Interim Results
Yule Catto & Co PLC
07 September 2006
Yule Catto & Co plc
Interim Results for the six months ended 30 June 2006
Excellent progress in Polymers has been offset by temporary impact of
Performance division restructuring
HIGHLIGHTS
• Underlying group sales* increased by 8% to £281.8m (2005: £261.3m)
• Underlying profit before taxation* £16.2m, (2005: £16.9m)
• Profit attributable to equity shareholders £8.2m (2005: £12.0m)
• Earnings per share* of 7.6p, (2005: 7.6p)
• Interim dividend 3.8p per share (2005: 3.7p)
• Continuing progress in polymer market expansion
• Net borrowings* of £175.8m (2005: £191.1m)
* Before special items, as defined in notes 2, 3 and 7
Anthony Richmond-Watson, Chairman, comments:
'We have invested in the geographic expansion of our Polymer business and the
volume growth seen in recent years should continue. In our Pharmaceuticals
business a number of new generic products are expected to enter the market in
2007, 2008 and beyond. Therefore, we remain confident that we can deliver
growth in shareholder value. However, near term results will be held back by
events in Performance Chemicals.'
7 September 2006
ENQUIRIES:
YULE CATTO Tel: 01279 442791
Adrian Whitfield, Chief Executive
Sean Cummins, Finance Director
COLLEGE HILL Tel: 020 7457 2020
Gareth David email: gareth.david@collegehill.com
RESULTS SUMMARY
Underlying performance(a) IFRS
2006 2005 2006 2005
£'000 £'000 £'000 £'000
Unaudited Unaudited Unaudited Unaudited
Group sales 281,835 261,337 290,264 290,765
EBITDA (b) 31,859 33,342 31,700 33,700
Operating profit 22,453 23,593 22,294 23,951
Profit before taxation 16,199 16,860 13,298 18,334
Earnings per share 7.6p 7.6p 5.7p 8.3p
Dividend per share (c) 3.8p 3.7p 3.8 p 3.7p
Net borrowings (d) (175,790) (191,057) (172,118) (190,424)
Free cash flow (e) (14,783) (4,563) (14,783) (4,563)
The above table represents the results of Yule Catto and Co plc, its
subsidiaries and its share of joint ventures.
(a) Underlying performance is before special items. (See notes 2,3 and 7)
(b) Earnings before interest, tax, non-recurring items, depreciation and
amortisation.
(c) An interim dividend of 3.8p per share will be paid on 17 November 2006
to members on the register at close of business on 20 October 2006.
Under IFRS this is not accrued in the financial statements.
(d) As reconciled at the bottom of the balance sheet.
(e) As shown within the cash flow statement.
CHAIRMAN'S STATEMENT
Overview
Excellent progress has been achieved in Polymers as it reaps the rewards of
investing in its infrastructure to expand the geographic reach of the division.
The pharmaceutical active ingredient business experienced the normal pattern of
price erosion of generic products, as the market matures post patent expiry.
Performance chemicals has been temporarily impacted by the transition towards an
improved cost structure, combined with a significant disruption in the
ultramarine pigment business.
The resultant Group underlying profit before taxation of £16.2 million is 4%
below the corresponding period. With the confidence that further benefits will
accrue from investment and restructuring initiatives, the Board has declared an
interim dividend of 3.8 pence per share, being an increase of 3%.
Polymer Chemicals
Latex volume increased by 8% as we continue to benefit from growth in the
nitrile glove industry in Asia. The manufacturing facility in Malaysia is being
expanded and following commissioning in early 2007, the current capacity
constraint will be alleviated. In Europe, the construction sector has been
buoyant, whilst our activity in the paper sector is gaining momentum.
Fortunes were more variable in the emulsions business. The DIY market in the UK
started the year very slowly, but has progressively improved during the period,
which augurs well for the second half. We enjoy a high share of the domestic
market in Malaysia and South Africa and therefore the ability to expand volume
there is more limited. After stalling last year the Middle East returned to
growth which, combined with the continuing penetration of continental Europe,
contributed to an overall volume increase of 7%.
Other speciality products also performed well. Auxiliary polymers benefited
from additions to the product portfolio and a strong PVC market, whilst the use
of lithene polybutadiene in anti-corrosion paint for the marine industry
increased.
The effect of the rising price of oil has been exacerbated by unexpected outages
in the monomer supply chain, which have restricted the availability of key raw
materials, leading to further significant increases in input costs. Despite the
difficult feedstock environment, it is very pleasing to report that operating
profit moved forward by 32% to £20.3 million, whilst margins were maintained
above 10%.
Pharma and Fine Chemicals
Demand for our generic portfolio has remained strong, with activity in
omeprazole being particularly buoyant at 25% ahead of last year. We continue to
find new opportunities in the ethical sector and we are seeing an increasing
revenue stream from third party contract research work.
We have completed the investment in laboratory and pilot plant facilities which
are necessary for the development of new drug masterfiles. They also provide an
invaluable contribution to process improvements and cost-down initiatives which
are essential to counteract the normal pricing pattern of the generic market.
After a period of consolidation within the flavour and fragrance industry,
during which demand was subdued and competition from the Far East was encouraged
by customers, there are indications of a return to growth. New customers have
been established in India and China for our polycylic musk, whilst demand for
other musks has reached a level where additional capacity will be required. In
flavours, activity has improved by 8%.
Performance Chemicals
Last year we announced that two manufacturing sites in UK would cease operations
during the course of 2006. Inevitably, this has resulted in a level of
inefficiency during the wind-down period, which is likely to persist for the
remainder of the year, with the full benefit of the initiatives being realised
in 2007.
The restructured businesses offer a number of significant growth opportunities
including photochromic dyes for ophthalmic and security applications and metal
salts used in catalysts.
In the ultramarine pigment business impurities in a key raw material have
resulted in output being severely restricted, with the knock-on impact of
reduced sales and additional costs. Corrective actions have been implemented
and recent production confirms that the process has returned to previous high
standards. All efforts are now being directed at regaining our market position.
Borrowings
Net borrowings, adjusted for movements in the mark-to-market of financial
derivatives, have increased since the year end by £10.2 million to £175.8
million.
The normal seasonal increase in working capital has been further compounded by
the raw material situation and a skew in trading activity towards the end of the
period. This is merely a timing issue and we expect to see the normal reversal
in the second half. At 0.7 times depreciation, capital expenditure was at a
similar level to last year. Going forward, there will be a modest increase due
to the investment in expanding the nitrile capacity in Malaysia and a facility
to manufacture cytotoxic pharmaceutical products.
Overall, the closure of two UK operations is expected to have a positive impact
on cash. Initially, however, there will be an outflow of funds, which in the
first half was £3.2 million, with the inflow from the sale of land following in
a later period. The disposal of Reabrook was completed on 5th June, delivering
proceeds of £3.8 million and the potential for an additional £0.6 million of
deferred consideration.
Dividend
The interim dividend of 3.8 pence per ordinary share (2005 - 3.7p) will be paid
on 17 November 2006 to members on the register at close of business on 20
October 2006.
Board Changes
Adrian Whitfield joined the Board on 1 March 2006 and became Chief Executive on
17 August 2006 following the retirement of Alex Walker on that date.
Outlook
Looking ahead, we have invested in the geographic expansion of our Polymer
business and the volume growth seen in recent years should continue. In our
Pharmaceuticals business we have the infrastructure to support a strong and
expanding pipeline of pharmaceutical active ingredients, with a number of new
generic products expected to enter the market in 2007, 2008 and beyond.
Therefore, we remain confident that we can deliver growth in shareholder value.
However, near term results will be held back by events in Performance Chemicals.
In particular the outcome of the initiatives in the pigments business will be
a key factor for delivery of the full year's underlying profit before taxation,
which is likely to be marginally below the level achieved last year.
Consolidated income statement for the SIX MONTHS ENDED 30 JUNE 2006
6 months ended 6 months ended 12 months ended
30 June 2006 30 June 2005 December 2005
Note £'000 £'000 £'000 £'000 £'000 £'000
Unaudited Unaudited Unaudited Unaudited Audited Audited
Group revenue 283,567 284,983 556,051
Share of joint ventures' revenue 6,697 5,782 12,656
Group sales 2 290,264 290,765 568,707
Group revenue 283,567 284,983 556,051
Company and subsidiaries 21,853 23,425 45,334
Joint ventures 441 526 859
Operating profit 2 22,294 23,951 46,193
Interest payable (6,692) (8,422) (15,424)
Interest receivable 438 1,689 3,683
(6,254) (6,733) (11,741)
Fair value adjustment (2,742) 1,116 (2,421)
Finance costs (8,996) (5,617) (14,162)
Profit before taxation 13,298 18,334 32,031
Taxation (4,488) (5,828) (8,998)
Profit for the period 8,810 12,506 23,033
Profit attributable to minority 576 523 1,180
interests
Profit attributable to equity 8,234 11,983 21,853
shareholders of the parent
8,810 12,506 23,033
Earnings per share
Basic 5.7p 8.3p 15.1p
Diluted 5.6p 8.2p 14.9p
Consolidated balance sheet as at 30 June 2006
30 June 30 June 31 December
2006 2005 2005
£'000 £'000 £'000
Unaudited Unaudited Audited
Non-current assets
Goodwill 172,443 172,443 172,443
Other intangible assets 691 748 815
Property, plant and equipment 129,229 142,731 140,064
Deferred tax assets 2,607 1,860 2,531
Investment in joint ventures 3,700 3,712 4,064
308,670 321,494 319,917
Current assets
Inventories 67,473 68,113 66,495
Trade and other receivables 119,419 122,786 103,244
Cash and cash equivalents 49,322 42,705 46,027
236,214 233,604 215,766
Current liabilities
Borrowings (50,796) (39,554) (37,385)
Trade and other payables (117,102) (119,470) (129,523)
Current tax liability (53,488) (50,138) (53,050)
Dividends (7,717) (11,440) -
Derivatives at fair value (16,486) (7,300) (4,312)
Net current liabilities (9,375) 5,702 (8,504)
Non-current liabilities
Borrowings (170,644) (193,575) (179,908)
Trade and other payables (509) (1,044) (306)
Deferred tax liability (6,143) (13,482) (6,056)
Post retirement benefit obligations (61,744) (78,431) (69,637)
(239,040) (286,532) (255,907)
Net assets 60,255 40,664 55,506
Equity
Called up share capital 14,565 14,480 14,480
Share premium 33,026 31,829 31,829
Capital redemption reserve 949 949 949
Hedging and translation reserve (4,015) (2,691) (481)
Retained earnings 11,260 (8,503) 4,009
Equity attributable to equity holders of the parent 55,785 36,064 50,786
Minority interests 4,470 4,600 4,720
Total equity 60,255 40,664 55,506
Analysis of net borrowing
Cash and cash equivalents 49,322 42,705 46,027
Current borrowings (50,796) (39,554) (37,385)
Non-current borrowings (170,644) (193,575) (179,908)
Net borrowings (172,118) (190,424) (171,266)
Add back: special items (3,672) (633) 5,675
Net borrowings (underlying performance) (175,790) (191,057) (165,591)
The financial statements were approved by the Board of Directors and authorised
for issue on 7 September 2006.
Consolidated cash flow for the SIX MONTHS ENDED 30 JUNE 2006
6 months ended 6 months ended 12 months ended
30 June 2006 30 June 2005 31 December 2005
Notes £'000 £'000 £'000 £'000 £'000 £'000
Unaudited Unaudited Unaudited Unaudited Audited Audited
Operating
Cash generated from operations 5 2,782 12,731 57,791
Interest received 438 1,689 3,683
Interest paid (6,786) (8,255) (15,095)
Net interest paid (6,348) (6,566) (11,412)
UK corporation tax paid - - (74)
Overseas corporate tax paid (4,065) (2,692) (10,964)
Total tax paid (4,065) (2,692) (11,038)
Net cash (outflow)/inflow from operating
activities (7,631) 3,473 35,341
Investing
Dividends received from joint ventures 631 44 130
Purchase of property, plant and
equipment (7,102) (7,494) (14,331)
Sale of property, plant and equipment - 47 45
Net capital expenditure and financial
investment (7,102) (7,447) (14,286)
Sale of businesses 3,849 2,625 18,858
Net cash impact of acquisitions and
disposals 3,849 2,625 18,858
Net cash (outflow) / inflow from
investing activities (2,622) (4,778) 4,702
Financing
Equity dividends paid - - (16,796)
Dividends paid to minority interests (681) (633) (1,399)
Purchase of own shares (140) (381) (369)
Issue of shares 1,282 - -
Proceeds /(repayment) of non-current
borrowings - 14,943 (5,033)
Net cash inflow from financing
activities 461 13,929 (23,597)
(Decrease)/increase in cash and bank
overdrafts during the year (9,792) 12,624 16,446
Comprised of:
Cash and cash equivalents 5,021 (53,499) (46,623)
Bank overdrafts (14,813) 66,123 63,069
(9,792) 12,624 16,446
Reconciliation of net cash flow from operating activities to movement in net borrowings
6 months ended 6 months ended 12 months ended
30 June 2006 30 June 2005 31 December 2005
£'000 £'000 £'000
Unaudited Unaudited Audited
Net cash (outflow) / inflow from operating
activities (7,631) 3,473 35,341
Dividends received from joint ventures 631 44 130
Net capital expenditure and financial
investment (7,102) (7,447) (14,286)
Dividends paid to minority interests (681) (633) (1,399)
Free cash flow (14,783) (4,563) (19,786)
Net cash impact of acquisitions and
disposals 3,849 2,625 18,858
Purchase of own shares (140) (381) (369)
Issue of shares 1,282 - -
Equity dividends paid - - (16,796)
Exchange movements (407) (1,097) 571
Movement in net borrowings (underlying
performance) (10,199) (3,416) 22,050
STATEMENT OF RECOGNISED INCOME AND EXPENSE for the SIX MONTHS ENDED 30 June 2006
6 months ended 30 June 2006 6 months ended 30 June 2005
Minority Equity Total Minority Equity Total
interests holders of interests holders of
the parent the parent
£'000 £'000 £'000 £'000 £'000 £'000
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
Actuarial gains and losses - 5,901 5,901 - (4,248) (4,248)
Tax on items recognised directly - - - - - -
in equity
Exchange differences (146) 3,534 3,388 305 (1,744) (1,439)
Profit for the period 576 8,234 8,810 523 11,983 12,506
Total recognised income for the period 430 17,669 18,099 828 5,991 6,819
12 months ended 31 December 2005
Minority Equity Total
interests holders of
the parent
£'000 £'000 £'000
Audited Audited Audited
Actuarial gains and losses - 3,442 3,442
Tax on items recognised directly in equity - (34) (34)
Exchange differences 533 466 999
Profit for the year 1,180 21,853 23,033
Total recognised income for the period 1,713 25,727 27,440
1 Basis of presentation
The accompanying consolidated financial statements of Yule Catto & Co plc have
been prepared in accordance with recognition and measurement principles required
by International Financial Reporting Standards ('IFRS'). The consolidated
financial statements have been prepared using accounting policies consistent in
all material respects with those applied in the Company's Annual Report for the
year ended 31 December 2005. This statement does not seek to comply with IAS 34
'Interim Financial Reporting'. The financial statements for the six months
ended 30 June 2006, are unaudited and do not constitute statutory financial
statements within the meaning of section 240 of the Companies Act 1985.
2 Consolidated income statement analysis
6 months ended 30 June 2006 6 months ended 30 June 2005
Continuing operations Continuing operations
Note Underlying Special IFRS Underlying Special IFRS
performance items performance items
£'000 £'000 £'000 £'000 £'000 £'000
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
Group revenue 275,138 8,429 283,567 255,555 29,428 284,983
Share of joint
ventures' revenue 6,697 - 6,697 5,782 - 5,782
Group sales 3,4 281,835 8,429 290,264 261,337 29,428 290,765
Group revenue 275,138 8,429 283,567 255,555 29,428 284,983
Company and
subsidiaries 22,012 (159) 21,853 23,067 358 23,425
Joint ventures 441 - 441 526 - 526
Operating profit/
(loss) 3,4 22,453 (159) 22,294 23,593 358 23,951
Finance costs (6,254) (2,742) (8,996) (6,733) 1,116 (5,617)
Profit/(loss)
before taxation 16,199 (2,901) 13,298 16,860 1,474 18,334
Taxation (4,536) 48 (4,488) (5,359) (469) (5,828)
Profit/(loss) for
the period 11,663 (2,853) 8,810 11,501 1,005 12,506
Profit
attributable to
minority interests 576 - 576 523 - 523
Profit
attributable to
equity holders of
the parent 11,087 (2,853) 8,234 10,978 1,005 11,983
11,663 (2,853) 8,810 11,501 1,005 12,506
Earnings per share
Basic 7.6p (2.1)p 5.7p 7.6p 0.7p 8.3p
Diluted 7.6p (2.0)p 5.6p 7.5p 0.7p 8.2p
Discontinued operations
There are no discontinued operations. A number of businesses were sold or
closed during the period, however these do not satisfy the criteria of IFRS 5 to
be treated as discontinued operations.
3 Special items
The special items disclosed are made up as follows:
6 months ended 30 6 months ended 30 12 months ended 31
June 2006 June 2005 December 2005
£'000 £'000 £'000
Unaudited Unaudited Unaudited*
Group sales
Revenue of operations sold or
closed during the period 8,429 29,428 52,249
Operating profit/(loss)
Operating profit /(loss) of
operations sold or closed during
the period 146 1,084 (129)
Profit or loss arising from the
sale or closure of operations (305) (726) 136
(159) 358 7
4 Segmental analysis - underlying performance
6 months ended 30 6 months ended 30 12 months ended 31
June 2006 June 2005 December 2005
£'000 £'000 £'000
Unaudited Unaudited Unaudited*
Group sales by activity
Polymer Chemicals 199,419 179,712 364,770
Pharma & Fine Chemicals 45,284 43,824 82,170
Performance Chemicals 37,132 37,801 69,518
281,835 261,337 516,458
Operating profit by activity
Polymer Chemicals 20,300 15,380 34,159
Pharma & Fine Chemicals 4,936 7,040 10,903
Performance Chemicals 113 3,469 5,806
Unallocated corporate expenses (2,896) (2,296) (4,682)
22,453 23,593 46,186
Finance costs (6,254) (6,733) (11,741)
Underlying profit before taxation 16,199 16,860 34,445
*The underlying performance of the Performance Chemicals division has been
adjusted to exclude the turnover and operating profit for Reabrook Limited,
which was sold on 5 June 2006.
5 Reconciliation of operating profit to cash generated from operations
6 months ended 30 6 months ended 30 12 months ended 31
June 2006 June 2005 December 2005
£'000 £'000 £'000
Unaudited Unaudited Audited
Reconciliation of operating profit to
cash generated from operations
Operating profit 22,294 23,951 46,193
Less: share of profits of joint ventures (441) (526) (859)
21,853 23,425 45,334
Depreciation and amortisation 9,406 9,749 19,291
Profit or loss arising from the sale or
closure of operations 305 726 (136)
Cash impact of termination of businesses (3,233) (162) (761)
Loss / (profit) on sale of fixed assets 83 - (73)
Share based payments 140 381 711
(Increase)/ decrease in inventories (3,107) 1,053 1,550
Increase in trade and other receivables (21,365) (14,732) (1,380)
Pension funding in excess of IAS 19
charge (1,272) (1,728) (2,992)
Increase / (decrease) in trade and other
payables 655 (4,643) (1,050)
Unrealised exchange gains (683) (1,338) (2,703)
Cash generated from operations 2,782 12,731 57,791
6 Further information
The financial information for the year ended 31 December 2005 has been extracted
from the statutory accounts, which have been filed with the Registrar of
Companies. The auditors' report on those accounts was unqualified and did not
contain any statement under section 237 of the Companies Act 1985.
The financial statements were approved by the Board of Directors on 7 September
2006.
This statement will be sent to all shareholders on 7 September 2006 and can be
obtained by the public from the company's registered office at Temple Fields,
Harlow, Essex, CM20 2BH, or on the company website www.yulecatto.com.
Earnings per ordinary share are based on the attributable profit for the period
and the weighted average number of shares in issue during the period to June
2006 of 145.3 million (2005: 144.7 million).
7 Glossary of terms
Group sales Group sales represent the total of revenue from Yule Catto and Co plc, its
subsidiaries, and its share of the revenue of joint ventures.
EBITDA EBITDA is calculated as operating profit before depreciation, amortisation and
non-recurring items.
Operating profit Operating profit represents profit before finance costs and taxation.
Non-recurring items Non-recurring items are defined as:
• Profit or loss impact arising from the sale or closure of an operation;
• Impairment of non-current assets; and
• Other non-operating or one-off items.
Special items The following are disclosed separately as special items in order to provide a clearer
indication of the Group's underlying performance:
• Non-recurring items;
• Mark to market adjustments in respect of cross currency and interest rate
derivatives used for hedging purposes where IAS 39 hedge accounting is not
applied;
• Revaluation of USD loan notes from the rate of the related cross currency
swaps to the year end rate; and
• The transitional adjustment required to reflect movements in fair value
caused by variations in interest rates, and subsequent amortisation thereof,
to the extent that these constituted effective hedges under UK GAAP.
Underlying performance Underlying performance represents the statutory performance of the Group under IFRS,
excluding special items.
Free cash flow Free cash flow represents cash flow before cash impact of acquisitions and disposals,
purchase of own shares, equity dividends paid and exchange movements.
Net borrowings Net borrowings represents cash and cash equivalents together with short and long term
borrowings, as adjusted for the effect of related derivative instruments irrespective
of whether they qualify for hedge accounting.
This information is provided by RNS
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