Interim Results
Cookson Group PLC
29 July 2003
29 July 2003
ANNOUNCEMENT OF RESULTS FOR THE FIRST HALF OF 2003
Highlights
• Profits improve over first half of prior year
- operating profit* from continuing operations up 67% to £22.2
million
- profit before tax* rises £17.4 million to £5.5 million
• Net debt reduced by £64 million since the end of 2002 to £364
million
• Decision taken to exit from the Electronics division's loss-making
Equipment sector
• Benefits of cost saving initiatives continue to accrue
*(before goodwill amortisation and exceptional items, including
Speedline)
Commenting on the results and current outlook, Stephen Howard,
Group Chief Executive, said:
'The benefits of the work that has been done to reduce Cookson's
cost structure, particularly in the Electronics division, are
evident in these results. Profits increased in the first half and
all three divisions were profitable in the second quarter.
Furthermore, net debt at the end of June was less than half that of
a year ago.
'Management continues to focus on improving the performance of all
of its businesses in the face of a challenging trading environment.
Emphasis has been placed on addressing those parts of the business
that are currently unprofitable and, consequently, we have decided
to exit from the loss-making Equipment sector of the Electronics
division. This process is underway.
'It is anticipated that underlying market conditions in the second
half in the electronics industry will remain generally unchanged
from the first half, with the impact of SARS receding. Steel
production in the Ceramics division's major markets, North America
and Europe, is expected to remain at a similar level to the second
quarter. Activity in the Precious Metals division is normally
higher in the second half of the year due to the traditional fourth
quarter jewellery buying season. Based on these assumptions and on
the benefits from our internal actions continuing to accrue,
operating profit in the second half of 2003 for the Group's
continuing operations is expected to improve over the first half.'
OVERVIEW
Trading conditions in the Group's major markets continued to be
challenging in the first half of 2003, particularly those
experienced by the Electronics division. Nevertheless, pre-tax
profit rose by £17.4 million to £5.5 million compared to a loss of
£11.9 million a year ago. This was driven by improved profitability
by both the Electronics and Ceramics divisions and by lower
interest, which was due to a significantly lower level of debt
following last year's rights issue, the sale of Precision Products
and from positive free cash flow.
Management has continued to focus on improving the performance of
all of its businesses in the face of this difficult market
environment. Emphasis has been placed on addressing those parts of
the business that are currently unprofitable. As a consequence, it
has been decided to exit from the Electronics division's Equipment
business, Speedline, and this process is underway. Speedline
recorded sales of £62.4 million and an operating loss of £20.6
million in the 12 months ended 30 June 2003.
Substantial efforts are also being made to return the Electronics
division's other loss-making sector, PWB Laminates, to
profitability. As announced earlier in the year, this business is
undergoing major restructuring which will result in a marked
reduction in installed capacity in its US and European operations,
whilst building on its presence in the Asia-Pacific market. This
programme will be substantially completed by the end of the year.
Progress has already been made in the first half and losses for
this sector were £5.4 million lower than the equivalent period last
year.
The drive to generate cash and reduce borrowings has been sustained
in the first half. Following the disposal of the Precision Products
business in January and positive free cash flow in the period, net
debt was reduced by a further £64 million to £364 million. The
Group's syndicated bank facility was undrawn at the period end.
The benefits of the work that has already been done to reduce
Cookson's cost structure, particularly in the Electronics division,
were evident in the results for the first half of the year. The
positive impact of the operational gearing that will arise from an
improvement in market conditions, and from maintaining these cost
reduction benefits, will be significant. However, management is not
waiting for the advent of improved trading conditions. Rather it is
focused on improving profitability in the current trading
environment and is committed to taking such further action as may
be necessary to deal with any underperforming part of the Group.
RESULTS OF OPERATIONS
Group - continuing operations
First half Year
2003 2002 2002
£m £m £m
Turnover 827 865 1,721
Operating profit* 22.2 13.3 48.2
*(before goodwill amortisation and exceptional items and including
Speedline)
Turnover for the Group's continuing operations in the first half of
2003 was 4% lower than the same period last year but, after
excluding the effect of currency translation, was unchanged.
Turnover in the Electronics and Precious Metals divisions was 4%
and 7% lower respectively than the first half of 2002 at constant
exchange rates, whereas turnover for the Ceramics division was 6%
higher.
Operating profit before goodwill amortisation and exceptional items
of £22.2 million was 67% higher than the same period in 2002 and up
61% at constant exchange rates. The £8.4 million increase in
operating profit in the first half of 2003 over the same period in
2002, at constant exchange rates, arose from a £7.2 million
improvement by the Electronics division and a £6.2 million increase
in operating profit by the Ceramics division, partly offset by a
£5.0 million reduction in operating profit in the Precious Metals
division. Excluding the losses of Speedline, which will be
reflected as a 'discontinued operation' in the full year results,
operating profit for the Group's continuing operations would have
been reported as £32.0 million in the first half of 2003 (2002:
£27.8 million) and £73.5 million for the year ended 31 December
2002.
The geographic contribution of turnover and profits in the first
half reflected a trend evidenced in prior periods which has seen
the relative proportion of turnover and operating profit from US
operations reducing, and that of the Asia-Pacific region
increasing. Cookson's US operations in total were loss-making,
whilst those of all of the other regions were profitable in the
first half of the year.
Electronics division
First half Year
2003 2002 2002
£m £m £m
Turnover 326 358 694
Operating loss* (2.9) (11.7) (14.9)
*(before goodwill amortisation and exceptional items and including
Speedline)
Activity in the global electronics manufacturing industry during
the first half of 2003 remained depressed, particularly in the USA
and Europe, and at a similar level to the preceding 18 months.
However, the adverse impact of the SARS epidemic on activity in the
Asia-Pacific region was clearly felt in the second quarter. As a
consequence, the division's turnover for the first half of 2003 was
9% lower than the first half of 2002, although only 2% lower at
constant exchange rates and after excluding turnover of a
deconsolidated joint venture. Each sector of the division recorded
like-for-like decreases in turnover of a similar magnitude to the
division as a whole, other than the PWB Chemistry sector which
recorded a modest increase over 2002.
The division reported a loss of £2.9 million for the period which,
at constant exchange rates, is an improvement of £7.2 million over
the first half of 2002. In the second quarter of 2003, an operating
profit of £0.7 million was recorded. The benefits of the cost
saving initiatives that have been implemented over the last 18
months were evident in the results for the first half, with a
reduction in operating costs of some £11 million more than
offsetting the impact of lower turnover. The majority of the cost
savings relate to employment costs and, since the end of June 2002,
the division's headcount has been reduced by a further 374 people
(6% of the total). The Electronics division also had a strong cash
flow performance, generating positive operating cash flow.
The Assembly Materials sector continued to operate profitably but,
in the second quarter, profits were adversely affected by the SARS
epidemic in its Asia-Pacific operations, particularly those which
supply the semiconductor industry. The PWB Chemistry sector
achieved a strong increase in profits in the first half over the
prior period. The Equipment sector recorded an operating loss of
£9.8 million in the first half of 2003, although this was £3.2
million less than the first half of 2002 at constant exchange
rates. The PWB Laminates sector also registered an operating loss,
although this was £4.3 million lower than 2002 at constant exchange
rates.
As discussed above, it has been decided to exit from the division's
Equipment business, Speedline. Speedline manufactures PCB assembly
equipment from two facilities in the USA and distributes its
products from other operations in Europe and Asia-Pacific. The
process to exit this business is underway. For the first half of
2003, Speedline had sales of £29.8 million and made an operating
loss of £9.8 million. At 30 June 2003, Speedline had a net asset
value of £31.6 million.
Earlier in 2003, it was announced that the manufacturing capacity
of the PWB Laminates sector would be rationalised over the course
of the year. This project is being implemented and the merger of
the sector's two US West Coast facilities and the rationalisation
of the US East Coast facilities are expected to be completed during
the third quarter of 2003. The rationalisation of certain parts of
the sector's European operations is also underway and is expected
to be completed during the first quarter of 2004.
Ceramics division
First half Year
2003 2002 2002
£m £m £m
Turnover 354 345 705
Operating profit* 24.4 18.6 46.1
*(before goodwill amortisation and exceptional items)
Approximately 70% of the Ceramics division's sales are indirectly
linked to steel production and in the first half of 2003 steel
production in the division's major markets - North America and the
European Union - rose by 4% and 2% respectively, although the rate
of growth in these markets slowed during the second quarter. The
division also benefited from strong growth in steel production in
emerging markets where it has built up a significant presence. As a
consequence, turnover for the Ceramics division increased by 3%
over the first half of 2002, but was 6% higher at constant exchange
rates. Turnover in the non-steel related sectors of the business -
Foundry, Industrial Processes and Glass - collectively grew 9% at
constant exchange rates, with the sound performance of the fused
cast activities in the Glass sector being a feature. As a
consequence of the increase in turnover in virtually all operations
and of the benefits of recent actions taken to reduce the
division's cost base, operating profit rose by 31% over 2002 and by
34% at constant exchange rates. Cash flow was robust such that
operating cash flow was in line with operating profit.
Precious Metals division
First half Year
2003 2002 2002
£m £m £m
Turnover 148 163 323
Operating profit* 0.7 6.4 17.0
*(before goodwill amortisation and exceptional items)
Turnover for the Precious Metals division decreased by 9% in the
first half and by 7% at constant exchange rates. Reported turnover
for the period, however, included the effect of a 15% higher gold
price than last year; when the impact of the increase in gold price
is excluded, the resulting decrease in underlying activity for the
first half is more pronounced. The performance of the division
continued to be impacted by weak production and demand for gold
jewellery in both the USA and Europe and sales in both regions were
down on the previous year. Turnover for the division's US
operations fell sharply in the latter part of the first quarter and
declined further in the second quarter, primarily due to large
merchandisers introducing well-publicised programmes to reduce
their inventories. As a consequence, operating profit in the first
half decreased by £5.0 million, at constant exchange rates, in
comparison with the previous year. In response, a cost reduction
initiative was implemented in the second quarter that will result
in a reduction in headcount of some 160 people and cost savings of
£3 million in the second half of 2003 at a one-off cash outlay of
£1 million.
GROUP FINANCIAL REVIEW
Financial summary
First half Year
2003 2002 2002
£m £m £m
Profit/(loss) before tax (£m)* 5.5 (11.9) 4.1
Earnings per share (pence)* 0.2 (1.2) 0.1
Free cash flow (£m) 8.8 31.5 63.8
Net debt (£m) 364 749 428
*(before goodwill amortisation and exceptional items and including
Speedline)
Profit before tax
Profit before tax, goodwill amortisation and exceptional items of
£5.5 million for the first half of 2003 reflected an improvement of
£17.4 million over 2002. The £17.4 million increase arose as
follows:
• £8.9 million increase in operating profit from continuing
operations, as analysed above;
• £4.3 million decrease in the contribution from disposed
businesses, mainly the Precision Products business which was sold
in January 2003; and
• £12.8 million reduction in net interest payable.
The decrease in interest payable was due to average borrowings
being some £340 million lower than in the first half of 2002. This
decrease in borrowings was mainly due to the £277 million net
proceeds from the rights issue in August 2002, the sale of the
Precision Products business for cash proceeds of £45 million and
positive operating cash flow generation.
Exceptional items
The Group incurred operating exceptional charges of £2.7 million in
the first half of 2003, largely related to the rationalisation
programmes in the Electronics division announced in 2002. A further
£0.8 million of rationalisation costs charged in the period related
to the capacity realignment initiatives in the PWB Laminates
business of the Electronics division.
The net profit on sale of operations and fixed assets of £0.5
million in the first half of 2003 arose mainly from the disposal of
the Group's Precision Products business in January 2003.
Taxation
The total tax charge for the first half of 2003 was £2.9 million
which included a £1.2 million charge on exceptional items. The
effective rate of taxation on profit before goodwill amortisation
and exceptional items is 30% (2002: 30%).
Shareholder returns
Earnings
Headline earnings per share, i.e. before goodwill amortisation and
all exceptional items, amounted to 0.2 pence per share, compared
with a loss of 1.2 pence per share in 2002. Basic earnings per
share after goodwill amortisation and exceptional items amounted to
a loss of 1.0 pence per share, compared with a loss of 5.5 pence
per share in 2002. The weighted average number of shares in issue
during the period was 1,880 million (2002: 740 million, as adjusted
for the rights issue of August 2002).
Dividend
The Board stated in December 2001 that no cash dividends would be
paid until certain financial targets had been achieved. No interim
dividend is proposed (2002: nil).
Cash flow
Net cash inflow from operating activities
In the first half of 2003, the Group's net cash inflow from
operating activities was £46.5 million compared to £52.9 million in
the first half of 2002. Trade working capital reduced by a further
£4.1 million in the first half of 2003 in addition to the £42.3
million reduction achieved in the preceding twelve months and a
further £138.4 million in 2001. As a consequence, the ratio of
average trade working capital to turnover decreased by two
percentage points to 22% in comparison to the first half of 2002,
an improving trend that began to take hold in 2001.
Returns on investment and servicing of finance
Net cash outflow for interest paid by the Group in the first half
of 2003 was £18.1 million, which is £1.1 million lower than the
first half of 2002. However, excluding the £10.3 million proceeds
of the interest rate swaps that were closed out in 2002, net cash
outlaid for interest in the first half was £11.4 million lower than
the first half of 2002.
Taxation
Cash outflow in the first half of 2003 for taxation was £11.6
million. This compares with an inflow of £0.3 million in the first
half of 2002, which arose mainly as a result of refunds of prior
year tax payments.
Capital expenditure
Payments to acquire fixed assets in the first half of 2003
increased by £1.2 million to £13.8 million compared to the first
half of 2002. The relatively low level of capital expenditure (0.5
times depreciation) is attributable to reduced current requirements
due to lower activity levels. Proceeds of £4.7 million for the sale
of non-core properties were received in 2003, whereas in the first
half of 2002 disposals of properties, mainly on sale and leaseback,
realised £8.0 million.
Free cash flow
As a result of the above, free cash flow for the first half of 2003
was £8.8 million, compared to £31.5 million in the first half of
2002.
Acquisitions and disposals
Net cash inflow from acquisitions and disposals in the first half
of 2003 was £37.6 million. This included the disposal of the
Group's Precision Products business in January 2003 for a cash
consideration of £45.4 million and a further £0.7 million net
consideration for the sale of small, non-core businesses. Cash
consideration paid for acquisitions of subsidiaries and joint
ventures amounted to £2.8 million in the first half of 2003 and
other cash outflows, including additional costs for prior year
disposals, were £5.7 million.
Net cash inflow before financing
As a result of the above, net cash inflow before financing for the
first half of 2003 was £46.4 million, compared to £15.8 million in
the first half of 2002.
Net Debt
As at 30 June 2003, the Group's net debt amounted to £364 million
drawn on available medium to long term committed facilities of £672
million. The Group had no drawings under its committed banking
facility at that date. Since 30 June 2002, net debt has more than
halved, primarily as a result of the £277 million of net proceeds
received from the rights issue in August 2002, the sale of
Precision Products and from free cash flow generation.
30 June 31 December 30 June
2003 2002 2002
£m £m £m
$570 million of US Private Placement 342.5 354.1 380.0
loan notes
7% convertible bonds 80.0 80.0 80.0
£250 million committed bank facility - 31.5 297.0
Other loans and overdrafts 5.9 5.1 20.7
Cash (64.6) (42.5) (28.6)
Net debt 363.8 428.2 749.1
The US Private Placement loan notes are repayable at various dates
between 2005 and 2012 and have an average maturity of 6.4 years.
The £250 million committed bank facility terms out in September
2004 and the 7% convertible bonds are repayable at par in November
2004.
CURRENCY
The principal exchange rates used for the period were as follows:
Six months ended At 30 June
30 June
Average rate Period-end rate
2003 2002 2003 2002
£m £m £m £m
US dollar ($ per £) 1.61 1.44 1.66 1.50
Euro (€ per £) 1.46 1.61 1.45 1.55
Singapore dollar ($ per £) 2.81 2.62 2.90 2.66
Japanese yen (Y per £) 191.09 187.15 196.12 182.79
During the first half, the decrease in the US dollar rate led to an
exchange gain of £20.3 million on translation of the Group's
largely US dollar denominated net debt. The exchange gain on
shareholders' funds was £9.1 million, with the dollar translation
gains being reduced by the strengthening Euro.
Applying 2003 average exchange rates to 2002 results, turnover of
continuing operations for the first half of 2002 would have been
£35.4 million lower and operating profit before goodwill
amortisation and exceptional items would have been £0.5 million
higher than reported.
DIRECTORATE
Sir Bryan Nicholson retired as Chairman and a Director of the
Company at Cookson's Annual General Meeting on 24 April 2003.
Richard Haythornthwaite also retired as a non-executive Director at
that meeting.
Robert Beeston was appointed to the Board on 1 April 2003 and
succeeded Sir Bryan as non-executive Chairman. Kent Atkinson also
joined the Board on 1 April 2003 as a non-executive Director and
has been appointed Chairman of the Audit Committee.
CURRENT OUTLOOK
It is anticipated that underlying market conditions in the second
half in the electronics industry will remain generally unchanged
from the first half of the year, with the impact of SARS receding.
Under this assumption, further improvements in profitability in the
Electronics division are expected to accrue primarily from the cost
saving initiatives that are already underway.
Steel production in North America and Europe for the balance of the
year is expected to remain at a level similar to the second
quarter, with the growth trends in emerging markets being
maintained. Under these conditions, turnover for the Ceramics
division in the second half is expected to be similar to that of
the first half.
Activity in the Precious Metals division is normally higher in the
second half of the year due to the traditional fourth quarter
jewellery buying season. On the basis of these normal trading
patterns and taking into account the benefits of the cost reduction
initiative, profitability for the division should improve in the
second half of the year over the first.
Based on the foregoing market assumptions, operating profit for the
second half of 2003 for the Group's continuing operations is
expected to improve over that of the first half of the year.
A presentation for analysts and shareholders will be held at 9:00am
on Tuesday 29 July. It will be broadcast live at
www.cooksongroup.co.uk.
Copies of Cookson's 2003 Interim Report are being posted to the
shareholders of the Company on 29 July 2003 and will be available
on the Company's website and at the Registered Office of the
Company after that date.
Shareholder/analyst enquiries:
Stephen Howard, Group Chief Executive Cookson Group plc
Dennis Millard, Group Finance Director Tel: 020 7766 4500
Lisa Williams, Investor Relations Manager
Press enquiries:
John Olsen Hogarth Partnership
Tel: 020 7357 9477
Registered Office and Group Head Office
Cookson Group plc
The Adelphi
1-11 John Adam Street Tel: +44 (0)20 7766 4500
London WC2N 6HJ Fax: +44 (0)20 7747 6600
(Registered in England & Wales, No. 251977)
With effect from 4 August 2003 Cookson Group's Registered Office
and Group Head Office address will be:
Cookson Group plc
265 Strand
London WC2R 1DB
United Kingdom Tel: +44 (0)20 7061 6500
(Registered in England & Wales, No. 251977) Fax: +44 (0)20 7061 6600
Forward looking statements
This report contains certain forward looking statements regarding
the Group's financial condition, results of operations, cash flows,
dividends, financing plans, business strategies, operating
efficiencies or synergies, budgets, capital and other expenditures,
competitive positions, growth opportunities for existing products,
plans and objectives of management and other matters. Statements in
this document that are not historical facts are hereby identified
as 'forward looking statements' for the purpose of the safe harbour
provided by Section 21E of the Exchange Act and Section 27A of the
Securities Act. Such forward looking statements, including, without
limitation, those relating to the future business prospects,
revenues, working capital, liquidity, capital needs, interest costs
and income, in each case relating to Cookson, wherever they occur
in this document, are necessarily based on assumptions reflecting
the views of Cookson and involve a number of known and unknown
risks, uncertainties and other factors that could cause actual
results, performance or achievements to differ materially from
those expressed or implied by the forward looking statements. Such
forward looking statements should, therefore, be considered in
light of various important factors. Important factors that could
cause actual results to differ materially from estimates or
projections contained in the forward looking statements include
without limitation: economic and business cycles; the terms and
conditions of Cookson's financing arrangements; foreign currency
rate fluctuations; competition in Cookson's principal markets;
acquisitions or disposals of businesses or assets; and trends in
Cookson's principal industries.
The foregoing list of important factors is not exhaustive. When
relying on forward looking statements, careful consideration should
be given to the foregoing factors and other uncertainties and
events, as well as factors described in documents the Company files
with the UK and US regulators from time to time including its
annual reports and accounts.
Such forward looking statements speak only as of the date on which
they are made. Except as required by the Rules of the UK Listing
Authority and the London Stock Exchange and applicable law, Cookson
undertakes no obligation to update publicly or revise any forward
looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and
assumptions, the forward looking events discussed in this report
might not occur.
Independent Review Report by KPMG Audit Plc to Cookson Group plc
Introduction
We have been engaged by the Company to review the financial
information set out on pages 11 to 17 and we have read the other
information contained in the interim report and considered whether
it contains any apparent misstatements or material inconsistencies
with the financial information.
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the Listing Rules of the Financial Services
Authority. Our review has been undertaken so that we might state to
the Company those matters we are required to state to it in this
report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than
the Company for our review work, for this report, or for the
conclusions we have reached.
Directors' responsibilities
The interim report, including the financial information contained
therein, is the responsibility of, and has been approved by, the
Directors. The Directors are responsible for preparing the interim
report in accordance with the Listing Rules which require that the
accounting policies and presentation applied to the interim figures
should be consistent with those applied in preparing the preceding
annual accounts except where they are to be changed in the next
annual accounts in which case any changes, and the reasons for
them, are to be disclosed.
Review work performed
We conducted our review in accordance with guidance contained in
Bulletin 1999/4: Review of interim financial information issued by
the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management
and applying analytical procedures to the financial information and
underlying financial data and, based thereon, assessing whether the
accounting policies and presentation have been consistently applied
unless otherwise disclosed. A review is substantially less in scope
than an audit performed in accordance with Auditing Standards and
therefore provides a lower level of assurance than an audit.
Accordingly we do not express an audit opinion on the financial
information.
Review conclusion
On the basis of our review we are not aware of any material
modifications that should be made to the financial information as
presented for the six months ended 30 June 2003.
KPMG Audit Plc, Chartered Accountants
29 July 2003, London
Consolidated Group Profit and Loss Account
for the six months ended 30 June 2003
Before Before
exceptional Exceptional exceptional Exceptional
items and items and Half items and items and Half Full
goodwill goodwill year goodwill goodwill year year
amortisation amortisation 2003 amortisation amortisation 2002 2002
note £m £m £m £m £m £m £m
Turnover 1
Continuing operations 827.4 - 827.4 865.2 - 865.2 1,721.1
Discontinued operations 1.8 - 1.8 37.8 - 37.8 70.8
Total turnover 829.2 - 829.2 903.0 - 903.0 1,791.9
Share of
joint
ventures - continuing (21.1) - (21.1) (31.4) - (31.4) (61.0)
- discontinued - - - (1.0) - (1.0) (1.9)
Turnover of Group 808.1 - 808.1 870.6 - 870.6 1,729.0
subsidiaries
Operating profit/(loss) 1
Continuing operations
before goodwill
amortisation 21.1 - 21.1 12.5 - 12.5 46.5
Operating exceptional 1,2 - (2.7) (2.7) - (8.0) (8.0) (31.4)
items
Goodwill amortisation 1 - (17.8) (17.8) - (19.2) (19.2) (37.9)
Continuing operations 21.1 (20.5) 0.6 12.5 (27.2) (14.7) (22.8)
Discontinued operations 1 - - - 4.2 - 4.2 8.5
Group operating 21.1 (20.5) 0.6 16.7 (27.2) (10.5) (14.3)
profit/(loss)
Share of
joint
ventures - continuing 1.1 - 1.1 0.8 - 0.8 1.7
- discontinued - - - 0.1 - 0.1 0.1
Total operating 22.2 (20.5) 1.7 17.6 (27.2) (9.6) (12.5)
profit/(loss)
Net profit/(loss) on sale 3
of operations and fixed
assets - 0.5 0.5 - (5.4) (5.4) (31.7)
Profit/(loss) on ordinary
activities before
interest 22.2 (20.0) 2.2 17.6 (32.6) (15.0) (44.2)
Net interest 4 (16.7) - (16.7) (29.5) - (29.5) (52.7)
Profit/(loss) on ordinary
activities before
taxation 5.5 (20.0) (14.5) (11.9) (32.6) (44.5) (96.9)
Taxation on profit/(loss) (1.7) (1.2) (2.9) 3.6 1.2 4.8 0.6
on ordinary activities
Profit/(loss) on ordinary
activities after
taxation 3.8 (21.2) (17.4) (8.3) (31.4) (39.7) (96.3)
Minority interests (0.9) - (0.9) (0.7) - (0.7) (2.1)
Profit/(loss) for the 2.9 (21.2) (18.3) (9.0) (31.4) (40.4) (98.4)
financial period
Dividends - - - - - - -
Net profit/(loss) 2.9 (21.2) (18.3) (9.0) (31.4) (40.4) (98.4)
transferred to reserves
Earnings per share: 5
Basic, before goodwill
amortisation and
all exceptional items 0.2p (1.2)p 0.1p
Basic and diluted (1.0)p (5.5)p (8.7)p
Consolidated Statement of Group Cash Flows
for the six months ended 30 June 2003
Half year Half year Full year
2003 2002 2002
note £m £m £m
Reconciliation of operating profit to net cash inflow
from operating activities
Group operating profit before goodwill amortisation and
exceptional items 21.1 16.7 55.0
Depreciation 26.1 31.5 59.8
(Increase)/decrease in stocks (13.0) 16.4 30.3
Decrease/(increase) in trade debtors 14.3 (0.5) 13.5
Increase/(decrease) in trade creditors 2.8 7.4 (1.5)
Net decrease in working capital 4.1 23.3 42.3
Other movements 1.8 (8.2 (5.3)
Cash payments in respect of exceptional rationalisation costs 2 (6.6) (10.4) (20.2)
Net cash inflow from operating activities 46.5 52.9 131.6
Cash flow statement
Net cash inflow from operating activities 46.5 52.9 131.6
Dividends from joint ventures 1.1 2.1 2.4
Returns on investment and servicing of finance
Interest paid (18.5) (29.8) (56.8)
Interest received 0.4 0.3 0.7
Proceeds from close-out of interest rate swaps 4 - 10.3 10.3
(18.1) (19.2) (45.8)
Taxation (11.6) 0.3 10.8
Capital expenditure
Payments to acquire fixed assets (13.8) (12.6) (43.2)
Receipts from disposal of fixed assets 4.7 8.0 8.0
(9.1) (4.6) (35.2)
Dividends paid - - -
Free cash flow 8.8 31.5 63.8
Acquisitions and disposals
Net proceeds from disposal of subsidiaries and joint ventures 3 46.1 1.4 3.8
Consideration for acquisition of subsidiaries and joint ventures (2.8) (10.8) (14.6)
Other, including additional costs for prior year disposals (5.7) (6.3) (17.2)
37.6 (15.7) (28.0)
Net cash inflow before financing 46.4 15.8 35.8
Management of liquid resources
Decrease/(increase) in short-term deposits 0.3 - (8.9)
Financing
Issue of shares - - 277.2
Refinancing costs paid - (8.1) (8.5)
Decrease in debt (24.5) (2.7) (285.9)
Increase in cash during the period 22.2 5.0 9.7
Consolidated Group Balance Sheet
as at 30 June 2003
At 30 June At 30 June At 31 December
2003 2002 2002
note £m £m £m
Fixed assets
Goodwill 6 564.6 645.4 598.3
Tangible assets 376.6 453.8 407.7
Investments 7 65.4 75.6 70.0
Total fixed assets 1,006.6 1,174.8 1,076.0
Current assets
Stocks 196.0 214.6 190.1
Debtors : amounts falling due 335.4 388.9 348.8
within one year
: amounts falling due 67.7 90.8 66.8
after more than one year
Cash 64.6 28.6 42.5
Total current assets 663.7 722.9 648.2
Creditors: amounts falling due within one year
Borrowings (10.1) (29.3) (14.5)
Other creditors (363.8) (413.3) (361.2)
Total current liabilities (373.9) (442.6) (375.7)
Net current assets 289.8 280.3 272.5
Total assets less current liabilities 1,296.4 1,455.1 1,348.5
Creditors: amounts falling due after more than one year
Convertible bond (80.0) (80.0) (80.0)
Borrowings (338.3) (668.4) (376.2)
Other creditors (85.2) (92.8) (96.4)
Provisions for liabilities and charges (63.1) (65.8) (67.8)
729.8 548.1 728.1
Equity capital and reserves
Called up share capital 375.4 363.8 375.4
Share premium account 642.6 377.0 642.6
Profit and loss account (504.2) (409.0) (506.6)
Other reserves 205.9 205.9 205.9
Total shareholders' funds 719.7 537.7 717.3
Minority interests 10.1 10.4 10.8
729.8 548.1 728.1
Consolidated Statement of Total Group Recognised Gains and Losses
for the six months ended 30 June 2003
Half year Half year Full year
2003 2002 2002
£m £m £m
Loss for the period (18.3) (40.4) (98.4)
Exchange adjustments 9.1 (9.0) (51.6)
Total net recognised losses relating to the period (9.2) (49.4) (150.0)
Consolidated Reconciliation of Movements in Group Shareholders' Funds
for the six months ended 30 June 2003
Half year Half year Full year
2003 2002 2002
£m £m £m
Shareholders' funds as at 1 January 717.3 587.1 587.1
Total net recognised gains for the period (see above) (9.2) (49.4) (150.0)
New share capital issued - - 277.2
Goodwill transferred to the profit and loss account in respect of the
sale of operations 11.6 - 3.0
Net addition to/(reduction in) shareholders' funds 2.4 (49.4) 130.2
Shareholders' funds at end of period 719.7 537.7 717.3
Consolidated Reconciliation of Net Cash Flow to Movement in Net Debt
for the six months ended 30 June 2003
Half year Half year Full year
2003 2002 2002
£m £m £m
Reduction of net debt resulting from cash flows 46.4 7.7 304.5
Refinancing costs and issue costs amortised (2.3) (2.1) (4.4)
Exchange adjustments 20.3 (5.1) 21.3
Decrease in net debt during the period 64.4 0.5 321.4
Net debt at 1 January (428.2) (749.6) (749.6)
Net debt at end of period (363.8) (749.1) (428.2)
Notes to the accounts
1 Segmental analyses
In each of the following analyses, the costs of the Group's corporate activities
have been allocated primarily according to the relative sales contribution of
each continuing operating segment to the total. Inter-segment sales are not
material in relation to total Group turnover, whether analysed by division or by
geographic location of operations. The Group's share of results of joint
ventures are not material in relation to the total amount for the Group and are
included in the segments analysed below. Of the results of continuing
operations, the contribution from acquisitions to turnover and operating profit
in 2003 and 2002 was not material.
The results reported as discontinued operations relate primarily to the Group's
Precision Products business, disposed of partly in November 2002 with the
remainder in January 2003. The majority of discontinued operations were located
in the USA.
Half year 2003 Half year 2002 Full year 2002
By Division Operating Operating Operating
Turnover (loss)/ Turnover (loss)/ Turnover (loss)/
profit profit profit
£m £m £m £m £m £m
Electronics 325.6 (2.9) 357.6 (11.7) 694.0 (14.9)
Ceramics 353.7 24.4 344.9 18.6 704.6 46.1
Precious Metals 148.1 0.7 162.7 6.4 322.5 17.0
827.4 22.2 865.2 13.3 1,721.1 48.2
Goodwill amortisation - (17.8) - (19.2) - (37.9)
Exceptional items - (2.7) - (8.0) - (31.4)
Continuing operations 827.4 1.7 865.2 (13.9) 1,721.1 (21.1)
Discontinued operations 1.8 - 37.8 4.3 70.8 8.6
Total Group 829.2 1.7 903.0 (9.6) 1,791.9 (12.5)
With effect from 1 January 2003, the results of a joint venture in the
Electronics division were deconsolidated from the Group's results. The reported
sales for this joint venture, which is in the course of being disposed, were
therefore nil (2002: half year £7.6m; full year £15.3m). The reported operating
profit for this joint venture was nil (2002: half year £0.2m loss; full year
£0.4m). Excluding all results for this joint venture, reported sales for the
Electronics division would have been £325.6m (2002: half year £350.0m; full year
£678.7m) and the reported operating loss would have been £2.9m (2002: half year
£11.5m; full year £15.3m).
Of the goodwill amortisation charge of £17.8m (2002: half year £19.2m; full year
£37.9m), £9.3m related to Electronics (2002: half year £10.0m; full year
£19.9m), £7.4m to Ceramics (2002: half year £7.8m; full year £15.2m) and £1.1m
to Precious Metals (2002: half year £1.4m; full year £2.8m).
Of the total exceptional items of £2.7m (2002: half year £8.0m; full year
£31.4m), £2.7m related to Electronics (2002: half year £5.3m; full year £25.2m),
nil to Ceramics (2002: half year £2.2m; full year £4.3m) and nil to Precious
Metals (2002: half year £0.5m; full year £1.9m).
Half year 2003 Half year 2002 Full year 2002
By location By location By location
of Group of Group of Group
operations By operations By operations By
Operating customer Operating customer Operating customer
profit/ location (loss) location profit/ location
Turnover (loss) Turnover Turnover profit/ Turnover Turnover (loss) Turnover
£m £m £m £m £m £m £m £m £m
United Kingdom 82.5 2.3 68.6 88.7 (0.7) 73.5 178.5 3.5 136.0
Continental Europe 246.9 9.8 245.0 230.4 8.3 231.1 459.9 17.1 463.0
USA 292.2 (17.0) 266.5 339.1 (19.4) 313.3 688.3 (22.0) 602.4
Asia-Pacific 135.3 18.5 160.2 138.8 17.7 160.2 278.7 37.3 347.1
Rest of the World 70.5 8.6 87.1 68.2 7.4 87.1 115.7 12.3 172.6
827.4 22.2 827.4 865.2 13.3 865.2 1,721.1 48.2 1,721.1
Goodwill amortisation - (17.8) - - (19.2) - - (37.9) -
Exceptional items - (2.7) - - (8.0) - - (31.4) -
Continuing operations 827.4 1.7 827.4 865.2 (13.9) 865.2 1,721.1 (21.1) 1,721.1
Discontinued operations 1.8 - 1.8 37.8 4.3 37.8 70.8 8.6 70.8
Total Group 829.2 1.7 829.2 903.0 (9.6) 903.0 1,791.9 (12.5) 1,791.9
Of the goodwill amortisation charge of £17.8m (2002: half year
£19.2m; full year £37.9m), £1.8m (2002: half year £1.8m; full year
£3.6m) was in the UK, £2.3m (2002: half year £2.1m; full year
£4.3m) in Continental Europe, £10.1m (2002: half year £11.5m; full
year £22.1m) in the USA, £2.9m (2002: half year £3.1m; full year
£6.6m) in Asia-Pacific and £0.7m (2002: half year £0.7m; full year
£1.3m) in the Rest of the World.
1 Segmental analyses (continued)
Of the exceptional items of £2.7m (2002: half year £8.0m; full year
£31.4m), nil (2002: half year nil; full year £2.4m) was in the UK,
£1.2m (2002: half year £0.5m; full year £9.7m) in Continental
Europe, £1.5m (2002: half year £7.5m; full year £19.1m) in the USA,
nil (2002: half year nil; full year £0.2m) in Asia-Pacific and nil
(2002: half year nil; full year nil) in the Rest of the World.
2 Operating exceptional items
Of the charge of £2.7m in the first half of 2003, £1.9m related to
rationalisation programmes in the Electronics division announced in
2002, the costs for which did not become committed until the
current period. A further £0.8m of rationalisation costs charged in
the period related to the PWB Laminates business of the Electronics
division. Rationalisation cash outflows in the first half of 2003
of £6.6m were spent mainly in the Electronics division, on
initiatives started in 2002. Group-wide provisions for
rationalisation unspent at 30 June 2003 were £9.9m. The £8.0m
charge in the first half of 2002 largely related to rationalisation
programmes in the Electronics and Ceramics divisions that were
announced in 2001 but for which the costs did not become committed
until 2002.
3 Net profit/(loss) on sale of operations and fixed assets
The net profit on sale of operations and fixed assets of £0.5m in
the first half of 2003 arose mainly on the sale of the Group's
Precision Products business in January 2003 for cash proceeds of
£45.4m and a £2.2m note receivable. This gave rise to a profit on
disposal of £1.5m, after goodwill written-off of £19.4m. Set
against this were £1.0m of other net losses on sale of operations
and fixed assets. In the first half of 2002, the net loss on sale
of operations and fixed assets amounted to £5.4m. This included net
losses on sale or closure of non-core operations of £5.7m, with no
attributable goodwill write-off, a net profit on the sale of fixed
assets of £2.3m and a £2.0m write-down of the carrying cost of the
Group's Employee Share Ownership Plan (ESOP) shares.
4 Net interest
Included in the 2003 net interest charge of £16.7m (2002: half year
£29.5m; full year £52.7m) was a £2.3m charge (2002: half year
£2.1m; full year £4.4m) in respect of the amortisation of
debt-raising fees.
As part of an ongoing hedging programme to optimise the mix of
fixed and floating rate debt and to maintain stable and predictable
effective interest rates, $625m of interest rate swaps were closed
out in 2001 and 2002. This generated a total of £38.5m in cash
proceeds in 2001 and 2002. Of the deferred income relating to these
closed-out swaps, £2.5m was recognised in the period (2002: half
year £4.0m; full year £5.6m) as a credit to the net interest
charge.
5 Earnings per share
Basic earnings per share are calculated using a weighted average of
1,880m ordinary shares in issue during the period (2002: half year
740m; full year 1,129m; both as adjusted for the rights issue of
August 2002). The ordinary shares held by the ESOP have been
excluded from the weighted average number of shares, as the Trustee
of the ESOP has waived its rights to receive dividends on the
shares held. The ESOP held 12m ordinary shares as at 30 June 2003
(2002: half year 5m; full year 12m). Diluted earnings per share are
calculated assuming conversion of outstanding dilutive share
options. These adjustments give rise to an increase in average
ordinary shares of nil (2002: half year 3m; full year nil). On the
face of the Group profit and loss account, earnings per share are
shown both before and after goodwill amortisation and all
exceptional items. The number of ordinary shares in issue as at 30
June 2003 was 1,892m (2002: half year 728m; full year 1,892m).
The Directors believe that the calculation of earnings per share
excluding goodwill amortisation and all exceptional items, together
with the associated tax charge or credit, gives the most
appropriate measure of the underlying earning capacity of the
Group. This calculation is based on a loss of £18.3m (2002: half
year £40.4m loss; full year £98.4m loss), to which goodwill
amortisation and exceptional items, net of tax, totalling £21.2m
(2002: half year £31.4m; full year £99.2m) are added back.
6 Goodwill
Goodwill arising in 2003 amounted to £0.2m (2002: half year £6.8m;
full year £13.3m) and is being amortised over its estimated life of
20 years. Accumulated goodwill arising prior to 1998, which remains
written-off directly against Group reserves, amounted to £419.0m.
Of this balance, £87.8m was determined to have become impaired as
at 31 December 2002. In accordance with the Group's accounting
policy, no charge to the profit and loss account arose in respect
of this impairment.
7 Investments
Investments include £19.9m (31 December 2002: £32.2m; 30 June 2002:
£32.9m) in respect of joint ventures and £45.5m (31 December 2002:
£37.8m; 30 June 2002: £42.7m) in respect of other investments,
£24.0m of which comprises the Group's investment in a
revenue-sharing arrangement with Electric Lightwave, Inc.
8 Post balance sheet event
On 29 July 2003, the Board announced its decision to exit from
Speedline, which comprises the Electronics division's Equipment
sector. Speedline had sales of £29.8m in the first half of 2003
(2002: half year £33.9m; full year £66.9m) and an operating loss of
£9.8m (2002: half year £14.5m; full year £25.3m). Net assets
employed in the Speedline business amounted to £16.5m at 30 June
2003, excluding goodwill of £15.1m. In addition, £101.2m of
goodwill remains written-off in reserves and will be written-back
through the profit and loss account as part of the non-operating
exceptional loss on disposal of operations. The Speedline business
had 611 employees at 30 June 2003.
9 Financial information
The interim financial statements have been prepared on the basis of
the accounting policies adopted in the Group's audited statutory
accounts for 2002. The interim accounts were approved by the Board
of Directors on 29 July 2003. The financial information for the six
month periods ended 30 June 2003 and 30 June 2002 is unaudited but
has been reviewed by the Company's auditor. The comparative figures
for the financial year ended 31 December 2002 are not the Company's
statutory accounts for that financial year. Those accounts have
been reported on by the Company's auditor and delivered to the
Registrar of Companies. The report of the auditor was unqualified
and did not contain a statement under section 237(2) or (3) of the
Companies Act 1985. These sections address whether proper
accounting records have been kept, whether the Company's accounts
are in agreement with these records and whether the auditor has
obtained all the information and explanations necessary for the
purposes of their audit.
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