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Yule Catto & Co. (SYNT)

  Print      Mail a friend       Annual reports

Wednesday 14 March, 2001

Yule Catto & Co.

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


        *     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        

        *     Results affected by high monomer costs and shortage of a key raw

        *     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

                                                                 14 March 2001


YULE CATTO                                                    Tel: 01279 442791
Alex Walker, Chief Executive
Sean Cummins, Finance Director

COLLEGE HILL                                                 Tel: 020 7457 2020
Gareth David                                Email: [email protected]
Justine Warren                            Email: [email protected]

                           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
Profit/(loss) attributable to                 10,942     22,081 (2,845)  26,935
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

                           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

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


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


                                                                 14 March 2001


                    Continuing Discontinued Total Continuing Discontinued Total
                    operations   Operations       operations   operations
                          2000         2000  2000       1999        1999   1999
                          £000         £000  £000       £000        £000   £000
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
(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)
Total operating         35,795        (685) 35,110     48,433      6,828  55,261
Sale and                     -      (4,884) (4,884)          -         -       -
termination of
Costs of               (2,334)            - (2,334)          -         -       -
Interest payable      (11,913)            - (11,913)   (11,847)       - (11,847)
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)
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

                                                    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

                                                        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

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

                                                                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.


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

 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.


                                                        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

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.


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

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

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.

                                                       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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