2nd Aug 2005 07:01
Morgan Crucible Co PLC02 August 2005 INTERIM RESULTS FOR THE PERIOD ENDED 4 JULY 2005 2005 2004Revenue £m 391.7 406.2Underlying operating profit* £m 33.2 25.2Profit/(Loss) before taxation £m 15.1 (5.6)Net Debt £m 165.0 160.0Underlying EPS ** pence 6.3 4.1 * Defined as operating profit of £22.2 million (2004: £3.7 million) before financing costs of £6.7 million (2004: £8.8 million), restructuring costs of £9.8 million (2004: £14.8 million), costs associated with the settlement of prior period litigation of £1.2 million (2004: £2.7 million) and property disposals of £nil million (2004: £4.0 million). This measure of earnings is shown because the Directors consider that it gives a better indication of underlying performance.** Basic earnings/(loss) per share of 2.8p (2004: loss 12.7p) adjusted to exclude the after tax impact of restructuring costs, costs of settlement of prior period litigation and disposal of businesses and property of 3.5p (2004: 16.8p). • Total revenue £391.7 million (2004: £406.2 million). Turnover from continuing operations up 5.5% to £391.7 million (2004: £371.4 million) which included a favourable currency translation impact of £1.9 million. • Underlying operating profit up 31.7% to £33.2 million (2004: £25.2 million) which included a favourable currency translation impact of £0.3 million. • Underlying operating margins for continuing business improved from 6.8% to 8.5%. • Underlying EPS improved by 53.7% to 6.3p (2004: 4.1p). • Net debt, which is predominantly dollar denominated and therefore impacted by recent dollar strengthening, broadly in line with the comparative period at £165.0 million (2004: £160.0 million). • Restructuring costs of £9.8 million (2004: £14.8 million) as part of profit improvement initiatives and £1.2 million (2004: £2.7 million) on costs associated with the settlement of prior period litigation. • Profit improvement plan announced in February 2004 remains on track. Commenting on the results, Chief Executive Officer, Warren Knowlton said: "We are delivering on our promises and have shown good progress toward our commitment of achieving double digit operating margins by the end of 2006. In addition to improved financial performance, we are now also seeing the benefits of our strategic repositioning both of the Group overall and of each of the individual businesses. Our firm expectation is that this ongoing repositioning creates a strong platform for profitable growth and future shareholder value creation." Enquiries Warren Knowlton, Group Chief Executive 01753 837 306Mark Robertshaw, Chief Financial Officer 01753 837 302Charlotte Hepburne-Scott, Robin Walker, Finsbury 020 7251 3801 Strategy The profit improvement plan, as announced in February 2004, remains on track todeliver £50 million of annualised profit improvement by the end of 2006 at atotal cash cost of c. £70 million. For the first half of 2005, we incurred acash spend of £10.6 million on the plan and we are forecasting to spend abroadly similar level of cash in the remainder of the year. The profit improvement plan contained a number of commitments on ourshareholders and we are pleased to report that we are sticking to and deliveringon these commitments. The cost base continues to be managed downwards with ouremployee headcount mix being moved away from high cost regions such as theAmericas and Western Europe toward lower cost geographies. At the end of thefirst half of 2005, approximately 45% of our employees (includingsub-contractors in Asia) are now situated in lower cost countries. This comparesto less than 40% at the end of 2004 and c.24% in 2002. This, combined withongoing reductions in overheads, is driving down our total employment costs as apercentage of sales from c.40% in 2003 to 36.8% in the first half of 2005. In addition to our intense focus on rigorous cost base management, we recognisethat long-term shareholder value creation must also be driven by successful topline growth. As a result, we continue systematically to reposition ourportfolio of businesses to focus on attractive market segments with lesscyclicality and less price commoditisation. Within these targeted segments, ourgoal is to achieve a leadership position of number one or number two marketshare. We are also aiming to increase the value-added component of our offeringvia technological leadership and a higher level of product customisation. As aresult of this repositioning we are pleased to report that Group revenue in thefirst half of the year has grown at 5% on a constant currency basis which isapproximately double the weighted GDP of our end geographic markets, and thatthis volume growth has been achieved without adversely impacting pricing.Encouragingly, as a result of the combination of cost rationalisation andprofitable top-line growth, every one of our four major business units hascontinued to deliver improved operating profits and operating profit margins inthe first half of 2005. These improving operating results continue to enhance Morgan Crucible'sfinancial health with an increase both in our banking headroom in the first halfof the year and our interest cover which now stands at 7.4 times EBITD comparedto 5.0 times in the first half of 2004. In the early part of 2005 wesuccessfully refinanced our syndicated bank debt giving us both an extendedmaturity from three to five years and a lower ongoing cost of funding. In summary, the markets in which we operate remain highly competitive and weexpect that the macro-economic environment for Europe will continue to show weaklevels of GDP growth. Nevertheless, Morgan Crucible continues to make goodprogress toward our target commitment of double digit operating profit marginsby the end of 2006. As a result of our strategic repositioning, we are alsoincreasingly well placed for sustained shareholder value creation for the mediumto longer-term. Financial Review Note: The financial statements have been produced under 'International FinancialReporting Standards'(IFRS). All the numbers below are quoted on an IFRS basis except where references are made to changes from UK GAAP to IFRS. Under transitional requirements for the move from UK GAAP to IFRS acomprehensive review of the changes which have been made are shown on the Morganwebsite. These include the Group's new accounting policies under IFRS and thetransitional disclosures for the 2004 comparative data showing reconciliationsbetween UK GAAP and IFRS both for the balance sheet and the income statement. Reference is made to underlying operating profit and underlying EPS below bothof which are defined in note 5 to these financial statements. These measures ofearnings are shown because the Directors consider that they give a betterindication of underlying performance. Group underlying operating profit for continuing businesses increased by 32% to£33.2 million (2004: £25.1 million). Underlying operating profit margins fromcontinuing businesses for the first six months were 8.5%. This compares to 6.8%in the equivalent period last year and 7.9% for the second half of 2004. Allfour of our major business units contributed to this increase in margin. The Group has continued to implement its 'Profit improvement programme' in thefirst half with restructuring charges being £9.8 million (2004: £14.8 million)and cash outlay being £10.6 million (2004: £14.8 million). We have also incurredcosts associated with settlement of prior period litigation in 2005 that were£1.2 million (2004: £2.7 million). The Group disposed of one Carbon operation in Australia for £0.7 million in thefirst half of 2005 with the loss on sale being £0.4 million. The two principaldisposals in the comparative period in 2004 were the Auto and Consumer business,the loss on sale being £27.7 million, and the US and UK soft coatings operationsfor a profit on sale of £2.1 million. The net finance charge was £6.7 million (2004: £8.8 million). Net bank interestand similar charges were £5.3 million (2004: £6.9 million) the improvement of£1.6 million reflecting the decrease in average net debt levels compared to thefirst half of 2004 and the beneficial affects of the refinancing initiativesthat we announced in April. Part of the finance charge under IFRS is the net IAS 19 (Employee Benefits) interest charge on pension scheme net liabilities whichwas £1.8 million (2004: £1.9 million). Fair value movements on interest rateswaps was a net income of £0.4 million (2004: £nil). The tax charge for the period was £5.5 million (2004: £2.9 million). Theeffective tax rate before restructuring costs, costs associated with settlementof prior period litigation and disposal of business and property was 28% (2004: 27%). Underlying earnings per share was 6.3 pence (2004: 4.1 pence). The net cash inflow from operating activities was £2.7 million (2004: £10.6 million) which included an adverse cash impact from restructuring costs and costs associated with anti-trust litigation of £14.6 million (2004: £15.0 million). There was a working capital outflow of £22.1 million (2004: £10.1 million). This increase arose partly from strong sales growth, particularly in the second quarter, which drove increased receivables and also from increased costs of raw material and energy supplies that led to higher values of inventoryholdings. As a consequence free cash flow was adversely impacted and showed anet outflow of £8.7 million (2004: £7.8 million inflow). The second half of 2005is forecast to show an improvement in working capital levels as price falls incertain raw materials (e.g. cobalt) feed through into inventory valuations. Unaudited Unaudited Unaudited Six months Six months Year 2005 2004 2004 £m £m £mCash flows from operating activities 2.7 10.6 50.2Interest received 0.9 0.7 1.5Net capital expenditure (12.3) (3.5) (28.1) --------- --------- ---------Free cash flow * (8.7) 7.8 23.6 Cash flows from other investingactivities (4.2) 26.1 23.3 Cash flows from financing activities (3.4) 54.1 50.5 Exchange movement (0.8) 2.0 4.7 Opening net debt * (147.9) (250.0) (250.0) --------- --------- ---------Closing net debt (165.0) (160.0) (147.9) --------- --------- --------- * Note: The free cash flow is on a different basis from the previously reportednumbers, the principle change being the reclassification of operating leases tofinance leases. Net debt has changed due to the recognition of additionalfinance leases as debt under IFRS. Interim Dividend The Board intends to resume the payment of dividends once the Company isachieving a level of sustained profitability and cash generation. However, atthis time an interim dividend has not been proposed given the need to completesuccessful delivery of the profit improvement plan. Operating Review Carbon Sales in the first half were up by 6.7% compared to the same period last year at£100.9 million (2004: £94.6 million). Underlying operating profit for the periodwas up 34.8% to £12.4 million (2004: £9.2 million) driven by a combination ofthe healthy top-line growth and ongoing cost rationalisation. Performance has been strong in the traditional brush and seals and bearingsmarkets, particularly in the Americas. The improved sales performance relativeto 2004 was despite a decline in armor sales, due to changes in thespecifications set by the US military. Material developments to meet the newspecifications have now been completed although production will be somewhatcapacity constrained until new equipment is brought on line towards the end ofthe year. Trading conditions have been difficult in Europe, although some salesgrowth has been generated. The Asian business, particularly in China, has takenadvantage of the organic growth in the region and our ongoing investment. Thedivision is benefiting from the recent restructuring plans, including therationalisation of a number of smaller sites, continuing overhead reduction andan ongoing move to low cost manufacturing countries. Magnetics Sales in the first half were up by 4.3% compared to the same period last year at£90.7 million (2004: £87.0 million). Underlying operating profit for the periodwas £7.6 million (2004: £7.2 million). The first half of the year was adverselyimpacted by the spike in raw material prices, and by cobalt in particular. Thesecond half of the year is expected to be much stronger as price falls in cobaltare reflected in the income statement and cost rationalisation initiativescontinue to benefit the bottom line. The materials and parts division performed well driven by strong demand in theelectronic article surveillance segment. The sales of the cores and componentsdivision outperformed against prior year, growing especially in the installationmarket and with a strong order book for the second half of the year. Thepermanent magnets division traded below expectations due to reduced demand forsemiconductor applications and customers' loss of their business to Asiancompetitors. The new permanent magnet joint venture with San Huan in Chinastarted trading in May and this will enable us to target these customers goingforward. Technical Ceramics Sales in the first half increased by 1.4% to £71.1 million (2004: £70.1 million). This net increase included significant growth areas partly offset by planned exits from less attractive lower margin business compared to the same period last year. Underlying operating profit grew 38.6% to £6.1 million (2004: £4.4 million), with gross margins strengthened. The first half trading of the Technical Ceramics business continued the positive momentum generated in 2004. Of particular note was the strong growth in the USA in sales of electro ceramic components for the new generation of computer hard disk drives. This was complemented by significant sales growth into the medical market, as well as continued demand for laser and power tube products. The move to lower cost manufacturing areas took a further step with the purchase of the minority shareholding in our joint venture in Yixing, China, coupled with the continued transfer of selected additional manufacturing operations from Europe. Operating profit improvements from the cost reduction plans are continuing to come through, including the successful relocation of a major UK manufacturing site, and the rationalisation of a US distribution site. Insulating Ceramics Insulating Ceramics sales in the first half were up by 7.8% compared to the sameperiod last year at £129.0 million (2004: £119.7 million). Underlying operatingprofit for the period was £9.9 million (2004: £7.8 million) despite input pricepressures from cost increases in raw materials and energy. The Thermal Ceramicsbusiness has continued to expand its geographic presence with the formation of a70% joint venture with Hubei Kailong in China. This, along with expansion andmodernisation of facilities in China, India, Australia and Korea, has enabledthe division's growth momentum in Asia to continue in double digits: up 17% on2004 after allowing for currency. As a result, the business is well advanced inits goal of balancing its turnover between the trading blocks of Europe, Americas and Asia. In addition the launch of a new high temperature bio-soluble fibre (Superwool 607HT) is enabling Thermal Ceramics to be at the forefront ofdeveloping new products adapted to the changing needs and environmental demandsof the European and American markets. Overall trading conditions for the Crucibles business worsened against abackground of generally poorer economic forecasts and falling demand in Europe.This was exacerbated by rapid rises in raw material and fuel/energy costs, whichput pressure on margins and dented confidence in the prospects for recovery of thefoundry sector and its supply chain. This extended also to North America, wherecapital equipment sales faltered and some destocking by distributors wasevident. Asia and South America appeared unaffected by this trend and here goodprogress continues to be made. Outlook From a geographical perspective, we expect that our European markets will remainweak for the foreseeable future; however we forecast that the effect of thiswill be offset by stronger demand in our North American and Asian markets.Overall, through the strategic repositioning of our portfolio, we believe thatwe are well positioned to continue our improved trading performance and areconfident in our prospects for the year as a whole. Lars Kylberg Chairman Warren Knowlton Chief Executive Officer CONSOLIDATED INCOME STATEMENTfor the six months ended 4 July 2005 Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Six months Six months Six months Six months Six months Six months Year Year Year Continuing Discont'd Total Continuing Discont'd Total Continuing Discont'd Total Operations Operations Operations Operations Operations Operations 2005 2005 2005 2004 2004 2004 2004 2004 2004 Note £m £m £m £m £m £m £m £m £m ------- ------- ------- ------- ------- ------- ------- ------- -------Revenue 1 391.7 - 391.7 371.4 34.8 406.2 762.8 33.1 795.9 Operating costs beforerestructuring costs, costassociated with settlement of prior period anti-trustlitigation and propertydisposals (358.5) - (358.5) (346.3) (34.7) (381.0) (706.9) (33.2) (740.1) ------- ------- ------- ------- ------- ------- ------- ------- -------Profit from operations before restructuringcosts, costs associatedwith settlement ofprior period anti-trustlitigation and property disposals 1 33.2 - 33.2 25.1 0.1 25.2 55.9 (0.1) 55.8 Restructuring costsand costs associatedwith settlement ofprior period anti-trustlitigation 4 (11.0) - (11.0) (15.3) (2.2) (17.5) (52.5) (6.2) (58.7) Loss on disposal of property - - - (4.0) - (4.0) (3.8) - (3.8) ------- ------- ------- ------- ------- ------- ------- ------- -------Operating profit/(loss)before financingcosts 1 22.2 - 22.2 5.8 (2.1) 3.7 (0.4) (6.3) (6.7) Finance income 11.9 - 11.9 10.8 - 10.8 20.9 - 20.9 Finance expenses (18.6) - (18.6) (19.6) - (19.6) (37.0) - (37.0) ------- ------- ------- ------- ------- ------- ------- ------- -------Net financing costs 2 (6.7) - (6.7) (8.8) - (8.8) (16.1) - (16.1) Loss on partialdisposal ofbusinesses (0.4) - (0.4) (0.5) - (0.5) (8.2) - (8.2) ------- ------- ------- ------- ------- ------- ------- ------- -------Profit/(loss)beforetaxation 15.1 - 15.1 (3.5) (2.1) (5.6) (24.7) (6.3) (31.0) Income taxexpense 3 (5.5) - (5.5) (2.9) - (2.9) (2.5) - (2.5) Profit/(loss) ------- ------- ------- ------- ------- ------- ------- ------- -------after taxation but before losson sale ofdiscontinuedoperations 9.6 - 9.6 (6.4) (2.1) (8.5) (27.2) (6.3) (33.5) Loss on sale ofdiscontinuedoperations,net of tax - (0.6) (0.6) - (25.3) (25.3) - (26.7) (26.7) ------- ------- ------- ------- ------- ------- ------- ------- -------Profit/(loss)for the period 9.6 (0.6) 9.0 (6.4) (27.4) (33.8) (27.2) (33.0) (60.2) ======= ======== ======= ======= ======== ======= ======= ======= ======= Profit/(loss)for periodattributableto: Equityholders of the Morgan Crucible Company plc 8.8 (0.6) 8.2 (7.2) (27.4) (34.6) (29.0) (33.0) (62.0) Minority interest 0.8 - 0.8 0.8 - 0.8 1.8 - 1.8 ------ ------- ------- -------- ------- ------- ------- ------- ------- 9.6 (0.6) 9.0 (6.4) (27.4) (33.8) (27.2) (33.0) (60.2) ======= ======== ======= ======== ======== ======= ======= ======== ======= Earnings/(loss) 5 per shareBasic 3.0p (0.2p) 2.8p (2.6p) (10.1p) (12.7p) (10.3p) (11.7p) (22.0p)Diluted 2.9p (0.2p) 2.7p (2.6p) (10.1p) (12.7p) (10.3p) (11.7p) (22.0p) CONSOLIDATED BALANCE SHEETfor the six months ended 4 July 2005 Unaudited Unaudited Unaudited Six months Six months Year 2005 2004 2004 £m £m £m ------------ ------------ ------------AssetsProperty, plant and equipment 321.9 316.3 319.8Intangible assets 107.0 106.1 107.1Other investments 6.0 5.4 5.6Other receivables 3.5 11.2 3.5Deferred tax assets 31.2 34.9 31.2 ------------ ------------ ------------Total non-current assets 469.6 473.9 467.2 ------------ ------------ ------------ Inventories 133.1 130.3 121.3Trade and other receivables 176.7 165.7 165.3Cash and cash equivalents 55.8 51.3 56.3 ------------ ------------ ------------Total current assets 365.6 347.3 342.9 ------------ ------------ ------------Total assets 835.2 821.2 810.1 ------------ ------------ ------------ Liabilities Interest-bearing loans and borrowings 181.1 149.9 137.9Employee benefits 185.0 173.3 183.0Grants for capital expenditure 0.6 0.7 0.4Provisions 5.2 3.9 5.0Deferred tax liabilities 42.1 49.5 42.1 ------------ ------------ ------------Total non-current liabilities 414.0 377.3 368.4 ------------ ------------ ------------ Bank overdraft 0.3 0.6 0.8Interest-bearing loans and borrowings 39.4 60.8 65.5Trade and other payables 192.3 173.8 184.0Provisions 34.1 25.9 38.3 ------------ ------------ ------------Total current liabilities 266.1 261.1 288.6 ------------ ------------ ------------Total liabilities 680.1 638.4 657.0 ------------ ------------ ------------ ------------ ------------ ------------Total net assets 155.1 182.8 153.1 ============ ============ ============ EquityIssued capital 74.8 74.8 74.8Share premium 84.1 84.1 84.0Reserves 36.5 26.0 36.2Retained earnings (52.3) (10.9) (52.6)Total equity attributable to equity holders ------------ ------------ ------------of the parent company 143.1 174.0 142.4 ------------ ------------ ------------ Minority interest 12.0 8.8 10.7 ------------ ------------ ------------Total equity 155.1 182.8 153.1 ============ ============ ============ CONSOLIDATED STATEMENT OF CASH FLOWSfor the six months ended 4 July 2005 Unaudited Unaudited Unaudited Six months Six months Year 2005 2004 2004 £m £m £m ------------ ------------ ------------Operating activities Net profit/(loss) from ordinary activities 9.0 (33.8) (60.2)Adjustments for:Depreciation 16.3 18.1 34.4Amortisation 0.7 0.7 1.4Foreign exchange losses - - -Investment income - - -Interest expense 6.7 8.8 16.1Loss on sale of property, plant and equipment 0.1 4.5 4.3Income tax expense 5.5 2.9 2.5Equity settled share based payment 1.5 0.8 1.7expenses ------------ ------------ ------------Operating profit before changes in working capital and provisions 39.8 2.0 0.2 (Increase)/decrease in trade and other receivables (13.1) (9.2) (11.5)(Increase)/decrease in inventories (11.3) (13.8) (3.1)Increase/(decrease) in trade and other payables 2.3 12.9 21.6Non cash operating costs relating to restructuring 1.6 0.2 12.4Increase/(decrease) in provisions and employee benefits (6.8) 0.8 12.8 ------------ ------------ ------------Cash generated from the operations 12.5 (7.1) 32.4 Interest paid (6.7) (9.3) (14.8)Taxation (4.1) 1.2 (2.3)Loss on partial disposal of businesses 0.4 0.5 8.2Loss on sale of discontinued operations 0.6 25.3 26.7 ------------ ------------ ------------Net cash flows from operating 2.7 10.6 50.2activities Investing activities Purchase of property, plant and equipment (17.3) (11.9) (38.3)Proceeds from sale of property, plant and equipment 5.0 8.4 10.2Purchase of investments (0.6) (0.3) (1.0)Proceeds from sale of investments - 0.2 0.4Interest received 0.9 0.7 1.5Acquisitions of subsidiaries (2.6) - -Disposal of subsidiaries (1.0) 26.2 23.9 ------------ ------------ ------------Net cash flows from investing activities (15.6) 23.3 (3.3) Financing activities Proceeds from the issue of share capital 0.1 54.2 54.1Purchase of shares for LTIP (3.5) - (3.3)Increase/(repayment) of borrowings 14.7 (93.3) (97.6)Payment of finance lease liabilities - (0.5) (1.0) ------------ ------------ ------------Net cash flows from financing activities 11.3 (39.6) (47.8) Net decrease in cash and cash equivalents (1.6) (5.7) (0.9)Cash and cash equivalents at start of period 56.3 57.9 57.9Effect of exchange rate fluctuations on cash held 1.1 (0.9) (0.7) ------------ ------------ ------------Cash and cash equivalents at period end 55.8 51.3 56.3 ============ ============ ============ CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEfor the six months ended 4 July 2005 Unaudited Unaudited Unaudited Six months Six months Year 2005 2004 2004 £m £m £m ----------- ----------- -----------Foreign exchange translation differences (0.4) (13.6) (2.5)Actuarial losses on defined benefit plans (4.1) (25.9) (39.0)Net gain/(loss) on hedge of net investment in foreign subsidiary 0.6 - -Cash flow hedges:Effective portion of changes in fair value (1.2) - -Change in fair value of equity securitiesavailable-for-sale - (0.2) 0.2 ----------- ----------- -----------Income and expense recognised directly in equity (5.1) (39.7) (41.3)Profit/(loss) for the period 9.0 (33.8) (60.2) ----------- ----------- -----------Total recognised income and expense for the period 3.9 (73.5) (101.5) =========== =========== =========== Attributable to:Equity holders of the parent 3.1 (74.3) (103.3)Minority interest 0.8 0.8 1.8 ----------- ----------- -----------Total recognised income and expense for the period 3.9 (73.5) (101.5) =========== =========== =========== CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the six months ended 4 July 2005 Unaudited Unaudited Unaudited Six months Six months Year 2005 2004 2004 £m £m £m ----------- ----------- -----------At 5 January 142.4 249.5* 249.5*Adjustments on adoption of IFRS from 5 January 2004 - (56.2) (56.2)Adjustments relating to adoption of IAS 32and IAS 39 from 5 January 2005 (0.5) - - ----------- ----------- -----------At 5 January (restated) 141.9 193.3 193.3Recognised income and expense for the period 3.1 (74.3) (103.3)New ordinary share capital issued (net of expenses) 0.1 54.2 54.1Relating to own shares (3.5) - (3.4)Share-based payment adjustment 1.5 0.8 1.7 ----------- ----------- -----------At period end 143.1 174.0 142.4 =========== =========== =========== *As previously reported under UK GAAP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of preparation The Morgan Crucible Company plc (the "Company") is a company domiciled in theUnited Kingdom. The consolidated financial statements of the Company for theperiod ended 4 July 2005 comprise the Company and its subsidiaries (togetherreferred to as the "Group") and the Group's interest in associates and jointlycontrolled entities. As allowed by IFRS 1 'First-time adoption of IFRS', the Group adopted IAS 32'Financial instruments: disclosure and presentation' and IAS 39 'Financialinstruments: recognition and measurement', prospectively from 5 January 2005.Consequently, until 4 January 2005, the Group continued to hedge account forforecast foreign exchange transactions and commodity exposures in accordancewith UK GAAP, and hence the comparative financial statements exclude the impactof these standards. On 8 July 2005, the Group published a comprehensive analysis of the impact ofadopting IFRS from 5 January 2004 - available from the Company's web site atwww.morganplc.com. This included income statement and balance sheetreconciliations, as well as details of the accounting policies applied inrestating its financial statements for the year ended 4 January 2005 and as at 5January 2004. These financial statements have been prepared in accordance with accountingpolicies the Group expects to follow at the year end. EU law (IAS Regulation EC1606/2002) requires that the next annual consolidated financial statements ofthe Company, for the year ending 4 January 2006, be prepared in accordance withInternational Financial Reporting Standards (IFRS) adopted for use in the EU("adopted IFRS"). This interim financial information has been prepared on the basis of therecognition and measurement requirements of IFRS in issue that either areendorsed by the EU and effective or available for early adoption at 4 January2006 or are expected to be endorsed and effective or available for earlyadoption at 4 January 2006, the Group's first annual reporting date at which itis required to use adopted IFRS. Based on these adopted and unadopted IFRS, thedirectors have made assumptions about the accounting policies expected to beapplied when the first annual IFRS financial statements are prepared for theperiod ending 4 January 2006. In particular, the Directors have assumed that the IASB's amendment to IAS 19will be adopted by the EU in sufficient time that they will be available for usein the annual IFRS financial statements for the period ending 4 January 2006. In addition, the adopted IFRS that will be effective or available for earlyadoption in the annual financial statements for the period ending 4 January 2006are still subject to change and to additional interpretations and thereforecannot be determined with certainty. Accordingly, the accounting policies forthat annual period will be determined finally only when the annual financialstatements are prepared for the year ending 4 January 2006. The interim financial statements are presented in £ sterling. They are preparedon the historical cost basis except that the following assets and liabilitiesare stated at their fair value: derivative financial instruments and financialinstruments classified as available-for-sale. The preparation of financial statements in conformity with IFRS requiresmanagement to make judgements, estimates and assumptions that affect theapplication of policies and reported amounts of assets and liabilities, incomeand expenses. The estimates and associated assumptions are based on historicalexperience and various other factors that are believed to be reasonable underthe circumstances, the results of which form the basis of making the judgementsabout carrying values of assets and liabilities that are not readily apparentfrom other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.Revisions to accounting estimates are recognised in the period in which theestimate is revised if the revision affects only that period or in the period ofthe revision and future periods if the revision affects both current and futureperiods. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Basis of preparation (continued) Section 240 StatementThe comparative figures for the financial year ended 4 January 2005 are not theCompany's statutory accounts for that financial year. Those accounts, which wereprepared under UK Generally Accepted Accounting Practices, have been reported onby the Company's auditors and delivered to the registrar of companies. Thereport of the auditors was unqualified and did not contain statements undersection 237(2) or (3) of the Companies Act 1985. The interim financialstatements for the six months ended 4 July 2005 were authorised for issue by theBoard on 2 August 2005. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1.Segment reporting Business segments Carbon Magnetics Technical Ceramics Thermal Ceramics Crucibles Discontinued Consolidated Six Six Six Six Six Six Six Six Six Six Six Six Six Six months months months months months months months months months months months months months months 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 £m £m £m £m £m £m £m £m £m £m £m £m £m £m ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Revenue fromexternal customers 100.9 94.6 90.7 87.0 71.1 70.1 114.8 104.6 14.2 15.1 - 34.8 391.7 406.2 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Segmentprofit/(loss) 8.6 2.4 6.5 3.4 4.7 (1.4) 6.6 2.8 0.8 2.1 - (2.1) 27.2 7.2 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- ------Unallocatedcosts (5.0) (3.5) ----- ------Operating profit 22.2 3.7 ======== ========Segment underlyingoperatingprofit* 12.4 9.2 7.6 7.2 6.1 4.4 9.0 6.0 0.9 1.8 - 0.1 36.0 28.7 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------Unallocatedcosts (2.8) (3.5) ------ ------Underlying operating 33.2 25.2profit ====== ====== * This measure of profit (before all restructuring costs, cost associated with settlement of anti-trust litigation and property disposals) is shown because the Directors consider that it gives a better indication of underlying performance Technical Thermal Carbon Magnetics Ceramics Ceramics Crucibles Discontinued Consolidated Year Year Year Year Year Year Year 2004 2004 2004 2004 2004 2004 2004 £m £m £m £m £m £m £m ------ ------- ------- ------- ------- ------- --------Revenue from externalcustomers 196.1 181.2 135.7 220.3 29.5 33.1 795.9 ------ ------- ------- ------- ------- ------- -------- Segment 0.2 7.4 1.1 8.0 3.2 (6.3) 13.6profit/(loss) ------ ------- ------- ------- ------- ------- -------- Unallocated costs (20.3) -------Operating loss (6.7) ======== Segment underlying operating profit* 20.9 14.2 7.4 15.9 2.9 (0.1) 61.2 ------ ------- ------- ------- ------- ------- --------Unallocated costs (5.4) --------Underlying operating 55.8profit ======== * This measure of profit (before all restructuring costs, cost associated with settlement of anti-trust litigation and property disposals) is shown because the Directors consider that it gives a better indication of underlying performance. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. Net financing costs Six months Six months Year 2005 2004 2004 £m £m £m ---------- ---------- ---------- Interest expense (6.2) (7.6) (13.8) Interest income 0.9 0.7 1.5 Interest on IAS 19 obligations (12.4) (12.0) (23.2) Expected return on IAS 19 scheme assets 10.6 10.1 19.4 Fair value charge on interest rate swaps 0.4 - - ---------- ---------- ---------- (6.7) (8.8) (16.1) ========== ========== ========== 3. Taxation Six months Six months Year 2005 2004 2004 £m £m £m ---------- ---------- ---------- United Kingdom taxes 0.2 (1.0) (2.1) Overseas taxes 5.3 3.9 4.6 ---------- ---------- ---------- Total taxation 5.5 2.9 2.5 ========== ========== ========== The total taxation charge for the six months to 4 July 2005 of £5.5 million (2004: £2.9 million) includes a tax credit of £1.9 million (2004: £1.6 million) in connection with restructuring costs, costs associated with settlement of anti-trust litigation, property disposals and sale of businesses. The interim taxation charge is calculated by applying the Directors' best estimate of the annual tax rate to the taxable profit for the period. The restated deferred tax position at 4 January 2005 under IAS 12 is a creditor of £10.9m (4 January 2004: - creditor of £14.8 million, 4 July 2004 - creditor of £14.6 million). The decrease in the deferred tax liability by £10.4 million at 4 January 2005 (£10.0 million at 4 January 2004 and 4 July 2004) arises as a result of the restatement of pension prepayments and creditors under IAS 19 (decrease of £15.2 million for 2005 and £15.6 million for 2004) and recognition of deferred tax on prior year fair value adjustments on acquisitions (increase of £4.8 million for 2005 and £5.6 million for 2004). 4. Restructuring costs and costs associated with settlement of anti-trust litigation Costs of restructuring were £9.8 million (2004: £14.8 million) and legal costs associated with settlement of anti-trust litigation were £1.2 million (2004: £2.7 million). 5. Earnings per share Basic earnings per share--------------------------The calculations of basic earnings per share at 4 July 2005 was based on the net profit/(loss) attributable to Equity holders of the Morgan Crucible Company plc of £8.2 million (2004: £34.6 million loss) and a weighted average number of ordinary shares outstanding during the period ended 4 July 2005of 290,279,006 (2004: 272,919,621) calculated as follows: Six months Six months Year 2005 2004 2004 £m £m £m ---------- ---------- ----------Net profit/(loss) attributable to Equity holders of the MorganCrucible Company plc 8.2 (34.6) (62.0) ========== ========== ========== Weighted average number of ordinary shares Issued ordinary shares at 5 January 290,200,179 232,050,876 232,050,876Effect of shares issued in period 78,827 40,868,745 49,320,103 ---------- ---------- ---------- Weighted average number of ordinary shares at period end 290,279,006 272,919,621 281,370,979 ========== ========== ========== Diluted earnings per share----------------------------The calculation of diluted earnings per share at 4 July 2005 was based on net profit/(loss) attributable to Equity holders of the Morgan Crucible Company plc of £8.2 million (2004: £34.6 million loss) and a weighted average number of ordinary shares outstanding during the period ended 4 July 2005 of 301,688,291 (2004: 277,207,084), calculated as follows: Six months Six months Year 2005 2004 2004 £m £m £m ---------- ---------- ----------Net profit/(loss) attributable to Equity holders of the MorganCrucible Company plc 8.2 (34.6) (62.0) ========== ========== ========== Weighted average number or ordinary shares Weighted average number of ordinary shares 290,279,006 272,919,621 281,370,979Effect of share options/incentive schemes 11,409,285 4,287,463 6,652,880 ---------- ---------- ----------Diluted weighted average number of ordinary shares 301,688,291 277,207,084 288,023,859 ========== ========== ========== Underlying earnings per share------------------------------- The calculations of underlying earnings per share at 4 July 2005 was based on profit from operations before restructuring costs, costs associated with settlement of anti-trust litigation and property disposals less, net finance costs, income tax expense (excluding tax credit arising from restructuring, anti-trust litigation and property disposals) and minority interest of £18.3 million (2004: £11.1 million) and a weighted average number of ordinary shares outstanding during the period ended 4 July 2005 of 290,279,006 (2004: 272,919,621) calculated as follows: Six months Six months Year 2005 2004 2004 £m £m £m ---------- ---------- ---------- Profit from operations before restructuring costs and costsassociated with settlement of anti-trust litigation,less net finance charge costs, income tax expense and minority interest 18.3 11.1 27.9 ========== ========== ========== Weighted average number of ordinary shares Issued ordinary shares at 5 January 290,200,179 232,050,876 232,050,876Effect of shares issued 78,827 40,868,745 49,320,103 ---------- ---------- ----------Weighted average number of ordinary shares at period end 290,279,006 272,919,621 281,370,979 ========== ========== ==========Underlying earnings per share (pence) 6.3p 4.1p 9.9p Underlying diluted earnings per share---------------------------------------The calculations of underlying diluted earnings per share at 4 July 2005 was based on profit from operations before restructuring costs, costs associated with settlement of anti-trust litigation and property disposals less, net finance costs, income tax expense (excluding tax credit arising from restructuring, anti-trust litigation and property disposals) and minority interest of £18.3 million (2004: £11.1 million) and a weighted average number ofordinary shares outstanding during the period ended 4 July 2005 of 301,688,291 (2004: 277,207,084) calculated as follows: Six months Six months Year 2005 2004 2004 £m £m £m ---------- ---------- ----------Profit from operations before restructuring costs and costsassociated with settlement of anti-trust litigation,less net finance charge costs, income tax expense and minority interest 18.3 11.1 27.9 ========== ========== ========== Weighted average number of ordinary shares Weighted average number of ordinary shares 290,279,006 272,919,621 281,370,979Effect of shares options/incentive schemes 11,409,285 4,287,463 6,652,880 ---------- ---------- ----------Diluted weighted average number of ordinary shares 301,688,291 277,207,084 288,023,859 ========== ========== ==========Underlying diluted earnings per share (pence) 6.1p 4.0p 9.7p This Interim Statement will be dispatched to all registered holders of Ordinary shares. Copies of this statement may be obtained from the Secretary at the Registered Office of the Company, Quadrant, 55-57 High Street, Windsor,Berkshire SL4 1EP (Registered in England No. 286773) Excerpts from this announcement will be available in Excel format from 7am BST today via a link from the investor relations home page within Morgan Crucible's website (www.morgancrucible.com). Morgan is conducting an interim results presentation at 9.30am BST. A live webcast of this presentation and the presentation document will be made available at this time within the investor relations section of Morgan's website. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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