RNS Number:6001I
Yule Catto & Co PLC
12 March 2003
YULE CATTO & COMPANY PLC
Preliminary Results for the year ended 31 December 2002
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
* 30% improvement in profit before taxation, amortisation of
goodwill and exceptional items to #52.6m (2001: #40.3m)
* Adjusted earnings per share up by 28% to 23.9p (2001:18.6p)
* Further increase in dividends to 12.5 pence per share, an
increase of 4% (2001:12.0p)
* Strong free cash flow before dividends of #29.8m (2001: #31.7m)
* Launch of generic omeprazole in USA and global market
opportunities for water based polymers provide a good platform
for growth
Anthony Richmond-Watson, Chairman, comments:
"The benefits of capital investment made in recent years and opportunities for
geographic market expansion are starting to show through. The penetration of
generic omeprazole in the USA is also exceeding previous expectations, as are
other pharma developments. We are well positioned to deliver growth this year
and remain confident of the long term prospects for the group."
12 March 2003
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
Celia de Rudder email: celia.derudder@collegehill.com
RESULTS SUMMARY
2002 2001
Note Audited Audited
#'000 #'000
Total turnover* 510,778 474,821
Earnings before taxation, interest, depreciation ,* 6 87,360 72,601
amortisation and exceptional items
Operating profit before amortisation* 66,689 52,870
Total operating profit 51,445 38,977
Profit before taxation, amortisation and
exceptional items 6 52,562 40,280
Profit on ordinary activities before taxation 35,493 12,889+
Profit attributable to shareholders 17,348 (430)+
Net borrowings 211,191 223,165
Free cash flow before dividends 29,803 31,663
Adjusted earnings per ordinary share 23.9p 18.6p+
Standard earnings per ordinary share 12.0p (0.3)p+
Dividends on ordinary shares:
Interim paid November 5.1p 4.9p
Final proposed/paid 7.4p 7.1p
Total dividend 12.5p 12.0p
Note: Subject to shareholders' approval, the final dividend of 7.4 pence will be
payable on 4 July 2003 to those shareholders registered on 6 June 2003.
+ Restated per note 2
* Includes attributable share of joint ventures
CHAIRMAN'S STATEMENT
We are delighted to report a substantial growth in profit, a further increase in
dividends and another year of positive cash flow.
The first half of 2002 was particularly strong for our Polymer Chemical
activities owing to the benefits arising from the creation of a global
water-based polymer business and favourable raw material prices.
As the year unfolded the position changed with regard to the cost of
petrochemical based raw materials. However, this was more than counterbalanced
by the rewards emerging from our strategy of investment in the development of
pharmaceutical active ingredients. Good results were delivered across the
Pharma & Fine Chemical companies and these received a further boost in the final
weeks of the year with the long anticipated launch of a generic version of
omeprazole in USA.
With good progress in many of our businesses, turnover rose by 8% to #511
million. We continue to focus on higher value, technically demanding
applications and this has been reflected in the improvement of operating margin
to 13%.
The speciality nature of our portfolio provides some protection against the
global economic slowdown. In difficult market conditions, profit before
taxation, amortisation of goodwill and exceptional items at #52.6 million is a
creditable advance of 30% over the corresponding twelve months. This was
achieved in spite of significant underlying negative pressures.
Competitive forces in the insurance industry have caused the market to tighten
further, leading to an escalation in premiums. Current conditions are likely to
persist for the foreseeable future and we are reviewing alternative risk
transfer strategies to mitigate the impact. As a result of weak global stock
markets, the rising cost associated with final salary pension plans has been
well publicised. Our primary scheme is in the UK, which is reviewed on a
quarterly basis. Increased cash payments of #1.1 million were made in the year
and, following determination of the fund's triennial valuation due in 2003, we
anticipate a further increase in annual costs of #3-5 million. In addition to
direct exposure to the USA market, an element of our international trade is
denominated in US dollars. Therefore, the steady devaluation of that currency
against sterling and euro during the year has been a negative feature.
As a consequence of a fire at one of our facilities in France, we have recorded
an exceptional charge of #1.8 million relating to the fixed assets destroyed
during the incident. We have approved capital investment for replacement
equipment to be installed during 2003, which will incorporate state-of-the-art
technology and substantially further reduce SO2 emissions to air.
Adjusted earnings per share has been struck at 23.9 pence, 28% higher than 2001.
With the confidence of further growth in prospect, your directors have
proposed a final dividend of 7.4 pence per share, making a total for the year of
12.5 pence, an increase of 4% over last year.
Cash management consistently receives a high level of attention. This year was
no exception and we are happy to report a strong free cash flow of #29.8
million. As previously indicated, 2002 saw a much reduced level of capital
expenditure following the successful commissioning of our new nitrile latex
facility in Malaysia. At the year end we experienced some upward pressure on
working capital caused by higher trading activity in the final two months and,
to a lesser extent, the impact of rising raw material costs. This was a timing
issue, as cash receipts early in the new year more than compensated, leaving us
well placed for another robust performance.
The political uncertainty relating to Iraq is causing the price of oil to remain
high, consequently the cost of our major raw materials remains a concern. At
the same time growth rates for the major economies are being scaled back,
providing uncertainty with regard to demand. That said, the benefits of capital
investment made in recent years and opportunities for geographic market
expansion are starting to show through. The penetration of generic omeprazole
in the USA is also exceeding previous expectations, as are other pharma
developments. We are well positioned to deliver growth this year and remain
confident of the long term prospects for the group.
ANTHONY RICHMOND-WATSON
Chairman
12 March 2003
REVIEW OF OPERATIONS
POLYMER CHEMICALS
#'000
Sales (including joint ventures) 2002 260,031
2001 238,829
Divisional Operating Profit 2002 37,553
2001 31,113
Over the past two years sales of our water-based polymer products have grown by
close to 20%. This has obviously been influenced by the benefits of the
acquisition of 100% control of the Harlow Chemical Company, but it is a more
than satisfactory result in the current economic environment.
Profits increased by over 20% in 2002, and would have been higher had not the
impact of rising raw material prices been in evidence in the second half.
Overall, margins were recorded at the traditional levels seen for our speciality
products and action is in hand with regard to pricing and product mix in an
endeavour to sustain these levels.
The major task undertaken in 2002 was the consolidation and integration of our
polymer operations under the Synthomer banner. Announced early in January, it
is pleasing to report that this has been successfully executed, much to the
credit of the management teams involved. We now have an organisation well
positioned to operate globally to best advantage.
The combined business is unrivalled in its range of water-based products,
allowing closer partnerships to be developed with customers through offering the
most comprehensive package to meet their needs.
Our Malaysian latex plant is now in regular operation and qualification of
production is well underway. The nature of the product range is, however,
heavily directed to technically demanding applications and this process must
therefore progress at the rate of our customers' approval procedures. In the
meantime, we continue to satisfy their needs during the transfer phase by
exports from our European plants.
In support of our position as a major supplier of synthetic latex compounds to
the carpet industry, we acquired two Dutch companies, Ditar Ridderkerk BV and
Ditar Hasselt BV, on 1st February 2003. This makes Yule Catto the largest
supplier of these compounds in Europe and will provide additional volume to our
synthetic latex polymer plants as production of nitrile latex transfers to the
Far East.
A number of major capital investments were successfully carried out in 2002 and
Phase 1 of our new polymerisation plant in Mouscron Belgium, is now complete.
The infrastructure installed will allow this to be rapidly expanded as capacity
utilisation builds up, to serve the mainland European market. Commercial
exploitation of the facility will begin in early 2003.
Not for the first time, the short-term future offers the prospect of uncertain
raw material costs. However, we are completely free from the constraints of
joint ventures, we have new capacity on stream and with identified geographic
market expansion opportunities, we look forward to a period of sustained growth.
Synthetic Latex
High capacity utilisation at our European manufacturing facilities remains a
feature. This is partly due to the slower than anticipated transfer by
customers to our new Malaysian facility, but good demand for our speciality
products is the major contributor.
Strong growth was recorded in the construction, technical textile and speciality
paper sectors. In floor coverings, our largest volume sector, we saw a more
mixed picture with the UK, Germany and Belgium carpet industries contracting
and, in contrast, a good performance being recorded in The Netherlands, Turkey
and Saudi Arabia. Russia is also developing as a new market as privately-owned
mills gear up to supply the previously imported economy carpets.
In the important sector of nitrile latex, used in the dipping of disposable
gloves, 2002 was another year that saw more announcements of glove production
being abandoned in USA in favour of the Far East. This is already providing
opportunities with customers as they install new production facilities.
Emulsions
All our emulsion businesses achieved volume growth despite variable operating
conditions within the markets they serve.
Announced capacity increases in UK and Saudi Arabia were completed in 2002 and,
as referred to above, our Synthomer SA facility in Mouscron Belgium will offer
commercial quantities in the first quarter of 2003. In South Africa, strong
progress has been achieved with capacity under severe strain. Protracted delays
in governmental approval will now result in the commissioning of our plant
extension now taking place in Spring 2003.
We maintain our position as market leader in Malaysia against a background of
overcapacity. Our well-established presence in the market and long tradition of
product innovation served us well in protecting margins in a far from easy year.
Polyvinyl Acetate/Alcohol
Global PVC demand showed some growth in 2002, particularly in the Pacific
region.
The Alcotex range is used in more demanding applications and the extension of
our product range has consolidated our position as a leading global player in
this niche market. Whilst production is centred in the UK, exports predominate
and our sales strategy focuses on consolidating our position in established
areas, whilst growing in emerging markets as higher quality PVC is demanded from
local production. This is supported by the new PVC pilot plant installed at our
Harlow Technical Centre.
Our polyvinyl acetate range has seen greater competitive activity.
Nevertheless, new applications continue to be found for these relatively mature
products.
Other Speciality Products
With its high market share, the Far East adhesive business is experiencing
slower growth in its traditional markets. Good progress is, however, being
achieved in emerging territories, notably Vietnam and China. Overall, strong
management control and product innovation resulted in good progress.
In Malaysia, the alkyd and polyester business has experienced good demand, in a
market with problems of overcapacity. Initiatives are being pursued to position
the business towards more demanding technical applications that will allow us to
use our strong technical presence to maximum advantage.
In lithene polybutadiene products, the virtual completion of a withdrawal from
low cost intermediates for chlorinated rubber production has freed capacity to
concentrate on the higher margin automotive and sealant sector.
After a period of unprecedented price collapse, natural rubber showed some
recovery in 2002, helping our position in pre-vulcanised applications. Coupled
with a new management focus resulting in a rationalisation of the business, this
produced substantially improved results.
PHARMA AND FINE CHEMICALS
#'000
Sales 2002 106,499
2001 85,621
Divisional Operating Profit 2002 22,722
2001 11,104
The long-awaited news of the launch of generic omeprazole in the United States
emerged towards the end of last year. It was, however, advances on a broad
front across our Pharma and Fine Chemical activities that led to the growth of
24.4% in turnover.
The higher sales, better product mix and close attention to production and raw
material efficiencies delivered a profit that more than doubled.
These results are the reward for the many years of hard work and sustained focus
on the development of a growing range of generic active pharmaceutical
intermediates, together with the creation of ever closer links with major
customers to provide an efficient and responsive outsourcing service.
Our flavour and fragrance customers experienced weaker trading in 2002 which
reflected on the results from our businesses. To meet this slower growth,
restructuring has taken place at our Dutch facility and all round greater
emphasis given to marketing and new product launches.
The outlook remains positive with the opportunity to sell substantial volumes of
omeprazole to the United States as Prilosec(R) is replaced by the generic
alternative. However, other products are also showing significant progress with
contracts in place that will keep our factories busy in the months ahead.
Pharma
The Uquifa companies achieved good forward momentum, not only on the sales
front, but also with the development programme for generic products. This saw
four new drug master files registered in USA and Europe. The process is
continuing with a programme clearly mapped out for the next few years.
In Spain, sales of omeprazole increased to European customers as it
progressively came off patent in a number of countries. New production capacity
was installed and commissioned in the middle of the year in readiness to handle
the extra demand forecast for the launch of the generic product in USA. Further
capacity expansions will take place during the course of 2003.
All other generic products performed well, with notable advances in sales of
Ranitidine and Cimitedine. A contract has also been secured for a high volume
veterinary active.
The new pilot plant is performing well with a number of chemical products in
early phase, successfully developed to industrial scale. Capacity for this unit
is already reserved for most of the year ahead.
Our Italian company was challenged by a fall in the market for cephalosporins,
but patient work was rewarded by the securing of attractive contracts for
ethical intermediates. A decision has been taken to cease cephalosporin
production and convert it to prime cryogenic manufacturing capacity for high
volume generics and new ethical intermediates. The change will release an
additional 12% capacity to the Uquifa group and will be completed by mid-2003.
The improvement in the performance of the Mexican business continued apace with
high capacity utilisation for ethical intermediate contracts and growing sales
of generic products. The introduction of three new generics was also achieved
providing good opportunities for the future.
The consolidation of the Uquifa companies is complete and they now boast the
ability to offer highly efficient manufacturing capabilities for both the
generic and ethical markets. The management team are pushing forward with
generic filings and the offer of ever more complex intermediates.
Flavour and Fragrance
Consolidation and restructuring continues to be a major influence on the markets
we serve, but equally provides business opportunities. The adoption by
multinational companies of global purchasing is one of many challenges.
However, our position as a niche producer, particularly in sulphur compounds,
gives protection against the stronger downward pricing forces. This is unlike
the more commodity products, where increased competition from China and India
has been noted.
A focus on quality and production efficiency, backed by innovation, will remain
a feature in delivering momentum in this growing market as the spread of
convenience food extends to developing countries.
Oxford Chemicals Limited has enjoyed good demand for its top selling high impact
range, particularly its sulphur chemicals. As well as flavour applications,
good progress was seen in other markets, in particular, the adoption of
non-sulphur products for domestic gas oderants has boosted sales. With its wide
geographic spread and customer base, the company is well placed to exploit
E-business and they have spearheaded the group's development of this important
additional sales tool.
The performance of PFW Aroma Chemicals BV was adversely affected by increased
raw material costs. Lower volume for its Tonalid polycyclic musk products was
balanced by a notable gain in production efficiency and reduced overheads.
Prospects for 2003 are considerably improved by the withdrawal of our last
competitor from the market, as well as new initiatives to secure cost-effective
feedstocks.
Insourcing and toll manufacture, particularly in Friedel Crafts chemistry,
combined with world class distillation and separation techniques, has created
significant new business opportunities. In addition, recent European
legislation requiring the labelling, even of low hazard chemicals, is creating
interest in our "label free" citrus range.
PERFORMANCE CHEMICALS
#'000
Sales 2002 144,248
2001 147,454
Divisional Operating Profit 2002 10,780
2001 15,317
Market conditions for our companies were testing last year with the downward
pull of the weakening US$ adding to the pressure on margins. In the
circumstances, sales held up well and initiatives are in hand to combat current
difficulties.
During 2002, work was centred on the development of growth opportunities for
inorganic chemicals, ultramarine and colour developers. In addition, strategic
reviews have been completed or are in progress in inks, dispersions and the
organic businesses.
The niche position and high market share enjoyed by our companies in this sector
provide ample opportunity for good returns and positive cash flow. Substantial
effort is being applied to achieve this goal.
Inorganic Chemicals
A pleasing return to profit growth was achieved by William Blythe. The
difficulties of the copper market, following the collapse of the UK printed
circuit board industry, came steadily under control throughout the year. Newly
installed facilities for copper digestion enabled cost effective product to be
available for the latest environmentally friendly timber treatment products for
which demand is increasing.
Tin products had a strong year with good demand across all areas. This was
particularly true of sales to pharmaceutical applications and rising demand for
stannic chloride to the European glass industry.
The iodine product group developed excellent momentum with buoyant sales of
higher margin products and new business in reprocessing residues returned from
customers as part of total service contracts.
Sulphur dioxide derivatives also had a good year despite increased competition
from central Europe on the back of a strong pound. Sales are also now well
established in the new application area of bleaching in the manufacture of
paper.
Dyes and Chemicals
Overall global leadership was maintained by our ultramarine business with good
progress in extending their lead and market dominance of the most technically
demanding products. A substantial proportion of ultramarine is sold to US$
territories and the weakening of that currency reduced profits. In addition,
volumes were constrained in the second half of the year due to a fire within the
flue gas desulphurisation plant at our French factory. Plans were already well
advanced to replace this equipment with a larger capacity, higher efficiency
unit. Timing of the installation has been significantly brought forward with
the target for commissioning now set as late 2003. Research and development
work to broaden the range of ultramarine applications continues to receive high
levels of interest from customers. In some areas these new developments have
already been included in major colour styling programmes.
The James Robinson activities had a difficult year, with the expected upsurge in
demand in the second half being further delayed. The company retains leading
positions in hair dye, photochromic and photographic chemicals and an in-depth
strategy review is in progress to assess how best to structure the business to
maximise returns.
Our joint venture in India suffered delays in the build up of orders for
photographic developers. This has now completely reversed and 2003 will be very
busy fulfilling contracts already secured.
Other Activities
The management changes and restructuring within our consumer chemicals
operations have started to bear fruit. Margins have improved substantially,
whilst costs and working capital have been brought under tight control,
improving results substantially. New initiatives are underway to market the
product range more aggressively from the solid base that has been established.
The houseware and automotive business of Brencliffe had a very strong year,
achieving record profits.
Autoclenz had another good year, taking advantage of structural changes within
the UK automotive market to offset competitive market pressures.
CONSOLIDATED PROFIT & LOSS ACCOUNT
2002 2001
(Restated)
Audited Audited
#'000 #'000
Turnover
Subsidiaries 501,562 443,930
Joint ventures 9,216 30,891
Total turnover 510,778 474,821
Operating profit before amortisation 65,252 48,989
Amortisation of goodwill (15,244) (13,893)
Operating profit of company and subsidiaries 50,008 35,096
Share of operating profit of joint ventures 1,437 3,881
Total operating profit 51,445 38,977
Sale and termination of businesses - (13,498)
Loss on disposal of fixed assets (1,825) -
Interest payable (net) (14,127) (12,590)
Profit on ordinary activities before taxation 35,493 12,889
Taxation on profit of ordinary activities (16,293) (12,003)
Profit on ordinary activities after taxation 19,200 886
Minority interests (1,852) (1,316)
Profit/(loss) attributable to shareholders 17,348 (430)
Ordinary dividends (18,095) (17,245)
Retained loss for the financial year (747) (17,675)
SUMMARISED CONSOLIDATED BALANCE SHEET
2002 2001
(Restated)
Audited Audited
#'000 #'000
Fixed assets
Goodwill 242,724 257,968
Other fixed assets 176,356 175,908
Current assets
Stock 60,740 59,872
Debtors 111,403 98,145
Cash at bank and in hand 6,553 8,728
178,696 166,745
Creditors - due within one year
Borrowings (57,527) (71,483)
Dividends (10,715) (10,218)
Other creditors (158,959) (148,392)
Net current liabilities (48,505) (63,348)
Creditors - due after more than one year
Borrowings (160,217) (160,410)
Other creditors (71) (81)
Provisions for liabilities and charges (25,059) (24,806)
Net assets 185,228 185,231
Shareholders' funds - all equity 180,314 181,031
Minority interests 4,914 4,200
Capital employed 185,228 185,231
Net borrowings
Cash at bank and in hand 6,553 8,728
Borrowings - due within one year (57,527) (71,483)
Borrowings - due after one year (160,217) (160,410)
(211,191) (223,165)
SUMMARISED CONSOLIDATED CASH FLOW STATEMENT
2002 2001
Audited Audited
#'000 #'000
Net cash flow inflow from operating activities 72,802 79,615
Dividends received from joint ventures 1,410 3,885
Returns on investment and servicing of finance (14,572) (13,483)
Taxation paid (10,897) (7,186)
Capital expenditure and financial investment (18,940) (31,168)
Free cash flow before dividends, acquisitions and
disposal of business 29,803 31,663
Acquisition and disposal of business - (70,292)
Equity dividends paid (17,598) (17,018)
Cash inflow/(outflow) before financing 12,205 (55,647)
Financing (15,105) 59,296
(Decrease)/increase in cash balances (2,900) 3,649
Movement in net borrowings
Exchange movements (231) (2,733)
Cash inflow (outflow) before financing 12,205 (55,647)
11,974 (58,380)
Notes
1. Copies of the 2002 Annual Report will be posted to the shareholders on 15
April 2003.
2. The financial information set out above does not comprise the company's
statutory accounts. The accounts for the year ended 31 December 2002 will be
delivered to the Registrar of Companies following the Annual General Meeting.
The auditors' report was unqualified and did not contain any statement under
section 237 (2) or (3) of the Companies Act 1985.
The accounts have been prepared on the basis of the accounting policies set out
in the group's audited accounts for the year ended 31 December 2001, except for
deferred tax.
In accordance with FRS19, which is effective for accounting periods ending on or
after 23 January 2002, deferred tax is accounted for on a full provision basis,
recognising in total the potential future tax effects of past transactions.
No discounting has been applied. Comparatives have been restated accordingly
for this change in accounting policy.
The effects of the change in policy on the prior year accounts are summarised
below:
Group
#'000
Profit and loss account
Amortisation of goodwill (48)
Taxation on ordinary activities before taxation
Deferred taxation (322)
Minority interests (13)
Increase in loss for the financial year (383)
Balance sheet
Goodwill 2,278
Provisions for liabilities and charges
Deferred taxation (15,054)
Decrease in net assets (12,776)
Statutory accounts for the previous financial year ended 31 December 2001, 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.
3. 2002 2001
#'000 #'000
Analysis of total turnover by destination
United Kingdom 130,380 124,819
Other Europe 193,069 177,954
Asia 82,848 85,010
Africa and Middle East 34,872 31,614
Rest of World 69,609 55,424
510,778 474,821
2002 2001
4. Reconciliation of operating profit to net cash inflow from operating #'000 #'000
activities
(Restated)
Operating profit 51,445 38,977
Share of profits of joint ventures (1,437) (3,881)
50,008 35,096
Depreciation charge 20,671 19,731
Cash impact of termination of businesses (510) (5,443)
Amortisation of goodwill 15,244 13,893
(Increase)/decrease in stocks (279) 4,759
(Increase)/decrease in debtors (11,093) 12,229
Decrease in creditors and provisions (1,239) (650)
Net cash inflow from operating activities 72,802 79,615
Net cash inflow from operating activities comprises:
Continuing operating activities 72,802 80,088
Discontinued operating activities - (473)
72,802 79,615
5. Pension disclosure required by FRS17
A full actuarial valuation was carried out at 6 April 2000 and updated to 31
December 2002 by a qualified actuary. The major assumptions used by the actuary
were:
2002 2001
Rate of increase in salaries 3.80% 4.00%
Rate of increase in pensions in payment 3.00% 3.00%
Discount rate 5.50% 5.83%
Inflation assumption 2.30% 2.50%
The fair value of the assets in the scheme, the present value of the liabilities
in the scheme and the expected rate of return at each balance sheet date were:
2002 2002 2001 2001
% #'million % #'million
Equities 8.00% 79.9 8.00% 97.6
Bonds 5.25% 22.2 5.23% 23.2
Cash 5.00% 0.6 5.00% 1.4
Total fair value of assets 102.7 122.2
Present value of scheme liabilities (158.7) (149.0)
Deficit in the scheme (56.0) (26.8)
Related deferred tax asset 16.8 8.0
Net pension liability (39.2) (18.8)
6. Reconciliation of numbers shown in highlights and results summary
2002 2001
#'000 #'000
(Restated)
Profit on ordinary activities before taxation 35,493 12,889
Add: amortisation of goodwill 15,244 13,893
Add: exceptional items 1,825 13,498
52,562 40,280
Profit on ordinary activities before taxation 35,493 12,889
Add: interest payable (net) 14,127 12,590
Add: depreciation 20,671 19,731
Add: amortisation 15,244 13,893
Add: exceptional items 1,825 13,498
87,360 72,601
This information is provided by RNS
The company news service from the London Stock Exchange
END
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