RNS No 2762n
INSPEC GROUP PLC
5th August 1998
PART THREE OF SIX
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INSPEC GROUP PLC
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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
Chairman's Statement
--------------------
The first half of 1998 has been a busy and challenging time for
Inspec Group plc ('Inspec'). At the beginning of May we completed
the disposal of Inspec Belgium to an MBO team led by Jim
Ratcliffe, our former Managing Director. The proceeds from this
transaction enabled debt to be reduced significantly and removed
the commodity element from our portfolio of products, thereby
sharpening the Group's focus on speciality and fine chemicals.
Despite a positive start to the year, we encountered challenging
trading conditions in some of our businesses, which suffered from
the continuing strength of sterling and the weakness of Far
Eastern markets. We estimate that these factors reduced operating
profits from continuing operations by around UK PDS 2m and UK PDS
1m respectively compared to the same period last year.
As a result of the above factors, coupled with increased
competition and phasing of Fine Chemicals orders, our Specialities
and Fine Chemicals divisions turned in results below 1997.
Performance Products benefited from cost restructuring at the end
of last year and moved into profit - an encouraging performance.
Overall, we enter the second half of 1998 confident that the
actions we have taken throughout our business will deliver an
improved performance.
Today, 5th August, 1998, the Boards of Inspec and Laporte plc
('Laporte') announced the terms of a recommended cash offer by
Laporte for Inspec at a price of 340p per share. Further
information on the terms of the Offer will be sent to shareholders
shortly.
1998 1997 1997
6 months 6 months 12 months
UK PDS UK PDS UK PDS
'000 '000 '000
-------------------------------
Turnover
Continuing operations
Specialities 45,724 48,479 99,560
Fine Chemicals 63,752 67,063 126,251
Performance Products 15,197 14,195 28,026
124,673 129,737 253,837
Discontinued operations 36,582 66,637 140,491
161,255 196,374 394,328
Operating profit
Continuing operations
Specialities 6,159 7,343 14,637
Fine Chemicals 11,017 14,705 24,316
Performance Products 658 (1,328) (2,928)
17,834 20,720 36,025
Discontinued operations 5,805 8,296 19,450
23,639 29,016 55,475
Profit before tax 21,278 24,652 47,069
(before exceptional item)
Adjusted earnings per share 9.89p 11.62p 22.20p
Dividend per share - 2.25p 6.75p
Results
-------
Despite difficult trading conditions, the Group's operating margin
(excluding the discontinued business) remained high at 14.3 per
cent. (1997: 16.0 per cent.). Operating profit from continuing
operations fell by 13.9 per cent. over 1997 or 5 per cent. after
adjusting for adverse currency movements.
Excluding the exceptional item, the net interest cost was covered
10 times for the half year. Group net debt fell to UK PDS 37.5m
as a result of the disposal, leaving gearing at 37.6 per cent. of
net assets (after deducting ESOP loans receivable).
The effective rate of tax for the Group was 19 per cent.
Earnings per share (before exceptional item) fell by 14.9 per
cent. to 9.89p (1997: 11.62p) reflecting the effect of the
disposal of Inspec Belgium in May, 1998.
The Group generated net cash flow of UK PDS 4.1m (before disposal
proceeds).
Capital expenditure amounted to UK PDS 10.0m (1997: UK PDS 10.2m).
This included new phenolics capacity at Knottingley, additional
antioxidant capacity in Spain and a significant investment in new
R&D laboratories at Hythe.
Operating Review
----------------
Inspec Specialities
Inspec UK had a difficult first half of 1998 with sales volumes of
its core businesses nearly 7 per cent. lower than last year. The
business was impacted by sterling strength, reduced Far Eastern
markets and increased competition from Continental European
producers. We expect some relief from lower raw material prices
in the second half of the year.
Inspec USA was affected by plant operating problems that reduced
production significantly. The plant is now fully operational and
sold out which should underpin a stronger second half.
Inspec Fine Chemicals
Most of our Continental European businesses performed well during
the period. Although the UK businesses suffered from currency
strength, weak Far East demand and increased competitive
pressures, sales in the second half will benefit from planned
increases in off-take by several major customers. A realignment
of antioxidant manufacture from Brazil to Spain also adversely
impacted the first half with raw materials supplied from
Knottingley also affected. This action should improve the
profitability of Inspec Spain.
Unlike last year, we expect the performance of this division to be
slightly weighted towards the second half of the year due to
phasing of key orders.
Inspec Performance Products
Our Foams and Mining Chemicals (Chile) businesses both achieved a
significant improvement in profitability, benefiting from the
restructuring which took place at the end of 1997. Inspec Fibres
traded profitably but marginally lower than last year due to
delayed orders from the Far East. However, the Mining Chemicals
business in the USA continues to run at a loss, albeit at a
reduced rate from 1997. This improvement is expected to continue as our
new low cost process allows the business to compete more
effectively in the market place.
Inspec Belgium
The result of the discontinued business represents only three
months' trading prior to its disposal. The exceptional loss of UK
PDS 17.5m primarily arises from the requirement to write-back
goodwill from the original acquisition of this business in 1995.
Dividend
--------
Assuming that the recommended cash offer of 340p per share
announced by Laporte today becomes unconditional, the directors do
not intend to pay an interim dividend in respect of the six months
ended 30th June, 1998.
Outlook
-------
As a consequence of the continuing strength of sterling and
subdued Far East markets, we expect trading conditions to remain
broadly similar to those experienced in the first half of 1998.
After the disposal of Inspec Belgium, we are in a much stronger
financial position with high interest cover and low gearing. We
have initiated a company-wide cost reduction programme, which,
together with improved plant reliability and increased capacity
should improve second half performance.
Overall, we are cautiously optimistic about prospects for the next
six months. Although this has been a difficult period for the
Group, we continue to retain high market shares and good margins
in the majority of our businesses and we believe their prospects
remain attractive through the medium term.
Group Profit and Loss Account
-----------------------------
6 months ended 30th June, 1998
Continuing Dis- Total
continued
UK PDS UK PDS UK PDS
'000 '000 '000
-------------------------------
Turnover 124,673 36,582 161,255
Cost of sales (94,700) (28,836) (123,536)
Gross profit 29,973 7,746 37,719
Net operating expenses (12,139) (1,941) (14,080)
Operating profit before
exceptional item 17,834 5,805 23,639
Exceptional item (2) - (17,510) (17,510)
Operating profit after
exceptional item 17,834 (11,705) 6,129
Net interest payable (2,361)
Profit on ordinary activities
before taxation 3,768
Taxation on profit on
ordinary activities (3) (4,043)
Profit on ordinary
activities after taxation (275)
Equity minority interest 108
Profit attributable to shareholders (167)
Dividends -
Amount transferred (from)/to reserves (167)
Earnings per share (4) (0.10)p
Adjusted earnings per share (4) 9.89p
6 months 12 months
30/6/97 31/12/97
UK PDS UK PDS
'000 '000
---------------------
Turnover 196,374 394,328
Cost of sales (149,267) (301,762)
Gross profit 47,107 92,566
Net operating expenses (18,091) (37,091)
Operating profit before
exceptional item 29,016 55,475
Exceptional item (2) - -
Operating profit after
exceptional item 29,016 55,475
Net interest payable (4,364) (8,406)
Profit on ordinary
activities before taxation 24,652 47,069
Taxation on profit on
ordinary activities (3) (4,437) (8,472)
Profit on ordinary activities
after taxation 20,215 38,597
Equity minority interest 53 140
Profit attributable to
shareholders 20,268 38,737
Dividends (3,925) (11,787)
Amount transferred (from) 16,343 26,950
/to reserves
Earnings per share (4) 11.62p 22.20p
Adjusted earnings per share (4)11.62p 22.20p
Statement of Total Recognised Gains and Losses
----------------------------------------------
6 months 6 months 12 months
ended ended ended
30/6/98 30/6/97 31/12/97
UK PDS UK PDS UK PDS
'000 '000 '000
--------------------------------
Profit for financial period (167) 20,268 38,737
Translation adjustments on
foreign currency
net investments (1,491) 396 (845)
Total recognised gains
and losses (1,658) 20,664 37,892
Group Balance Sheet
-------------------
As at 30/6/98 As at 31/12/97
(as restated -
note 5)
UK PDS '000 UK PDS '000
----------------------------------
Fixed assets
Tangible assets 121,658 192,241
Investments 27,485 28,522
149,143 220,763
Current assets
Stocks 39,521 49,028
Debtors 43,686 71,318
Cash at bank and in hand 20,011 24,368
103,218 144,714
Creditors
Amounts falling due
within one year (54,796) (113,007)
Net current assets 48,422 31,707
Total assets less
current liabilities 197,565 252,470
Creditors
Amounts falling due after
more than one year (87,963) (150,841)
Provisions for liabilities
and charges (9,908) (14,584)
Net assets 99,694 87,045
Capital and reserves
Called up share capital 3,534 3,494
Share premium account 192,522 188,933
Profit and loss account (96,617) (105,620)
Equity shareholders' funds 99,439 86,807
Equity minority interest 255 238
99,694 87,045
Group Cash Flow Statement
-------------------------
6 months 6 months 12 months
ended ended ended
30/6/98 30/6/97 31/12/97
UK PDS UK PDS UK PDS
'000 '000 '000
-------------------------------
Net cash inflow from
operating activities (6) 21,039 37,752 69,520
Returns on investments
and servicing of finance
Interest received 2,721 1,125 1,860
Interest paid (4,554) (5,999) (11,311)
Net cash outflow from
returns on investments
and servicing of finance (1,833) (4,874) (9,451)
Taxation
Corporation tax paid (1,962) (1,128) (3,391)
Capital expenditure
and financial investment
Purchase of tangible (9,980) (10,180) (23,133)
fixed assets
Disposal of tangible 1,917 - -
fixed assets
Net cash outflow for capital
expenditure (8,063) (10,180) (23,133)
Disposal and acquisition of
businesses
Disposal of subsidiary (7) 78,068 - -
Acquisition - (567) (1,353)
Net cash inflow/(outflow)
from disposal and
acquisitions 78,068 (567) (1,353)
Equity dividends paid (5,111) (7,278) (10,665)
Net cash inflow before
financing (8) 82,138 13,725 21,527
Financing
Net proceeds from
issue of share capital 520 - -
Net repayment of loans (9) (86,924) (8,457) (11,820)
Net cash outflow from
financing (86,404) (8,457) (11,820)
(Decrease)/increase in
cash (9) (4,266) 5,268 9,707
Notes to the Interim Report:
1. Nature of financial information
The interim financial information has been prepared on
the basis of the accounting policies set out in the
Group's 1997 statutory accounts. The taxation charge
reflects the estimated effective rate for the full year.
2. Exceptional item
The exceptional item represents the loss on disposal of
Inspec Belgium and includes the write back of UK PDS
10.7 million of goodwill together with transaction
costs.
3. Taxation
The effective tax rate of 19 per cent. for the current
year is lower than the UK standard rate primarily due to
tax allowances arising on acquisitions. The charge in
the six months ended 30th June, 1998 comprises UK tax of
UK PDS 1,825,000 and overseas tax of UK PDS 2,218,000.
4. Earnings per share
The earnings per ordinary share is based on 175,279,213
ordinary shares, being the weighted average number of
shares in issue throughout the period. The adjusted
earnings per share is calculated before deduction of the
exceptional item. The number of ordinary shares in
issue at 30th June, 1998 is 176,693,045.
5. In accordance with Financial Reporting Standard No.10,
Goodwill and Intangible assets, goodwill on acquisitions
which was previously written off to a goodwill reserve
has now been eliminated against the profit and loss
reserve. The balance sheet at 31st December, 1997 has
been restated to comply with this new policy. There is
no impact on the results of any period.
6. Reconciliation of operating profit to net cash inflow
from operating activities.
6 months 12 months
ended ended
30/6/98 31/12/97
UK PDS UK PDS
'000 '000
--------------------
Operating profit 23,639 55,475
Depreciation 6,865 16,109
Loss on disposal of
fixed assets 306 32
Increase in stocks (1,612) (2,109)
Increase in debtors (1,482) (6,263)
(Decrease)/Increase in
creditors (6,677) 6,276
Net cash inflow from 21,039 69,520
operating activities
7. Disposal proceeds
Gross consideration 84,306
Cash disposed of (4,793)
79,513
Costs of disposal (1,445)
Net proceeds 78,068
8. Effect of disposal on cashflow
Inspec Belgium contributed UK PDS 3,506,000 to the
Group's net operating cash flows, received UK PDS 34,000
in respect of returns on investments and servicing of
finance and received net UK PDS 344,000 in respect of
tangible fixed assets.
9. Reconciliation of net cash flow to movement in net debt
UK PDS
'000
-----
Decrease in cash in the period (4,266)
Cash outflow from decrease in debt 86,924
Change in net debt resulting
from cash flows 82,658
Translation difference 756
Movement in net debt in period 83,414
Net debt at 1st January, 1998 (148,261)
Net debt at 30th June, 1998 (64,847)
-------
Net debt (including employee share
scheme receivable) at 30th June, 1998 (37,504)
10. Exchange rates
Average rates
6 months 12 months
ended ended
30/6/98 31/12/97
US Dollar 1.6507 1.6456
German Mark 2.9900 2.8245
11. Post balance sheet event
It was announced today that Laporte had reached
agreement on the terms of a recommended cash offer for
Inspec Group plc.
Review Report by the Auditors to the Board of Directors of Inspec
Group 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 excluded audit procedures such as
tests of controls and verification of assets and liabilities and
was therefore substantially less in scope than an audit performed
in accordance with Auditing Standards. Accordingly we do not
express an audit opinion on the interim financial information.
On the basis of our review:
In our opinion the interim financial information has been prepared
using accounting policies consistent with those adopted by Inspec
Group plc in its financial statements for the year ended 31st
December, 1997, and we are not aware of any material modifications
that should be made to the interim financial information as
presented.
PricewaterhouseCoopers
Chartered Accountants
London
5th August, 1998
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