Final Results - Year Ended 31 December 1999

Morgan Crucible Co PLC 14 March 2000 THE MORGAN CRUCIBLE COMPANY plc PRELIMINARY STATEMENT 1999 'THE YEAR OF STRATEGIC CHANGE' 1999 1998 Group turnover £862.4m £900.4m Continuing Operating Profit £93.4m £91.3m PBT (Headline) £63.6m* £34.7m** Earnings per share 26.1p 0.9p All shown pre-goodwill amortisation of £2.0m (1998 : £0.6m) * Post exceptional costs of £17.5m ** Including goodwill write-off of £57m * Morgan restructures and repositions to higher growth markets. * Reorganisation programme on track to deliver full annualised £20 million cost savings during 2001. * Strategic disposals of non-core activities totalled £177 million in 1999, primarily Chemical Products sold in April 1999. Since the year-end further disposals amounting to £44 million brought the total to £221 million. * Reinvestment of £115 million in the acquisition of leading-edge fast growing magnetics business (VAC) in December 1999. * Encouraging start to 2000. Commenting on the results, Ian Norris, Group Chief Executive, said: '1999 was the year of unprecedented change for Morgan. The successful strategic disposals together with the aggressive cost reduction programme and the key acquisition of VAC has transformed the Group's prospects. Morgan is now clearly re- positioned into higher growth markets using our advanced materials technology and applications engineering skills.' THE MORGAN CRUCIBLE COMPANY plc PRELIMINARY STATEMENT 1999 Overall Results In 1999 Morgan continued its unprecedented transformation, refocusing around our core strengths in application engineering, materials technology and manufacturing process capability. While reorganising to leverage our core capabilities globally, we are shaping Morgan's portfolio into higher growth markets, moving up the value chain, and developing total systems and technical solutions which add value and capture higher margins. The Group successfully disposed of several non-core and under- performing businesses representing sales of £36.0 million and operating profit of £1.2 million in 1999 (1998 : Sales of £118.4 million and operating profit of £15.7 million, before goodwill write-off). The cash generated from disposals was reinvested in strategic acquisitions aimed at firmly positioning Morgan into high growth markets. Restructuring and rationalisation within the Group, at a cost of £17.5 million, reduced employee numbers by around 1000 people. Full ongoing annual benefit from that investment is anticipated during 2001. Against the background of major reorganisation and planned exit from non-technically differentiated activities, we were encouraged that our continuing core businesses sustained sales volume and levels of order intake. Carbon The Division's underlying sales were up slightly on 1998, a sound achievement against the background of a major site reconfiguration in Wales and the reorganisation of our European mechanical operations at an overall cost of £4.7 million. Four significant acquisitions were made in the year including the major strategic move into magnets with the acquisition of Crumax and Vacuumschmelze (VAC). Orders for the year have shown steady improvement, with particularly strong growth in Asia resulting in a very good export-led performance from all our Asian operations. Within Europe, Germany and Italy remained weak but elsewhere our operations performed satisfactorily. The Americas ended the year with a strong performance. Two of the acquisitions in the carbon area, Rekofa and Graphite Die Mold (GDM), fit exactly into our core competencies and bring additional technology with significant growth potential. Rekofa considerably extends our range of current transfer solutions while GDM provides a range of ultra high purity materials for the semi-conductor processing industry. The integration of VAC and Crumax will give us a complete magnetic systems design and manufacturing capability making us the number one non-Japanese producer. VAC brings significant new technologies for use in high growth markets such as telecommunications, transportation, medical, electronic article surveillance and broad band data transmission speed enhancement. Their super conductivity cables provide precise magnetic resonance imaging for medical markets and low resistance cabling for the transmission of electrical power. Other components support miniaturisation for many applications including hard disc drives. Ceramics The Division was the major focus of a radical re-organisation programme in 1999 at an overall cost of £12.3 million. The sale of the Isomor continuous casting business and the exit from the low margin silicate business in the UK and Spain reduced sales by over £6.0 million. This was offset by the full year effect of earlier acquisitions leaving the overall underlying sales approximately 3% down on 1998. Disruption and retraining requirements meant that results inevitably suffered during the change but the refocused businesses are well positioned to capture future growth. Our Advanced Ceramics operations have been merged into a global business based upon highly differentiated materials and applications. The combined sales force is already bringing an improved market penetration with significant growth potential in the medical and telecommunications markets. The semi-conductor processing equipment orders were recovering strongly at the end of the year. A major reorganisation was carried out in our Thermal Ceramics business in Europe and to a lesser extent in the USA. Four businesses were consolidated onto one site in the UK and extensive reorganisation was completed in the rest of Europe. Investment has been made in new fibre plants in China, Japan, Argentina and Mexico to support our expansion in these markets. Thermal Ceramics continues to develop new applications, such as innovative fire protection solutions. Demand for our new soluble fibre is increasing and the reorganised business is in a strong position to take advantage of the cyclical upturn in the petrochemical and ceramics industries. Order levels are good, enquiry levels are high and prospects for 2000 are encouraging. Profits improved in our crucible business and the sale of the Isomor business has cleared the way for a complete reorganisation and modernisation of our oldest UK site. Financial Review Cashflow from operating companies in 1999 was reduced by the redundancy and reorganisation programme and the absence of contribution from non-core businesses which have been sold. These non-core businesses generated operating cashflow of £1.5 million in 1999 (1998 : £19.2 million). Stocks were increased to secure customer service levels during the period of reorganisation and site rationalisation. The expenditure on the redundancy and reorganisation programme led to a cash outflow for the year of £11.9 million excluding acquisitions and disposals. Lower capital expenditure resulted in a reduction in spend of £15.7 million. Acquisition expenditure in 1999 amounted to £196.6 million (1998 : £65.5 million) including debt acquired and deferred consideration on prior year acquisitions. This expenditure was largely funded by the reinvestment of proceeds from the disposal of the Chemical Products business and other non-core businesses, which realised £176.9 million. Shareholders' funds increased to £430.6 million (1998 : £330.4 million) and closing borrowings were £232.3 million (1998 : £199.9 million) Morgan therefore finished the year in strong financial condition with a gearing of 53.9% and a healthy level of interest cover at 6.7 times (pre-exceptional items). The Board is recommending an unchanged final dividend of 8.5 pence per Ordinary share making a total of 15.9 pence (1998 : 15.9 pence) for the year. The dividend will be paid on 6 July 2000 to Ordinary shareholders on the register of members at the close of business on 5 June 2000. A Dividend Reinvestment Plan will again be made available for Ordinary shareholders who would like to take their dividends by way of shares. Details will be posted to shareholders in June 2000. Personnel Mr. Graham Swetman has announced his intention not to seek re- election as a Director at the forthcoming Annual General Meeting at the end of May as he wishes to take early retirement from the Group. Graham joined the Company as Finance Director on 1 July 1983 and contributed significantly during a period of important change and strategic growth for Morgan. We would thank him for his efforts and commitment during the last 17 years and wish him well for the future. We are also pleased to announce the appointment to the Board today of Mr. David Davies as Finance Director Designate. David joins Morgan having been Finance Director with London International plc and who prior to that held senior financial executive positions with the Walt Disney Group, Grand Metropolitan plc and BOC plc. Mr. Davies will take on the full role as Finance Director on 27 March 2000. The combination of strategic disposals and aggressive cost reduction has, as predicted, caused disruption. We are grateful to our employees who have reacted very positively over this challenging period. Outlook In 1999 Morgan has made major strides towards repositioning its business in high growth markets. Our order book has improved steadily over the past six months and we are on course for achieving our growth and profit goals for the year ahead. Dr Bruce Farmer CBE, Chairman On behalf of the Board Morgan House Madeira Walk Windsor Berkshire SL4 1EP CONSOLIDATED PROFIT STATEMENT FOR THE YEAR ENDED 4 JANUARY 2000 Note -------------- 1999 ----------- 1998% Before exceptional Exceptional items items Total Total £m £m £m £m Turnover Continuing operations 765.0 - 765.0 782.0 Acquisitions 61.4 - 61.4 _____ _____ _____ _____ 826.4 - 826.4 782.0 Discontinued operations 36.0 - 36.0 118.4 _____ _____ _____ _____ Group turnover 1 862.4 - 862.4 900.4 Other operating income 6.4 - 6.4 4.5 _____ _____ _____ _____ 868.8 - 868.8 904.9 Operating costs 2 776.2 17.5 793.7 855.4 _____ _____ _____ _____ Operating profit Continuing operations 86.7 (17.4) 69.3 52.6 Acquisitions 4.7 (0.1) 4.6 _____ _____ _____ _____ 91.4 (17.5) 73.9* 52.6* Discontinued operations 1.2 - 1.2 (3.1) _____ _____ _____ _____ Group operating profit 1 92.6 (17.5) 75.1 49.5 Investment income 0.3 - 0.3 (0.1) Other exceptional items Continuing operations - Disposal of fixed assets - 0.7 0.7 0.2 - Profit on sale of investments - - - 0.1 - Profit on sale of business - 1.6 1.6 - - Loss on closure of business - (2.4) (2.4) - Discontinued operations - Profit on sale of businesses - 34.8 34.8 0.7 - Loss on sale of businesses - (2.1) (2.1) (1.2) _____ _____ _____ _____ 3 - 32.6 32.6 (0.2) _____ _____ _____ _____ Profit on ordinary activities before interest 92.9 15.1 108.0 49.2 Net finance charges 13.8 - 13.8 15.3 _____ _____ _____ _____ Profit on ordinary activities before taxation 79.1 15.1 94.2 33.9 Taxation 4 24.4 8.3 32.7 29.0 _____ _____ _____ _____ Profit on ordinary activities after taxation 54.7 6.8 61.5 4.9 Equity minority interest 0.8 - 0.8 1.2 _____ _____ _____ _____ Net profit attributable to The Morgan Crucible Company plc 53.9 6.8 60.7 3.7 _____ _____ Preference dividends on non-equity shares 2.1 2.2 Ordinary dividends on equity shares 5 36.9 36.9 _____ _____ Retained profit/(loss) for the year 21.7 (35.4) ===== ===== Earnings per share 6 - underlying 22.4p 22.4p 25.5p - adjustment for exceptional items 2.9p 2.9p (24.8p) _____ _____ _____ _____ - basic 22.4p 2.9p 25.3p 0.7p _____ _____ _____ _____ - basic excluding goodwill amortisation 26.1p 0.9p - diluted 25.1p 0.6p *Comprising Underlying operating profit 93.4 (17.5) 75.9 91.3 Goodwill amortisation (2.0) - (2.0) (0.5) Goodwill write-off - - - (38.2) _____ _____ _____ _____ 91.4 (17.5) 73.9 52.6 _____ _____ _____ _____ % as restated CONSOLIDATED CASHFLOW STATEMENT FOR THE YEAR ENDED 4 JANUARY 2000 Note ---1999--- ---1998-- £m £m £m £m Net cash inflow from operating activities 7 101.9 126.4 Returns on investments and servicing of finance Interest received 7.5 10.5 Interest paid (21.7) (25.6) Preference dividends paid (2.1) (2.2) ______ ______ (16.3) (17.3) Taxation (26.5) (27.7) Capital expenditure and financial investments Purchase of tangible fixed assets (40.0) (54.6) Insurance proceeds for tangible fixed assets 1.1 - Other proceeds on sale of tangible fixed assets 4.8 9.3 Purchase of investments (0.6) (0.7) Disposal of investments 1.4 - ______ ______ (33.3) (46.0) Acquisitions and disposals Acquisition of subsidiary undertakings (140.8) (37.3) Net cash acquired 2.1 4.6 Deferred consideration for prior year acquisitions (20.4) (22.1) Disposal of businesses 176.9 5.4 Disposal of associated undertakings - 1.2 ______ ______ 17.8 (48.2) Equity dividends paid (36.9) (25.8) ______ ______ Cash inflow/(outflow) before use of liquid resources 6.7 (38.6) Management of liquid resources (Increase)/decrease in cash on deposit (69.9) 9.9 Financing Increase in share capital 0.3 0.8 Increase in bank loans 161.0 77.9 Repayment of bank loans (78.7) (49.1) Repurchase of exchangeable redeemable preference shares (3.3) (1.0) ______ ______ 79.3 28.6 ______ ______ Net increase/(decrease) in cash 16.1 (0.1) ______ ______ Reconciliation to net borrowings Net increase/(decrease) in cash 16.1 (0.1) Cashflow from increase in loans (82.3) (28.8) Cashflow from increase/(decrease) in deposits 69.9 (9.9) Cashflow from repurchase of exchangeable redeemable preference shares 3.3 1.0 ______ ______ Change in net borrowings resulting from cashflows 7.0 (37.8) Issue of exchangeable redeemable preference shares (4.1) (3.6) Bank loans acquired with acquisitions (33.8) (7.5) Exchange movement (1.5) (0.8) ______ ______ Movement in net borrowings during the period (32.4) (49.7) Opening net borrowings (199.9) (150.2) ______ ______ Closing net borrowings (232.3) (199.9) ====== ====== CONSOLIDATED FREE CASHFLOW FOR THE YEAR ENDED 4 JANUARY 2000 Note 1999 1998 £m £m Operating cashflow 7 101.9 126.4 Net interest paid (14.2) (15.1) Taxation paid (26.5) (27.7) Net dividends * (39.0) (28.0) ______ ______ Post dividend cashflow 22.2 55.6 ______ ______ Net capital expenditure on tangible fixed assets (34.1) (45.3) ______ ______ Free cashflow (11.9) 10.3 ====== ====== *Dividends paid in 1998 exclude dividends settled by scrip issue of £9.7 million. CONSOLIDATED BALANCE SHEET AS AT 4 JANUARY 2000 Note 1999 1998 £m £m Fixed assets Goodwill 107.9 24.9 Tangible assets 489.2 434.4 Other investments 6.2 6.2 ______ ______ 603.3 465.5 ______ ______ Current assets Stocks 189.9 145.7 Debtors 231.7 221.3 Cash at bank and in hand 191.7 108.5 ______ ______ 613.3 475.5 Creditors - amounts falling due within one year 8 324.8 337.3 ______ ______ Net current assets 288.5 138.2 _____ _____ Total assets less current liabilities 891.8 603.7 ______ ______ Creditors - amounts falling due after more than one year Term loans 322.5 216.3 Exchangeable redeemable preference shares 9 11.7 11.2 Grants for capital expenditure 2.2 2.6 ______ ______ 336.4 230.1 Provisions for liabilities and charges 124.8 43.2 ______ ______ 461.2 273.3 ______ ______ 430.6 330.4 ====== ====== Capital and reserves Equity shareholders' funds Called up share capital 57.9 57.9 Share premium account 44.2 43.9 Revaluation reserve 15.6 24.4 Other reserves 0.7 0.3 Profit and loss account 266.0 159.3 ______ ______ 384.4 285.8 ______ ______ Non-equity shareholders' funds Called up share capital 30.3 30.3 ______ ______ 414.7 316.1 Minority interest Equity 15.8 13.7 Non-equity 0.1 0.6 ______ ______ 15.9 14.3 ______ ______ 430.6 330.4 ====== ====== STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 1999 1998 £m £m Net profit attributable to shareholders 60.7 3.7 Foreign currency translation (9.7) 1.8 ______ ______ Total recognised gains and losses relating to the year 51.0 5.5 ====== ====== MOVEMENT IN SHAREHOLDERS' FUNDS 1999 1998 £m £m Net profit attributable to shareholders 60.7 3.7 Goodwill written back to profit and loss 86.3 59.9 Dividends (39.0) (39.1) ______ ______ 108.0 24.5 New share capital 0.3 11.4 Goodwill written off against reserves - (0.6) Foreign currency translation (9.7) 1.8 ______ ______ Net increase to shareholders' funds 98.6 37.1 Opening shareholders' funds 316.1 279.0 ______ ______ Closing shareholders' funds 414.7 316.1 ====== ====== NOTES 1. Segmental information Product Group Turnover Operating profit 1999 1998 1999 1998 £m £m £m £m Carbon division 322.2 272.4 42.1 40.1 Ceramics division 428.1 440.5 27.7 48.8 Non core activities 76.1 69.1 4.1 1.9 Exceptional goodwill write-off - continuing operations - (38.2) - discontinued operations - (18.8) Discontinued operations 36.0 118.4 1.2 15.7 _____ _____ _____ _____ 862.4 900.4 75.1 49.5 ===== ===== ===== ===== Geographical Area The analysis shown below is based on the location of the contributing companies: Turnover Operating profit 1999 1998 1999 1998 £m £m £m £m United Kingdom Sales in the UK 69.7 68.0 Sales overseas 81.7 90.7 _____ _____ Total United Kingdom 151.4 158.7 (12.8) 0.2 Rest of Europe 197.2 179.5 14.7 25.1 The Americas 388.6 372.6 58.9 53.1 Far East and Australasia 121.5 93.9 11.2 10.5 Middle East and Africa 10.2 11.6 1.9 1.9 _____ _____ _____ _____ 868.9 816.3 73.9 90.8 Exceptional goodwill write-off - continuing operations - (38.2) - discontinued operations - (18.8) Discontinued operations 36.0 118.4 1.2 15.7 Inter-segment sales (42.5) (34.3) _____ _____ _____ _____ 862.4 900.4 75.1 49.5 ===== ===== ===== ===== Turnover 1999 1998 £m £m The analysis shown below is based on the location of the customer: United Kingdom 78.6 81.8 Rest of Europe 214.3 205.3 The Americas 382.4 367.9 Far East and Australasia 134.3 107.9 Middle East and Africa 16.8 19.1 _____ _____ 826.4 782.0 Discontinued operations 36.0 118.4 _____ _____ 862.4 900.4 ===== ===== 2. Exceptional operating items The redundancy and reorganisation costs of £17.5 million incurred during 1999 have been shown separately as exceptional due to the amounts involved. In 1998, following a strategic review of the Group's operations, a number of businesses were identified as non-core and were offered for sale. Where the Directors were of the opinion that the proceeds that could be obtained on disposal would not cover the goodwill previously written off directly to reserves, then the amount (£57.0 million) was charged as an exceptional goodwill write-off in the profit and loss statement. 3. Other non-operating exceptional items The exceptional profit on disposal arises principally on the sale of the discontinued Chemical Products business which gave rise to a gain of £32.4 million after goodwill written back of £85.4 million. During the year the Group also disposed of several other businesses which are classified as discontinued operations. The effect of these disposals gave rise to a profit on the sale of Mini Instruments and Morganite Electronic Instruments of £2.4 million and this was partially offset by a loss on disposal arising from the sales of Hydrotex and Spanoptic of £2.1 million. Similarly the Group disposed of certain business segments of continuing operations and this resulted in a gain on the sale of the Isomor business of £1.6 million and a loss on closure of the Crystal division of Laser Diode of £2.4 million. Disposal of fixed assets generated a gain of £0.7 million. 4. Taxation 1999 1998 £m £m United Kingdom taxes 5.5 13.0 Overseas taxes 27.2 16.0 _____ _____ Total taxation 32.7 29.0 ===== ===== Overseas tax includes £8.8 million (1998 : £Nil) attributable to exceptional items. United Kingdom tax includes a tax credit of £0.5 million (1998 : £Nil) attributable to exceptional items. 5. Ordinary dividends 1999 1998 1999 1998 Per share (pence) £m £m Interim 7.4 7.4 17.2 17.2 Final 8.5 8.5 19.7 19.7 _____ _____ _____ _____ 15.9 15.9 36.9 36.9 ===== ===== ===== ===== 6. Earnings per ordinary share The calculation of basic earnings per Ordinary share is based upon the Group profit after taxation of £61.5 million (1998 : £4.9 million) less equity minority interests of £0.8 million (1998 : £1.2 million) and preference dividends of £2.1 million (1998 : £2.2 million) and on the weighted average number of fully paid Ordinary shares in issue during the year of 231,793,066 (1998 : 230,202,251). The basic earnings per Ordinary share excluding goodwill amortisation is calculated after adding back £2.0 million (1998 : £0.6 million). Underlying earnings per share is based on adjusted profits attributable to shareholders of £51.8 million (1998 : £58.7 million) having added back the effect of the exceptional item of £17.5 million (1998 : £57.0 million) with the attributable taxation credit of £5.4 million (1998 : £Nil) and other exceptional net profit arising from the sale of businesses and surplus properties of £32.6 million (1998 : (£0.2) million) less attributable taxation of £13.7 million (1998 : £Nil). It is calculated on the weighted average number of fully paid Ordinary shares in issue during the year of 231,793,066 (1998 : 230,202,251). The Directors have disclosed an underlying earnings per share as, in their opinion, this reflects the underlying performance of the Group and assists comparison with the results of earlier years. The diluted earnings per share is based upon the Group profit after taxation of £61.5 million (1998 : £4.9 million) less equity minority interest of £0.8 million (1998 : £1.2 million) and preference dividends as specifically calculated for this purpose under FRS 14 of £Nil (1998 : £2.2 million) and Ordinary shares of 242,178,444 (1998 : 230,880,988) calculated as follows: 1999 1998 Basic weighted average number of shares 231,793,066 230,202,251 Relevant employee share options 113,035 678,737 Cumulative Redeemable Third Preference Shares 10,272,343 - ___________ ____________ 242,178,444 230,880,988 =========== ============ 7. Reconciliation of operating profit to net cash inflow from operating activities 1999 1998 Contin- Discon- Contin- Discon- uing tinued Total uing tinued Total £m £m £m £m £m £m Operating profit 73.9 1.2 75.1 52.6 (3.1) 49.5 Exceptional goodwill write-off - - - 38.2 18.8 57.0 _____ _____ _____ _____ _____ _____ 73.9 1.2 75.1 90.8 15.7 106.5 Depreciation 38.5 1.2 39.7 33.6 3.5 37.1 Amortisation of goodwill 2.0 - 2.0 0.5 0.1 0.6 Loss on sale/write off of plant and machinery 1.4 - 1.4 0.1 - 0.1 Increase in stocks (3.0) (1.1) (4.1) (4.6) (0.7) (5.3) (Increase)/decrease in debtors (3.8) 4.4 0.6 (5.1) 0.5 (4.6) (Decrease)/increase in creditors (8.9) (2.8)(11.7) (7.1) 0.3 (6.8) (Decrease)/increase in provisions 0.3 (1.4) (1.1) (1.0) (0.2) (1.2) _____ _____ _____ _____ _____ _____ Net cash inflow from operating activities 100.4 1.5 101.9 107.2 19.2 126.4 ===== ===== ===== ===== ===== ===== 8. Current liabilities Current liabilities include bank loans and overdrafts of £89.8 million (1998 : £80.9 million). 9. Exchangeable redeemable preference shares Since 1997 the Group has made a number of acquisitions where part of the consideration was satisfied by the issue of exchangeable redeemable preference shares, or their equivalent, in Morgan's wholly owned subsidiaries. These shares may be exchanged for Ordinary shares in the Company or redeemed at the issue price. Until the option to exchange these preference shares is exercised they have been classified as debt in accordance with FRS 4 'Capital Instruments'. Unless the exchangeable redeemable preference shares carry a dividend coupon, the original value of the consideration has been discounted at appropriate interest rates and interest charged to the profit and loss account. At the year end, the amount shown as debt is £11.7 million (1998 : £11.2 million), which represents the discounted amount of exchangeable redeemable preference shares held by third parties plus attributable interest to date. The exchangeable redeemable preference shares may be exchanged for 2,804,318 Ordinary shares in the Company (1998 : 2,485,290 Ordinary shares). The options to exchange may be exercised on dates ranging from 1 May 1999 to 21 May 2009 at the discretion of either the Company or the holder. There is no premium payable on redemption. The financial information contained in this Preliminary Statement does not amount to statutory accounts for the Company's financial years ended 4 January 2000 and 4 January 1999. It has been approved by the Board of Directors on 14 March 2000 and has been prepared on a consistent basis with the accounting policies set out in the Group's 1998 annual report and accounts. Statutory accounts for the year ended 4 January 1999 have been filed with the Registrar of Companies and the statutory accounts for the year ended 4 January 2000 are expected to be filed immediately following the Annual General Meeting of the Company in May 2000. This Preliminary Statement will be dispatched to all registered holders of Ordinary shares and Preference shares. Copies of this statement may be obtained from the Secretary at the Registered Office of the Company, Morgan House, Madeira Walk, Windsor, Berkshire, SL4 1EP.

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