Final Results - Year Ended 31 December 1999

Fairey Group PLC 13 March 2000 Contact: John Poulter, Chief Executive Fairey Group Tel 0207 831 3113 (am) Charles Watson Financial Dynamics Tel 0207 831 3113 FAIREY GROUP PLC 1999 PRELIMINARY RESULTS STATEMENT Fairey Group plc, the international process technology group, announces preliminary results for the year ended 31 December 1999. 1999 1998 Increase Sales (*) £275.3m £261.6m 5% Operating profit, before goodwill amortisation(*) £35.3m £34.2m 3% Earnings per share (normalised) 22.9p 21.7p 6% Dividends for the year 11.0p 10.5p 5% (*) continuing operations Commenting on the results, John Poulter, Chief Executive, said: 'It is pleasing that the resurgence in demand, particularly in the high technology markets, been maintained into the new year. The group has emerged from the past two difficult years well equipped to exploit the more positive situation now prevailing.' Highlights include: - Unchanged year on year underlying sales conceal second half order recovery - Resurgence in semiconductor and optical fibre markets - Strengthening recovery in Asia Pacific increases US manufactured exports and capital investment - Product gross margins maintained - Continued strong cash generation - Servomex acquisition Results Fairey Group's overall performance in 1999 was essentially in line with that of 1998 with sales, adjusted for acquisitions and disposals, at £264.2m -£2.0m ahead of 1998. Year on year operating profit (before goodwill amortisation), adjusting for acquisitions and disposals, was £34.5m against £34.2m for the previous year. Our semiconductor companies produced a useful return to profitability, but several of the businesses exposed to more traditional industries saw little upturn until very late in the year. Cash flow was excellent, with 100% of operating profits converted into operating cash. This was partly a function of lower capital expenditure, but it also reflects the increasing capital efficiency of the group as outsourcing initiatives over the past two years have reduced group inventories. Average working capital in the existing companies represented 18% of sales. Free cash flow was £27.8m and debt at the year end was £64.3m, £2.6m higher than in 1998. This was in spite of a net outflow of £18.3m on the Servomex acquisition. Interest was covered almost 7 times by operating profit. The tax rate reduced in the year to 28.4%. This was largely the result of effective tax planning associated with the international nature of the group's business. The tax charge in the year was positively impacted by the exceptional release of £10.7m of tax contingency relating to the disposal of Fairey Hydraulics. Normalised earnings per share increased by 6% to 22.9p and it is proposed to pay a final dividend of 7.65p, making a total of 11.0p, an increase of 5%. The dividend is more than twice covered. Overview As will be apparent from comments both at the interim stage and elsewhere in this report, the situation prevailing in 1998 carried over into 1999 and the group started the year with weak customer demand. At that time there was little sign of improvement in the Asian economies and international industrial companies in the United States exhibited low levels of confidence and a reluctance to invest. As the year progressed and the Asian economies improved, our multinational customers began to see improving exports and better capacity utilisation. Confidence improved steadily in the second half of the year and many of the group's businesses consequently enjoyed a welcome improvement in demand in the latter months of 1999. This improvement late in the year was insufficient to do other than to produce a flat result compared with 1998, but the trend lines carry positive implications for 2000. Sector Results Electronic Controls Turning to our individual business sectors, the Electronic Controls performance was superficially rather disappointing. This resulted from several differing situations. The repositioning and reorganisation of Arcom, commented upon in the interim report, required heavy revenue investment. The results of this have been somewhat slower to come through than anticipated, particularly as demand for Arcom's oil and gas telemetry products was minimal. The other side of Arcom's business on which the investment has been focussed, is poised to deliver attractive results. The company has been achieving high new product design-in rates and orders (but not yet sales) in the second half year were some 25% higher than in the first half. Microscan and Red Lion Controls saw a pick up in demand towards the latter part of the year. Imaging Technology saw a substantial increase in unit volume, but subject as it is to product development patterns and a price/performance curve characteristic of high technology industries, this produced only a modest, but continuing, improvement in monetary sales and profits. Despite the indifferent performance of this sector in 1999, expectations are for good growth in 2000. Process Instrumentation Our Process Instrumentation businesses exposed to the high technology recovery - Particle Measuring Systems, Luxtron and Malvern - saw growth in sales and profits based on much stronger second half performances. The semiconductor cyclical recovery is now unequivocally well established. Fusion again delivered a good performance. However, Ircon, reliant as it is on industries such as steel, NDC Infrared Engineering with a substantial customer base in the Pacific Rim and China and Beta LaserMike with its exposure to wire and cable manufacturing, delivered weaker results in 1999 compared with 1998. The improvement in the industrial climate came too late to compensate fully for weak results in the first half year. Beta LaserMike is now benefiting, as is Fusion, from a sharp change in expenditure patterns in the optical fibre market which saw many previously delayed projects being released at the end of the year. Loma recorded an increase in sales to its food and pharmaceutical customers in 1999, but competitive conditions in its markets restrained profits. Servomex, the gas analysis business purchased in mid-year, is included in this sector. There are a number of actions which have already been taken in this company, notably the elimination of non-core subsidiaries, restructuring and strengthening the management team and enhancing investment in research and development. There is much still to be done, but the turn in the oil and gas investment cycle, when it comes to fruition, should be beneficial. Filtration Systems Filtration Systems produced a creditable performance, as in 1998. Sales and profits were essentially unchanged from the prior year. All three filter companies produced encouraging results in challenging markets and the ceramic cores business, serving the aero engine manufacturing industry, had a good year. The nuclear canister business, now a relatively small part of the whole, is expected to continue to decline slowly. Last year's report commented on the efforts made by management to contain the effects of the market downturn. The maintained level of expenditure on research and development and strenuous attempts by management to improve efficiency by outsourcing low added-value activities were two highlighted areas. These have continued, despite difficult trading conditions. Our product portfolio is, with one or two exceptions, in good shape. Sales of new products which have been introduced to the market within the past three years now exceed 20% of the total. We expect this percentage to continue to increase. In those areas where we have experienced price erosion, management has been able to compensate. As a consequence, our overall product gross margins have been maintained from 1997 through both 1998 and 1999. It is appropriate to make some comment regarding the group's strategy in respect of the internet. A critical element in our companies in delivering value to customers is in the applications engineering and support services which we provide. These require close dialogue with end users, many of whom are large global companies. The internet is already proving to be a marketing and sales productivity tool to increase contact with these end users, both in terms of speed and reach. It is therefore an additional source of competitive advantage to market leading businesses such as ours, rather than being a substitute for close customer dialogue. In addition, software support and remote diagnostics via the internet will further improve our ability to provide customers with uninterrupted operations. Outlook The recovery in the semiconductor and optical fibre industries, improving economic activity in Asia Pacific, and strengthening manufacturing investment in the United States, are all positive signals for the group's performance. Late cycle industries such as steel where there remains over capacity, or oil and gas, where the benefits of a higher oil price are not yet reflected in sales, remain soft. However, taken overall, Fairey is well positioned with products, resources and the organisation to exploit a more positive situation than has prevailed during the past two years. A table of results is attached. Copies of this notice are available to the public from the registered office: Station Road, Egham, Surrey TW20 9NP CONSOLIDATED PROFIT & LOSS ACCOUNT for the year ended 31 December 1999 Turnover Profit 1999 1998 1999 1998 £'000 £'000 £'000 £'000 Electronic Controls 53,625 54,658 7,104 8,296 Process Instrumentation 185,258 170,318 21,155 18,741 Filtration Systems 36,392 36,581 7,066 7,171 275,275 261,557 35,325 34,208 Discontinued businesses - 2,150 - 487 275,275 263,707 35,325 34,695 Amortisation of intangible (577) - assets ________ ________ Operating profit 34,748 34,695 Profit on sale of discontinued - 36,688 business Net interest payable (5,210) (4,211) ________ ________ Profit before taxation 29,538 67,172 Taxation - UK (7,559) 18,857 - Overseas 5,400 5,323 Profit after taxation 31,697 42,992 Dividends per ordinary share Interim paid 3.35p (3.20p) 3,154 3,017 Final proposed 7.65p (7.30p) 7,219 6,833 Retained profit 21,324 33,142 Earnings per ordinary share - headline 33.7p 44.4p - fully diluted 33.7p 44.3p - normalised 22.9p 21.7p CONSOLIDATED BALANCE SHEET 1999 1998 31 December 31 December £'000 £'000 Intangible assets 20,327 - Tangible fixed assets 34,966 35,260 Investments 5,574 4,815 Net current assets (excluding net debt) 29,490 22,935 90,357 63,010 Net debt (64,315) (61,722) Net assets 26,042 1,288 Share capital 4,784 4,738 Reserves 21,258 (3,450) Shareholders' funds 26,042 1,288 CONSOLIDATED CASH FLOW SUMMARY For the year ended 31 December 1999 1999 1998 £m £m Net cash inflow from operating activities 38.3 40.6 Capital expenditure (5.4) (8.4) Fixed asset disposals 1.7 0.3 Tax (1.5) (14.9) Interest paid (net) (5.3) (4.3) Free cash flow 27.8 13.3 Dividends (10.0) (10.0) Acquisitions/Disposals (18.3) 49.7 Share issues, net of expenses 0.6 1.1 Share buy-backs - (19.4) Exchange differences (1.9) (0.2) Other (0.8) (2.2) Movement in net debt (2.6) 32.3 Note: The financial information for the years ended 31 December 1999 and 31 December 1998 contained in these preliminary results, which were approved by the Board on 13 March 2000, does not constitute statutory accounts of the Company within the meaning of section 240 of the Companies Act 1985. Statutory accounts for the year ended 31 December 1998 have been delivered to the Registrar of Companies. The auditors have reported on these accounts without qualification and without statements under section 237 (2) or (3) of the Companies Act 1985. Statutory accounts for the year ended 31 December 1999 have not be finalised but the preliminary results have been prepared by the directors based on the results and position which will be reflected in the statutory accounts.

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