Final Results

Yule Catto & Co PLC 13 March 2002 YULE CATTO & COMPANY PLC Preliminary Results for the year ended 31 December 2001 Yule Catto is an international producer of speciality chemicals, which are supplied to global customers, ranging from manufacturers of medical gloves, paint and adhesives to the pharmaceuticals and cosmetics industries HIGHLIGHTS * Successful acquisition of remaining 50% of Harlow Chemical Company Limited for a consideration of £54.6 million * 11% improvement in profit before taxation, amortisation of goodwill and exceptional items to £40.3m (2000: £36.1m) * Adjusted earnings per share up by 12% to 18.9p (2000: 16.9p) * Further increase in dividends to 12.0 pence per share (2000: 11.6p) * On time construction of £20m Malaysian synthetic latex plant - commissioned early 2002 * Creation of global water-based polymer business offers exciting opportunities Anthony Richmond-Watson, Chairman, comments: ' We have focused the group in to speciality growth areas, whilst investing heavily to expand our worldwide capacity and reach. We are confident that our businesses are well positioned in the short term and anticipate further performance improvements in the coming years.' 13 March 2002 ENQUIRIES: YULE CATTO Tel: 01279 442791 Alex Walker, Chief Executive Sean Cummins, Finance Director COLLEGE HILL Tel: 020 7457 2020 Gareth David email: gareth.david@collegehill.com Lisa Pearson email: lisa.pearson@collegehill.com YULE CATTO & COMPANY PLC Preliminary Results for the year ended 31 December 2001 RESULTS SUMMARY 2001 2000 Audited Audited £'000 £'000 Total turnover 474,821 511,993 Earnings before taxation, interest, depreciation and amortisation 72,601 66,752 Operating profit before amortisation 52,870 48,065 Total operating profit Profit before taxation and amortisation 40,280 36,152 Profit on ordinary activities before taxation 12,937 15,979 Profit attributable to shareholders (47) (2,845) Net borrowings 223,165 164,785 Free cash flow before dividends 31,663 10,255 Adjusted earnings per ordinary share 18.9p 16.9p Earnings per ordinary share - FRS3 0.0p (1.9)p Dividends on ordinary shares: Interim paid November 4.9p 4.7p Final proposed/paid 7.1p 6.9p Total dividend 12.0p 11.6p Note: Subject to shareholders' approval, the final dividend of 7.1 pence will be payable on 5 July 2002 to those shareholders registered on 14 June 2002. YULE CATTO & COMPANY PLC Preliminary Results for the year ended 31 December 2001 CHAIRMAN'S STATEMENT Yule Catto experienced better fortunes during the course of last year and achieved further important steps in its evolution into a focused speciality chemical group. The rising raw material input costs, that so depressed our profits in 2000, have progressively declined to more normal levels over recent months. Together with resilient sales volume, this resulted in the achievement of substantially improved profitability. The group is well positioned for future growth and this confidence is reflected by a further increase in dividend. In August we acquired 100% ownership and control of the Harlow Chemical Company Limited, through the purchase of the remaining 50% shareholding from our joint venture partner, for a consideration of £54.6 million. This investment, in combination with our synthetic latex operations, formed the key to the creation of a global water-based polymer business, with a wide and unique range of products. In addition to enhancing earnings immediately and the release of synergy benefits, growth prospects are good across many of our markets worldwide. Turnover of £475 million was slightly lower than the previous year, reflecting the impact of discontinued operations. The expansion of turnover for our continuing operations to £472 million was achieved by good organic growth within many of our businesses. I am pleased to report that profit before tax, amortisation of goodwill and exceptional items advanced by 11% to £40.3 million. Market conditions in many economies remain far from easy and this achievement reflects the quality of our businesses, the strength of our management teams and a persistent drive towards the very highest levels of customer satisfaction. We completed our withdrawal from the building products sector in the early part of last year through the sale of Unilock Limited, a loss making operation, to its management for a nominal consideration. The disposal creates an exceptional charge of £13.5 million in the profit and loss account, relating substantially to the reintroduction of goodwill previously written-off. Adjusted earnings per share rose to 18.9 pence, a growth of 12%, which was a creditable achievement against the background of a weak world economy. In anticipation of further positive development, your directors have recommended an increased final dividend of 7.1 pence per share, taking the total for the year to 12.0 pence, an increase of 3.4% over the previous period. The construction of a synthetic latex plant in Malaysia was the most significant feature of an increased capital expenditure programme of £34.1 million, directed at the expansion of our global capacity. Having peaked in 2001, we anticipate that capital expenditure will reduce in the current year. Strong cash generation has long been a feature of the group and last year was no exception, with vigilant working capital control enabling free cash flow to increase to £31.7 million. YULE CATTO & COMPANY PLC Preliminary Results for the year ended 31 December 2001 CHAIRMAN'S STATEMENT (cont'd) As a consequence of the acquisition of the Harlow Chemical Company Limited, net borrowings increased to £223.2 million. With interest rates at historically low levels, the opportunity has been taken to reduce exposure to fluctuations in the cost of interest, through increased utilisation of fixed interest derivatives. In November we successfully put in place a new £150 million medium-term bank facility. This, in conjunction with £100 million of long term loans already secured, provides ample committed funding for the foreseeable future. Outlook An already weakening global economic environment turned downwards at the end of last year and it is difficult to predict when stability may return. In contrast, our products and services have accessed wider markets and the profitability of the group progressively improved during the course of 2001. This momentum has continued into the early stages of the new financial year, supported by raw material prices closer to traditional levels. We have focused the group into speciality growth areas, whilst investing heavily to expand our worldwide capacity and reach. The Malaysian synthetic latex facility has started production, which, along with the opportunities provided by our newly created global water based polymer business, will provide substantial benefit. In addition, litigation by our customers in the USA is ongoing regarding the expiry of patents on Omeprazole. Following resolution of the legal process, we can look forward to strong sales of generic product to that market. We are confident that our businesses are well positioned in the short term and anticipate further performance improvements in the coming years. ANTHONY RICHMOND-WATSON Chairman 13 March 2002 YULE CATTO & COMPANY PLC Preliminary Results for the year ended 31 December 2001 REVIEW OF OPERATIONS POLYMER CHEMICALS 2001 2000 Sales £M 238.8 217.2 Operating Profit £M 31.1 22.8 The strategic development of our water-based polymer activities took another major step forward in August 2001 with the acquisition of 100% ownership and control of the Harlow Chemical Company Limited. Coupled with good demand right across our customer base, this delivered a strong second half, resulting in close to 10% sales growth for the year as a whole. Changes in the prices of major raw materials were again a feature, but in a beneficial direction, falling back progressively from the high levels that impacted performance in 2000. This has allowed the re-establishment of more traditional levels of margin. Sales volume continues to benefit from our global strategy of concentrating mainly upon speciality markets and, at a time of uncertain global economic activity, we are seeing high levels of plant utilisation. Obtaining full control of the Harlow Chemical Company Limited follows on from the acquisition of 100% of Synthomer in late 1999 and has created the opportunity to grow unencumbered by our former partners' geographic restrictions. On 1 January 2002, Yule Catto announced a major restructuring of its polymer businesses. The Synthomer global synthetic latex operations were merged with the Harlow Chemical Company Limited, which produces a range of polymer emulsions and speciality solid and liquid polymers at plants in UK and Saudi Arabia. To that will be added the Revertex Belgium polymer and complementary compounding capabilities. The new grouping has nine manufacturing units and is trading under the Synthomer banner. It can justifiably claim to be world class in its technology and a market leader for speciality applications. Major growth initiatives are being launched, supported by investment in manufacturing facilities. The effect of this reorganisation on employment has been minimal and is largely covered through early retirement and voluntary redundancy. A further milestone is the commissioning of our synthetic latex facility in Malaysia in early 2002, representing the largest ever greenfield investment by Yule Catto. This state of the art facility will serve the market for manufacturing nitrile examination and clean room gloves, which has largely moved to the Far East from Europe and USA. A new technical centre has also been constructed in Malaysia, to provide the high quality research and support demanded by our customers. YULE CATTO & COMPANY PLC Preliminary Results for the year ended 31 December 2001 REVIEW OF OPERATIONS (cont'd) The outlook is bright for our polymer businesses, with a structure to grow global sales now in place. This should be supported in the short term by greater stability in the prices of our major raw materials. Synthetic Latex The good demand for our speciality latices has placed pressure on our European manufacturing units requiring careful management. This will find relief in the early part of 2002 when the new synthetic latex plant in Kluang, Malaysia is commissioned. Recent developments in global terrorist tactics substantially boosted sales of nitrile latex in the latter part of the year. This product is used in the manufacture of disposable gloves and since the US market is mainly served from Far East production, it should provide good demand for our Malaysian facility as it enters operation. Sales to our other main markets, notably construction and textiles, have been at a pleasing level. In particular, strong demand in the Dutch carpet industry has benefited our compound plants. Emulsions All of our emulsion businesses showed a recovery in margin from the levels achieved in 2000. A major contributory factor was the fall in input monomer prices, but record production in UK, Saudi Arabia and South Africa, as well as 100% ownership of the Harlow Chemical Company Limited, played their part in achieving higher profitability. In the UK, debottlenecking projects were undertaken at Batley and Stallingborough. However, the opportunities afforded by the sole ownership of the Harlow Chemical Company has required a more fundamental assessment of capacity. This has resulted in a decision to expand our Belgian production facility to 60,000 tonnes, the initial phase of which will come on stream early 2003. In Saudi Arabia, our joint venture undertook investment in infrastructure and bulk handling, with a further increase in capacity of 30% to be installed in 2002. Demand for our company in South Africa continues to be strong and, although the Rand has suffered serious decline, our export position in US Dollars, supplying sub-Saharan countries, has afforded some protection. With good sales levels expected to continue, a further 15,000 tonnes of capacity will be commissioned in 2002. In the Far East, we have also benefited from the decline in the price of petrochemical derived raw materials. Although over capacity in Malaysia remains a feature, our position as market leader has enabled the progressive recovery of margins that had been eroded in 2000. YULE CATTO & COMPANY PLC Preliminary Results for the year ended 31 December 2001 REVIEW OF OPERATIONS (cont'd) Polyvinyl Acetate/Alcohol The world PVC market reflects the weaker general economic conditions experienced in many countries. Nevertheless, our Alcotex range of primary and secondary stabilisers used in PVC manufacture continues to enjoy a leading global market share. In support of our worldwide customer base, a state of the art PVC pilot plant is currently under construction at our Harlow Technical Centre. This will assist in providing the highest levels of customer service, as well as evaluation of newly developed products. Recent technical advances in both primary and secondary grades of Alcotex are finding market acceptance and a fall in the price of vinyl acetate will further assist in securing forward momentum. The Mowilith polyvinyl acetate range gained penetration of new markets and applications, but progress was held back by weakness in the important German market. Other Speciality Products Following several years of significant growth, our Far East water-based adhesives business suffered from the slowdown in the US, with exports to our furniture and electronics sectors dramatically reduced. Good management control and product innovation succeeded in minimising the fall in sales to these key sectors allowing satisfactory profitability to be achieved. In Malaysia, the alkyd and polyester resin businesses saw the completion of new alkyd capacity, whilst the refurbishment of the polyester facilities is scheduled for 2002. The marketing focus remains on speciality polyesters where volume has seen significant growth due to a regional export drive. The Lithene polybutadiene business enjoyed mixed fortunes in 2001. Benefits are accruing from newer applications, such as automotive sealants and fuel additives, but this is balanced by further declines in chlorinated rubber production. Natural rubber suffered from the lowest prices for over 25 years, which impacted negatively upon the margins of our speciality products based upon this raw material. In addition, the protein allergy issue dampened sales by our dipping customers whose natural rubber based gloves are exported worldwide. Despite these industry difficulties, numerous initiatives have been launched and better results in the last quarter of 2001 indicate these are having the desired effect. YULE CATTO & COMPANY PLC Preliminary Results for the year ended 31 December 2001 REVIEW OF OPERATIONS (cont'd) PHARMA AND FINE CHEMICALS 2001 2000 Sales £M 85.6 88.0 Operating Profit £M 11.1 11.3 In line with many companies that service the world pharmaceutical industry, we found market conditions variable throughout the course of 2001. Our pharma companies sustained a focus on new product development and approvals, but this was offset by a number of regulatory delays and product withdrawals that impinged upon results. Demand was better for our flavour and fragrance businesses. The resolution of supply difficulties with a key raw material, that so impacted 2000 profits, is steadily showing benefit. All of the above resulted in relatively flat turnover and profit, but the outlook going forward should be brighter, particularly for sales to the generic sector for our pharma companies. A key component for sales growth will be the timing of the end of patent protection for Omeprazole in the USA. Court proceedings are currently in progress and the patent issue should be resolved during the course of this year, which will provide a substantial boost to what is already our largest selling product. Pharma For Uquifa, 2001 was in general a frustrating year, with regulatory delays holding back sales of ethical products and good volumes of older generic products being offset by further price pressure. It had been anticipated that greater benefits would have accrued by now from the launch of generic Omeprazole in the USA, but protracted patent litigation involving our customers has caused delays well beyond the year-end. Our Spanish operations saw a year of developing and implementing process improvements on a number of older generic products, as well as working on projects that have pending clinical phase approval. The improvements will underwrite our long-term position in a market that remains competitive and will protect margins as products mature. The manufacture of Omeprazole is undertaken in Spain, where we are making substantial volumes for the European Generic 'A' market and the traditional Generic 'B' territories. Plans are in place to handle the inevitable increase in demand as and when Omeprazole becomes generic in the very important US market. Sales to the ethical sector did not reach expected levels due to disappointments and delays in the latter stage of drug launches. YULE CATTO & COMPANY PLC Preliminary Results for the year ended 31 December 2001 REVIEW OF OPERATIONS (cont'd) In Italy, our company had a very mixed year. The low point was the tragic accident that occurred in May, which resulted in the deaths of three of our colleagues. Again we extend our sympathies to their families and friends. The investigation into the cause of the incident, in full co-operation with the Italian authorities, has been long and detailed and it will be well into 2002 before final conclusions can be drawn. On the business front, Uquifa Italia saw a substantial reduction in sales of an antibiotic intermediate to a major pharmaceutical customer, whilst a sharp increase in antidepressant intermediate sales provided mitigation. Although regulatory registrations were filed in the USA in 2000 for Clindamycine and Minocyclin, our customers' registrations and approvals will delay launch until early 2003. In addition, we continue to work on a number of Phase II products awaiting clinical results. Following on from a very difficult year in 2000, a major operational restructuring of both management and personnel was undertaken at our Mexican operations. This enabled the business to return a small profit. The changes have substantially improved competitiveness, although the strength of the Mexican Peso is still a drag on performance. This facility remains key to the generic development strategy and four generic products have been launched during the course of the year, as we continue to expand our product and therapeutic lines into areas such as antifungal treatment and antidepressants. In support of our own and our customers' development programmes, we have recently commissioned a high-level cGMP pilot plant facility in Spain. This fits with our unchanged strategy of using a wide range of chemical and regulatory resources to drive product and market development. The life science industry has just seen a challenging year, with many large pharma and smaller biotech companies failing to achieve product launches. The cost competitive nature of Uquifa, with an ever-increasing customer and product portfolio, provides the opportunity for growth as the industry continues to develop. Flavour and Fragrances The consolidation and restructuring within the flavour and fragrance sector continues to create opportunities for our businesses. The strategy remains one of concentrating on developing a leading world position in a number of niche, relatively low volume areas. In support of this, we have further extended our geographic marketing coverage and have successfully secured global contracts with major flavour and fragrance houses. YULE CATTO & COMPANY PLC Preliminary Results for the year ended 31 December 2001 REVIEW OF OPERATIONS (cont'd) Oxford Chemicals continues to enjoy good demand for its range of high impact flavour compounds. Many are based upon sulphur compounds and the company possesses particular skills in handling these odorous materials. Investments that have been made in recent years, on expanding the production facilities at Teeside, are now highly utilised and work is ongoing to improve plant efficiencies. An important milestone was achieved in 2001 when Oxford Chemicals became the first speciality aroma chemical manufacturer to achieve Halal certification, thereby opening up the growing Islamic market. The performance of PFW improved last year as availability of a key raw material improved from the supplier in USA, but it took most of the first six months to re-establish a smooth supply pattern. Whilst this difficulty is now over, the long-term effect on the overall polycyclic musk market is emerging as negative. To set against this, PFW is now one of only two manufacturers of this speciality product and additional cost saving initiatives are in the course of study to maintain profitability. A programme to identify novel compounds is ongoing, directed at the requirement for ever greater environmental and toxicological performance, with new product introductions expected during 2002. YULE CATTO & COMPANY PLC Preliminary Results for the year ended 31 December 2001 REVIEW OF OPERATIONS (cont'd) PERFORMANCE CHEMICALS 2001 2000 Sales £M 147.5 157.5 Operating Profit £M 15.3 16.3 The solid performance by our companies operating in this sector was achieved despite mixed market conditions and some one-off difficulties. Tight raw material supplies and high input prices were also in evidence in a number of businesses, requiring careful management to maximise returns. Rationalisation in pursuit of cost savings was again a feature, as was investment in new processes to alleviate raw material complications and increase efficiencies. This will result in better prospects, providing economic conditions do not deteriorate markedly. Inorganic Chemicals A collapse of 90% in the availability of copper etchant from the UK electronics industry impinged severely on performance. This was echoed across the globe and has resulted in an upheaval in the copper salts industry. To combat this, William Blythe have developed a copper metal dissolving process which is in the final stages of commissioning and will restore its volume capability early in 2002. Order books are strong for timber treatment and other traditional applications. Several new sales opportunities have also been identified for copper products with technically demanding specifications. Iodine based products saw particularly good demand, with buoyant sales to pharmaceutical customers throughout Europe and initial sales to India. An incident in the last quarter at the Hapton site caused production to be suspended. Following the installation of additional safety and control equipment, production has recommenced with strong demand from the market. Tin products have also experienced increasing sales to pharmaceutical customers and we have invested in new facilities to replace the ageing stannous and stannic units. Sulphur dioxide derivatives experienced strong demand from the caramel industry and previously lost North Sea oil business was recovered. The use of sodium bisulphite for paper bleaching in re-cycled tissue manufacture was successfully tested by a number of companies, opening up new opportunities for growth. Margins in the early months of last year suffered the impact of high caustic soda prices. These have now moderated, improving the outlook for 2002. YULE CATTO & COMPANY PLC Preliminary Results for the year ended 31 December 2001 REVIEW OF OPERATIONS (cont'd) Dyes and Pigments The ultramarine pigment business occupies a leading global position as a supplier of technically advanced products. Good progress was made last year through a combination of aggressive marketing and the introduction of grades of even higher technical specification. Volumes were increased across a wide number of markets and territories. Costs and production efficiencies saw the benefits of recent investments and ensured the availability of the highest quality material to our customers worldwide. New technical initiatives are presently in hand to widen the market outlets for ultramarine, assisted by its unique combination of colour and environmental acceptance. The market continues to receive favourably James Robinson's new range of hair dye intermediates, as demonstrated by impressive sales growth. A similar situation exists for their innovative range of photochromic dyes used mainly in ophthalmic applications. Further progress is assured for these materials as our customers roll out their products to the consumer market. The recently formed joint venture in India successfully commissioned the facilities to manufacture photographic, hair dye and dyestuff intermediates. During the course of the year it was decided to include fluorescent products in this investment and this has been undertaken in a particularly efficient and expeditious fashion, making products of the very highest quality. The near term goal in India is to consolidate the benefits from this low cost operating location. Looking further ahead, there are many opportunities for investment already identified that should provide a succession of good quality projects. Other Activities The final stages of the integration of our Consumer Chemicals operations on to one site were completed during the course of the year. This exercise exposed weaknesses in the management team which have been addressed by a number of changes. In addition, further reorganisation benefits were identified and implemented, the cost of which negatively affected results. Demand remains good and much work has been undertaken to improve margins and realise efficiencies. Products directed at the UK housewares and automotive markets saw sharp increases in sales and order books remained healthy across the year end. Economic conditions in France made for a difficult operating environment for our inks business in that country. New management has been installed who have initiated action that has stabilised the market position and undertaken moves to improve efficiencies between the two operating sites. YULE CATTO & COMPANY PLC Preliminary Results for the year ended 31 December 2001 REVIEW OF OPERATIONS (cont'd) Dispersions also suffered the effects of the downturn in the French economy, with the business located there facing the loss of several significant tranches of business. In the UK, the operating environment remains competitive, but new business secured in the last quarter saw the year end on a brighter note. Autoclenz turned in a solid performance, despite operating in an automotive market that continues to change and restructure. Sales advanced in the year, but margin was curtailed. Opportunities continue to be identified to widen the range of services to our major customers. YULE CATTO & COMPANY PLC Preliminary Results for the year ended 31 December 2001 SUMMARISED CONSOLIDATED PROFIT & LOSS ACCOUNT 2001 2000 Audited Audited £'000 £'000 Turnover Subsidiaries 443,930 470,219 Joint ventures 30,891 41,774 Total turnover 474,821 511,993 Operating profit before amortisation 52,870 48,065 Amortisation of goodwill (13,845) (12,955) Total operating profit 39,025 35,110 Sale and termination of businesses (13,498) (4,884) Costs of fundamental restructuring - (2,334) Interest payable (net) (12,590) (11,913) Profit on ordinary activities before taxation 12,937 15,979 Taxation on profit of ordinary activities (11,681) (18,195) Profit on ordinary activities after taxation 1,256 (2,216) Minority interests (1,303) (629) Profit attributable to shareholders (47) (2,845) Ordinary dividends (17,245) (16,643) Retained profit for the financial year (17,292) (19,488) YULE CATTO & COMPANY PLC Preliminary Results for the year ended 31 December 2001 SUMMARISED CONSOLIDATED BALANCE SHEET 2001 2000 Audited Audited £'000 £'000 Goodwill 255,690 225,680 Fixed assets (including investments) 175,908 153,265 Working capital 9,544 23,580 Provisions (9,752) (14,383) Dividends (10,218) (9,991) Net borrowings (223,165) (164,785) Net assets 198,007 213,366 Shareholders' funds 193,777 208,949 Minority interests 4,230 4,417 Capital employed 198,007 213,366 YULE CATTO & COMPANY PLC Preliminary Results for the year ended 31 December 2001 SUMMARISED CONSOLIDATED CASH FLOW STATEMENT 2001 2000 Audited Audited £'000 £'000 Net cash inflow from operating activities 79,615 51,146 Interest payable (net) (12,244) (12,220) Dividends received less paid 2,646 4,926 Taxation paid (7,186) (8,856) Capital expenditure (net) (31,168) (24,741) Free cash flow before dividends 31,663 10,255 Acquisition and disposal of businesses (70,292) 61,962 Equity dividends paid (17,018) (16,988) Issue of ordinary shares - 36 Purchase of own shares - (17,924) Exchange movements (2,733) 248 Movement in net borrowings (58,380) 37,589 Copies of the 2001 Annual Report will be posted to the shareholders on 12 April 2002. The financial information set out above does not comprise the company's statutory accounts. Statutory accounts for the previous financial year ended 31 December 2000, have been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain any statement under section 237 (2) or (3) of the Companies Act 1985. The auditors have given an unqualified opinion on the accounts for the year ended 31 December 2001 which will be delivered to the Registrar of Companies following the Annual General Meeting. This information is provided by RNS The company news service from the London Stock Exchange

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