Interim Results
Morgan Crucible Co PLC
01 August 2007
INTERIM RESULTS FOR THE HALF YEAR ENDED 4 JULY 2007
• Strong revenue growth and continuing profit margin progression:
Revenue from continuing operations increased by 9.7% on a constant
currency basis
Group operating profit margins before one off costs(+) rose to 12.4%
from 10.6% driven by favourable mix shift, improved pricing, growth in
emerging markets and cost efficiencies
Group operating margins after one off costs(+) improved to 11.4% from
6.1%
Underlying EPS(++) improved by 32.9% to 11.3 pence (2006: 8.5 pence)
• All three divisions now well into double digit operating profit margins:
Carbon achieved underlying operating profit margins of 16.5% (2006:
15.2%) with a strong performance in armour and increased higher margin
sales in the Americas and Asia
Technical Ceramics achieved underlying operating margins of 11.7%
(2006: 10.6%)through positive mix shift and further manufacturing
footprint rationalisation
Insulating Ceramics achieved underlying operating margins of 11.3%
(2006: 9.0%)with particularly strong growth in the top line due to large
project-based business
• Strategic investment announced to accelerate move to higher margin,
higher growth, less economically cyclical markets:
An initial 49% stake acquired in NP Aerospace, a UK-based armour/
composites business
Entry price represents c.6.5 times NP Aerospace's 2006 EBITDA, and values
NP Aerospace at £71 million
The initial investment from Morgan Crucible will be £41 million,
structured as £36 million in a shareholder loan paying c.10% per annum,
£4.5 million in preference shares yielding 8% per annum, and
£0.5 million for ordinary equity
• Strong financial position:
Net debt(+++) remains low at less than one times annualised EBITDA even after
c£35 million of share buybacks
Interim dividend increased by 50% to 2.25 pence per share
(2006: 1.5 pence)
£m unless otherwise stated 2007 2006 Change
--------------------------------------------------------------------------------
Revenue 347.8 336.3 +3.4%
--------------------------------------------------------------------------------
Underlying EBITDA* 55.9 48.8 +14.5%
--------------------------------------------------------------------------------
Underlying operating profit** 43.1 35.7 +20.7%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Underlying PBT*** 40.5 34.2 +18.4%
--------------------------------------------------------------------------------
Underlying EPS(++) (pence) 11.3 8.5 +32.9%
--------------------------------------------------------------------------------
Basic EPS (pence) 9.8 7.5 +30.7%
--------------------------------------------------------------------------------
Operating profit 39.1 31.6 +23.7%
--------------------------------------------------------------------------------
Profit before tax 36.2 30.1 +20.3%
--------------------------------------------------------------------------------
Commenting on the results, Chief Executive Officer, Mark Robertshaw said:
'I am pleased with our results in the first half of 2007. Revenue growth has
been strong and we continue to show good progress towards our goal of mid-teen
operating profit margins. Our strategy remains to focus on higher margin, higher
growth, value-added products and markets and to continue to drive down our cost
base as we further rationalise our manufacturing footprint and increase the
proportion of manufacturing in low-cost locations.
I am delighted to announce the acquisition of NP Aerospace, which complements
our rapidly growing armour business. NP Aerospace develops, manufactures and
markets high value armour products for the defence and civil sectors and will be
immediately earnings accretive. We continue to search for further acquisitions;
but remain determined to maintain our financial and strategic discipline where
we believe sellers' price expectations to be unrealistic. The strong organic
growth of the Group combined with our robust balance sheet puts Morgan Crucible
in a strong position to continue to drive towards our target of mid-teen
operating profit margins.'
+ One off costs are defined as costs of restructuring £4.3 million (2006:
£14.4 million) and legal costs recovered associated with settlement of
anti-trust litigation £0.8 million (2006: charge of £0.8 million).
* Underlying EBITDA defined as operating profit of £ 39.1 million (2006:
£31.6 million) before special items of £4.0 million (2006: £4.1 million)
and before depreciation and amortisation of £12.8 million (2006:
£13.1 million). Special items are defined as one off costs (as defined
above), gain on curtailment of UK employee benefit schemes £nil (2006:
£11.0 million) and gain/(loss) on disposal of property £0.5 million loss
(2006: gain of £0.1 million).
** Underlying operating profit defined as operating profit of £39.1 million
(2006: £31.6 million) before special items of £4.0 million (2006:
£4.1 million). This measure of earnings is shown because the Directors
use it to measure the underlying performance of the business.
*** Underlying PBT defined as operating profit of £39.1 million (2006:
£31.6 million) before special items of £4.0 million (2006: £4.1 million)
and after financing costs of £2.6 million (2006: £1.5 million).
++ Underlying EPS defined as basic earnings per share of 9.8 pence
(2006: 7.5 pence) adjusted to exclude the after tax impact of special
items of 1.5 pence (2006: 0.8 pence) and gain on disposal of discontinued
operations of nil pence (2006: 0.2 pence).
+++ Net debt defined as interest bearing loans and borrowings, bank
overdrafts less cash and other cash equivalents.
For further enquiries:
Victoria Gould Morgan Crucible Plc 01753 837 306
Mike Smith / Robin Walker Finsbury 020 7251 3801
Strategy
The Group has delivered a 20.7% increase in underlying operating profit in the
first six months of 2007 (31.3% on a constant currency basis) with underlying
operating profit margins for the half year reaching 12.4%. Our goal remains to
reach mid-teen margins in good times and maintain double digit margins in bad
times.
We are concentrating on higher growth, higher margin markets and are looking to
reduce our exposure to commoditised markets. We aim to provide high value-added
solutions for our customers and to be number one or two in our chosen market
segments.
Simultaneously, we are focused on reducing and managing our cost base. Our
manufacturing footprint is continually being reviewed for opportunities to
simplify and rationalise the number of our sites. In our continuing businesses,
total overheads as a percentage of sales have reduced, on a constant currency
basis, from 32.9% in 2003 to 25.6% for the first half of 2007 driven by both the
simplification of our manufacturing footprint and by the reduction in the number
of our divisions. Over the same period total employment costs (from continuing
businesses) as a percentage of sales have fallen from 39.6% in 2003 to 30.8% for
the first half of 2007.
The Group is in excellent financial health. Our balance sheet strength has
enabled us to pursue suitable bolt-on acquisitions that are aligned with our
strategic priorities to accelerate profitable growth.
Today we announce the acquisition of an initial 49% stake in NP Aerospace, which
values this business at £71 million. Our initial investment of £41 million will
be in the form of Morgan Crucible acquiring £0.5 million of ordinary shares,
£4.5 million of preference shares yielding 10% per annum and providing £36
million of debt. Morgan Crucible will receive interest on this debt of c.10%
p.a. There is a phased process, on agreed multiples, for moving to majority
ownership and control of NP Aerospace within 3 years.
In summary, we are delivering on our stated strategy across the board. The
combination of continuing strong top line and profit margin progression allied
to a healthy balance sheet sees the Group in robust health.
Financial Review
Reference is made to underlying operating profit and underlying EPS below, both
of which are defined at the front of this statement. These measures of earnings
are shown because the Directors consider that they give a better indication of
underlying performance than basic earnings per share on a statutory basis.
Group underlying operating profit for continuing businesses increased by 20.7%
to £43.1 million (2006: £35.7 million) on a reported basis (at constant currency
this was an increase of 31.4%). Underlying operating profit margin from
continuing businesses for the six months were 12.4%. This compares to 10.6% in
the equivalent period in 2006. All three of our business divisions contributed
to this increase in margin.
The Group has continued to undertake restructuring activity in the first half of
2007. Restructuring costs and other one-off items were £3.5 million (2006: £15.2
million).
The net finance charge was £2.6 million (2006: £1.5 million). Net bank interest
and similar charges were £3.6 million (2006: £1.6 million). Part of the finance
charge under IFRS is the net IAS 19 (Employee Benefits) interest receipt on
pension scheme net liabilities which was £1.0 million (2006: £0.1 million).
The tax charge for the period was £7.1 million (2006: £6.7 million). The tax
charge on underlying operating profit net of finance costs was £7.4 million.
There was a tax credit of £0.3 million on restructuring costs and the net legal
costs recovered associated with prior period anti-trust litigation. The
effective tax rate before restructuring costs, the net legal costs associated
with settlement of prior period anti-trust litigation, gain on curtailment of
United Kingdom employee benefit schemes and gain/(loss) on property disposals
was 18% (2006: 25%). Over the medium term we would expect the effective tax rate
to trend towards 30% as taxable losses are utilised.
Underlying earnings per share were 11.3 pence (2006: 8.5 pence).
The Group pension deficit has improved by £7.7 million since last year end to
£35.0 million on an IAS 19 basis. The main movements are in the UK pension
schemes which show a surplus of £6.0 million at the half year on an IAS 19
basis, an improvement of £2.9 million in the period. Improvement in bond yields
contributed to a higher discount rate and hence a lower liability position.
The net cash inflow from operating activities was £9.8 million (2006: outflow
£51.4 million) which included an adverse cash impact from restructuring costs
and costs associated with anti-trust litigation of £5.0 million (2006: £14.3
million). Working capital increased by £26.7 million (2006: increase £35.0
million) in the first half of the year. Seasonality in inventory levels, due to
stock building for shut down periods in July and August is a large part of this
increase, as well as trade debtors being high due to healthy revenue levels.
Working capital levels are expected to improve significantly in the second half
of the year as this half-year position unwinds.
Cashflow Six months Six months
2007 2006
£m £m
Net cash from operating activities before UK pension
payment 9.8 (11.4)
UK pension scheme payment - (40.0)
Interest received 1.5 2.3
Net capital expenditure (15.1) (14.1)
Dividends paid (4.4) -
---------------------
Free cash flow (8.2) (63.2)
Cash flows from other investing activities (2.4) (5.8)
Cash flows from financing activities (32.7) (6.4)
Exchange movement 1.3 2.0
Opening net cash/(debt) (34.1) 50.5
---------------------
Closing net (debt) (76.1) (22.9)
=====================
Interim Dividend
Given the good continuing performance of the Group, the Board has declared an
interim dividend of 2.25 pence per Ordinary share, an increase of 50% on the
dividend declared for the first six months of 2006. The dividend will be paid on
7 November 2007 to Ordinary shareholders on the register of members at the close
of business on 28 September 2007.
Operating Review
Carbon
Sales in the first half were up by 3.5% on a reported basis compared to the same
period last year at £110.2 million (2006: £106.5 million). On a constant
currency basis the year on year growth was 10.9%. Underlying operating
profit for the period was up 12.3% to £18.2 million (2006: £16.2 million)
representing a 20.4% growth on a constant currency basis. The increase in
profits is due to strong sales in our armour, rotary and Asian businesses,
combined with the benefits from restructuring projects in USA and Western Europe
that have lead to an increase in the low cost manufacturing base and a decline
in overheads.
Performance has been good across most regions and markets. Whilst significant
growth has come from our armour and rotary businesses, most of our traditional
brush and seals and bearings businesses have also shown progress. Further armour
manufacturing capacity has been installed in the Americas to meet growing demand
for personal and vehicle protection and significant investment in our capability
and capacity has also been made in Europe to allow us to take full advantage of
the opportunities in this market. Our rotary business has delivered double digit
growth driven in large part by military opportunities. A rotary assembly
operation has been established in Taiwan to provide us with a lower cost
manufacturing option and to increase our presence in Asian markets. In Europe
and the Americas there has been modest growth in the brush and seals markets.
The focus here continues to be on managing the cost base, particularly through
increased use of our low cost manufacturing operations in Mexico and Hungary.
The Asian businesses, particularly in China, continue to enjoy strong organic
growth and our continued investment in terms of financial, technical and human
resource has allowed us to take advantage of the opportunities in this area.
The NP Aerospace business, whose acquisition was announced today, will be
managed within the Carbon Division.
Technical Ceramics
Sales in the first half of 2007 were £77.8 million (2006: £84.0 million),
influenced by significant unfavourable currency translation impact, mainly from
the US dollar. On a constant currency basis sales were 2.2% lower than in the
same period last year, with the underlying growth in all regions outweighed by
the impact of one large US customer reaching the end of lifecycle on a major
product for which we were the supplier of ceramic parts. Aside from this, US
markets were healthy overall with order intake and order books both ahead of the
same point last year. Markets in Europe were strong throughout, with medical
assemblies, electronics, and thermal processing products all experiencing
particularly robust demand. Asia showed good organic growth, particularly in
thermal processing.
Underlying operating profit was £9.1 million (2006: £8.9 million), which at
constant currency equated to an increase of 3.4%. Operating margins made
further progress to 11.7% (2006: 10.6%) driven by positive mix shift and ongoing
efficiencies in the operating cost base.
Insulating Ceramics
Within the Insulating Ceramics division there are two business units: Thermal
Ceramics and Molten Metal Systems.
Insulating Ceramics sales in the first half were up by 9.6% at £159.8 million
(2006: £145.8 million) and on a constant currency basis up 15.7%. Underlying
operating profit increased 38.2% to £18.1 million (2006: £13.1 million), and
operating margins from 9.0% to 11.3%.
In the Thermal Ceramics business unit, while energy and raw material rises have
moderated over the last few months, these input costs have still shown a
significant rise over 2006 average levels. However, these cost increases have
been offset by pricing action, improvements in manufacturing efficiency together
with the benefits of the 2006 restructuring plans in Europe and North America.
In terms of project based sales, the first half of the year has been very strong
compared to 2006. The main impetus has come from our European businesses where
the drivers have been a series of major orders for aluminium, petrochemical and
iron & steel projects for delivery into the Middle East, India and other Asian
markets. As a number of large orders will have shipped in the first six months
of 2007 these project-based sales are not expected to show the same rate of
progression in the second half of the year. Nevertheless, the overall order book
remains at strong levels compared to prior years.
The new joint ventures in China and Russia continue to make good progress and
the Vesuvius insulating fibre acquisition in the US has been successfully and
seamlessly integrated into our operations. New products launched during the last
three years now account for 20% of European fibre sales; these include Superwool
607HT, Low Shot Fibre and engineered fibre for Diesel Particulate Filters. Our
global Superwool sales are growing steadily with seven plants now in regular
Superwool production and an additional plant due for conversion in November.
During the first half of the year, Molten Metal Systems saw a further
improvement in performance over the same period last year. This was tempered
somewhat by some reduction in demand from the automotive and construction
sectors in North America, coupled with the significant weakening of the US
dollar over the period. Demand in Europe was in line with expectations, whilst
demand in Asia, Africa and the Middle East continued to improve. Expansion of
our Indian manufacturing plant is well advanced and our new facility in Suzhou
China is on schedule for completion in 2008. We intend to cease manufacturing in
the UK during 2008 and transfer production to our expanded German and Indian
manufacturing facilities. Completion of these projects will see global
production capacity more closely aligned with anticipated levels of regional
demand in the future.
Outlook
All divisions continue to make strong margin progress in 2007. Our leading
market positions and healthy balance sheet enable the Board to look to the
future with confidence.
Tim Stevenson Chairman
Mark Robertshaw Chief Executive Officer
CONSOLIDATED INCOME STATEMENT
for the six months ended 4 July 2007
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
Six months Six months Six months Six months Six months Six months Year Year Year
Cont Discont Total Cont Discont Total Cont Discont Total
Note 2007 2007 2007 2006 2006 2006 2006 2006 2006
£m £m £m £m £m £m £m £m £m
------------------------------------------------------------------------------------------------------------------------
Revenue 1 347.8 - 347.8 336.3 - 336.3 677.8 - 677.8
Operating
costs
before
special items (304.7) - (304.7) (300.6) - (300.6) (604.1) - (604.1)
------------------------------------------------------------------------------------------------------------------------
Profit
from
operations
before
special items 1 43.1 - 43.1 35.7 - 35.7 73.7 - 73.7
Restructuring
costs
and costs
associated
with
settlement of
prior period
anti-trust
litigation 4 (3.5) - (3.5) (15.2) - (15.2) (27.7) - (27.7)
Gain on
curtailment
of United
Kingdom
employee
benefit
schemes - - - 11.0 - 11.0 11.0 - 11.0
Terminated
bid
approach
costs - - - - - - (2.1) - (2.1)
Gain/(loss)
on
disposal of
property (0.5) - (0.5) 0.1 - 0.1 0.3 - 0.3
------------------------------------------------------------------------------------------------------------------------
Operating
profit 1 39.1 - 39.1 31.6 - 31.6 55.2 - 55.2
Finance
income 13.3 - 13.3 12.8 - 12.8 26.8 - 26.8
Finance
expenses (15.9) - (15.9) (14.3) - (14.3) (30.2) - (30.2)
------------------------------------------------------------------------------------------------------------------------
Net
financing
costs 2 (2.6) - (2.6) (1.5) - (1.5) (3.4) - (3.4)
Loss on
partial
disposal
of
businesses (0.3) - (0.3) - - - - (1.5) (1.5)
------------------------------------------------------------------------------------------------------------------------
Profit before
taxation 36.2 - 36.2 30.1 - 30.1 51.8 (1.5) 50.3
Income tax
expense
(all relates
to
overseas
tax
payable) 3 (7.1) - (7.1) (6.7) - (6.7) (10.6) - (10.6)
------------------------------------------------------------------------------------------------------------------------
Profit after
taxation
but before
loss on
sale of
discontinued
operations 29.1 - 29.1 23.4 - 23.4 41.2 (1.5) 39.7
Loss on sale
of discontinued
operations, net of
tax - - - - (0.6) (0.6) - - -
------------------------------------------------------------------------------------------------------------------------
Profit/
(loss)
for the
period 29.1 - 29.1 23.4 (0.6) 22.8 41.2 (1.5) 39.7
========================================================================================================================
Profit/
(loss)for
the period
attributable
to:
Equity
holders
of the
parent 27.4 - 27.4 22.2 (0.6) 21.6 38.4 (1.5) 36.9
Minoity
interest 1.7 - 1.7 1.2 - 1.2 2.8 - 2.8
------------------------------------------------------------------------------------------------------------------------
29.1 - 29.1 23.4 (0.6) 22.8 41.2 (1.5) 39.7
========================================================================================================================
Earnings/
(loss)
per share 5
Basic 9.8p - 9.8p 7.7p (0.2p) 7.5p 13.4p (0.5p) 12.9p
Diluted 9.5p - 9.5p 7.4p (0.2p) 7.2p 12.8p (0.5p) 12.3p
Dividends
Interim
dividend
- pence 2.25p 1.5p 1.5p
- £m 6.3 4.4 4.4
Proposed
final
dividend
- pence 3.0p
- £m 8.8
CONSOLIDATED BALANCE SHEET
as at 4 July 2007
Unaudited Unaudited
Six months Six months Year
2007 2006 2006
£m £m £m
------------------------------------------
Assets
Property, plant and equipment 226.6 228.7 230.2
Intangible assets 65.9 58.2 66.4
Other investments 6.6 5.8 7.2
Other receivables 0.3 0.4 1.2
Deferred tax assets 27.1 27.4 28.8
------------------------------------------
Total non-current assets 326.5 320.5 333.8
------------------------------------------
Inventories 91.3 86.0 84.9
Trade and other receivables 141.4 141.7 136.0
Cash and cash equivalents 89.6 85.1 97.4
------------------------------------------
Total current assets 322.3 312.8 318.3
------------------------------------------
Total assets 648.8 633.3 652.1
------------------------------------------
Liabilities
Interest-bearing loans and borrowings 130.3 76.8 93.2
Employee benefits 35.0 44.4 42.7
Grants for capital expenditure 0.3 0.3 0.1
Provisions 3.7 3.7 6.7
Non-trade payables 3.7 - 3.6
Deferred tax liabilities 28.4 28.7 28.4
------------------------------------------
Total non-current liabilities 201.4 153.9 174.7
------------------------------------------
Bank overdraft 21.5 15.7 24.5
Interest-bearing loans and borrowings 13.9 15.5 13.8
Trade and other payables 192.8 189.4 210.3
Current tax payable 8.0 12.8 9.9
Provisions 16.5 27.2 15.8
------------------------------------------
Total current liabilities 252.7 260.6 274.3
------------------------------------------
Total liabilities 454.1 414.5 449.0
------------------------------------------
------------------------------------------
Total net assets 194.7 218.8 203.1
==========================================
Equity
Issued capital 70.6 75.6 73.7
Share premium 85.2 85.2 85.2
Reserves 29.5 33.3 28.9
Retained earnings (8.1) 10.6 (1.1)
------------------------------------------
Total equity attributable to equity
holders of the parent company 177.2 204.7 186.7
------------------------------------------
Minority interest 17.5 14.1 16.4
------------------------------------------
Total equity 194.7 218.8 203.1
==========================================
CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended 4 July 2007
Unaudited Unaudited
Six months Six months Year
2007 2006 2006
Note £m £m £m
----------------------------------------
Operating activities
Net profit from ordinary activities 29.1 22.8 39.7
Adjustments for:
Depreciation 12.0 12.7 24.7
Amortisation 0.8 0.4 1.2
Interest expense 2.6 1.5 3.4
(Profit) on sale of property, plant and
equipment - (0.2) (0.4)
Income tax expense 7.1 6.7 10.6
Equity settled share based payment
expenses 1.3 1.6 3.2
----------------------------------------
Operating profit before changes in
working capital and provisions 52.9 45.5 82.4
Increase in trade and other receivables (5.5) (11.7) (18.7)
Increase in inventories (7.2) (9.9) (11.3)
Increase/(decrease) in trade and other
payables (14.0) (13.4) 7.1
Non cash operating costs relating to
restructuring - 1.6 4.2
Decrease in provisions and employee
benefits (2.3) (17.0) (72.6)
Payments to UK pension schemes - (40.0) -
----------------------------------------
Cash generated from the operations 23.9 (44.9) (8.9)
Interest paid (5.4) (3.7) (8.2)
Taxation (9.0) (3.4) (6.3)
Loss on partial disposal of businesses 0.3 - 1.5
Loss on sale of discontinued operations - 0.6 -
----------------------------------------
Net cash flows from operating
activities 9.8 (51.4) (21.9)
Investing activities
Purchase of property, plant and
equipment (16.5) (14.8) (34.0)
Proceeds from sale of property, plant
and equipment 1.4 0.7 1.1
Purchase of investments - (0.3) (1.8)
Proceeds from sale of investments 0.4 0.3 -
Interest received 1.5 2.3 3.5
Acquisitions of subsidiaries, net of
cash acquired (2.7) (15.5) (20.7)
Disposal of subsidiaries, net of cash
disposed (0.1) 9.7 11.6
----------------------------------------
Net cash flows from investing
activities (16.0) (17.6) (40.3)
Financing activities
Proceeds from the issue of share
capital - 0.2 0.2
Purchase of own shares (32.7) (6.2) (19.4)
Increase in borrowings 39.1 14.2 32.3
Payment of finance lease liabilities (0.1) (0.3) (0.4)
Dividends paid (4.4) (0.4) (7.4)
----------------------------------------
Net cash flows from financing
activities 1.9 7.5 5.3
Net decrease in cash and cash
equivalents (4.3) (61.5) (56.9)
Cash and cash equivalents at start of
period 73.5 133.6 133.6
Effect of exchange rate fluctuations on
cash held (0.3) (1.7) (3.2)
----------------------------------------
Cash and cash equivalents at period end 6 68.9 70.4 73.5
========================================
CONSOLIDATED STATEMENT OF RECOGNISED
INCOME AND EXPENSE
for the six months ended 4 July 2007
Unaudited Unaudited
Six months Six months Year
2007 2006 2006
£m £m £m
----------------------------------------
Foreign exchange translation
differences (0.8) (10.1) (17.8)
Actuarial gain on defined benefit plans 5.0 23.8 15.2
Deferred tax associated with employee
benefit schemes (1.2) (1.7) (1.2)
Cash flow hedges:
Effective portion of changes in fair
value 0.1 0.4 (0.1)
Change in fair value of equity
securities available-for-sale - - 0.3
----------------------------------------
Income and expense recognised directly
in equity 3.1 12.4 (3.6)
Profit for the period 29.1 22.8 39.7
----------------------------------------
Total recognised income and expense for
the period 32.2 35.2 36.1
========================================
Attributable to:
Equity holders of the parent 30.5 34.0 33.3
Minority interest 1.7 1.2 2.8
----------------------------------------
Total recognised income and expense for
the period 32.2 35.2 36.1
========================================
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Basis of Preperation
The Morgan Crucible Company plc (the 'Company') is a company domiciled in the
United Kingdom. The consolidated financial statements of the Company for the
period ended 4 July 2007 comprise the Company and its subsidiaries
(together referred to as the 'Group') and the Group's interest in
associates and jointly controlled entities.
These financial statements have been prepared on the basis of the recognition
and measurement requirements of IFRSs applied in the financial statements at 4
January 2007 and those standards that have been endorsed and will be
applied at 4 January 2008.
The results of each half year are unaudited. The comparative figures for the
financial year ended 4 January 2007 are not the Group's statutory accounts for
that financial year. Those accounts have been reported on by the Group's
auditors and delivered to the registrar of companies. The report of the auditors
was (i) unqualified, (ii) did not include a reference to any matters to which
the auditors drew attention by way of emphasis without qualifying their report,
and (iii) did not contain a statement under section 237(2) or (3) of the
Companies Act 1985.
The interim financial statements for the six months ended 4 July 2007 were
approved by the Board on 1st August 2007.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Revenue and profit analysis
Molten Metal
Carbon Technical Ceramics Thermal Ceramics Systems Consolidated
Six Six Six Six Six Six Six Six Six Six
months months months months months months months months months months
2007 2006 2007 2006 2007 2006 2007 2006 2007 2006
£m £m £m £m £m £m £m £m £m £m
Revenue
from
external
customers 110.2 106.5 77.8 84.0 144.1 130.5 15.7 15.3 347.8 336.3
-------------------------------------------------------------------------------------------------------------
Segment
profit 16.3 14.1 6.6 12.4 16.4 4.6 1.2 2.5 40.5 33.6
--------------------------------------------------------------------------------------
Unallocated
costs (1.4) (2.0)
-----------------------
39.1 31.6
=======================
Segment
underlying
operating
profit* 18.2 16.2 9.1 8.9 16.2 11.4 1.9 1.7 45.4 38.2
--------------------------------------------------------------------------------------
Unallocated (2.3) (2.5)
costs
-----------------------
Underlying
operating profit 43.1 35.7
=======================
Molten
Technical Thermal Metal
Carbon Ceramics Ceramics Systems Consolidated
Year Year Year Year Year
2006 2006 2006 2006 2006
£m £m £m £m £m
-----------------------------------------------------
Revenue from external customers 213.6 162.5 271.2 30.5 677.8
-----------------------------------------------------
Segment profit 28.5 19.3 12.9 4.1 64.8
-----------------------------------------
Unallocated costs (9.6)
----------
Operating profit 55.2
==========
Segment underlying
operating profit* 33.8 17.0 24.7 3.2 78.7
-------------------------------------------
Unallocated costs (5.0)
----------
Underlying operating profit 73.7
==========
* This measure of profit (before special items) is shown because the Directors consider that it gives a better
indication of underlying performance.
2. Finance income and expenses
Six months Six months Year
2007 2006 2006
£m £m £m
--------------------------------
Interest income 0.8 1.3 3.5
Expected return on IAS 19 scheme 12.5 11.5 23.3
assets --------------------------------
Finance income 13.3 12.8 26.8
================================
Interest expense (4.4) (2.9) (8.1)
Interest on IAS 19 obligations (11.5) (11.4) (22.1)
--------------------------------
Finance expenses (15.9) (14.3) (30.2)
================================
3. Taxation Six months Six months Year
2007 2006 2006
£m £m £m
--------------------------------
Tax on profit before special items and 7.4 8.6 16.2
sale of discontinued operations
Tax on special items (0.3) (1.9) (5.6)
--------------------------------
Income tax expense 7.1 6.7 10.6
================================
The interim taxation charge is calculated by applying the Directors' best
estimate of the annual tax rate to the profit for the period.
4. Restructuring costs and costs associated with settlement of anti-trust litigation
Costs of restructing were £4.3 million (2005: £14.4 million) and net legal
costs recovered associated with the settlement of prior period anti-trust
litigation were £0.8 million (2005: charge of £0.8 million).
5. Earnings per share
Basic earnings per share
The calculation of basic earnings per share at 4 July 2007 was based on the
net profit attributable to Equity holders of the Morgan Crucible Company Plc
of £27.4 million (2006: £21.6 million) and a weighted average number of
Ordinary shares outstanding during the period ended 4 July 2007 of
278,480,232 (2006: 288,175,695) calculated as follows:
Six months Six months Year
2007 2006 2006
£m £m £m
------------------------------------------
Net profit attributable to
Equity holders of the Morgan
Crucible Company plc 27.4 21.6 36.9
Weighted average number of
Ordinary shares:
Issued Ordinary shares at 5
January 293,225,142 293,188,372 293,188,372
Effect of shares issued/
cancelled in the period and
treasury shares held by the
Company (14,744,910) (5,012,677) (6,077,798)
------------------------------------------
Weighted average number of
Ordinary shares at period end 278,480,232 288,175,695 287,110,574
==========================================
Diluted earnings per share
The calculation of diluted earnings per share at 4 July 2007 was based on
the net profit attributable to Equity holders of the Morgan Crucible Company
Plc of £27.4 million (2006: £21.6 million) and a weighted average number of
Ordinary shares outstanding during the period ended 4 July 2007 of
287,697,364 (2006: 300,271,233) calculated as follows:
Six months Six months Year
2007 2006 2006
£m £m £m
-----------------------------------------
Net profit attributable to
Equity holders of the Morgan
Crucible Company plc 27.4 21.6 36.9
Weighted average number of
Ordinary shares:
Weighted average number of
Ordinary shares 278,480,232 288,175,695 287,110,574
Effect of share options/
incentive schemes 9,217,132 12,095,538 11,827,546
Diluted weighted average number ------------------------------------------
of Ordinary shares 287,697,364 300,271,233 298,938,120
==========================================
Underlying earnings per share
The calculation of underlying earnings per share at 4 July 2007 was based on
profit from operations before special items less net finance costs, income
tax expense (excluding tax credit arising from special items of £0.3
million, (2006: £1.9 million)) and minority interest of £31.4 million (2006:
£24.4 million) and a weighted average number of Ordinary shares outstanding
during the period ended 4 July 2007 of 278,480,232 (2006: 288,175,695)
calculated as follows:
Six months Six months Year
2007 2006 2006
£m £m £m
-----------------------------------------
Profit from operations before
special items less net finance
costs, income tax expense and
minority interest 31.4 24.4 51.3
Weighted average number of
Ordinary shares at period end:
Issued Ordinary shares at 5
January 293,225,142 293,188,372 293,188,372
Effect of shares issued/
cancelled in the period and
treasury shares held by the
Company (14,744,910) (5,012,677) (6,077,798)
Weighted average number of -----------------------------------------
Ordinary shares at period end 278,480,232 288,175,695 287,110,574
Underlying earnings per share =========================================
(pence) 11.3p 8.5p 17.9p
Underlying diluted earnings per share
The calculation of underlying diluted earnings per share at 4 July 2007 was
based on profit from operations before special items less net finance costs,
income tax expense (excluding tax credit arising from special items of £0.3
million, (2006: £1.9 million)) and minority interest of £31.4 million (2006:
£24.4 million) and a weighted average number of Ordinary shares outstanding
during the period ended 4 July 2007 of 287,697,364 (2006: 300,271,233)
calculated as follows:
Six months Six months Year
2007 2006 2006
£m £m £m
----------------------------------------
Profit from operations before
special items less net finance
costs, income tax expense and
minority interest 31.4 24.4 51.3
Weighted average number of
Ordinary shares:
Weighted average number of
Ordinary shares 278,480,232 288,175,695 287,110,574
Effect of share options/
incentive schemes 9,217,132 12,095,538 11,827,546
Diluted weighted average number -----------------------------------------
of Ordinary shares 287,697,364 300,271,233 298,938,120
Underlying diluted earnings per =========================================
share (pence) 10.9p 8.1p 17.2p
6. Cash and cash equivalents/bank
overdrafts
Six months Six months Year
2007 2006 2006
£m £m £m
-----------------------------------
Bank balances 72.3 61.3 70.2
Cash deposits 17.3 23.8 27.2
-----------------------------------
Cash and cash equivalents per balance
sheet 89.6 85.1 97.4
Bank overdrafts subject to cash pooling
arrangements (20.7) (14.7) (23.9)
Cash and cash equivalents per cash flow -----------------------------------
statement 68.9 70.4 73.5
===================================
Bank overdrafts subject to cash pooling
arrangements (20.7) (14.7) (23.9)
Other bank overdrafts (0.8) (1.0) (0.6)
-----------------------------------
Total bank overdrafts (21.5) (15.7) (24.5)
===================================
Reconciliation of cash and cash
equivalents to net borrowings
Six months Six months Year
2007 2006 2006
£m £m £m
-----------------------------------
Opening (borrowings) (107.6) (83.1) (83.1)
(Increase) in borrowings (39.1) (14.2) (32.3)
Payment of finance lease liabilities 0.1 0.3 0.4
Effect of movement in foreign exchange
on borrowings 1.6 3.7 7.4
-----------------------------------
Closing (borrowings) (145.0) (93.3) (107.6)
Cash and cash equivalents per cash flow
statement 68.9 70.4 73.5
-----------------------------------
Closing net (borrowings) (76.1) (22.9) (34.1)
===================================
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