RNS No 7894e
INSPEC GROUP PLC
3rd March 1998
John Hollowood, Chairman Tel: 01703 245 301
Jim Ratcliffe, Managing Director Tel: 01703 245 318
Gary Corsi, Finance Director Tel: 01703 245 217
Inspec Group plc
Charles Watson/Tom Baldock
Financial Dynamics Tel: 0171 831 3113
INSPEC GROUP PLC
PRELIMINARY RESULTS
Inspec Group plc today announces results for the year ended 31 December 1997:
These can be summarised as follows :
1997 1996 Change
Turnover #394.3m #301.1m +31%
Operating #55.5m #38.8m +43%
profit #47.1m #32.0m +47%
Profit before
tax
Earnings per 22.20p 18.24p +22%
share
Highlights of the year include:
* Underlying organic growth in operating profit of 24%
* Successful integration of Inspec Fine Chemicals
* Net debt reduced by #30m
* EPS growth of 22%
* #16m invested in new capacity
* Restructuring in UK, USA and Chile reduced fixed costs by an
annualised #3m
* Safety awards for major sites
* Dividend increase of 7%
Commenting on the announcement Chairman, Dr John Hollowood, said:
"Inspec has delivered a resilient performance in 1997 with good organic
growth having been achieved across the majority of its businesses. This was
achieved despite the strength of sterling which reduced profit before tax by
an estimated #10m.
Energies were very much focused on the integration of Inspec Fine Chemicals
and maintaining organic growth by investing in new capacity and reducing
costs in some areas.
The actions we have taken in 1997 and the continuing focus on organic growth
will continue to offset the adverse effects of the strong pound and market
uncertainties in the Far East. On the whole, we remain positive about
prospects over the coming year".
CHAIRMAN'S STATEMENT
Financial table
# million Turnover Operating profit
Year ended 31 December 1997 1996 1997 1996
Specialities 147.7 137.6 21.0 22.1
Fine Chemicals 126.2 67.9* 24.3 11.5*
Performance Products 28.0 27.0 (2.9) (1.2)
EO / Glycol 92.4 68.6 13.1 6.4
Total 394.3 301.1 55.5 38.8
Operating Margin 14.1% 12.9%
* six months only
Overview
Inspec has delivered a resilient performance in 1997 and has met each of the
targets set at the beginning of the year - integration of the recent
acquisitions, achievement of profitability targets and a significant
reduction in net gearing. These have been achieved against a background of
currency pressure and increased competition, underlining the strength and
diversity of our product portfolio and our widespread international
operations.
Allowing for the adverse impact of the strength of sterling, we estimate that
the Group's underlying growth in operating profit was 24% over 1996;
Specialities grew by 13%, Fine Chemicals by 11% and EO / Glycol by 136%.
Performance Products reported an increased loss reflecting a disappointing
result from the USA Mining Chemicals business but prospects look much better
in 1998.
I am particularly pleased by the contribution from Inspec Fine Chemicals
which has met all the objectives we envisaged when we purchased the business
from Shell last year. After some restructuring, we have an experienced, well-
motivated management team in place to develop the full potential of the
business.
After a year of integration and debt reduction we are well placed to focus
our attention on research and new product development which will form the
foundation of organic growth going forward.
Financial review
Group turnover rose by 31% to #394.3m (1996: #301.1m) reflecting a full
year's sales from the acquisitions made in 1996 and good organic growth in
most of our businesses. Group operating profit rose 43% to #55.5m (1996:
#38.8m) and the operating margin improved to 14.1% (1996: 12.9%). Both Fine
Chemicals and Specialities performed well in mainland Europe where weaker
currencies improved trading. The UK businesses achieved creditable results
with healthy volumes helping to offset the effects of the strong pound.
Performance Products was disappointing overall but masked a good result from
the Fibres business. EO / Glycol had a strong finish to the year and the
cash generated has been used to reduce debt and fund further investment in
the other business areas.
The Group's net interest cost was covered 6.6 times for the year. The
substantial cash generated reduced net debt (after deducting the ESOP loan
receivable) from #149.8m to #120.4m by the year end. Net gearing fell
significantly to 138% of net assets (1996: 228%). Capital expenditure was
#23.1m.
Profit before tax was #47.1m (1996: #32.0m). We estimate that the strength
of sterling has reduced profit before tax by around #10m compared to the
average rates prevailing in 1996.
The effective rate of tax was 18% (1996: 16%) and it is expected to remain
low for the next few years due to allowances arising from acquisitions.
Earnings per share grew by 21.7% to 22.20p (1996: 18.24p).
The Board is recommending a final dividend of 4.5p (net) per share which,
together with the interim dividend already paid, makes a total of 6.75p for
the year ended 31 December 1997, an increase of 7%.
Group operating review
The performance of each division can be summarised as follows:
Inspec Specialities
Specialities 1997 1996
Turnover #147.7m #137.6m
Operating Profit #21.0m #22.1m
Operating Margin 14.2% 16.1%
The overall results of the Division exceeded expectations due to an
outstanding year from Inspec Belgium coupled with a resilient performance at
Inspec UK. Following a mid-year restructuring, Inspec USA enjoyed improved
second half fortunes whilst production commenced successfully at our Korean
joint venture during the fourth quarter.
Inspec Belgium had an excellent year. Sales of the synthetic rubber
intermediate ENB rebounded strongly from the lows of 1996 benefiting from new
global contracts. Furthermore, two new third parties, Seppic and Kuraray
chose Inspec Belgium as their new European base and both will take services
and products from the site in 1998/99.
Inspec UK (Hythe) responded well to competitive pressures where record
volumes largely offset substantial margin erosion due to currency. The
export-orientated coatings intermediates business was most affected though
market share was retained. The synthetic lubricant businesses were more
resilient with improved product mix and increased market penetration ensuring
forward momentum. Furthermore, April saw the successful commissioning of the
new 3,000 tonne per annum multifunctional monomer plant; this is expected to
be a major contributor to medium-term organic growth at the company.
The US business enjoyed mixed fortunes in 1997. The speciality acids
business continued to perform strongly and sales volumes were high
throughout. Further investment is planned to ensure growing customer demand
can be satisfied. Fine Chemicals (acquired from AlliedSignal in 1996) had a
disappointing first half and some restructuring was completed at mid-year.
The resulting reduced cost base coupled to successful new product
introductions ensured a strong second half of the year. This business is now
focused on improving the product portfolio and realising synergies with the
Fine Chemicals Division.
Inspec Namheung, our new joint venture in South Korea, commissioned its plant
during October 1997. The company has now commenced manufacture of the Inspec
range of synthetic lubricants for marketing in the Far East region. Although
the economic turmoil in South Korea is currently depressing local demand,
Inspec remains confident of success given the regional export potential and
the brand reputation.
Inspec Fine Chemicals
Fine Chemicals 1997 1996
Turnover #126.2m #67.9m*
Operating Profit #24.3m #11.5m*
Operating Margin 19.3% 17.0%
* six months only
Inspec Fine Chemicals has had a very busy and successful year. Apart from
the normal business pressures, most of the businesses have undergone reviews
and reorganisations to integrate the Division into the Group. In addition,
capital has also been invested to fund expansion projects and improve safety
and environment infrastructure. The Fine Chemicals business is now well
placed to take advantage of new growth opportunities, offering a wide range
of technologies to customers and a proven track record as a quality supplier.
The UK businesses performed solidly overall. The Four Ashes business
recorded a strong first half due to phasing of contracts and late in the
second half had the benefit of increased methylation capacity (vitamin E
intermediate). Knottingley suffered from the strength of sterling which
affected sales of p-Cresol but enters 1998 with new capacity on sulphonic
acids which will improve profitability. The business also installed a new
business information system (SAP R3) which was successfully commissioned in
October 1997.
The continental European businesses performed well, assisted by weaker local
currencies. Sales of all the key products grew substantially, particularly
starch modifiers produced in the Netherlands and antioxidants produced in
Spain.
Our custom synthesis business in Germany had an excellent year on the back of
significant contractual volumes; the custom synthesis business based in
France performed profitably in line with expectations and we are confident of
future prospects under new management with a sharper commercial focus.
During the year Inspec opened a new representative office in Singapore to
develop the potential in that region.
Inspec Performance Products
Performance 1997 1996
Products
Turnover #28.0m #27.0m
Operating Loss (#2.9m) (#1.2m)
Inspec Fibres maintained excellent progress throughout 1997 with both
increased sales and profits in its main niche market of hot gas filtration.
New market growth in the Far East will continue to enhance this business
along with penetration into new applications.
Inspec Mining (comprising the businesses acquired from Shell in Chile and
AlliedSignal in the USA) had a mixed year. The Chilean business performed
well but the USA operation made a loss as it continued to suffer from a
depressed copper market and delayed orders. The combined operations are now
under the management of Dr Bill Chambless with the aim of realising the
potential synergies from these two businesses. The USA business has
developed a new low cost production process for its range of solvent
extraction products and this was commissioned in October 1997. The capital
invested should ensure that it is able to compete more effectively in this
market.
Inspec Foams ended the year profitably but well below our expectations.
Reduced activity in the US Naval sector, price competition and slower
development of new applications combined to make this a disappointing year.
However, with new product development, completion of approval programmes for
commercial marine and aircraft applications and geographic penetration we
expect to see improvements in the short term. Towards the end of the year we
made a number of changes in the organisation of the business resulting in a
reduction in the fixed cost base going forward.
EO / Glycol
EO / Glycol 1997 1996
Turnover #92.4m #68.6m
Operating Profit #13.1m #6.4m
The EO / Glycol business benefited from a gradually improving supply / demand
position throughout the year. We were able to take full advantage of this as
our new increased capacity ran smoothly from the outset.
Health, Safety and Environment
The Board is committed to a programme of improvement across the Group. During
the year we were proud to announce the achievement of the ISRS
(International Safety Rating System) level 9 for the Antwerp site in Belgium
and confirmation of level 9 for the Hythe site in the UK. The UK sites
acquired from Shell in 1996 at Four Ashes and Knottingley have both entered
this system at level 7, a commendable performance. The Hythe site also
achieved the highly sought after ISO 14001 certification for Environment
Management.
Strategy
In 1997 we reviewed in depth all of our international businesses with the
objective of assessing the opportunities for growth in the next five years.
The Board was impressed by the potential identified by this review and the
underlying quality of the Group's portfolio. As a result we have committed
additional support to the development of our Fine Chemicals businesses, R&D
and capital expenditure on business expansion projects. Our primary focus
continues to be organic growth.
Outlook
The strength of sterling remains the largest threat to our UK based
businesses offset by opportunities for our continental European businesses as
a result of their more competitive currencies. The impact of the Far East
crisis on the Group is expected to be limited, except for Glycol where prices
have suffered due to lower demand and the anticipated effect of additional
new production capacity due on stream in 1998.
Overall, Inspec enters 1998 with a positive outlook. Demand for most of our
speciality and fine chemicals products remains firm and growth is anticipated
from the capital investments in capacity enlargement made in 1997.
GROUP PROFIT AND LOSS ACCOUNT
YEAR ENDED 31 DECEMBER 1997
Note 1997 1996
#'000 #'000
Turnover 2 394,328 301,101
Cost of sales (301,762) (237,150)
Gross profit 92,566 63,951
Distribution costs (11,570) (6,249)
Administrative expenses (25,521) (18,860)
Operating profit 55,475 38,842
Net interest payable (8,406) (6,810)
Profit on ordinary activities 47,069 32,032
before taxation
Taxation on profit on ordinary 3 (8,472) (5,125)
activities
Profit on ordinary activities 38,597 26,907
after taxation 140 18
Equity minority interest
Profit attributable to 38,737 26,925
shareholders 4 (11,787) (9,769)
Dividends
Amount transferred to reserves 26,950 17,156
Earnings per share 5 22.20p 18.24p
INSPEC GROUP PLC
GROUP BALANCE SHEET
AS AT 31 DECEMBER 1997
1997 1996
#'000 #'000
Fixed assets
Tangible assets 192,241 194,978
Investments 28,522 27,498
220,763 222,476
Current assets
Stocks 49,028 48,593
Debtors 71,318 66,595
Cash at bank and in hand 24,368 15,491
144,714 130,679
Creditors
Amounts falling due within one (113,007) (84,550)
year
Net current assets 31,707 46,129
Total assets less current 252,470 268,605
liabilities
Creditors (150,841) (186,202)
Amounts falling due after more
than one year (14,584) (16,617)
Provisions for liabilities and
charges
Net assets 87,045 65,786
Capital and reserves
Called up share capital 3,494 3,489
Share premium account 188,933 188,351
Profit and loss account 67,698 41,593
260,125 233,433
Goodwill reserve (173,318) (168,064)
Equity shareholders' funds 86,807 65,369
Equity minority interest 238 417
87,045 65,786
INSPEC GROUP PLC
GROUP CASH FLOW STATEMENT
YEAR ENDED 31 DECEMBER 1997
1997 1996
Note #'000 #'000
Net cash inflow from operating 6 69,520 48,366
activities
Returns on investments and
servicing of finance
Interest received 1,860 1,437
Interest paid (11,311) (8,673)
Net cash outflow from returns on
investments and servicing of (9,451) (7,236)
finance
Taxation
Corporation tax paid (3,391) (9,310)
Capital expenditure and financial
investment
Purchase of tangible fixed assets (23,133) (38,825)
Investment in own shares - (15,699)
Net cash outflow from capital
expenditure
and financial investment (23,133) (54,524)
Acquisition of businesses (1,353) (221,083)
Equity dividends paid (10,665) (6,945)
Net cash inflow/(outflow) before
financing 21,527 (250,732)
Financing
Net proceeds from issue of share - 102,509
capital 2,353 232,595
New loans (14,173) (77,817)
Repayment of loans
Net cash (outflow)/ inflow from
financing (11,820) 257,287
Increase in cash in the period 9,707 6,555
1997 Preliminary Announcement
Notes to the financial statements
1. Preparation of financial statements
The financial statements for the year ended 31 December 1997 have been
prepared using consistent accounting policies to those set out in the
Group's accounts for 1996. The financial information presented above
does not constitute the Group's statutory accounts for 1996 or 1997.
Statutory accounts for the year ended 31 December 1996 have been
delivered to the Registrar of Companies and the auditors' report on
those accounts was unqualified and did not contain a statement under
Section 237 of the Companies Act 1985. The statutory accounts for the
year ended 31 December 1997 will be delivered to the Registrar of
Companies in due course.
2. Segmental information
Division: Operating profit Turnover
1997 1996 1997 1996
#'000 #'000 #'000 #'000
Specialities 21,036 22,093 147,665 137,629
Fine Chemicals 24,316 11,517* 126,251 67,863*
Performance (2,928) (1,158) 28,026 26,969
Products 13,051 6,390 92,386 68,640
EO / Glycol
55,475 38,842 394,328 301,101
* six months
only
Analysis of By origin By destination
turnover:
1997 1996 1997 1996
#'000 #'000 #'000 #'000
UK 115,309 99,858 50,713 38,861
Rest of Europe 217,860 155,141 236,304 185,457
Far East 60 - 22,412 16,664
Americas 61,099 46,102 71,913 55,332
Rest of World - - 12,986 4,787
394,328 301,101 394,328 301,101
3. Taxation
The tax charge is based on the profit 1997 1996
for the year and comprises: #'000 #'000
UK Corporation tax 5,983 2,830
Deferred taxation (637) 338
Overseas taxation 3,126 1,957
8,472 5,125
The effective tax rate of 18% for the current year is lower than the UK
standard rate primarily due to tax allowances totalling #22.5 million.
These allowances are in respect of know-how purchased from BP Chemicals
as part of the acquisition of the Hythe business in 1992 and the Antwerp
business in 1995 and from know-how purchased from Shell as part of the
Inspec Fine Chemicals acquisition in 1996.
4. Dividends
1997 1996
#'000 #'000
Equity:
Interim dividend of 2.25p (1996 : 2.1p) 3,925 2,442
per 2p ordinary share 7,862 7,327
Proposed final dividend of 4.5p (1996 :
4.2p) per 2p ordinary share
11,787 9,769
The final dividend is payable on 6 May 1998 to shareholders who are on
the Company's register on 13 March 1998. The ex-dividend date is 9
March 1998. The latest date for the receipt of scrip dividend mandates
is 15 April 1998.
5. Earnings per share
The calculation of earnings per ordinary share is based on earnings
after tax and minority interest of #38,737,000 and on 174,500,344
ordinary shares, being the weighted average number of shares in issue
during the year ended 31 December 1997.
6. Reconciliation of operating profit to net cash inflow from
operating activities
1997 1996
#'000 #'000
Operating profit 55,475 38,842
Depreciation 16,109 12,390
Loss on disposal of fixed 32 249
assets (2,109) 1,371
(Increase)/Decrease in (6,263) 630
stocks 6,276 (5,116)
(Increase)/Decrease in
debtors
Increase/(Decrease) in
creditors
Net cash inflow from 69,520 48,366
operating activities
7. Analysis of Group net debt
#'000
Increase in cash in the period 9,707
Cash outflow from decrease in 11,820
debt
Change in net debt resulting 21,527
from cash flows 6,891
Translation difference
Movement in net debt in the 28,418
period (176,679)
Net debt at 1 January 1997
Net debt at 31 December 1997 (148,261)
1997 1996
#'000 #'000
Net debt (after deducting employee
share scheme loans receivable) (120,352) (149,838)
8. Impact of exchange rates
We estimate that the strength of sterling has had the following adverse
impact on profit before tax (comparing average rates for 1997 against
1996):
#m Transaction Translation Total
Specialities (3) (1) (4)
Fine Chemicals (3) (2) (5)
Performance Products - - -
EO / Glycol - (2) (2)
Impact on operating (6) (5) (11)
profit
Impact on net 1 - 1
interest
Impact on profit (5) (5) (10)
before tax
The impact on the Group's profit before tax comprises of the following
currencies:
Exposure USD Euro basket Other Total
#m
Transaction (2) (2) (1) (5)
Translation - (5) - (5)
Total (2) (7) (1) (10)
The underlying organic growth of the business is shown below:
1997 Curren 1997 1996 Chang
Division Operating cy Adjust Operating e
Profit Impact ed Profit
(#m) (#m) (#m) (#m)
Specialities 21.0 4.0 25.0 22.1 13%
Fine Chemicals 24.3 5.0 29.3 26.4* 11%
Performance (2.9) - (2.9) (1.2) neg
Products 13.1 2.0 15.1 6.4 136%
EO / Glycol
Total 55.5 11.0 66.5 53.7 24%
* proforma 1996 including six months under Shell ownership
The profits of overseas subsidiaries were translated into sterling at the
following average exchange rates:
1997 1996
US Dollar 1.6456 1.5731
Belgian Franc 58.0526 48.3523
German Mark 2.8245 2.4453
French Franc 9.5098 8.2907
Dutch Guilder 3.1779 2.7429
Spanish Peseta 238.80 206.61
Austrian Schilling 19.8767 16.8566
END
FR NFNDAELFPEFN
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