7th Sep 2006 07:01
Yule Catto & Co PLC07 September 2006 Yule Catto & Co plc Interim Results for the six months ended 30 June 2006 Excellent progress in Polymers has been offset by temporary impact ofPerformance division restructuring HIGHLIGHTS • Underlying group sales* increased by 8% to £281.8m (2005: £261.3m) • Underlying profit before taxation* £16.2m, (2005: £16.9m) • Profit attributable to equity shareholders £8.2m (2005: £12.0m) • Earnings per share* of 7.6p, (2005: 7.6p) • Interim dividend 3.8p per share (2005: 3.7p) • Continuing progress in polymer market expansion • Net borrowings* of £175.8m (2005: £191.1m) * Before special items, as defined in notes 2, 3 and 7 Anthony Richmond-Watson, Chairman, comments: "We have invested in the geographic expansion of our Polymer business and thevolume growth seen in recent years should continue. In our Pharmaceuticalsbusiness a number of new generic products are expected to enter the market in2007, 2008 and beyond. Therefore, we remain confident that we can delivergrowth in shareholder value. However, near term results will be held back byevents in Performance Chemicals." 7 September 2006 ENQUIRIES: YULE CATTO Tel: 01279 442791Adrian Whitfield, Chief ExecutiveSean Cummins, Finance Director COLLEGE HILL Tel: 020 7457 2020Gareth David email: [email protected] RESULTS SUMMARY Underlying performance(a) IFRS 2006 2005 2006 2005 £'000 £'000 £'000 £'000 Unaudited Unaudited Unaudited Unaudited Group sales 281,835 261,337 290,264 290,765 EBITDA (b) 31,859 33,342 31,700 33,700Operating profit 22,453 23,593 22,294 23,951Profit before taxation 16,199 16,860 13,298 18,334 Earnings per share 7.6p 7.6p 5.7p 8.3pDividend per share (c) 3.8p 3.7p 3.8 p 3.7p Net borrowings (d) (175,790) (191,057) (172,118) (190,424)Free cash flow (e) (14,783) (4,563) (14,783) (4,563) The above table represents the results of Yule Catto and Co plc, itssubsidiaries and its share of joint ventures. (a) Underlying performance is before special items. (See notes 2,3 and 7) (b) Earnings before interest, tax, non-recurring items, depreciation and amortisation. (c) An interim dividend of 3.8p per share will be paid on 17 November 2006 to members on the register at close of business on 20 October 2006. Under IFRS this is not accrued in the financial statements. (d) As reconciled at the bottom of the balance sheet. (e) As shown within the cash flow statement. CHAIRMAN'S STATEMENT Overview Excellent progress has been achieved in Polymers as it reaps the rewards ofinvesting in its infrastructure to expand the geographic reach of the division.The pharmaceutical active ingredient business experienced the normal pattern ofprice erosion of generic products, as the market matures post patent expiry.Performance chemicals has been temporarily impacted by the transition towards animproved cost structure, combined with a significant disruption in theultramarine pigment business. The resultant Group underlying profit before taxation of £16.2 million is 4%below the corresponding period. With the confidence that further benefits willaccrue from investment and restructuring initiatives, the Board has declared aninterim dividend of 3.8 pence per share, being an increase of 3%. Polymer Chemicals Latex volume increased by 8% as we continue to benefit from growth in thenitrile glove industry in Asia. The manufacturing facility in Malaysia is beingexpanded and following commissioning in early 2007, the current capacityconstraint will be alleviated. In Europe, the construction sector has beenbuoyant, whilst our activity in the paper sector is gaining momentum. Fortunes were more variable in the emulsions business. The DIY market in the UKstarted the year very slowly, but has progressively improved during the period,which augurs well for the second half. We enjoy a high share of the domesticmarket in Malaysia and South Africa and therefore the ability to expand volumethere is more limited. After stalling last year the Middle East returned togrowth which, combined with the continuing penetration of continental Europe,contributed to an overall volume increase of 7%. Other speciality products also performed well. Auxiliary polymers benefitedfrom additions to the product portfolio and a strong PVC market, whilst the useof lithene polybutadiene in anti-corrosion paint for the marine industryincreased. The effect of the rising price of oil has been exacerbated by unexpected outagesin the monomer supply chain, which have restricted the availability of key rawmaterials, leading to further significant increases in input costs. Despite thedifficult feedstock environment, it is very pleasing to report that operatingprofit moved forward by 32% to £20.3 million, whilst margins were maintainedabove 10%. Pharma and Fine Chemicals Demand for our generic portfolio has remained strong, with activity inomeprazole being particularly buoyant at 25% ahead of last year. We continue tofind new opportunities in the ethical sector and we are seeing an increasingrevenue stream from third party contract research work. We have completed the investment in laboratory and pilot plant facilities whichare necessary for the development of new drug masterfiles. They also provide aninvaluable contribution to process improvements and cost-down initiatives whichare essential to counteract the normal pricing pattern of the generic market. After a period of consolidation within the flavour and fragrance industry,during which demand was subdued and competition from the Far East was encouragedby customers, there are indications of a return to growth. New customers havebeen established in India and China for our polycylic musk, whilst demand forother musks has reached a level where additional capacity will be required. Inflavours, activity has improved by 8%. Performance Chemicals Last year we announced that two manufacturing sites in UK would cease operationsduring the course of 2006. Inevitably, this has resulted in a level ofinefficiency during the wind-down period, which is likely to persist for theremainder of the year, with the full benefit of the initiatives being realisedin 2007. The restructured businesses offer a number of significant growth opportunitiesincluding photochromic dyes for ophthalmic and security applications and metalsalts used in catalysts. In the ultramarine pigment business impurities in a key raw material haveresulted in output being severely restricted, with the knock-on impact ofreduced sales and additional costs. Corrective actions have been implementedand recent production confirms that the process has returned to previous highstandards. All efforts are now being directed at regaining our market position. Borrowings Net borrowings, adjusted for movements in the mark-to-market of financialderivatives, have increased since the year end by £10.2 million to £175.8million. The normal seasonal increase in working capital has been further compounded bythe raw material situation and a skew in trading activity towards the end of theperiod. This is merely a timing issue and we expect to see the normal reversalin the second half. At 0.7 times depreciation, capital expenditure was at asimilar level to last year. Going forward, there will be a modest increase dueto the investment in expanding the nitrile capacity in Malaysia and a facilityto manufacture cytotoxic pharmaceutical products. Overall, the closure of two UK operations is expected to have a positive impacton cash. Initially, however, there will be an outflow of funds, which in thefirst half was £3.2 million, with the inflow from the sale of land following ina later period. The disposal of Reabrook was completed on 5th June, deliveringproceeds of £3.8 million and the potential for an additional £0.6 million ofdeferred consideration. Dividend The interim dividend of 3.8 pence per ordinary share (2005 - 3.7p) will be paidon 17 November 2006 to members on the register at close of business on 20October 2006. Board Changes Adrian Whitfield joined the Board on 1 March 2006 and became Chief Executive on17 August 2006 following the retirement of Alex Walker on that date. Outlook Looking ahead, we have invested in the geographic expansion of our Polymerbusiness and the volume growth seen in recent years should continue. In ourPharmaceuticals business we have the infrastructure to support a strong andexpanding pipeline of pharmaceutical active ingredients, with a number of newgeneric products expected to enter the market in 2007, 2008 and beyond.Therefore, we remain confident that we can deliver growth in shareholder value. However, near term results will be held back by events in Performance Chemicals. In particular the outcome of the initiatives in the pigments business will bea key factor for delivery of the full year's underlying profit before taxation,which is likely to be marginally below the level achieved last year. Consolidated income statement for the SIX MONTHS ENDED 30 JUNE 2006 6 months ended 6 months ended 12 months ended 30 June 2006 30 June 2005 December 2005 Note £'000 £'000 £'000 £'000 £'000 £'000 Unaudited Unaudited Unaudited Unaudited Audited Audited Group revenue 283,567 284,983 556,051Share of joint ventures' revenue 6,697 5,782 12,656Group sales 2 290,264 290,765 568,707 Group revenue 283,567 284,983 556,051 Company and subsidiaries 21,853 23,425 45,334Joint ventures 441 526 859Operating profit 2 22,294 23,951 46,193 Interest payable (6,692) (8,422) (15,424) Interest receivable 438 1,689 3,683 (6,254) (6,733) (11,741) Fair value adjustment (2,742) 1,116 (2,421)Finance costs (8,996) (5,617) (14,162) Profit before taxation 13,298 18,334 32,031Taxation (4,488) (5,828) (8,998)Profit for the period 8,810 12,506 23,033 Profit attributable to minority 576 523 1,180interestsProfit attributable to equity 8,234 11,983 21,853shareholders of the parent 8,810 12,506 23,033 Earnings per shareBasic 5.7p 8.3p 15.1pDiluted 5.6p 8.2p 14.9p Consolidated balance sheet as at 30 June 2006 30 June 30 June 31 December 2006 2005 2005 £'000 £'000 £'000 Unaudited Unaudited AuditedNon-current assetsGoodwill 172,443 172,443 172,443Other intangible assets 691 748 815Property, plant and equipment 129,229 142,731 140,064Deferred tax assets 2,607 1,860 2,531Investment in joint ventures 3,700 3,712 4,064 308,670 321,494 319,917 Current assetsInventories 67,473 68,113 66,495Trade and other receivables 119,419 122,786 103,244Cash and cash equivalents 49,322 42,705 46,027 236,214 233,604 215,766 Current liabilitiesBorrowings (50,796) (39,554) (37,385)Trade and other payables (117,102) (119,470) (129,523)Current tax liability (53,488) (50,138) (53,050)Dividends (7,717) (11,440) -Derivatives at fair value (16,486) (7,300) (4,312)Net current liabilities (9,375) 5,702 (8,504) Non-current liabilitiesBorrowings (170,644) (193,575) (179,908)Trade and other payables (509) (1,044) (306)Deferred tax liability (6,143) (13,482) (6,056)Post retirement benefit obligations (61,744) (78,431) (69,637) (239,040) (286,532) (255,907) Net assets 60,255 40,664 55,506 EquityCalled up share capital 14,565 14,480 14,480Share premium 33,026 31,829 31,829Capital redemption reserve 949 949 949Hedging and translation reserve (4,015) (2,691) (481)Retained earnings 11,260 (8,503) 4,009Equity attributable to equity holders of the parent 55,785 36,064 50,786Minority interests 4,470 4,600 4,720Total equity 60,255 40,664 55,506 Analysis of net borrowingCash and cash equivalents 49,322 42,705 46,027Current borrowings (50,796) (39,554) (37,385)Non-current borrowings (170,644) (193,575) (179,908)Net borrowings (172,118) (190,424) (171,266)Add back: special items (3,672) (633) 5,675Net borrowings (underlying performance) (175,790) (191,057) (165,591) The financial statements were approved by the Board of Directors and authorisedfor issue on 7 September 2006. Consolidated cash flow for the SIX MONTHS ENDED 30 JUNE 2006 6 months ended 6 months ended 12 months ended 30 June 2006 30 June 2005 31 December 2005 Notes £'000 £'000 £'000 £'000 £'000 £'000 Unaudited Unaudited Unaudited Unaudited Audited AuditedOperatingCash generated from operations 5 2,782 12,731 57,791 Interest received 438 1,689 3,683 Interest paid (6,786) (8,255) (15,095)Net interest paid (6,348) (6,566) (11,412) UK corporation tax paid - - (74) Overseas corporate tax paid (4,065) (2,692) (10,964)Total tax paid (4,065) (2,692) (11,038)Net cash (outflow)/inflow from operating activities (7,631) 3,473 35,341 InvestingDividends received from joint ventures 631 44 130 Purchase of property, plant and equipment (7,102) (7,494) (14,331) Sale of property, plant and equipment - 47 45Net capital expenditure and financial investment (7,102) (7,447) (14,286) Sale of businesses 3,849 2,625 18,858 Net cash impact of acquisitions and disposals 3,849 2,625 18,858Net cash (outflow) / inflow from investing activities (2,622) (4,778) 4,702 FinancingEquity dividends paid - - (16,796)Dividends paid to minority interests (681) (633) (1,399)Purchase of own shares (140) (381) (369)Issue of shares 1,282 - -Proceeds /(repayment) of non-current borrowings - 14,943 (5,033)Net cash inflow from financing activities 461 13,929 (23,597) (Decrease)/increase in cash and bank overdrafts during the year (9,792) 12,624 16,446 Comprised of:Cash and cash equivalents 5,021 (53,499) (46,623)Bank overdrafts (14,813) 66,123 63,069 (9,792) 12,624 16,446 Reconciliation of net cash flow from operating activities to movement in net borrowings 6 months ended 6 months ended 12 months ended 30 June 2006 30 June 2005 31 December 2005 £'000 £'000 £'000 Unaudited Unaudited Audited Net cash (outflow) / inflow from operating activities (7,631) 3,473 35,341Dividends received from joint ventures 631 44 130Net capital expenditure and financial investment (7,102) (7,447) (14,286)Dividends paid to minority interests (681) (633) (1,399)Free cash flow (14,783) (4,563) (19,786) Net cash impact of acquisitions and disposals 3,849 2,625 18,858Purchase of own shares (140) (381) (369)Issue of shares 1,282 - -Equity dividends paid - - (16,796)Exchange movements (407) (1,097) 571 Movement in net borrowings (underlying performance) (10,199) (3,416) 22,050 STATEMENT OF RECOGNISED INCOME AND EXPENSE for the SIX MONTHS ENDED 30 June 2006 6 months ended 30 June 2006 6 months ended 30 June 2005 Minority Equity Total Minority Equity Total interests holders of interests holders of the parent the parent £'000 £'000 £'000 £'000 £'000 £'000 Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Actuarial gains and losses - 5,901 5,901 - (4,248) (4,248)Tax on items recognised directly - - - - - -in equityExchange differences (146) 3,534 3,388 305 (1,744) (1,439)Profit for the period 576 8,234 8,810 523 11,983 12,506Total recognised income for the period 430 17,669 18,099 828 5,991 6,819 12 months ended 31 December 2005 Minority Equity Total interests holders of the parent £'000 £'000 £'000 Audited Audited Audited Actuarial gains and losses - 3,442 3,442Tax on items recognised directly in equity - (34) (34)Exchange differences 533 466 999Profit for the year 1,180 21,853 23,033Total recognised income for the period 1,713 25,727 27,440 1 Basis of presentation The accompanying consolidated financial statements of Yule Catto & Co plc havebeen prepared in accordance with recognition and measurement principles requiredby International Financial Reporting Standards ("IFRS"). The consolidatedfinancial statements have been prepared using accounting policies consistent inall material respects with those applied in the Company's Annual Report for theyear ended 31 December 2005. This statement does not seek to comply with IAS 34"Interim Financial Reporting". The financial statements for the six monthsended 30 June 2006, are unaudited and do not constitute statutory financialstatements within the meaning of section 240 of the Companies Act 1985. 2 Consolidated income statement analysis 6 months ended 30 June 2006 6 months ended 30 June 2005 Continuing operations Continuing operations Note Underlying Special IFRS Underlying Special IFRS performance items performance items £'000 £'000 £'000 £'000 £'000 £'000 Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Group revenue 275,138 8,429 283,567 255,555 29,428 284,983Share of joint ventures' revenue 6,697 - 6,697 5,782 - 5,782Group sales 3,4 281,835 8,429 290,264 261,337 29,428 290,765 Group revenue 275,138 8,429 283,567 255,555 29,428 284,983 Company and subsidiaries 22,012 (159) 21,853 23,067 358 23,425Joint ventures 441 - 441 526 - 526Operating profit/ (loss) 3,4 22,453 (159) 22,294 23,593 358 23,951 Finance costs (6,254) (2,742) (8,996) (6,733) 1,116 (5,617) Profit/(loss) before taxation 16,199 (2,901) 13,298 16,860 1,474 18,334Taxation (4,536) 48 (4,488) (5,359) (469) (5,828)Profit/(loss) for the period 11,663 (2,853) 8,810 11,501 1,005 12,506 Profit attributable tominority interests 576 - 576 523 - 523Profit attributable toequity holders ofthe parent 11,087 (2,853) 8,234 10,978 1,005 11,983 11,663 (2,853) 8,810 11,501 1,005 12,506 Earnings per shareBasic 7.6p (2.1)p 5.7p 7.6p 0.7p 8.3pDiluted 7.6p (2.0)p 5.6p 7.5p 0.7p 8.2p Discontinued operations There are no discontinued operations. A number of businesses were sold orclosed during the period, however these do not satisfy the criteria of IFRS 5 tobe treated as discontinued operations. 3 Special items The special items disclosed are made up as follows: 6 months ended 30 6 months ended 30 12 months ended 31 June 2006 June 2005 December 2005 £'000 £'000 £'000 Unaudited Unaudited Unaudited* Group salesRevenue of operations sold or closed during the period 8,429 29,428 52,249 Operating profit/(loss)Operating profit /(loss) of operations sold or closed duringthe period 146 1,084 (129)Profit or loss arising from the sale or closure of operations (305) (726) 136 (159) 358 7 4 Segmental analysis - underlying performance 6 months ended 30 6 months ended 30 12 months ended 31 June 2006 June 2005 December 2005 £'000 £'000 £'000 Unaudited Unaudited Unaudited* Group sales by activity Polymer Chemicals 199,419 179,712 364,770 Pharma & Fine Chemicals 45,284 43,824 82,170 Performance Chemicals 37,132 37,801 69,518 281,835 261,337 516,458 Operating profit by activity Polymer Chemicals 20,300 15,380 34,159 Pharma & Fine Chemicals 4,936 7,040 10,903 Performance Chemicals 113 3,469 5,806 Unallocated corporate expenses (2,896) (2,296) (4,682) 22,453 23,593 46,186 Finance costs (6,254) (6,733) (11,741) Underlying profit before taxation 16,199 16,860 34,445 \* The underlying performance of the Performance Chemicals division has beenadjusted to exclude the turnover and operating profit for Reabrook Limited,which was sold on 5 June 2006. 5 Reconciliation of operating profit to cash generated from operations 6 months ended 30 6 months ended 30 12 months ended 31 June 2006 June 2005 December 2005 £'000 £'000 £'000 Unaudited Unaudited Audited Reconciliation of operating profit tocash generated from operations Operating profit 22,294 23,951 46,193Less: share of profits of joint ventures (441) (526) (859) 21,853 23,425 45,334 Depreciation and amortisation 9,406 9,749 19,291Profit or loss arising from the sale or closure of operations 305 726 (136)Cash impact of termination of businesses (3,233) (162) (761)Loss / (profit) on sale of fixed assets 83 - (73)Share based payments 140 381 711(Increase)/ decrease in inventories (3,107) 1,053 1,550Increase in trade and other receivables (21,365) (14,732) (1,380)Pension funding in excess of IAS 19 charge (1,272) (1,728) (2,992)Increase / (decrease) in trade and other payables 655 (4,643) (1,050)Unrealised exchange gains (683) (1,338) (2,703) Cash generated from operations 2,782 12,731 57,791 6 Further information The financial information for the year ended 31 December 2005 has been extractedfrom the statutory accounts, which have been filed with the Registrar ofCompanies. The auditors' report on those accounts was unqualified and did notcontain any statement under section 237 of the Companies Act 1985. The financial statements were approved by the Board of Directors on 7 September2006. This statement will be sent to all shareholders on 7 September 2006 and can beobtained by the public from the company's registered office at Temple Fields,Harlow, Essex, CM20 2BH, or on the company website www.yulecatto.com. Earnings per ordinary share are based on the attributable profit for the periodand the weighted average number of shares in issue during the period to June2006 of 145.3 million (2005: 144.7 million). 7 Glossary of terms Group sales Group sales represent the total of revenue from Yule Catto and Co plc, its subsidiaries, and its share of the revenue of joint ventures. EBITDA EBITDA is calculated as operating profit before depreciation, amortisation and non-recurring items. Operating profit Operating profit represents profit before finance costs and taxation. Non-recurring items Non-recurring items are defined as: • Profit or loss impact arising from the sale or closure of an operation; • Impairment of non-current assets; and • Other non-operating or one-off items. Special items The following are disclosed separately as special items in order to provide a clearer indication of the Group's underlying performance: • Non-recurring items; • Mark to market adjustments in respect of cross currency and interest rate derivatives used for hedging purposes where IAS 39 hedge accounting is not applied; • Revaluation of USD loan notes from the rate of the related cross currency swaps to the year end rate; and • The transitional adjustment required to reflect movements in fair value caused by variations in interest rates, and subsequent amortisation thereof, to the extent that these constituted effective hedges under UK GAAP. Underlying performance Underlying performance represents the statutory performance of the Group under IFRS, excluding special items. Free cash flow Free cash flow represents cash flow before cash impact of acquisitions and disposals, purchase of own shares, equity dividends paid and exchange movements. Net borrowings Net borrowings represents cash and cash equivalents together with short and long term borrowings, as adjusted for the effect of related derivative instruments irrespective of whether they qualify for hedge accounting. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Synthomer