken during the year there is a net exceptional charge to profit before taxation of £7.2 million for the sale, termination and fundamental restructuring of businesses. As we enter a new year, there are indications that high raw material prices may subside, and our Dutch facility is back to normal production which will progressively re-establish profitability. With the confidence of these further benefits in prospect, your directors have proposed a final dividend of 6.9 pence per share, making a total of 11.6 pence for 2000, an increase of 4% over last year. Primarily driven by the successful disposal exercise, net borrowings at the year-end reduced by £37.6 to £164.8 million. Taking advantage of the low rating of our shares, we acquired for cancellation 9.5 million shares in the open market at a cost of £17.9 million. An active capital expenditure programme, nearly 50% above 1999, was directed towards additional capacity and process improvements to promote further growth. Working capital levels were under considerable pressure due to the significant rise in the price of raw materials, but sound management action largely compensated for the increases. The commitment and hard work of our employees around the world is our most valuable asset. I would particularly like to thank everyone for their efforts in 2000, which was a year of change set against a background of trying trading conditions. Outlook Growth rate forecasts for the major economies are currently being scaled back, causing global uncertainty and the potential for reduced demand. To set against this, the factors that blighted our results in 2000 are unlikely to recur. Decisive restructuring has been undertaken and major capital investment will come on stream early next year. In our particular markets demand remains solid and we are seeing an improvement in results over the fourth quarter of last year. We are confident that the group is positioned to deliver good long-term performance. ANTHONY RICHMOND-WATSON Chairman 14 March 2001 CONSOLIDATED PROFIT & LOSS ACCOUNT Continuing Discontinued Total Continuing Discontinued Total operations Operations operations operations 2000 2000 2000 1999 1999 1999 £000 £000 £000 £000 £000 £000 Turnover Subsidiaries 433,330 36,889 470,219 351,727 90,706 442,433 Joint Ventures 40,269 1,505 41,774 81,862 7,896 89,758 Total turnover 473,599 38,394 511,993 433,589 98,602 532,191 Operating profit/ (loss) before amortisation (including share of joint ventures) 48,750 (685) 48,065 59,229 6,828 66,057 Amortisation of (12,955) - (12,955) (10,796) - (10,796) goodwill Total operating 35,795 (685) 35,110 48,433 6,828 55,261 profit/(loss) Sale and - (4,884) (4,884) - - - termination of businesses Costs of (2,334) - (2,334) - - - fundamental restructuring Interest payable (11,913) - (11,913) (11,847) - (11,847) (net) Profit/(loss) on ordinary activities before taxation 21,548 (5,569) 15,979 36,586 6,828 43,414 Taxation on profit/ (loss) on ordinary activities (9,922) (8,273) (18,195) (13,030) (1,878) (14,908) Profit/(loss) on ordinary activities after taxation 11,626 (13,842) (2,216) 23,556 4,950 28,506 Minority interests (684) 55 (629) (1,475) (96) (1,571) Profit/(loss) attributable to shareholders 10,942 (13,787) (2,845) 22,081 4,854 26,935 Ordinary dividends (16,643) (16,643) (17,246) - (17,246) Retained (loss)/ profit for the financial year (5,701) 13,787 (19,488) 4,835 4,854 9,689 CONSOLIDATED BALANCE SHEET 2000 1999 Audited Audited £'000 £'000 Goodwill 225,680 240,020 Fixed Assets 153,265 175,043 Working capital and provisions 9,197 36,404 Dividends (9,991) (10,336) Net borrowings (164,785) (202,374) Net assets 213,366 238,757 Shareholders' funds 208,949 233,768 Minority interests 4,417 4,989 Capital employed 213,366 238,757 CONSOLIDATED CASH FLOW STATEMENT 2000 1999 Audited Audited £000 £000 Net cash inflow from operating activities 51,146 69,818 Interest paid (12,220) (12,940) Dividends received less paid 4,926 5,570 Taxation paid (8,856) (9,079) Capital expenditure (24,741) (16,984) Free cash flow before dividends 10,255 36,385 Acquisition and disposal of businesses 61,962 (56,684) Equity dividends paid (16,988) (17,079) Issue of ordinary shares 36 381 Purchase of own shares (17,924) - Exchange movements 248 1,152 Movement in net borrowings 37,589 (35,845) Copies of the 2000 Annual Report will be posted to shareholders on 11 April 2001 The financial information set out above does not comprise the company's statutory accounts. Statutory accounts for the previous financial year ended 31 December 1999, have been delivered to the Registrar of Companies. The auditors' report on the accounts was unqualified and did not contain any statement under section 237 (2) or (3) of the Companies Act 1985. The auditors have given an unqualified opinion on the accounts for the year ended 31 December 2000 which will be delivered to the Registrar of Companies following the annual general meeting. YULE CATTO & COMPANY PLC Preliminary Results for the year end 31 December 2000 REVIEW OF OPERATIONS POLYMER CHEMICALS 2000 1999 £'000 £'000 Turnover including share of joint ventures 217,216 176,800 Operating profit including share of joint ventures 22,781 27,282 Assisted by the first full year of ownership of 100% of the Synthomer companies, turnover of the Yule Catto polymer activities rose by 23%. Throughout the whole of 2000 our management teams had to deal with the difficulties caused by the increase in the price of crude oil underpinned by OPEC restrictions on production and strong demand for downstream products. In general, we continue to position all our businesses to achieve the lowest possible dependence on sales of commodity products. This strategy serves us well and we are recognised as leaders in the most technically demanding applications in all our major markets. While this obviously provides the best hedge against raw material fluctuations, we were unable to withstand fully the inevitable margin pressure. Therefore, despite implementing cost reduction programmes, our polymer businesses recorded a fall in profitability. The continuing strength of sterling also brought new pressures for our UK companies in the form of competition from continental Europe. This has been successfully resisted by means of our traditionally high levels of technical service helped by most monomers being Euro denominated. There are signs that supply and demand of raw materials are becoming more balanced as crude oil prices find a new level and consumption of monomers slows for the larger commodity applications. Additionally, in line with others in the water based polymer industry, price increases have been implemented assisting in the re-establishment of appropriate margins. All our manufacturing facilities have benefited from investment in 2000. A major new plant to make SBR latex is under construction in Malaysia and de-bottlenecking programmes were implemented in all plants along with investment in safety, health and environmental improvements. Rationalisation and globalisation are a feature of the major markets we serve and we are responding to this, not only by building plants in new locations, but also strengthening our global sales and distribution infrastructure. These actions make us well placed to support multinational partners who demand global product availability. Synthetic Rubber Latices With very high levels of production capacity utilisation in UK and Germany the focus for growth in our styrene butadiene products remains centred upon technically advanced applications. At a time when margin erosion has been particularly fierce in the commodity paper and carpet sectors, we have been able to free capacity by selective withdrawal from unprofitable businesses. The announced investment of £16 million in a greenfield SBR latex facility in Malaysia to serve the dipping and speciality sectors is now proceeding well and will be commissioned in early 2002. Much of the world's dipping industry is centred in S.E. Asia and we are already able to claim market leadership from our European plants. By means of this investment we shall be able to satisfy customers from local production. Spare capacity created in Europe is already earmarked for further penetration in speciality sectors with good growth prospects. Although margins have been under pressure in the carpet sector, good volumes of latex and compounds have partially compensated. We enjoy a major share of the European market, but there is opportunity for further growth supported by the location of our facilities close to key customers' plants in UK and continental Europe. Emulsions In the UK record emulsion volumes were achieved aided by targeted investment to increase capacity for speciality grades which is already well utilised. Margin came under intense pressure from rising raw material costs. Despite that and severe price competition from mainland Europe, we were able to improve penetration in the market for speciality adhesive applications, most notably in paper and film conversion. During the year our research and development activities were further enhanced by the commissioning of a new emulsion pilot plant. Even in the more traditional markets, opportunities for innovation are ever present with, for instance, consumer demand for 'greener' products for use in household paint leading to new emulsion grades being launched. The joint venture in Saudi Arabia made good progress and investment in improved infrastructure and bulk handling has further strengthened our position in the Kingdom and Gulf states. Our operations in South Africa enjoyed very high capacity utilisation. In recognition of this, further primary capacity is planned for 2001 both to support the domestic market as well as to reinforce our position as the dominant supplier in sub-Saharan Africa and the Indian Ocean islands. Whilst margins have been squeezed, record volumes more than compensated for the shortfall. In the Far East the more robust economic conditions in Malaysia again helped emulsion volumes make progress, but profits were constrained due to the high cost of monomers. In China, market conditions became untenable with third party over-capacity leading to a total collapse in margins. We judged that these conditions would continue and the decision was reluctantly taken to withdraw from this modest venture. Polyvinyl Acetate/Alcohol In line with world demand for PVC, sales of Alcotex primary stabilisers were softer in the second half of 2000. Global leadership in sales of Alcotex to the PVC industry was, however, further enhanced through record sales of secondary grades used in the manufacture of more specialised products. This provided a substantial offset in terms of volume to counteract margin pressure from the rising cost of vinyl acetate. In support of growing demand, a £3 million investment was completed in mid-2000 to increase the capacity of primary Alcotex by 25%. For the Mowilith polyvinyl acetate grades, a stronger penetration of the European market was achieved coupled with new product initiatives, leading to another year of record sales. Other Speciality Products For our Far Eastern water-based adhesives business, 2000 was a year of further records and illustrates an ability to take every advantage of the economic recovery in Malaysia as well as benefiting from export opportunities throughout the region. The alkyd and polyester resin business centred in the same region saw good acceptance of a number of new product introductions. Production ran at full capacity throughout the year and a major investment in de-bottlenecking and new reactor capacity has been approved for 2001. Whilst demand for Lithene polybutadiene remains slow in the traditional chlorinated rubber sector, excellent growth opportunities are being developed in the sealant and fuel additive markets. Lithene compounds in particular showed strong progress during the year. Natural rubber latices had a solid year and benefited from the withdrawal from centrifuging the previous year. Market conditions were far from easy with premiums in the natural rubber market falling to low levels. Set against this the maintenance of volumes and profitability says much for the skills of our marketing and technical teams. PHARMA AND FINE CHEMICALS 2000 1999 £'000 £'000 Turnover 88,021 95,874 Operating profit 11,272 18,641 Underlying opportunities continue to expand for our businesses in the Pharma and Fine Chemicals sectors. There was evidence of a broadening of the Pharma business base through new contracts for early stage drug development and a strong demand for the high impact molecules we manufacture for the flavour industry. However, there were some notable issues which held back progress in the year under review. A major problem arose from the loss of supply of a key raw material to PFW for the manufacture of its main musk fragrance occasioned by an explosion at the supplier's facility in the USA. This caused severe market difficulties and loss of profit. The management team has responded well with little market share lost and full production at our facility in Holland is now re-established. The continued aggressive pace of consolidation in the life science industry in 2000, affected short-term opportunities in the ethical sector. Generic price pressure through increased competition also meant that, although volumes rose, sales revenue remained relatively flat. Investment in support of this sector continues with a new state of the art pilot plant under construction in Spain for Pharma development and a similar facility in Italy is at the planning stage. Pharma The management reorganisation which unified marketing and product development under one team has settled down well giving Uquifa a much improved ability to service both the ethical and generic sectors of the pharmaceutical industry. An important number of key new customer relationships have been secured which will allow further product development in the coming year. In furtherance of our strategy, a US sales office was established in 2000 increasing Uquifa's everyday presence in the world's largest market. Our Spanish operations saw volumes grow in the year, particularly in the ethical sector, accompanied by a high level of activity in phase III product development. A breakthrough was achieved by securing contracts and undertaking development work on early stage drug development from both the major ethical houses and the biotech sector. This will continue at an increased rate in 2001 with a number of interesting contracts already in place. As expected, the generic active market was dominated by pricing issues, the response to which was a concentration on improving production efficiencies and a drive to sustain market share. Importantly, the anti-ulcer markets continue to grow and, with the pending patent expiry in the USA of Omeprazole, the future, while unpredictable, looks exciting. New business was gained for our Italian facility for its traditional antibiotic activities and drug master file submissions have been filed in the USA for Clindamycine and Minocycline. The increased sales of antibiotics offset the temporary cessation of ethical intermediate manufacture for a major pharmaceutical company caused by certain product launch failures. Two Phase II products from new customers also helped to counteract this short-term loss. The outlook is positive with the ethical intermediate contract recovered and the introduction of a further two new Phase I/II products in the main ozonolysis plant. Uquifa had a difficult year in Mexico with a further slowdown in the off-take of veterinary products. This was further exacerbated by the unexpected continuation of the strength of the Mexican Peso and high solvent prices. The response has been to initiate a major operational management restructuring to regain competitiveness, but the resultant costs pushed this business into loss in 2000. The Mexican facility is key to the generic product development strategy and three new products have been registered, with product patent expiries expected to begin towards the end of 2001. The strategy of having substantial free cGMP capacity across three countries continues, offering a broadening range of chemical synthetic technologies. The investment in the new high-level cGMP pilot plant facility in Spain is scheduled for completion in September 2001. This will underwrite the ability to provide quick response time to the chemical phase development of our widening customer base, especially in the biotech sector. We remain well placed to benefit from the continued strategy of outsourcing by the life science industry, as evidenced by the Phase I/II projects secured, with a prime goal being to further increase the number in our portfolio. The same holds true for the development of generic products where steps are in hand to increase registrations from three to six per annum in the coming years. Flavour and Fragrances Change remains a constant factor in this sector. Consolidation and the relocation of business from USA and Europe to Latin America and the Far East created opportunities and have led to us developing a strong global marketing presence to serve our customers. Oxford Chemicals recorded good progress despite prices being under pressure through the strength of sterling. The company's activities are one of the most suited to Internet trading and a new website has been successfully launched to take full advantage of this route to market. Nature identical products have always been a key part of Oxford's portfolio and with the increasing demand for 'natural' products in the USA the range is being extended both through own manufacture and traded products to provide a full product offering to customers. Whilst PFW has suffered badly from the incident at its largest raw material supplier, demand has remained strong for polycyclic musk and other fragrance products. The product allocation system introduced and the efforts to maintain supplies, sometimes at high cost, has gained praise from customers. With production having returned to normal levels, we look forward to a progressive return to better performance over the coming 12 months. This will be assisted through further market penetration of newer products and the introduction of novel environmentally friendly fragrance materials. PERFORMANCE CHEMICALS 2000 1999 £'000 £'000 Turnover 157,496 155,972 Operating profit 16,315 17,302 A good overall performance was recorded by our chemical companies focused upon serving niche markets. The hard work of recent years to increase efficiencies through rationalisation has begun to provide a positive impact on the profitability of our larger companies in this sector. Continuing deteriorating market conditions in the international dyestuffs sector sadly led to the announcement of the closure of the Holliday Dyes & Chemicals Ltd operations in Huddersfield, bringing to an end losses stretching back three years. Inorganic Chemicals Overall, forward momentum was recorded in both turnover and profit. The timber treatment business saw another record year and tin salt sales, particularly to the pharmaceutical industry were buoyant. Iodine related products experienced an excellent year following the restructuring of the operations and the securing of major new business in traditional areas. Worthy of note is expansion into new product applications into the electronics industry for the latest multi-layered silicon wafer manufacture. Sulphur dioxide derivatives saw some large consumers withdraw from manufacture in UK. However, results were aided by the continuation of a favourable raw material cost base and successful trials for new business auger well for 2001. Dyes and Pigments Ultramarine pigment enjoyed a strong 2000 with sales advancing in the major markets and the performance from Asian countries reaching an all time record. The increase in sales was supported by record output by our factories in UK and France where production was 10% ahead of 1999. Costs were well contained enabling the benefit of higher volumes to be fully reflected in a near record level of profitability. An important event relating to major environmental investment occurred in mid-year with the inauguration of the new Flue Gas Desulphurisation plant in Hull by the UK Deputy Prime Minister, John Prescott. Good growth was seen in the photographic and hair dye market. New product launches had a particularly favourable impact and more than compensated for increased competition in the commodity photographic applications. A major restructuring of the James Robinson Huddersfield site has been possible following the withdrawal from sulphur dyes and the provision of facilities to handle solvent based organic synthesis will greatly enhance the capability. After an extended period of development, the photochromic range of dyes for use in ophthalmic applications has gained enthusiastic acceptance with outstanding growth recorded in 2000 and excellent prospects for the future. In recognition of attractive capital investment possibilities and low operating costs, a joint venture was established in 2000 situated in Vapi, India with a well-established local company. Soon to be trading under the name James Robinson India (Pvt) Ltd, the company is investing in a new facility for photographic, hair dye and dyestuff intermediates with deliveries commencing in early 2001. During the last three years a major restructuring has taken place at Holliday Dyes & Chemicals. Despite continuing investment and cost control, a recovery has been hampered by intense competition from India and China. Serious over capacity in Europe for textile dyes and latterly the value of sterling for a business exporting a majority of its product, led to substantial losses with little prospect of recovery. After due consideration the closure of the business was announced and the site is now being progressively run down so as to minimise the environmental and financial impact. Other Activities The most important feature of the year for our Consumer Chemical businesses was the integration of operations on to one modern site in Moira in Leicestershire which will provide the opportunity to unlock operational efficiencies. Unforeseen problems arose during the move of part of the manufacturing facilities which caused service levels to suffer and impacted upon performance. The market remains sound and we look forward to better results as efficiencies emerge in 2001. Autoclenz performed well in an unsettled market place through widening their range of products and increasing their market share in the imported volume car sector. In 2000, the French inks business saw a steep reduction in profitability. While sales were close to 1999 levels margin was severely squeezed as petroleum based raw materials rose. The climate to achieve selling price increases improved in the latter part of the year. The continuing restructuring of the UK dispersion industry presented further challenges but new purchasing initiatives counteracted part of this problem and management changes begun in 1999 are also starting to show benefit. In France sales of dispersions advanced, but margins weakened due to rises in raw material price. There are, however, substantial new business opportunities that have been identified which hold out good prospects for the future.

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