Interim Results
Morgan Crucible Co PLC
02 August 2005
INTERIM RESULTS FOR THE PERIOD ENDED 4 JULY 2005
2005 2004
Revenue £m 391.7 406.2
Underlying operating profit* £m 33.2 25.2
Profit/(Loss) before taxation £m 15.1 (5.6)
Net Debt £m 165.0 160.0
Underlying EPS ** pence 6.3 4.1
* Defined as operating profit of £22.2 million (2004: £3.7 million) before
financing costs of £6.7 million (2004: £8.8 million), restructuring costs of
£9.8 million (2004: £14.8 million), costs associated with the settlement of
prior period litigation of £1.2 million (2004: £2.7 million) and property
disposals of £nil million (2004: £4.0 million). This measure of earnings is
shown because the Directors consider that it gives a better indication of
underlying performance.
** Basic earnings/(loss) per share of 2.8p (2004: loss 12.7p) adjusted to
exclude the after tax impact of restructuring costs, costs of settlement of
prior period litigation and disposal of businesses and property of 3.5p
(2004: 16.8p).
• Total revenue £391.7 million (2004: £406.2 million). Turnover from
continuing operations up 5.5% to £391.7 million (2004: £371.4 million) which
included a favourable currency translation impact of £1.9 million.
• Underlying operating profit up 31.7% to £33.2 million (2004: £25.2
million) which included a favourable currency translation impact of £0.3 million.
• Underlying operating margins for continuing business improved from 6.8% to 8.5%.
• Underlying EPS improved by 53.7% to 6.3p (2004: 4.1p).
• Net debt, which is predominantly dollar denominated and therefore
impacted by recent dollar strengthening, broadly in line with the comparative
period at £165.0 million (2004: £160.0 million).
• Restructuring costs of £9.8 million (2004: £14.8 million) as part of
profit improvement initiatives and £1.2 million (2004: £2.7 million) on costs
associated with the settlement of prior period litigation.
• Profit improvement plan announced in February 2004 remains on track.
Commenting on the results, Chief Executive Officer, Warren Knowlton said:
'We are delivering on our promises and have shown good progress toward our
commitment of achieving double digit operating margins by the end of 2006. In
addition to improved financial performance, we are now also seeing the benefits
of our strategic repositioning both of the Group overall and of each of the
individual businesses. Our firm expectation is that this ongoing repositioning
creates a strong platform for profitable growth and future shareholder value
creation.'
Enquiries
Warren Knowlton, Group Chief Executive 01753 837 306
Mark Robertshaw, Chief Financial Officer 01753 837 302
Charlotte Hepburne-Scott, Robin Walker, Finsbury 020 7251 3801
Strategy
The profit improvement plan, as announced in February 2004, remains on track to
deliver £50 million of annualised profit improvement by the end of 2006 at a
total cash cost of c. £70 million. For the first half of 2005, we incurred a
cash spend of £10.6 million on the plan and we are forecasting to spend a
broadly similar level of cash in the remainder of the year.
The profit improvement plan contained a number of commitments on our
shareholders and we are pleased to report that we are sticking to and delivering
on these commitments. The cost base continues to be managed downwards with our
employee headcount mix being moved away from high cost regions such as the
Americas and Western Europe toward lower cost geographies. At the end of the
first half of 2005, approximately 45% of our employees (including
sub-contractors in Asia) are now situated in lower cost countries. This compares
to less than 40% at the end of 2004 and c.24% in 2002. This, combined with
ongoing reductions in overheads, is driving down our total employment costs as a
percentage of sales from c.40% in 2003 to 36.8% in the first half of 2005.
In addition to our intense focus on rigorous cost base management, we recognise
that long-term shareholder value creation must also be driven by successful top
line growth. As a result, we continue systematically to reposition our
portfolio of businesses to focus on attractive market segments with less
cyclicality and less price commoditisation. Within these targeted segments, our
goal is to achieve a leadership position of number one or number two market
share. We are also aiming to increase the value-added component of our offering
via technological leadership and a higher level of product customisation. As a
result of this repositioning we are pleased to report that Group revenue in the
first half of the year has grown at 5% on a constant currency basis which is
approximately double the weighted GDP of our end geographic markets, and that
this volume growth has been achieved without adversely impacting pricing.
Encouragingly, as a result of the combination of cost rationalisation and
profitable top-line growth, every one of our four major business units has
continued to deliver improved operating profits and operating profit margins in
the first half of 2005.
These improving operating results continue to enhance Morgan Crucible's
financial health with an increase both in our banking headroom in the first half
of the year and our interest cover which now stands at 7.4 times EBITD compared
to 5.0 times in the first half of 2004. In the early part of 2005 we
successfully refinanced our syndicated bank debt giving us both an extended
maturity from three to five years and a lower ongoing cost of funding.
In summary, the markets in which we operate remain highly competitive and we
expect that the macro-economic environment for Europe will continue to show weak
levels of GDP growth. Nevertheless, Morgan Crucible continues to make good
progress toward our target commitment of double digit operating profit margins
by the end of 2006. As a result of our strategic repositioning, we are also
increasingly well placed for sustained shareholder value creation for the medium
to longer-term.
Financial Review
Note: The financial statements have been produced under 'International Financial
Reporting Standards'(IFRS). All the numbers below are quoted on an IFRS basis
except where references are made to changes from UK GAAP to IFRS.
Under transitional requirements for the move from UK GAAP to IFRS a
comprehensive review of the changes which have been made are shown on the Morgan
website. These include the Group's new accounting policies under IFRS and the
transitional disclosures for the 2004 comparative data showing reconciliations
between UK GAAP and IFRS both for the balance sheet and the income statement.
Reference is made to underlying operating profit and underlying EPS below both
of which are defined in note 5 to these financial statements. These measures of
earnings are shown because the Directors consider that they give a better
indication of underlying performance.
Group underlying operating profit for continuing businesses increased by 32% to
£33.2 million (2004: £25.1 million). Underlying operating profit margins from
continuing businesses for the first six months were 8.5%. This compares to 6.8%
in the equivalent period last year and 7.9% for the second half of 2004. All
four of our major business units contributed to this increase in margin.
The Group has continued to implement its 'Profit improvement programme' in the
first half with restructuring charges being £9.8 million (2004: £14.8 million)
and cash outlay being £10.6 million (2004: £14.8 million). We have also incurred
costs associated with settlement of prior period litigation in 2005 that were
£1.2 million (2004: £2.7 million).
The Group disposed of one Carbon operation in Australia for £0.7 million in the
first half of 2005 with the loss on sale being £0.4 million. The two principal
disposals in the comparative period in 2004 were the Auto and Consumer business,
the loss on sale being £27.7 million, and the US and UK soft coatings operations
for a profit on sale of £2.1 million.
The net finance charge was £6.7 million (2004: £8.8 million). Net bank interest
and similar charges were £5.3 million (2004: £6.9 million) the improvement of
£1.6 million reflecting the decrease in average net debt levels compared to the
first half of 2004 and the beneficial affects of the refinancing initiatives
that we announced in April. Part of the finance charge under IFRS is the net
IAS 19 (Employee Benefits) interest charge on pension scheme net liabilities which
was £1.8 million (2004: £1.9 million). Fair value movements on interest rate
swaps was a net income of £0.4 million (2004: £nil).
The tax charge for the period was £5.5 million (2004: £2.9 million). The
effective tax rate before restructuring costs, costs associated with settlement
of prior period litigation and disposal of business and property was 28% (2004: 27%).
Underlying earnings per share was 6.3 pence (2004: 4.1 pence).
The net cash inflow from operating activities was £2.7 million (2004: £10.6 million)
which included an adverse cash impact from restructuring costs and costs
associated with anti-trust litigation of £14.6 million (2004: £15.0 million).
There was a working capital outflow of £22.1 million (2004: £10.1 million).
This increase arose partly from strong sales growth, particularly in the second
quarter, which drove increased receivables and also from increased costs of
raw material and energy supplies that led to higher values of inventory
holdings. As a consequence free cash flow was adversely impacted and showed a
net outflow of £8.7 million (2004: £7.8 million inflow). The second half of 2005
is forecast to show an improvement in working capital levels as price falls in
certain raw materials (e.g. cobalt) feed through into inventory valuations.
Unaudited Unaudited Unaudited
Six months Six months Year
2005 2004 2004
£m £m £m
Cash flows from operating activities 2.7 10.6 50.2
Interest received 0.9 0.7 1.5
Net capital expenditure (12.3) (3.5) (28.1)
--------- --------- ---------
Free cash flow * (8.7) 7.8 23.6
Cash flows from other investing
activities (4.2) 26.1 23.3
Cash flows from financing activities (3.4) 54.1 50.5
Exchange movement (0.8) 2.0 4.7
Opening net debt * (147.9) (250.0) (250.0)
--------- --------- ---------
Closing net debt (165.0) (160.0) (147.9)
--------- --------- ---------
* Note: The free cash flow is on a different basis from the previously reported
numbers, the principle change being the reclassification of operating leases to
finance leases. Net debt has changed due to the recognition of additional
finance leases as debt under IFRS.
Interim Dividend
The Board intends to resume the payment of dividends once the Company is
achieving a level of sustained profitability and cash generation. However, at
this time an interim dividend has not been proposed given the need to complete
successful delivery of the profit improvement plan.
Operating Review
Carbon
Sales in the first half were up by 6.7% compared to the same period last year at
£100.9 million (2004: £94.6 million). Underlying operating profit for the period
was up 34.8% to £12.4 million (2004: £9.2 million) driven by a combination of
the healthy top-line growth and ongoing cost rationalisation.
Performance has been strong in the traditional brush and seals and bearings
markets, particularly in the Americas. The improved sales performance relative
to 2004 was despite a decline in armor sales, due to changes in the
specifications set by the US military. Material developments to meet the new
specifications have now been completed although production will be somewhat
capacity constrained until new equipment is brought on line towards the end of
the year. Trading conditions have been difficult in Europe, although some sales
growth has been generated. The Asian business, particularly in China, has taken
advantage of the organic growth in the region and our ongoing investment. The
division is benefiting from the recent restructuring plans, including the
rationalisation of a number of smaller sites, continuing overhead reduction and
an ongoing move to low cost manufacturing countries.
Magnetics
Sales in the first half were up by 4.3% compared to the same period last year at
£90.7 million (2004: £87.0 million). Underlying operating profit for the period
was £7.6 million (2004: £7.2 million). The first half of the year was adversely
impacted by the spike in raw material prices, and by cobalt in particular. The
second half of the year is expected to be much stronger as price falls in cobalt
are reflected in the income statement and cost rationalisation initiatives
continue to benefit the bottom line.
The materials and parts division performed well driven by strong demand in the
electronic article surveillance segment. The sales of the cores and components
division outperformed against prior year, growing especially in the installation
market and with a strong order book for the second half of the year. The
permanent magnets division traded below expectations due to reduced demand for
semiconductor applications and customers' loss of their business to Asian
competitors. The new permanent magnet joint venture with San Huan in China
started trading in May and this will enable us to target these customers going
forward.
Technical Ceramics
Sales in the first half increased by 1.4% to £71.1 million (2004: £70.1 million).
This net increase included significant growth areas partly offset by planned exits
from less attractive lower margin business compared to the same period last year.
Underlying operating profit grew 38.6% to £6.1 million (2004: £4.4 million),
with gross margins strengthened. The first half trading of the Technical Ceramics
business continued the positive momentum generated in 2004. Of particular note
was the strong growth in the USA in sales of electro ceramic components for the
new generation of computer hard disk drives. This was complemented by significant
sales growth into the medical market, as well as continued demand for laser and
power tube products. The move to lower cost manufacturing areas took a further step
with the purchase of the minority shareholding in our joint venture in Yixing, China,
coupled with the continued transfer of selected additional manufacturing
operations from Europe. Operating profit improvements from the cost reduction plans
are continuing to come through, including the successful relocation of a
major UK manufacturing site, and the rationalisation of a US distribution site.
Insulating Ceramics
Insulating Ceramics sales in the first half were up by 7.8% compared to the same
period last year at £129.0 million (2004: £119.7 million). Underlying operating
profit for the period was £9.9 million (2004: £7.8 million) despite input price
pressures from cost increases in raw materials and energy. The Thermal Ceramics
business has continued to expand its geographic presence with the formation of a
70% joint venture with Hubei Kailong in China. This, along with expansion and
modernisation of facilities in China, India, Australia and Korea, has enabled
the division's growth momentum in Asia to continue in double digits: up 17% on
2004 after allowing for currency. As a result, the business is well advanced in
its goal of balancing its turnover between the trading blocks of Europe, Americas
and Asia. In addition the launch of a new high temperature bio-soluble fibre
(Superwool 607HT) is enabling Thermal Ceramics to be at the forefront of
developing new products adapted to the changing needs and environmental demands
of the European and American markets.
Overall trading conditions for the Crucibles business worsened against a
background of generally poorer economic forecasts and falling demand in Europe.
This was exacerbated by rapid rises in raw material and fuel/energy costs, which
put pressure on margins and dented confidence in the prospects for recovery of the
foundry sector and its supply chain. This extended also to North America, where
capital equipment sales faltered and some destocking by distributors was
evident. Asia and South America appeared unaffected by this trend and here good
progress continues to be made.
Outlook
From a geographical perspective, we expect that our European markets will remain
weak for the foreseeable future; however we forecast that the effect of this
will be offset by stronger demand in our North American and Asian markets.
Overall, through the strategic repositioning of our portfolio, we believe that
we are well positioned to continue our improved trading performance and are
confident in our prospects for the year as a whole.
Lars Kylberg Chairman
Warren Knowlton Chief Executive Officer
CONSOLIDATED INCOME STATEMENT
for the six months ended 4 July 2005
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
Six months Six months Six months Six months Six months Six months Year Year Year
Continuing Discont'd Total Continuing Discont'd Total Continuing Discont'd Total
Operations Operations Operations Operations Operations Operations
2005 2005 2005 2004 2004 2004 2004 2004 2004
Note £m £m £m £m £m £m £m £m £m
------- ------- ------- ------- ------- ------- ------- ------- -------
Revenue 1 391.7 - 391.7 371.4 34.8 406.2 762.8 33.1 795.9
Operating costs before
restructuring costs, cost
associated with settlement
of prior period anti-trust
litigation and property
disposals (358.5) - (358.5) (346.3) (34.7) (381.0) (706.9) (33.2) (740.1)
------- ------- ------- ------- ------- ------- ------- ------- -------
Profit from operations
before restructuring
costs, costs associated
with settlement of
prior period anti-trust
litigation and property
disposals 1 33.2 - 33.2 25.1 0.1 25.2 55.9 (0.1) 55.8
Restructuring costs
and costs associated
with settlement of
prior period anti-trust
litigation 4 (11.0) - (11.0) (15.3) (2.2) (17.5) (52.5) (6.2) (58.7)
Loss on disposal
of property - - - (4.0) - (4.0) (3.8) - (3.8)
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating profit/(loss)
before financing
costs 1 22.2 - 22.2 5.8 (2.1) 3.7 (0.4) (6.3) (6.7)
Finance income 11.9 - 11.9 10.8 - 10.8 20.9 - 20.9
Finance expenses (18.6) - (18.6) (19.6) - (19.6) (37.0) - (37.0)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net financing
costs 2 (6.7) - (6.7) (8.8) - (8.8) (16.1) - (16.1)
Loss on partial
disposal of
businesses (0.4) - (0.4) (0.5) - (0.5) (8.2) - (8.2)
------- ------- ------- ------- ------- ------- ------- ------- -------
Profit/(loss)
before
taxation 15.1 - 15.1 (3.5) (2.1) (5.6) (24.7) (6.3) (31.0)
Income tax
expense 3 (5.5) - (5.5) (2.9) - (2.9) (2.5) - (2.5)
Profit/(loss) ------- ------- ------- ------- ------- ------- ------- ------- -------
after taxation
but before loss
on sale of
discontinued
operations 9.6 - 9.6 (6.4) (2.1) (8.5) (27.2) (6.3) (33.5)
Loss on sale of
discontinued
operations,
net of tax - (0.6) (0.6) - (25.3) (25.3) - (26.7) (26.7)
------- ------- ------- ------- ------- ------- ------- ------- -------
Profit/(loss)
for the period 9.6 (0.6) 9.0 (6.4) (27.4) (33.8) (27.2) (33.0) (60.2)
======= ======== ======= ======= ======== ======= ======= ======= =======
Profit/(loss)
for period
attributable
to: Equity
holders of the
Morgan Crucible
Company plc 8.8 (0.6) 8.2 (7.2) (27.4) (34.6) (29.0) (33.0) (62.0)
Minority interest 0.8 - 0.8 0.8 - 0.8 1.8 - 1.8
------ ------- ------- -------- ------- ------- ------- ------- -------
9.6 (0.6) 9.0 (6.4) (27.4) (33.8) (27.2) (33.0) (60.2)
======= ======== ======= ======== ======== ======= ======= ======== =======
Earnings/(loss) 5
per share
Basic 3.0p (0.2p) 2.8p (2.6p) (10.1p) (12.7p) (10.3p) (11.7p) (22.0p)
Diluted 2.9p (0.2p) 2.7p (2.6p) (10.1p) (12.7p) (10.3p) (11.7p) (22.0p)
CONSOLIDATED BALANCE SHEET
for the six months ended 4 July 2005
Unaudited Unaudited Unaudited
Six months Six months Year
2005 2004 2004
£m £m £m
------------ ------------ ------------
Assets
Property, plant and equipment 321.9 316.3 319.8
Intangible assets 107.0 106.1 107.1
Other investments 6.0 5.4 5.6
Other receivables 3.5 11.2 3.5
Deferred tax assets 31.2 34.9 31.2
------------ ------------ ------------
Total non-current assets 469.6 473.9 467.2
------------ ------------ ------------
Inventories 133.1 130.3 121.3
Trade and other receivables 176.7 165.7 165.3
Cash and cash equivalents 55.8 51.3 56.3
------------ ------------ ------------
Total current assets 365.6 347.3 342.9
------------ ------------ ------------
Total assets 835.2 821.2 810.1
------------ ------------ ------------
Liabilities
Interest-bearing loans and borrowings 181.1 149.9 137.9
Employee benefits 185.0 173.3 183.0
Grants for capital expenditure 0.6 0.7 0.4
Provisions 5.2 3.9 5.0
Deferred tax liabilities 42.1 49.5 42.1
------------ ------------ ------------
Total non-current liabilities 414.0 377.3 368.4
------------ ------------ ------------
Bank overdraft 0.3 0.6 0.8
Interest-bearing loans and borrowings 39.4 60.8 65.5
Trade and other payables 192.3 173.8 184.0
Provisions 34.1 25.9 38.3
------------ ------------ ------------
Total current liabilities 266.1 261.1 288.6
------------ ------------ ------------
Total liabilities 680.1 638.4 657.0
------------ ------------ ------------
------------ ------------ ------------
Total net assets 155.1 182.8 153.1
============ ============ ============
Equity
Issued capital 74.8 74.8 74.8
Share premium 84.1 84.1 84.0
Reserves 36.5 26.0 36.2
Retained earnings (52.3) (10.9) (52.6)
Total equity attributable to equity holders ------------ ------------ ------------
of the parent company 143.1 174.0 142.4
------------ ------------ ------------
Minority interest 12.0 8.8 10.7
------------ ------------ ------------
Total equity 155.1 182.8 153.1
============ ============ ============
CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended 4 July 2005
Unaudited Unaudited Unaudited
Six months Six months Year
2005 2004 2004
£m £m £m
------------ ------------ ------------
Operating activities
Net profit/(loss) from ordinary activities 9.0 (33.8) (60.2)
Adjustments for:
Depreciation 16.3 18.1 34.4
Amortisation 0.7 0.7 1.4
Foreign exchange losses - - -
Investment income - - -
Interest expense 6.7 8.8 16.1
Loss on sale of property, plant and equipment 0.1 4.5 4.3
Income tax expense 5.5 2.9 2.5
Equity settled share based payment 1.5 0.8 1.7
expenses ------------ ------------ ------------
Operating profit before changes in
working capital and provisions 39.8 2.0 0.2
(Increase)/decrease in trade and other receivables (13.1) (9.2) (11.5)
(Increase)/decrease in inventories (11.3) (13.8) (3.1)
Increase/(decrease) in trade and other payables 2.3 12.9 21.6
Non cash operating costs relating to restructuring 1.6 0.2 12.4
Increase/(decrease) in provisions and
employee benefits (6.8) 0.8 12.8
------------ ------------ ------------
Cash generated from the operations 12.5 (7.1) 32.4
Interest paid (6.7) (9.3) (14.8)
Taxation (4.1) 1.2 (2.3)
Loss on partial disposal of businesses 0.4 0.5 8.2
Loss on sale of discontinued operations 0.6 25.3 26.7
------------ ------------ ------------
Net cash flows from operating 2.7 10.6 50.2
activities
Investing activities
Purchase of property, plant and equipment (17.3) (11.9) (38.3)
Proceeds from sale of property, plant and equipment 5.0 8.4 10.2
Purchase of investments (0.6) (0.3) (1.0)
Proceeds from sale of investments - 0.2 0.4
Interest received 0.9 0.7 1.5
Acquisitions of subsidiaries (2.6) - -
Disposal of subsidiaries (1.0) 26.2 23.9
------------ ------------ ------------
Net cash flows from investing activities (15.6) 23.3 (3.3)
Financing activities
Proceeds from the issue of share capital 0.1 54.2 54.1
Purchase of shares for LTIP (3.5) - (3.3)
Increase/(repayment) of borrowings 14.7 (93.3) (97.6)
Payment of finance lease liabilities - (0.5) (1.0)
------------ ------------ ------------
Net cash flows from financing activities 11.3 (39.6) (47.8)
Net decrease in cash and cash equivalents (1.6) (5.7) (0.9)
Cash and cash equivalents at start of period 56.3 57.9 57.9
Effect of exchange rate fluctuations on cash held 1.1 (0.9) (0.7)
------------ ------------ ------------
Cash and cash equivalents at period end 55.8 51.3 56.3
============ ============ ============
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the six months ended 4 July 2005
Unaudited Unaudited Unaudited
Six months Six months Year
2005 2004 2004
£m £m £m
----------- ----------- -----------
Foreign exchange translation differences (0.4) (13.6) (2.5)
Actuarial losses on defined benefit plans (4.1) (25.9) (39.0)
Net gain/(loss) on hedge of net investment
in foreign subsidiary 0.6 - -
Cash flow hedges:
Effective portion of changes in fair value (1.2) - -
Change in fair value of equity securities
available-for-sale - (0.2) 0.2
----------- ----------- -----------
Income and expense recognised directly in equity (5.1) (39.7) (41.3)
Profit/(loss) for the period 9.0 (33.8) (60.2)
----------- ----------- -----------
Total recognised income and expense for the period 3.9 (73.5) (101.5)
=========== =========== ===========
Attributable to:
Equity holders of the parent 3.1 (74.3) (103.3)
Minority interest 0.8 0.8 1.8
----------- ----------- -----------
Total recognised income and expense for the period 3.9 (73.5) (101.5)
=========== =========== ===========
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 4 July 2005
Unaudited Unaudited Unaudited
Six months Six months Year
2005 2004 2004
£m £m £m
----------- ----------- -----------
At 5 January 142.4 249.5* 249.5*
Adjustments on adoption of IFRS from 5 January 2004 - (56.2) (56.2)
Adjustments relating to adoption of IAS 32
and IAS 39 from 5 January 2005 (0.5) - -
----------- ----------- -----------
At 5 January (restated) 141.9 193.3 193.3
Recognised income and expense for the period 3.1 (74.3) (103.3)
New ordinary share capital issued (net of expenses) 0.1 54.2 54.1
Relating to own shares (3.5) - (3.4)
Share-based payment adjustment 1.5 0.8 1.7
----------- ----------- -----------
At period end 143.1 174.0 142.4
=========== =========== ===========
*As previously reported under UK GAAP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Basis of preparation
The Morgan Crucible Company plc (the 'Company') is a company domiciled in the
United Kingdom. The consolidated financial statements of the Company for the
period ended 4 July 2005 comprise the Company and its subsidiaries (together
referred to as the 'Group') and the Group's interest in associates and jointly
controlled entities.
As allowed by IFRS 1 'First-time adoption of IFRS', the Group adopted IAS 32
'Financial instruments: disclosure and presentation' and IAS 39 'Financial
instruments: recognition and measurement', prospectively from 5 January 2005.
Consequently, until 4 January 2005, the Group continued to hedge account for
forecast foreign exchange transactions and commodity exposures in accordance
with UK GAAP, and hence the comparative financial statements exclude the impact
of these standards.
On 8 July 2005, the Group published a comprehensive analysis of the impact of
adopting IFRS from 5 January 2004 - available from the Company's web site at
www.morganplc.com. This included income statement and balance sheet
reconciliations, as well as details of the accounting policies applied in
restating its financial statements for the year ended 4 January 2005 and as at 5
January 2004.
These financial statements have been prepared in accordance with accounting
policies the Group expects to follow at the year end. EU law (IAS Regulation EC
1606/2002) requires that the next annual consolidated financial statements of
the Company, for the year ending 4 January 2006, be prepared in accordance with
International Financial Reporting Standards (IFRS) adopted for use in the EU
('adopted IFRS').
This interim financial information has been prepared on the basis of the
recognition and measurement requirements of IFRS in issue that either are
endorsed by the EU and effective or available for early adoption at 4 January
2006 or are expected to be endorsed and effective or available for early
adoption at 4 January 2006, the Group's first annual reporting date at which it
is required to use adopted IFRS. Based on these adopted and unadopted IFRS, the
directors have made assumptions about the accounting policies expected to be
applied when the first annual IFRS financial statements are prepared for the
period ending 4 January 2006.
In particular, the Directors have assumed that the IASB's amendment to IAS 19
will be adopted by the EU in sufficient time that they will be available for use
in the annual IFRS financial statements for the period ending 4 January 2006.
In addition, the adopted IFRS that will be effective or available for early
adoption in the annual financial statements for the period ending 4 January 2006
are still subject to change and to additional interpretations and therefore
cannot be determined with certainty. Accordingly, the accounting policies for
that annual period will be determined finally only when the annual financial
statements are prepared for the year ending 4 January 2006.
The interim financial statements are presented in £ sterling. They are prepared
on the historical cost basis except that the following assets and liabilities
are stated at their fair value: derivative financial instruments and financial
instruments classified as available-for-sale.
The preparation of financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making the judgements
about carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period or in the period of
the revision and future periods if the revision affects both current and future
periods.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Basis of preparation (continued)
Section 240 Statement
The comparative figures for the financial year ended 4 January 2005 are not the
Company's statutory accounts for that financial year. Those accounts, which were
prepared under UK Generally Accepted Accounting Practices, have been reported on
by the Company's auditors and delivered to the registrar of companies. The
report of the auditors was unqualified and did not contain statements under
section 237(2) or (3) of the Companies Act 1985. The interim financial
statements for the six months ended 4 July 2005 were authorised for issue by the
Board on 2 August 2005.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.Segment reporting
Business segments
Carbon Magnetics Technical Ceramics Thermal Ceramics Crucibles Discontinued Consolidated
Six Six Six Six Six Six Six Six Six Six Six Six Six Six
months months months months months months months months months months months months months months
2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004
£m £m £m £m £m £m £m £m £m £m £m £m £m £m
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Revenue from
external
customers 100.9 94.6 90.7 87.0 71.1 70.1 114.8 104.6 14.2 15.1 - 34.8 391.7 406.2
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Segment
profit/
(loss) 8.6 2.4 6.5 3.4 4.7 (1.4) 6.6 2.8 0.8 2.1 - (2.1) 27.2 7.2
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ----- ------
Unallocated
costs (5.0) (3.5)
----- ------
Operating profit 22.2 3.7
======== ========
Segment
underlying
operating
profit* 12.4 9.2 7.6 7.2 6.1 4.4 9.0 6.0 0.9 1.8 - 0.1 36.0 28.7
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Unallocated
costs (2.8) (3.5)
------ ------
Underlying operating 33.2 25.2
profit ====== ======
* This measure of profit (before all restructuring costs, cost associated with settlement
of anti-trust litigation and property disposals) is shown because the Directors consider
that it gives a better indication of underlying performance
Technical Thermal
Carbon Magnetics Ceramics Ceramics Crucibles Discontinued Consolidated
Year Year Year Year Year Year Year
2004 2004 2004 2004 2004 2004 2004
£m £m £m £m £m £m £m
------ ------- ------- ------- ------- ------- --------
Revenue from external
customers 196.1 181.2 135.7 220.3 29.5 33.1 795.9
------ ------- ------- ------- ------- ------- --------
Segment 0.2 7.4 1.1 8.0 3.2 (6.3) 13.6
profit/(loss) ------ ------- ------- ------- ------- ------- --------
Unallocated costs (20.3)
-------
Operating loss (6.7)
========
Segment underlying
operating profit* 20.9 14.2 7.4 15.9 2.9 (0.1) 61.2
------ ------- ------- ------- ------- ------- --------
Unallocated costs (5.4)
--------
Underlying operating 55.8
profit ========
* This measure of profit (before all restructuring costs, cost associated with settlement
of anti-trust litigation and property disposals) is shown because the Directors consider
that it gives a better indication of underlying performance.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. Net financing costs
Six months Six months Year
2005 2004 2004
£m £m £m
---------- ---------- ----------
Interest expense (6.2) (7.6) (13.8)
Interest income 0.9 0.7 1.5
Interest on IAS 19 obligations (12.4) (12.0) (23.2)
Expected return on IAS 19 scheme assets 10.6 10.1 19.4
Fair value charge on interest rate swaps 0.4 - -
---------- ---------- ----------
(6.7) (8.8) (16.1)
========== ========== ==========
3. Taxation
Six months Six months Year
2005 2004 2004
£m £m £m
---------- ---------- ----------
United Kingdom taxes 0.2 (1.0) (2.1)
Overseas taxes 5.3 3.9 4.6
---------- ---------- ----------
Total taxation 5.5 2.9 2.5
========== ========== ==========
The total taxation charge for the six months to 4 July 2005 of £5.5 million
(2004: £2.9 million) includes a tax credit of £1.9 million (2004: £1.6 million)
in connection with restructuring costs, costs associated with settlement of
anti-trust litigation, property disposals and sale of businesses.
The interim taxation charge is calculated by applying the Directors' best
estimate of the annual tax rate to the taxable profit for the period.
The restated deferred tax position at 4 January 2005 under IAS 12 is a creditor
of £10.9m (4 January 2004: - creditor of £14.8 million, 4 July 2004 - creditor
of £14.6 million).
The decrease in the deferred tax liability by £10.4 million at 4 January 2005
(£10.0 million at 4 January 2004 and 4 July 2004) arises as a result of the
restatement of pension prepayments and creditors under IAS 19 (decrease of £15.2
million for 2005 and £15.6 million for 2004) and recognition of deferred tax on
prior year fair value adjustments on acquisitions (increase of £4.8 million for
2005 and £5.6 million for 2004).
4. Restructuring costs and costs associated with settlement of anti-trust litigation
Costs of restructuring were £9.8 million (2004: £14.8 million) and legal costs
associated with settlement of anti-trust litigation were £1.2 million (2004:
£2.7 million).
5. Earnings per share
Basic earnings per share
--------------------------
The calculations of basic earnings per share at 4 July 2005 was based on the net profit/(loss) attributable to
Equity holders of the Morgan Crucible Company plc of £8.2 million (2004: £34.6 million loss)
and a weighted average number of ordinary shares outstanding during the period ended 4 July 2005
of 290,279,006 (2004: 272,919,621) calculated as follows:
Six months Six months Year
2005 2004 2004
£m £m £m
---------- ---------- ----------
Net profit/(loss) attributable to Equity holders of the Morgan
Crucible Company plc 8.2 (34.6) (62.0)
========== ========== ==========
Weighted average number of ordinary shares
Issued ordinary shares at 5 January 290,200,179 232,050,876 232,050,876
Effect of shares issued in period 78,827 40,868,745 49,320,103
---------- ---------- ----------
Weighted average number of ordinary
shares at period end 290,279,006 272,919,621 281,370,979
========== ========== ==========
Diluted earnings per share
----------------------------
The calculation of diluted earnings per share at 4 July 2005 was based on net profit/(loss) attributable to
Equity holders of the Morgan Crucible Company plc of £8.2 million (2004: £34.6 million loss)
and a weighted average number of ordinary shares outstanding during the period ended 4 July 2005
of 301,688,291 (2004: 277,207,084), calculated as follows:
Six months Six months Year
2005 2004 2004
£m £m £m
---------- ---------- ----------
Net profit/(loss) attributable to Equity holders of the Morgan
Crucible Company plc 8.2 (34.6) (62.0)
========== ========== ==========
Weighted average number or ordinary shares
Weighted average number of ordinary shares 290,279,006 272,919,621 281,370,979
Effect of share options/incentive schemes 11,409,285 4,287,463 6,652,880
---------- ---------- ----------
Diluted weighted average number of ordinary shares 301,688,291 277,207,084 288,023,859
========== ========== ==========
Underlying earnings per share
-------------------------------
The calculations of underlying earnings per share at 4 July 2005 was based on profit from operations before
restructuring costs, costs associated with settlement of anti-trust litigation and property disposals less,
net finance costs, income tax expense (excluding tax credit arising from restructuring, anti-trust litigation and
property disposals) and minority interest of £18.3 million (2004: £11.1 million) and a weighted average number of
ordinary shares outstanding during the period ended 4 July 2005 of 290,279,006 (2004: 272,919,621)
calculated as follows:
Six months Six months Year
2005 2004 2004
£m £m £m
---------- ---------- ----------
Profit from operations before restructuring costs and costs
associated with settlement of anti-trust litigation,
less net finance charge costs, income
tax expense and minority interest 18.3 11.1 27.9
========== ========== ==========
Weighted average number of ordinary shares
Issued ordinary shares at 5 January 290,200,179 232,050,876 232,050,876
Effect of shares issued 78,827 40,868,745 49,320,103
---------- ---------- ----------
Weighted average number of ordinary shares at period end 290,279,006 272,919,621 281,370,979
========== ========== ==========
Underlying earnings per share (pence) 6.3p 4.1p 9.9p
Underlying diluted earnings per share
---------------------------------------
The calculations of underlying diluted earnings per share at 4 July 2005 was based on profit from operations before
restructuring costs, costs associated with settlement of anti-trust litigation and property disposals less,
net finance costs, income tax expense (excluding tax credit arising from restructuring, anti-trust litigation and
property disposals) and minority interest of £18.3 million (2004: £11.1 million) and a weighted average number of
ordinary shares outstanding during the period ended 4 July 2005 of 301,688,291 (2004: 277,207,084)
calculated as follows:
Six months Six months Year
2005 2004 2004
£m £m £m
---------- ---------- ----------
Profit from operations before restructuring costs and costs
associated with settlement of anti-trust litigation,
less net finance charge costs, income
tax expense and minority interest 18.3 11.1 27.9
========== ========== ==========
Weighted average number of ordinary shares
Weighted average number of ordinary shares 290,279,006 272,919,621 281,370,979
Effect of shares options/incentive schemes 11,409,285 4,287,463 6,652,880
---------- ---------- ----------
Diluted weighted average number of ordinary shares 301,688,291 277,207,084 288,023,859
========== ========== ==========
Underlying diluted earnings per share (pence) 6.1p 4.0p 9.7p
This Interim Statement will be dispatched to all registered holders of Ordinary shares. Copies of this statement
may be obtained from the Secretary at the Registered Office of the Company, Quadrant, 55-57 High Street, Windsor,
Berkshire SL4 1EP (Registered in England No. 286773)
Excerpts from this announcement will be available in Excel format from 7am BST today via a link from the
investor relations home page within Morgan Crucible's website (www.morgancrucible.com).
Morgan is conducting an interim results presentation at 9.30am BST. A live webcast of this presentation and the
presentation document will be made available at this time within the investor relations section of Morgan's website.
This information is provided by RNS
The company news service from the London Stock Exchange
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