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Materials Technology & Process Solutions

Materials Technology & Process Solutions. Interim Results - 28 July 1999. Dennis Millard. Group Finance Director. Outline. Trading results: Continuing Operations Group Profits Cash flow Financial condition. First Half. £millions. 1999. 1998. Turnover.

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Materials Technology & Process Solutions

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  1. Materials Technology & Process Solutions Interim Results - 28 July 1999

  2. Dennis Millard Group Finance Director

  3. Outline • Trading results: Continuing Operations • Group Profits • Cash flow • Financial condition

  4. First Half £millions 1999 1998 Turnover GROUP at reported exchange rates 851 874 (3)% Exchange rate effect - 12 GROUP at 1999 exchange rates 851 886 (4)% Discontinued (Fibers & Zimco) (17) (67) CONTINUING OPERATIONS - at 1999 exchange rates 834 819 +2%

  5. 1998 vs 1997 10 + 9 + 7 + 5 5 + 4 % 1999 vs 1998 0 (1) - 5 (6) - 10 Q1 Q2 Q3 Q4 Q1 Q2 Group Turnover: Year-on-Year Quarterly Growth RatesContinuing businesses* *(at 1999 exchange rates)

  6. Operating Profit* First Half 1999 1998 GROUP at reported exchange rates 75.3 91.1 (17)% Exchange rate effect - 1.3 GROUP at 1999 exchange rates 75.3 92.4 (19)% Discontinued (Fibers & Zimco) 1.0 7.1 CONTINUING OPERATIONS - at 1999 exchange rates 74.3 85.3 (13)% £millions *(before Goodwill Amortisation and Exceptional Items)

  7. Divisional Operating Profit* at 1999 exchange rates Electronics Ceramics Engineering - Precious Metals - Telecoms & Mouldings CONTINUING OPERATIONS H1 1999 Inc/(Dec) vs. H1 1998 £m £m % 31.5 19.3 23.5 14.4 9.1 74.3 (2.0) (11.5) 2.5 1.3 1.2 (11.0) (6) (37) 12 10 15 (13) *(before Goodwill Amortisation and Exceptional Items)

  8. Return on Sales 1 Return on Investment 2 15 15 13.4 % % 11.8 11.0 10.4 10 10 9.6 8.9 5 5 0 0 H1 1998 H2 1998 H1 1999 H1 1998 H2 1998 H1 1999 Group ProfitabilityContinuing Operations 1 Operating Profit, before goodwill amortisation and exceptional Items as % of sales 2 Operating Profit, before goodwill amortisation and exceptional Items as % of (shareholders funds + borrowings + all goodwill) 1

  9. Profit Before Tax* First Half £millions OPERATING PROFIT: as reported less: INTEREST (net) - Interest - Precious Metal Consignment Fees PROFIT BEFORE TAX 1999 1998 (17)% (19)% 75.3 10.8 9.0 1.8 64.5 91.1 11.1 8.5 2.6 80.0 *(before Goodwill Amortisation and Exceptional Items)

  10. Tax rate 26.0% (1998: 26%) Profit After Tax* First Half £millions PROFIT BEFORE TAX less: Taxation Minority interests PROFIT AFTER TAX 1999 1998 64.5 16.8 0.6 47.1 80.0 20.8 1.4 57.8 (19)% (19)% *(before Goodwill Amortisation and Exceptional Items)

  11. Shareholder Returns First Half EARNINGS PER SHARE* INTERIM DIVIDEND DIVIDEND COVER 1999 1998 6.9p 4.3p 1.6x 8.4p 4.3p 1.9x (18)% - *(before Goodwill Amortisation and Exceptional Items; ave. no.of shares: 687m.)

  12. £m Cash 30.0 Asset write offs 40.5 Exceptional Items £millions 70.5 (49.5) (10.1) 10.4 8.5 14.5 RATIONALISATION COSTS Total (est.) Expensed in H2 ‘98 Expensed in H1 ‘99 Due in H2 ‘99 RATIONALISATION BENEFITS 1999 2000 pa

  13. Cash Flow from Operating Activities First Half EBITDA Working Capital Rationalisation/Other OPERATING CASH FLOW 1999 1998 Inc/(Dec) £millions 99 (29) (10) 60 115 (29) (3) 83 (16) (7) (23) -

  14. 21.0 20.2 19.8 % 20.0 19.2 19.0 18.0 Jun 98 Dec 98 Jun 99 Average Working Capital as % of Sales Continuing Operations

  15. 1.1x depreciation (1998: 1.7x) Free Cash Flow First Half 1999 1998 Inc/(Dec) £millions OPERATING CASH FLOW Capital Expenditure (net) Taxation Interest and Dividends FREE CASH FLOW 60 (30) (13) (46) (29) 83 (45) (26) (45) (33) (23) 15 13 (1) 4

  16. 25 24 20 20 £m 15 11 10 5 0 30 Jun 98 31 Dec 98 30 Jun 99 Free Cash Flow: Annualised

  17. £m IRI 11 VGT 7 ELI 10 Earnouts 4 Other 12 Net Cash Flow First Half FREE CASH FLOW NET INVESTMENT - Acquisitions & Investments - Disposals: Fibers & Zimco OTHER - share issues, exchange effect NET CASH FLOW 1999 £millions (29) 50 (44) 94 (5) 16

  18. Financial Condition 30 Jun 99 31 Dec 98 NET BORROWINGS £203m £219m GEARING 1 19% 23% INTEREST COVER 2 8.4x 9.4x 1. % Gross borrowings to (net assets and total goodwill and gross borrowings) 2. Operating profit before goodwill amortisation and exceptional items divided by net interest excl. PM cons. fees

  19. Post Balance Sheet Date Events Consideration /Proceeds Tangible Net Worth Funding / Use of Funds £m £m Acquisitions { Premier Refractories 260 120 Plaskon 77 20 Borrowings Borrowings £200m; balance 30.2m Cookson plc shares Disposal TAM Ceramics 50 32 Repay borrowings

  20. Financial Condition - Proforma 3 30 Jun 99 After Before NET BORROWINGS £430m £203m GEARING 1 29% 19% INTEREST COVER 2 5.0x 8.4x 1. % Gross borrowings to (net assets and total goodwill and Gross borrowings) 2. Operating profit before goodwill amortisation and exceptional items divided by net interest excl. PM cons. Fees 3. Includes acquisitions of Premier Refractories and Plaskon and disposal of TAM Ceramics with effect from 1/1/99

  21. Interim Results: Summary • Profits for the Group as expected • Capex and working capital tightly controlled • Free cash flow better than 1998 • Financial condition sound

  22. Stephen Howard Group Chief Executive

  23. Agenda • Implementation of strategy • Trends in key markets • Building core businesses

  24. Strategic Initiatives Fewer Stronger Leaner

  25. Strategic Initiatives • Disposals since H2 ‘97 raised £285m • 2 non-core sectors eliminated: CMC & Fibers • Planned disposal of Focas announced Fewer

  26. Strategic Initiatives • Disposals since H2 ‘97 raised £285m • 2 non-core sectors eliminated: CMC & Fibers • Planned disposal of Focas announced Fewer • £500m in acquisitions since H2 ‘97 • Improved quality of earnings • Financially robust Stronger

  27. Strategic Initiatives • Disposals since H2 ‘97 raised £285m • 2 non-core sectors eliminated: CMC & Fibers • Planned disposal of Focas announced Fewer • £500m in acquisitions since H2 ‘97 • Improved quality of earnings • Financially robust Stronger • Rationalisation on schedule • Savings £14m pa from 2000 • Streamlined structure • US regional office downsized Leaner

  28. Strategic Initiatives • Sharper focus Fewer • Global, growth markets • Leadership and differentiation • Technology and service Stronger • Efficient • Competitive • Responsive Leaner

  29. Review of Operations H1 1999

  30. 1998 vs 1997 10 + 9 + 7 + 5 5 + 4 % 1999 vs 1998 0 (1) - 5 (6) - 10 Q1 Q2 Q3 Q4 Q1 Q2 Group Turnover: Year-on-Year Quarterly Growth RatesContinuing businesses* *(at 1999 exchange rates)

  31. Electronics - market conditions • Overall: Improved trends emerging • Assembly Materials: Demand remains strong, BGA growth • Assembly Equipment: Marked improvement; bookings and order backlogs up 40% • PCB Fab: Some signs of improvement

  32. 1998 vs 1997 + 12 12 10 % + 5 5 1999 vs 1998 + 2 0 0 - 5 (3) - 10 (9) Q1 Q2 Q3 Q4 Q1 Q2 Electronics: Year-on-Year Quarterly Growth RatesContinuing businesses* *(at 1999 exchange rates)

  33. Ceramics - market conditions • Weakness in global steel markets continued into 1999 • Signs of Q2 recovery in US • Europe remains challenging • Plant loading increasing, particularly in US • Glass sector profitability at bottom of cycle

  34. 1998 vs 1997 30 + 27 20 + 19 + 15 1999 vs 1998 10 % + 3 0 0 - 10 (9) - 20 Q1 Q2 Q3 Q4 Q1 Q2 Ceramics: Year-on-Year Quarterly Growth RatesContinuing businesses* *(at 1999 exchange rates)

  35. Engineering - market conditions Precious Metals • Healthy market, despite slow start • Modest price increases for US mill products • New insert moulding products perform above expectations Mouldings • Q2 demand at record levels • CHEP programme on target

  36. Building on the core businesses • Increasing value-added in Electronics • Building strength in Ceramics • Climbing value chain in Precious Metals

  37. Increasing value-added in Electronics • Assembly Materials leads field in high growth BGA spheres • Acquisition of Plaskon: high growth, high margin BGA encapsulant capability • New product development in laminates • Services initiative being launched

  38. Increasing value-added in Electronics -Acquisition of Plaskon • Provides critical mass in semi-conductor encapsulants • Extensive range of high margin, patented products • Builds on leading presence in fast growth BGA sector • Excellent R&D pipeline • EPS enhancing

  39. Building strength in Ceramics • Market consolidation • Technological advances driving steel production • China offers significant potential: Vesuvius well positioned • Acquisition of Premier creates a new world leader

  40. Building strength in Ceramics -Acquisition of Premier • Creates world’s leading “flow control” refractory group • Address same market and geographic sectors • Complementary product ranges • Increases product / service capability • Significant cost synergies • EPS enhancing

  41. Climbing value chain in Precious Metals • Greater leverage: vertical integration in jewellery products • Moving closer to end-customer; out-sourcing • Concentration on high value added Precision Products • Cross-selling opportunities with Electronics

  42. Summary • Creditable trading performance in tough markets validates strategy • Encouraging trends emerging in key markets • Acquisitions and disposals increase focus & improve quality and growth of earnings • Strong balance sheet and cash flow provide platform for further investment

  43. Materials Technology & Process Solutions

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