Inspec Group PLC - Rec.Offer by Laporte,etc-Pt.2
August 05 1998 - 4:56AM
UK Regulatory
RNS No 2760k
INSPEC GROUP PLC
5th August 1998
LAPORTE PLC
-------------
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30TH JUNE, 1998
--------------------------------------------------------
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED
STATES, CANADA, AUSTRALIA OR JAPAN
PART TWO OF SIX
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SUMMARY
-------
The following is the full text of the unaudited interim results of
Laporte plc ('Laporte') for the six months ended 30th June, 1998:
Further progress in tough external environment
Change
1998 1997 Actual Constant
UK PDS m UK PDS m Currency Currency
Turnover
(continuing operations) 377m 371m +2% +5%
(total) 381m 441m -14% -11%
Operating profit
(continuing operations) 60.5m 55.5m +9% +13%
PBIT (pre-exceptional)
(continuing operations) 62.1m 59.6m +4% +8%
(total) 62.1m 66.1m -6% -2%
Profit before tax
(pre-exceptional) 66.8m 66.7m - +4%
(post-exceptional) 66.8m 38.7m +73% +79%
Earnings per share
(pre-exceptional) 24.9p 24.8p - +4%
(post-exceptional) 24.9p 10.5p +137% +146%
Dividend per share 9.25p 9.0p +3% -
- Operating profits from continuing operations increase by
13 per cent. (constant currency)
- Margins from continuing operations rise to 16 per cent.
(15 per cent.)
- Pre-tax profits up 4 per cent. (constant currency)
- Sales volumes up 5 per cent.
- Capital expenditure remains strong
- Interim dividend up 3 per cent., paid as a Foreign
Income Dividend (FID)
Commenting on the results, Chief Executive, Jim Leng said:-
'We are pleased to report yet another period of further progress,
particularly with the continued negative effects of the strong
pound and the largely indirect consequences of the turmoil in the
South East Asian economies affecting us. Improvements were again
made in profits, margins, return on capital and earnings. The
benefits of the portfolio reshaping, completed last year, were
reflected in the robust volume growth achieved, against this tough
economic background. Whilst the largely unhelpful economic scene,
and the pound at its current level, continue to inhibit progress,
our leading market positions in growth sectors, new product
development programmes and our focused capital investment,
together with the ongoing vigorous management of the cost base,
will continue to support the potential of the Group'.
GROUP RESULTS
-------------
The first six months of the current financial year have seen a
combination of a very strong pound and the indirect consequences
of the economic turmoil emanating from South East Asia. In this
very challenging economic climate the Group has recorded a 5 per
cent. increase in volumes, a 13 per cent. improvement in operating
profits from continuing operations translated at constant currency
and an increase in margin to 16 per cent. Earnings per share have
also improved marginally despite absorbing a UK PDS 9m (14 per
cent.) hit from a combination of adverse currency movements,
dilution from the sale of our Adhesives and Sealants businesses in
the third quarter of 1997 and lower non operating revenues.
Given the continued rise in sterling, comparisons with 1997 have
again been expressed both in terms of actual currency (i.e. using
average exchange rates applying in respective half years) and at
constant currency (i.e. translating sales and profits of overseas
subsidiaries at 1997 average exchange rates for both half years).
The adverse transaction effect has been ignored in these
comparisons.
Group turnover for the six months to 30th June, 1998 was 14 per
cent. lower at UK PDS 381m, reflecting disposals made in 1997 and
the impact of a strong pound. In continuing operations, however,
turnover at constant currency grew by 5 per cent., with growth
recorded in both quarters, the first quarter being somewhat better
than the second.
Operating profit from continuing operations increased by 13 per
cent. at constant currency and by 9 per cent. to UK PDS 60.5m (UK
PDS 55.5m) at actual currency. Margins on continuing operations
increased to 16 per cent. (15 per cent.). With a lower
contribution from divested businesses and the expected reduction
in other operating income, profit before interest and exceptional
items fell by 2 per cent. at constant currency and by 6 per cent.
to UK PDS 62.1m (UK PDS 66.1m) at actual currency.
With interest income of UK PDS 4.7m (UK PDS 0.6m), pre-tax profits
before exceptional items increased 4 per cent. at constant
currency and rose marginally to UK PDS 66.8m (UK PDS 66.7m) at
actual currency.
Pre-exceptional earnings per share at constant currency increased
by 4 per cent. to 24.9p, a marginal increase at actual currency
rates (24.8p).
DIVIDEND
--------
An interim dividend of 9.25p per share, an increase of 3 per cent.
on 1997 (9.0p) will be paid on 11th November, 1998 to ordinary
shareholders on the register at the close of business on 21st
August, 1998. In line with the practice adopted last year, this
will be paid by way of a Foreign Income Dividend (FID).
It is the Company's current intention to pay a second interim
dividend in March 1999, following the announcement of the Group's
preliminary results for 1998. This is deemed to be in the
interests of the majority of shareholders, following the
announcement of the abolition of Foreign Income Dividends (FID)
from April 1999.
REVIEW OF OPERATIONS
--------------------
Speciality Organics
This division accounts for 24 per cent. of sales and 22 per cent.
of profits from continuing operations. Profits rose by 18 per
cent. at constant currency and by 13 per cent. to UK PDS 13.2m (UK
PDS 11.7m) at actual currency. Margins increased to 14.4 per
cent. (12.8 per cent.).
In Fine Chemicals, good underlying progress was recorded despite
the completion, during 1997, of sales of Ranitidine. Underlying
demand, based on customer enquiries and projects in development,
remains strong. The new production facility in Canada, brought on
stream at the end of last year, is already contributing to the
Group's profits and the new European R&D facility on Teesside,
here in the UK, opened in the spring of this year. Pilot plant
capacity expansion is well under way and ongoing capital
expenditure commitments, in respect of specific new customer
contracts, remain strong.
In Speciality Chemicals, the good progress made throughout 1997
has been continued into the first half of this year. Continued
good demand was seen, both in the persulphates and peroxides
businesses. Further progress has been recorded in operational
efficiencies and additional investment committed to support medium
term growth prospects.
Pigments and Additives
----------------------
This division accounts for 26 per cent. of sales and 31 per cent.
of profits from continuing operations. Profits rose by 14 per
cent. at constant currency and by 10 per cent. to UK PDS 18.5m (UK
PDS 16.8m) at actual currency. Margins rose to 19.2 per cent.
(17.8 per cent.).
In Pigments, solid volume growth was recorded, following the
period of consolidation in 1997. Again, sales of our patented
granular products and delivery systems led this progress. Early
benefits are beginning to be seen from our move, at the end of
last year, to a global organisation structure, along market lines.
Investment is being focused on improving operational efficiency in
a competitive market.
In Additives, North American sales were good, with trials of new
products for global customers continuing. In Europe, good
progress was again recorded from our well established portfolio of
speciality products.
Compounds and Electronic Materials
----------------------------------
This division now accounts for 31 per cent. of sales and 35 per
cent. of profits from continuing operations. Profits rose 4 per
cent. at constant currency and by 1 per cent. to UK PDS 21.4m (UK
PDS 21.3m) at actual currency. Margins were 18.0 per cent. (18.3
per cent.).
In Compounds, volume growth for our speciality performance
products was as expected. The end markets, which our businesses
support, continue to enjoy good growth prospects, underpinning our
capacity expansion plans in both Europe and North America.
In Electronics (14 per cent. of sales from continuing operations),
although sales growth was seen in each of the three business areas
of high purity chemicals, silicon wafer reclaim and photomask
imaging, the rate of growth fell as the half year progressed. As
reported in our AGM statement in May, the indirect effects of the
turmoil in South East Asia have impacted this division,
particularly in silicon wafer reclaim, which accounts for around 3
per cent. of the Group's sales. We continue to respond to these
challenges with a range of initiatives including investment to
improve efficiencies and a vigorous cost reduction programme.
Formulated Products
-------------------
These businesses now account for 19 per cent. of sales and 12 per
cent. of profits from continuing operations. Profits rose 33 per
cent. at constant currency, and by 30 per cent. to UK PDS 7.4m (UK
PDS 5.7m) at actual currency. Margins rose to 10.5 per cent. (8.4
per cent.).
Our timber coating business experienced good growth, and we were
also pleased with the improvements seen in our US process chemical
business. Our European hygiene business had a solid half year.
The remaining industrial products and services businesses
performed reasonably well.
FINANCIAL
---------
Capital expenditure, at UK PDS 33m (UK PDS 29m), represented 9 per
cent. of sales from continuing operations (8 per cent.), and
continues to be concentrated on our higher growth businesses. The
ratio of working capital to sales continued to improve, dropping
below the 15 per cent. target level we had originally set for the
end of this year. The Group ended the half year with net cash of
UK PDS 97m.
The tax rate in the half year was 27.4 per cent., the same as that
in 1997 as a whole.
EXCHANGE RATES
--------------
In total, adverse currency movements are conservatively estimated
to have reduced profits by UK PDS 4m, or 6 per cent.. Of this,
translation accounted for UK PDS 2.5m and transaction a further UK
PDS 1.5m.
The principal average exchange rates for the half year were UK PDS
1 = US$1.66 (US$1.63) and UK PDS 1 = DM2.98 (DM2.76).
YEAR 2000
---------
As mentioned in the latest Annual Report and Accounts,
considerable effort continues to be expended throughout the Group
on matters concerning the Year 2000 issue. Our objective remains
to ensure that all our companies are compliant by December of this
year. Progress is being made toward this end. Current estimates
are that the revenue expenditure associated with this programme
will be in the region of UK PDS 2.5 million, which includes some
expenditure to be incurred in 1999. Incremental capital
expenditure associated with this programme is estimated to be in
the order of UK PDS 5 million, over the same period.
OUTLOOK
-------
As we stated at the end of the last financial year, and again at
the AGM in May, the indirect, adverse impact of the economic
difficulties emanating from South East Asia continues to be hard
to gauge. However, overall growth was recorded in the first half
of 1998, highlighting the capability of the management team, the
underlying strength of our Group and the resilience of our
business portfolio.
Whilst we believe that the general economic conditions and the
strength of sterling will continue to provide a challenging
business environment, our strong market positions and continuing
aggressive management of our cost base, together with our strong
investment programme, give us confidence in our ability to perform
to the highest levels within our industry.
Unaudited analysis of turnover/profit before tax and exceptional
items for the six months ended 30th June, 1998
Europe Europe North North
America
America
1998 1997 1998 1997
UK PDS m UK PDS m UK PDS m UK PDS m
Speciality Organics
-------------------
Turnover 70.0 71.2 17.8 15.9
Operating profit 10.8 10.2 2.0 1.1
Pigments & Additives
--------------------
Turnover 53.7 53.4 41.7 38.4
Operating profit 10.0 8.9 8.5 8.0
Compounds & Electronic Materials
-------------------------------
Turnover 39.9 39.0 71.7 69.2
Operating profit 9.1 9.0 11.3 10.9
Formulated Products
-------------------
Turnover 27.8 29.0 42.7 39.2
Operating profit 1.9 1.5 5.5 4.2
Total continuing operations
---------------------------
Turnover 191.4 192.6 173.9 162.7
Operating profit 31.8 29.6 27.3 24.2
Per cent. Turnover 51 52 46 44
Per cent. Operating profit 53 53 45 44
Rest of Rest of
World World Total Total
1998 1997 1998 1997
UK PDS m UK PDS m UK PDS m UK PDS m
Speciality Organics
-------------------
Turnover 4.0 4.7 91.8 91.8
Operating profit 0.4 0.4 13.2 11.7
Pigments & Additives
--------------------
Turnover 0.8 2.7 96.2 94.5
Operating profit - (0.1) 18.5 16.8
Compounds & Electronic Materials
--------------------------------
Turnover 7.1 8.3 118.7 116.5
Operating profit 1.0 1.4 21.4 21.3
Formulated Products
-------------------
Turnover - - 70.5 68.2
Operating profit - - 7.4 5.7
Total continuing operations
---------------------------
Turnover 11.9 15.7 377.2 371.0
Operating profit 1.4 1.7 60.5 55.5
Per cent. Turnover 3 4
Per cent. Operating profit 2 3
1998 1997
% %
Speciality Organics
-------------------
Turnover 24 25
Operating profit 22 21
Pigments & Additives
--------------------
Turnover 26 26
Operating profit 31 31
Compounds & Electronic Materials
--------------------------------
Turnover 31 31
Operating profit 35 38
Formulated Products
-------------------
Turnover 19 18
Operating profit 12 10
Total continuing operations
---------------------------
Turnover 100 100
Operating profit 100 100
Percentage Turnover 100 100
Percentage Operating profit 100 100
Total Total
1998 1997
UK PDS m UK PDS m
Discontinued operations
-----------------------
Turnover 4.2 69.8
Operating profit - 6.5
Totals
------
Turnover 381.4 440.8
Operating profit 60.5 62.0
Other operating income 1.2 3.6
Share of operating profit of
associated undertakings
Continuing operations 0.4 0.5
Profit before interest 62.1 66.1
Interest 4.7 0.6
Group profit before tax and
exceptional items 66.8 66.7
Unaudited consolidated profit and loss account
for the six months ended 30th June, 1998
First half 1998
Before
Exceptional Exceptional
Items Items Total
UK PDS m UK PDS m UK PDS m
Turnover
Continuing operations 377.2 - 377.2
Discontinued operations 4.2 - 4.2
Total turnover 381.4 - 381.4
Operating profit
Continuing operations 60.5 - 60.5
Other operating income 1.2 - 1.2
61.7 - 61.7
Discontinued operations - - -
Total operating profit 61.7 - 61.7
Share of operating profit
of associated undertakings
Continuing operations 0.4 - 0.4
Sale of discontinued operations
(Loss)/surplus
before goodwill - - -
Goodwill previously
written off - - -
(Loss) after goodwill - - -
Profit before interest 62.1 - 62.1
Interest (net)
Group 4.7 - 4.7
Associated
undertakings - - -
Profit on ordinary activities
before taxation 66.8 - 66.8
Taxation (18.3) - (18.3)
Profit for the period 48.5 - 48.5
Dividends (18.0)
Profit retained 30.5
Earnings per share (pence)
Before exceptional items 24.9p
After exceptional items 24.9p
First half 1997 Year 1997
Before
Exceptional Exceptional
Items Items Total Total
UK PDS m UK PDS m UK PDS m UK PDS m
----------------------------------------------
Turnover
Continuing operations 371.0 - 371.0 732.8
Discontinued operations 69.8 - 69.8 97.5
Total turnover 440.8 - 440.8 830.3
Operating profit
Continuing operations 55.5 - 55.5 112.7
Other operating income 3.6 - 3.6 5.1
59.1 - 59.1 117.8
Discontinued operations 6.5 - 6.5 8.9
Total operating profit 65.6 - 65.6 126.7
Share of operating profit of associated undertakings
Continuing operations 0.5 - 0.5 0.9
Sale of discontinued operations
(Loss)/surplus
before goodwill - (4.1) (4.1) 14.2
Goodwill previously
written off - (23.9) (23.9) (70.0)
(Loss) after goodwill - (28.0) (28.0) (55.8)
Profit before interest 66.1 (28.0) 38.1 71.8
Interest (net)
Group 0.6 - 0.6 4.5
Associated
undertakings - - - 0.1
Profit on ordinary activities
before taxation 66.7 (28.0) 38.7 76.4
Taxation (18.7) 0.3 (18.4) (40.3)
Profit for the period 48.0 (27.7) 20.3 36.1
Dividends (17.5) (50.2)
Profit retained 2.8 (14.1)
Earnings per share (pence)
Before exceptional items 24.8p 49.5p
After exceptional items 10.5p 18.6p
Unaudited consolidated balance sheet
at 30th June, 1998
June June December
1998 1997 1997
UK PDS m UK PDS m UK PDS m
--------------------------------
Fixed assets
Tangible assets 377.0 398.7 363.8
Investments in
associated undertakings 1.9 2.2 1.7
378.9 400.9 365.5
Working capital
Stocks 89.3 103.1 89.1
Debtors 145.1 162.5 137.6
Creditors (121.6) (138.0) (135.7)
112.8 127.6 91.0
Net funds 97.0 25.2 129.5
Tax, dividends and
other non-operating
assets and liabilities (141.7) (164.0) (171.2)
447.0 389.7 414.8
Capital and reserves
Share capital, premium,
merger and other
reserves 476.2 471.9 472.8
Profit and loss account (29.2) (82.2) (58.0)
Equity shareholders'
funds 447.0 389.7 414.8
Unaudited consolidated statement of total recognised gains and
losses for the six months ended 30th June, 1998
First First Year
half 1998 half 1997 1997
UK PDS m UK PDS m UK PDS m
--------------------------------
Profit for the financial period 48.5 20.3 36.1
Currency translation differences
on foreign currency net investments (1.7) (3.9) (6.1)
Total recognised gains and
losses for the period 46.8 16.4 30.0
Unaudited consolidated cash flow statement
for the six months ended 30th June, 1998
First half First half
Year
1998 1997 1997
UK PDS m UK PDS m UK PDS m
--------------------------------
Net cash inflow from
operating activities 47.5 59.1 153.5
Returns on investments and servicing of finance
Net interest
received / (paid) 4.7 (0.2) 2.1
Taxation (15.9) (14.4) (44.2)
Purchase of tangible
fixed assets (33.4) (28.6) (65.7)
Sale of tangible fixed
assets 1.5 4.8 6.2
Capital expenditure (31.9) (23.8) (59.5)
Disposal of subsidiary
undertakings 0.5 19.3 110.6
Net cash sold with
subsidiary undertakings - - (0.4)
Acquisition of
subsidiary undertakings (2.2) (4.7) (8.7)
Net cash acquired with
subsidiary undertakings (0.2) (0.2) 0.3
Purchase of other
investments (6.4) - -
Disposals and
acquisitions (8.3) 14.4 101.8
Equity dividends paid (32.6) (30.6) (48.0)
Cash (outflow) /
inflow before financing (36.5) 4.5 105.7
Management of
liquid resources 48.5 (17.3) (172.2)
Financing
Issue of shares 3.2 2.0 2.9
(Decrease) / increase in debt (11.2) 24.9 59.9
Increase / (decrease)
in cash in the period 4.0 14.1 (3.7)
Reconciliation of operating profit to operating cash flow
for the six months ended 30th June, 1998
Continuing Dis-
continued Total
1st half 1st half 1st half
1998 1998 1998
UK PDS m UK PDS m UK PDS m
--------------------------------
Profit before interest
and exceptional items 62.1 - 62.1
Depreciation charge 15.6 0.4 16.0
Share of profits from
associated undertakings (0.4) - (0.4)
Dividends from
associated undertakings - - -
Profit on sale of
tangible fixed assets - - -
Provisions charged
to profit and loss
account 1.1 - 1.1
Utilisation of
provisions (1.4) (7.8) (9.2)
(Increase)/decrease
in stocks (3.0) 2.3 (0.7)
(Increase)/decrease
in debtors (13.6) 3.5 (10.1)
(Decrease)/increase
in creditors (7.1) (4.2) (11.3)
53.3 (5.8) 47.5
First half Year
1997 1997
UK PDS m UK PDS m
--------------------------------
Profit before interest
and exceptional items 66.1 127.6
Depreciation charge 17.2 33.1
Share of profits from
associated undertakings (0.5) (0.9)
Dividends from
associated undertakings 0.2 0.2
Profit on sale of
tangible fixed assets (0.8) (1.5)
Provisions charged
to profit and loss
account 1.9 2.4
Utilisation of
provisions (1.7) (4.7)
(Increase)/decrease
in stocks 0.9 (1.1)
(Increase)/decrease
in debtors (20.5) (9.2)
(Decrease)/increase
in creditors (3.7) 7.6
Total 59.1 153.5
Analysis of net funds
at 30 June 1998
Cash Deposits Loans
UK PDS m UK PDS m UK PDS m
Balance at 31st December, 1997 24.8 352.0 (246.3)
Cash flow 4.0 (48.5) 11.1
Acquisitions (excluding net
cash acquired) - - -
Exchange (0.3) (0.3) 1.6
Balance at 30th June, 1998 28.5 303.2 (233.6)
Finance leases Total
UK PDS m UK PDS m
Balance at 31st December, 1997 (1.0) 129.5
Cash flow 0.1 (33.3)
Acquisitions (excluding net
cash acquired) (0.1) (0.1)
Exchange (0.1) 0.9
Balance at 30th June, 1998 (1.1) 97.0
Supplementary information
Post balance sheet events
On 5th August, 1998 it was announced that Laporte had reached
agreement on the terms of a recommended cash offer for Inspec
Group plc.
Basis of preparation and issue of interim statement
a) The interim statement has been prepared on the basis of
the accounting policies set out in the 1997 Group
Accounts.
b) The financial statements for the year ended 31st
December, 1997 are an abridged version of the full
accounts for that year, which have been filed with the
Registrar of Companies. The Auditor's Report on the
accounts was unqualified and did not contain a statement
under section 237(2) or (3) of the Companies Act 1985.
c) The results for the two half years have not been
audited, but have been subject to a limited review by
KPMG Audit Plc. The financial information contained in
the interim statement does not constitute statutory
accounts as defined in section 240 of the Companies Act
1985.
Auditor's report
To the members of Laporte plc
We have reviewed the interim financial information for the six
months ended 30th June, 1998, which is the responsibility of, and
has been approved by, the directors. Our responsibility is to
report on the results of our review.
Our review was carried out having regard to the Bulletin 'Review
of Interim Financial Information', issued by the Auditing
Practices Board. This review consisted principally of applying
analytical procedures to the underlying financial data, assessing
whether accounting policies have been consistently applied, and
making enquiries of Group management responsible for financial and
accounting matters. The review was substantially less in scope
than an audit performed in accordance with Auditing Standards and
accordingly we do not express an audit opinion on the interim
financial information.
On the basis of our review:
(i) in our opinion the interim financial information has
been prepared using accounting policies consistent with
those adopted by Laporte plc in its financial statements
for the year ended 31st December 1997 other than where
changes are necessary to implement new accounting
standards; and
(ii) we are not aware of any material modifications that
should be made to the interim financial information as
presented.
KPMG Audit Plc
Chartered Accountants
London
5th August, 1998
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