Interim Results

MORGAN CRUCIBLE COMPANY PLC 13 September 1999 INTERIM STATEMENT 1999 HIGHLIGHTS * Profit before tax, exceptional operating cost of £14.4m, and gain from disposals, was £39.5m, in line with expectation. * Underlying operating profit improved by 19.3% compared to the previous six months. * Successful disposal of Chemical Product businesses for US$285m (£177.3m) in April. * Other strategic disposals (Spanoptic, Isomor, Grinding Media assets) totalling £6m completed. Further announced non-core disposals proceeding to plan. * Acceleration of Group-wide restructuring and rationalisation programme ahead of plan. Initial headcount reduction of 815. Major site rationalisations with clear continuing programme for second half. * Global Presidents in place in core businesses; Six Sigma continuous improvement process adopted Group-wide. * Order book steadily improving following downturn in late 1998. * Dividend will be unchanged at 7.4 pence. Ian Norris, Chief Executive, said: ' We are absolutely committed to the reinvention of Morgan as a world leader in the provision of technically superior engineering solutions. The first half was one of unprecedented change at Morgan. We made faster than anticipated progress with the rationalisation and consolidation into our eight core businesses. We are on track to achieve annualised savings of at least £20m - the major part of which will be realised next year, with full recovery expected in 2001 as cost reduction moves take effect. While 1999 remains a year of transition we remain confident that the measures we are taking will result in significant improvements in both profitability and margins in the medium term.' INTERIM STATEMENT 1999 STRATEGIC PROGRESS This is the year of unprecedented change at Morgan. Major cost reduction programmes and the disposal of non-core, underperforming businesses spearhead this change. We successfully disposed of the largest of these businesses, Chemical Products, for US$285m in April. The other businesses already earmarked for sale are performing in line with expectations and their programmes for sale are proceeding to schedule. We have made faster than anticipated progress with the rationalisation and consolidation of the Group and would like to pay tribute to the considerable efforts and commitment of our employees over this period of change. We are creating a solid and focused platform for future development and are on track to achieve projected annual savings of £20m, the majority of which we expect to realise in 2000. We are absolutely committed to the reinvention of Morgan as a world leader in the provision of technically superior engineering solutions. Global presidents have been appointed to head each of our eight core businesses - four in the Carbon division and four in Ceramics. They are tasked with implementing our strategy for sustainable growth by: - refocusing each business on high-growth markets; - providing market-differentiated solutions for increasingly sophisticated technological problems; - emphasising value-added problem-solving, rather than commodity product manufacture; - fostering a culture of continuous improvement in which we are using Six Sigma methodology to raise quality standards, shorten cycle times and reduce costs. We are confident that our strategic initiatives will result in substantially improved medium term profitability and enhanced prospects for long term growth. TRADING The North American economy which had high demand for consumer and automotive products continued to have low levels of industrial investment, particularly in the steel and petrochemical sectors. European orders have shown a gradual improvement with encouraging recent trends from Germany and Spain. Schedules for France are solid, with slower recovery in the UK, and Italy remaining weak. Our Asian businesses continued to show very good growth, some of which reflects export-led volumes destined for Western markets. We are well placed to take full advantage of such market situations although the adverse impact of currency translation remains. Against this background, 1999 is a year of transition and our first half figures reflect the considerable changes already implemented. CARBON The Carbon Division average monthly orders, sales and underlying profit are at a similar level to the 1998 monthly average. The successful rationalisation of our largest carbon plant in Europe, located at Morriston in South Wales, was completed in December, and has been since supported by a reduction in the workforce of 150, or one-third of the total. Further headcount reductions are taking place at our largest plant in Dunn, North Carolina. Rationalisation continues with the closure of carbon sites in Germany and Brazil, and the merger of four Australian and two African companies. The Automotive and Consumer business performed at similar levels to last year despite the recent manufacturing substitution trend from the western markets to Asia. During the first half, in addition to the rationalisation measures detailed above, we established a global marketing network to enhance our ability to provide high value-added engineering solutions to our customers throughout the world. The Industrial and Rail Traction business performance was marginally down with a good Americas performance offsetting a slower start to the year in Europe. The Asian operations have strongly increasing order books and the European orders for the past three months were good. The Mechanical Carbon business in the Americas continued to perform well. There was growth across the small Asian operations. Europe had a weaker first quarter but order intake over recent months has improved. Specialty Graphite moved nearer to critical mass with the acquisition of Graphite Die Mold, a US based specialty graphite business focused on supplying world leading products to the semi-conductor industry. Our Carbon businesses were the first to introduce the Six Sigma continuous improvement programme and are now starting to see solid benefits. Examples include US$250,000 annualised savings on cost of quality at our automotive plant in the USA. At our largest US industrial and traction facility there was a 40% overtime reduction with a US$420,000 annualised labour saving. Projects are ongoing and further benefits will accrue. CERAMICS The scope and speed of change in our Ceramics businesses were the defining features of the first half. Overall return was in line with expectation which recognised the massive reorganisation programme and specific market challenges. The Ceramics workforce will be reduced by around 12% (600 people) by year-end. Results of changes made to date give us confidence that this division will return improved ratios with growth next year. Our UK silicates facility in Bedfordshire was closed. We significantly reduced our cost base in Spain, disposing of the commodity grinding media business, halving headcount and progressing towards a single-site operation. Sound progress was made in the USA, consolidating overheads at our two Californian sites and unifying six US sales forces into a single team. In Electro-Ceramics, we combined our two European businesses under a single management team and merged our continental sales activities into one specialist sales force. Technical effort and expenditure has been concentrated on the development of a range of piezo-ceramic materials and leading-edge microwave dielectric materials for the transportation, telecommunications and defence industries. Although Electro-Ceramics is a relatively small business and material approval processes are lengthy, these new materials provide the opportunity for significant growth. The pace of change in our Insulating Ceramics and Crucibles businesses was even more dramatic. We sold our Worcester-based continuous casting business, permitting extensive site consolidation and a 25% reduction in staffing levels at our crucible facility. Reorganisation of the Insulating Ceramics site at Bromborough is underway with five key businesses being rationalised into that facility. In continental Europe, we cut costs and improved efficiency by scaling down our Paris office and closing four sales offices. The marketing unit has been consolidated into the UK, reducing costs and providing focused support for our European operations. Two Italian sites have been consolidated and our three German operations have been combined, as have our two Dutch sales offices. In the US, we have closed five sales offices, closed the low-temperature insulating shapes plant at Augusta and established in its place a new technically advanced site in Mexico, where we are confident we can achieve superior, cost effective quality. Our Asian businesses saw encouraging export-led growth, particularly in Korea with a further 73% increase in orders on top of the 1998 increase of 40%. The Chinese operations continue to perform well. There is evidence of increasing pressure in the manufacturing and mineral sectors of the Australian economy. OTHER BUSINESSES As previously announced, we are proceeding with the sale of our remaining non-core businesses, which now comprise Emblem, Electro-Optics, Power Industry Products and Hydrotex. DISCONTINUED OPERATIONS The MRO Chemical Products business produced profits of £1 million before its disposal on 7 April 1999. Other disposals in the period include the Isomor continuous casting equipment business, sold in June, and Spanoptic, a small optics company, which was sold to its management on 16 April 1999. FINANCIAL REVIEW In the six months to 4 July 1999, Morgan achieved sales on continuing operations of £413.9m, compared to £405.9m in the first half of 1998. Operating profit before redundancy and reorganisation costs was £45.7m, 21% below the same period last year. Underlying operating profit (excluding acquisitions and the benefit of currency translation) improved by 19.3% compared with the second half of last year. Currency translation effects increased the sterling value of turnover by £7.8m and profit before tax by £0.6m. The Group made a non-operating exceptional profit of £32.8m, primarily from the disposal of the MRO business in April. The costs of the redundancy and reorganisation programme (£14.4m) are shown separately as an operating exceptional item on account of their significance in the period. The net finance charge in the period reduced to £7.3m (1998:£7.8m). The majority of the cash receipts from the disposal of the MRO Chemical Products business were received in the second quarter and the benefits were largely offset by a reduction in UK deposit rates. The taxation rate for the year, excluding the effect on taxation of non-operating exceptional items, is estimated to increase to 34%, reflecting the lack of tax shield available to cover the reorganisation costs in certain overseas territories. This effect is expected to be temporary. The effect of the reorganisation was to reduce operating cash flow in the period to £29m (1998:£57.4m). The Group ended the period with closing net borrowings of £103.9m and a gearing of 24.1%. The balance sheet reflects a write-back of goodwill amounting to £86m, as a result of the MRO Chemical Products business and Spanoptic disposals. Earnings per share were 14.6 pence (1998:16.7 pence) including a net contribution of 4.2 pence from exceptional items. The Board has declared an interim dividend of 7.4 pence per Ordinary share (1998:7.4 pence). The dividend will be paid on 6 January 2000 to Ordinary shareholders on the register of members at the close of business on 5 November 1999. Ordinary shareholders will be given the opportunity of acquiring shares in lieu of the cash dividend by means of a Dividend Reinvestment Plan. Forms of election and an explanatory circular will be posted to shareholders in November 1999. OUTLOOK Trading conditions stabilised in the first quarter after a very difficult fourth quarter. Order increases particularly from Europe were sluggish early in the year but began to recover during the second quarter. We expect these trends to continue after the traditionally slow summer period and this will maintain the gradual improvement in underlying performance seen in the first six months of the year. However because of the increased level of reorganisation and its consequent disruptive effect it is appropriate to view 1999 with caution. We remain confident that the measures we are taking will result in significant improvements in both profitability and margins in the medium term. Dr Bruce Farmer CBE, Chairman Ian Norris, Chief Executive For and on behalf of the Board Morgan House Madeira Walk Windsor Berkshire SL4 1EP CONSOLIDATED PROFIT STATEMENT FOR THE SIX MONTHS ENDED 4 JULY 1999 - - - - - Six months - - - - Six Year 1999 months 1998 Before 1998 exceptional Exceptional items items Total Total Total Note £m £m £m £m £m Turnover Continuing operations 398.1 - 398.1 405.9 797.2 Acquisitions 15.8 - 15.8 _____ _____ _____ _____ _____ 413.9 - 413.9 405.9 797.2 Discontinued operations 22.1 - 22.1 51.8 103.2 _____ _____ _____ _____ _____ Group turnover 2 436.0 - 436.0 457.7 900.4 Net operating costs 3 389.3 14.4 403.7 393.4 850.9 _____ _____ _____ _____ _____ Operating profit Continuing operations 44.3 (14.4) 29.9 56.6 34.4 Acquisitions 1.4 - 1.4 _____ _____ _____ _____ _____ 45.7 (14.4) 31.3 56.6 34.4 Discontinued operations 1.0 - 1.0 7.7 15.1 _____ _____ _____ _____ _____ Group operating profit 2 46.7 (14.4) 32.3 64.3 49.5 Investment income 0.1 - 0.1 0.1 (0.1) Other exceptional items 4 Continuing operations - Disposal of fixed assets - - - - 0.2 - Profit on sale of associated undertakings - - - 0.2 0.1 - Profit on sale of business - 2.1 2.1 - - Discontinued operations - Profit on sale of businesses - 30.7 30.7 0.7 0.7 - Loss on sale of businesses - - - - (1.2) _____ _____ _____ _____ _____ - 32.8 32.8 0.9 (0.2) _____ _____ _____ _____ _____ Profit on ordinary activities before interest 46.8 18.4 65.2 65.3 49.2 Net finance charges 7.3 - 7.3 7.8 15.3 _____ _____ _____ _____ _____ Profit on ordinary activities before taxation 39.5 18.4 57.9 57.5 33.9 Taxation 5 13.4 8.8 22.2 17.8 29.0 _____ _____ _____ _____ _____ Profit on ordinary activities after taxation 26.1 9.6 35.7 39.7 4.9 Equity minority interest (0.8) - (0.8) (0.4) (1.2) _____ _____ Preference dividends (1.1) (1.1) (2.2) _____ _____ _____ Earnings attributable to ordinary shareholders 33.8 38.2 1.5 Ordinary dividends (17.2) (17.2) (36.9) _____ _____ _____ Retained profit/(loss) for the year 16.6 21.0 (35.4) ===== ===== ===== Earnings per share 6 - underlying 10.4p 10.4p 16.3p 25.5p - adjustment for exceptional items 4.2p 4.2p 0.4p (24.8p) _____ _____ _____ _____ _____ - basic 10.4p 4.2p 14.6p 16.7p 0.7p _____ _____ _____ _____ _____ - diluted 14.6p 16.2p 0.6p STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE SIX MONTHS ENDED 4 JULY 1999 Six Six months months Year 1999 1998 1998 £m £m £m Net profit attributable to shareholders 34.9 39.3 3.7 Foreign currency translation (3.7) (3.2) 1.8 ____ ____ ____ Total recognised gains and losses relating to the period 31.2 36.1 5.5 ==== ==== ==== CONSOLIDATED CASHFLOW STATEMENT FOR THE SIX MONTHS ENDED 4 JULY 1999 Six months Six months Year 1999 1998 1998 Note £m £m £m £m £m £m Net cash inflow from operating activities 7 29.0 57.4 126.4 Returns on investments and servicing of finance Interest received 3.0 4.8 10.5 Interest paid (10.4) (12.5) (25.6) Preference dividends paid (1.1) (1.1) (2.2) _____ _____ _____ (8.5) (8.8) (17.3) Taxation (13.2) (13.5) (27.7) Capital expenditure and financial investments Purchase of tangible fixed assets (15.3) (28.2) (54.6) Proceeds on sale of tangible fixed assets 1.9 - 9.3 Purchase of investments - (0.2) (0.7) Disposal of investments 1.1 - - _____ _____ _____ (12.3) (28.4) (46.0) Acquisitions and disposals Acquisition of subsidiary undertakings (10.9) (29.0) (37.3) Net cash acquired 0.8 0.2 4.6 Deferred consideration for prior year acquisitions (19.6) (21.3) (22.1) Disposal of businesses 168.2 0.1 5.4 Disposal of associated undertakings - 1.2 1.2 _____ _____ _____ 138.5 (48.8) (48.2) Equity dividends paid (17.2) (15.7) (25.8) _____ _____ _____ Cash inflow/(outflow) before use of liquid resources 116.3 (57.8) (38.6) Management of liquid resources (Increase)/decrease in cash on deposit (101.1) 8.5 9.9 Financing Increase in share capital 0.3 0.3 0.8 Net (decrease)/increase in bank loans (8.5) 41.5 28.8 Repurchase of exchangeable redeemable preference shares (1.6) - (1.0) _____ _____ _____ (9.8) 41.8 28.6 _____ _____ _____ Net increase/(decrease) in cash 5.4 (7.5) (0.1) ===== ===== ===== Reconciliation to net borrowings Net increase/(decrease) in cash 5.4 (7.5) (0.1) Cashflow from decrease/ (increase) in loans 8.5 (41.5) (28.8) Cashflow from increase/ (decrease) in deposits 101.1 (8.5) (9.9) Cashflow from repurchase of exchangeable redeemable preference shares 1.6 - 1.0 _____ _____ _____ Change in net borrowings resulting from cashflows 116.6 (57.5) (37.8) Issue/increase of exchangeable redeemable preference shares (4.0) (3.4) (3.6) Bank loans acquired with acquisitions (2.8) (0.9) (7.5) Exchange movement (13.8) 3.3 (0.8) _____ _____ _____ Movement in net borrowings during the period 96.0 (58.5) (49.7) Opening net borrowings (199.9) (150.2) (150.2) _____ _____ _____ Closing net borrowings (103.9) (208.7) (199.9) ===== ===== ===== CONSOLIDATED FREE CASHFLOW FOR THE SIX MONTHS ENDED 4 JULY 1999 Six months Six months Year Note 1999 1998 1998 £m £m £m Operating cashflow 7 29.0 57.4 126.4 Net interest paid (7.4) (7.7) (15.1) Taxation paid (13.2) (13.5) (27.7) Net dividends * (18.3) (16.8) (28.0) _____ _____ _____ Post dividend cashflow (9.9) 19.4 55.6 Net capital expenditure on tangible fixed assets (13.4) (28.2) (45.3) _____ _____ _____ Free cashflow (23.3) (8.8) 10.3 ===== ===== ===== *Dividends paid exclude dividends settled by scrip issue of £Nil (January - June 1998 : £0.3 million; January - December 1998 : £9.7 million). CONSOLIDATED BALANCE SHEET AS AT 4 JULY 1999 Six months Six months Year Note 1999 1998 1998 £m £m £m Fixed assets Goodwill 34.6 12.8 24.9 Tangible assets 406.1 410.6 434.4 Other investments 5.5 5.9 6.2 _____ _____ _____ 446.2 429.3 465.5 _____ _____ _____ Current assets Stocks 146.8 139.2 145.7 Debtors 221.3 232.5 221.3 Cash at bank and in hand 208.4 98.9 108.5 _____ _____ _____ 576.5 470.6 475.5 Current liabilities 8 325.5 316.9 337.3 _____ _____ _____ Net current assets 251.0 153.7 138.2 _____ _____ _____ Total assets less current liabilities 697.2 583.0 603.7 _____ _____ _____ Creditors - amounts falling due after more than one year Term loans 204.5 217.1 216.3 Exchangeable redeemable preference shares 9 13.7 11.8 11.2 Grants for capital expenditure 2.1 2.5 2.6 _____ _____ _____ 220.3 231.4 230.1 Provisions for liabilities and charges 45.0 38.4 43.2 _____ _____ _____ 265.3 269.8 273.3 _____ _____ _____ 431.9 313.2 330.4 ===== ===== ===== Capital and reserves Equity shareholders' funds Called up share capital 58.0 57.2 57.9 Share premium account 44.1 34.6 43.9 Revaluation reserve 24.4 23.6 24.4 Other reserves 0.4 0.2 0.3 Profit and loss account 258.1 152.5 159.3 _____ _____ _____ 385.0 268.1 285.8 Non-equity shareholders' funds Called up share capital 30.3 30.4 30.3 _____ _____ _____ 415.3 298.5 316.1 Minority interest Equity 16.0 14.2 13.7 Non-equity 0.6 0.5 0.6 _____ _____ _____ 16.6 14.7 14.3 _____ _____ _____ 431.9 313.2 330.4 ===== ===== ===== MOVEMENT IN SHAREHOLDERS' FUNDS FOR THE SIX MONTHS ENDED 4 JULY 1999 Six Six months months Year 1999 1998 1998 £m £m £m Net profit attributable to shareholders 34.9 39.3 3.7 Goodwill written back to profit and loss 85.8 0.2 59.9 Dividends (18.3) (18.3) (39.1) _____ _____ _____ 102.4 21.2 24.5 New share capital 0.3 1.5 11.4 Goodwill written back/ off against reserves 0.2 - (0.6) Foreign currency translation (3.7) (3.2) 1.8 _____ _____ _____ Net increase to shareholders' funds 99.2 19.5 37.1 Opening shareholders' funds 316.1 279.0 279.0 _____ _____ _____ Closing shareholders' funds 415.3 298.5 316.1 ===== ===== ===== NOTES 1.Basis of preparation The interim financial information, which has been approved by the Board of Directors, has been prepared on a consistent basis with the accounting policies set out in the Group's 1998 annual report and accounts. The results and balance sheet for the year 1998 are an abridged version of the full accounts which received an unqualified report by the auditors and have been filed with the Registrar of Companies. 2.Segmental information Product group - - - - - - Turnover - - - Operating profit Six Six Six Six months months Year months months Year 1999 1998 1998 1999 1998 1998 £m £m £m £m £m £m Carbon 150.3 142.4 272.4 21.6 25.0 40.9 Ceramics 219.4 224.2 444.8 21.7 30.1 50.8 Non core businesses 44.2 39.3 80.0 2.4 2.8 2.5 _____ _____ _____ _____ _____ _____ 413.9 405.9 797.2 45.7 57.9 94.2 Redundancy and reorganisation (see note 3) (14.4) (1.3) (2.8) Exceptional goodwill write-off - - (57.0) Discontinued operation 22.1 51.8 103.2 1.0 7.7 15.1 _____ _____ _____ _____ _____ _____ 436.0 457.7 900.4 32.3 64.3 49.5 ===== ===== ===== ===== ===== ===== Non core businesses include Power Industry Products, the Emblem Group, Electro-optics and Hydrotex. The precision coatings business which previously reported in Specialty Materials is now included in Carbon. The discontinued operations include the results for the MRO businesses, Spanoptic and, in 1998, Rigby Metal Components. The operating profit for discontinued operations is shown after charging redundancy and reorganisation costs of £Nil in 1999 (January - June 1998 : £0.5 million; January - December 1998 : £1.1 million). Geographical area The analysis shown below is based on the location of the contributing companies: - - - - - - - Turnover - - - Operating profit Six Six Six Six months months Year months months Year 1999 1998 1998 1999 1998 1998 £m £m £m £m £m £m United Kingdom Sales in the UK 34.3 38.1 70.2 Sales overseas 46.6 46.5 92.4 _____ _____ _____ Total United Kingdom 80.9 84.6 162.6 - 3.8 2.8 Rest of Europe 95.2 91.2 183.9 12.0 14.1 25.4 The Americas 190.7 200.9 380.1 27.0 34.2 54.7 Far East and Australasia 60.3 41.4 93.9 5.9 4.6 9.4 Middle East and Africa 5.0 6.1 11.6 0.8 1.2 1.9 _____ _____ _____ _____ _____ _____ 432.1 424.2 832.1 45.7 57.9 94.2 Redundancy and reorganisation (see note 3) (14.4) (1.3) (2.8) _____ _____ _____ 31.3 56.6 91.4 Exceptional goodwill write-off - - (57.0) Discontinued operations 22.1 51.8 103.2 1.0 7.7 15.1 Inter-segment sales (18.2) (18.3) (34.9) _____ _____ _____ _____ _____ _____ 436.0 457.7 900.4 32.3 64.3 49.5 ===== ===== ===== ===== ===== ===== The analysis shown below is based on the location of the customer: Turnover Six months Six months Year 1999 1998 1998 £m £m £m United Kingdom 39.1 43.8 84.0 Rest of Europe 106.2 105.2 207.9 The Americas 192.4 198.5 376.4 Far East and Australasia 67.1 48.8 108.4 Middle East and Africa 9.1 9.6 20.5 _____ _____ _____ 413.9 405.9 797.2 Discontinued operations 22.1 51.8 103.2 _____ _____ _____ 436.0 457.7 900.4 ===== ===== ===== 3.Redundancy and reorganisation costs The redundancy and reorganisation costs of £14.4 million incurred in the first six months of 1999 have been shown separately as exceptional due to the amounts involved. The amounts shown below are for continuing businesses only. Six months Six months Year 1999 1998 1998 £m £m £m Carbon 3.5 0.2 0.4 Ceramics 10.7 0.8 1.9 Non core businesses 0.2 0.3 0.5 ____ ____ ____ 14.4 1.3 2.8 ==== ==== ==== United Kingdom 6.2 0.5 1.0 Rest of Europe 6.3 0.3 0.5 The Americas 1.3 0.4 1.1 Far East and Australasia 0.6 0.1 0.2 Middle East and Africa - - - ____ ____ ____ 14.4 1.3 2.8 ==== ==== ==== 4.Other exceptional items The exceptional gain on disposals arises on the sale of the MRO business in April 1999 which gave rise to a gain of £30.7 million after goodwill written back of £85.4 million; on the sale of the Isomor business which gave rise to a gain of £2.1 million; and on the sale of Spanoptic which gave rise to no gain or loss after goodwill written back of £0.4 million. 5.Taxation Six months Six months Year 1999 1998 1998 £m £m £m United Kingdom taxes 7.5 6.8 13.0 Overseas taxes 14.7 11.0 16.0 ____ ____ ____ Total taxation 22.2 17.8 29.0 ==== ==== ==== The total taxation charge for the six months to 4 July 1999 of £22.2 million includes tax on exceptional items of £8.8 million, made up of £13.7 million on the disposal of businesses and £4.9 million credit on the redundancy and reorganisation costs. The interim taxation charge is calculated by applying the Directors' best estimate of the annual tax rate to the profit for the period. 6.Earnings per Ordinary share The calculation of basic earnings per Ordinary share is based upon the Group profit after tax of £35.7 million (January - June 1998 : £39.7 million; January - December 1998 : £4.9 million) less equity minority interests of £0.8 million (January - June 1998 : £0.4 million; January - December 1998 : £1.2 million) and preference dividends of £1.1 million (January - June 1998 : £1.1 million; January - December 1998 : £2.2 million) and on the weighted average number of fully paid Ordinary shares in issue during the year of 231,751,255 (January - June 1998 : 228,835,769; January - December 1998 : 230,202,251). Underlying earnings per share are based on adjusted profits attributable to shareholders of £24.2 million (January - June 1998 : £37.3 million; January - December 1998 : £58.7 million) having added back the effect of the exceptional redundancy and reorganisation costs of £14.4 million less attributable taxation of £4.9 million in 1999, the exceptional goodwill write-off of £57.0 million in the full year 1998 and other exceptional items of £32.8 million (January - June 1998 : £0.9 million; January - December 1998: £(0.2) million) less attributable taxation of £13.7 million (January - June 1998 : £Nil; January - December 1998 : £Nil). 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 tax of £35.7 million (January - June 1998 : £39.7 million; January - December 1998 : £4.9 million) less equity minority interest of £0.8 million (January - June 1998 : £0.4 million; January - December 1998 : £1.2 million) and preference dividends of £1.1 million (January - June 1998 : £Nil; January - December 1998 : £2.2 million) and Ordinary shares calculated as follows: Six months Six months Year 1999 1998 1998 Basic weighted average number of shares 231,751,255 228,835,769 230,202,251 Dilutive potential Ordinary shares: Cumulative Redeemable Third Preference shares - 10,671,058 - Exchangeable redeemable preference shares - - - Employee share options 37,051 1,017,194 678,737 Shares for Long Term Incentive Plan - 1,764,757 - ___________ ___________ ___________ 231,788,306 242,288,778 230,880,988 =========== =========== =========== 7.Reconciliation of operating profit to net cash inflow from operating activities Six Six months months Year Discon- 1999 1998 1998 Continuing tinued Total Total Total £m £m £m £m £m Operating profit 31.3 1.0 32.3 56.6 34.4 Exceptional goodwill write-off - - - - 57.0 _____ _____ _____ _____ _____ 31.3 1.0 32.3 56.6 91.4 Depreciation 19.2 0.8 20.0 16.6 33.9 Amortisation of goodwill 0.7 - 0.7 0.1 0.5 Loss on sale/write-off of plant and machinery 1.2 - 1.2 0.2 0.1 (Increase)/decrease in stocks (3.9) (0.9) (4.8) (5.0) (4.7) (Increase)/decrease in debtors (11.5) 3.2 (8.3) (6.5) (4.2) (Decrease)/increase in creditors (6.2) (5.4) (11.6) (14.3) (7.3) (Decrease)/increase in provisions (1.2) 0.7 (0.5) 0.6 (1.0) Net cashflow from discontinued activities 9.1 17.7 _____ _____ _____ _____ _____ Net cash inflow from operating activities 29.6 (0.6) 29.0 57.4 126.4 ===== ===== ===== ===== ===== 8.Current liabilities Current liabilities include bank loans and overdrafts of £94.1 million (4 July 1998 : £78.7 million; 4 January 1999 : £80.9 million). 9.Exchangeable redeemable preference shares During the past few years the Group made a number of acquisitions where all or 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'. The original value of the consideration has been discounted at appropriate interest rates and interest charged to the profit and loss account. The amount shown as debt at the period end 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 3,197,119 Ordinary shares in the Company. The options to exchange may be exercised on dates ranging from 1 May 1999 to 20 May 2009. Independent review report of the auditors to The Morgan Crucible Company plc We have been instructed by the Company to review the financial information set out on pages 6 to 12 and we have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein is the responsibility of, and has been approved by, the Directors. The Listing Rules of the London Stock Exchange require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 4 July 1999. London ERNST & YOUNG 13 September 1999 Registered Auditor This Interim 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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