RNS No 5926b
WATTS BLAKE BEARNE & CO PLC
29th September 1998
WATTS BLAKE BEARNE & CO PLC
INTERIM RESULTS TO 30 JUNE 1998
1998 1997
Sales #50.4m #50.5m
Operating profit * #5.9m #6.1m
Operating margin * 11.8% 12.1%
Pre-tax profit * #5.2m #5.5m
Earnings per share * 15.7p 15.0p
Interim Dividend 4.4p 4.4p
* before exceptional costs relating to Southacre, Devon quarry extension
#5.5m PTP had same foreign exchange rate applied; reported PTP is #4.6m
Watts Blake Bearne, world leader in Ball Clays
* Creditable results despite difficult trading conditions
* Sales volume growth from major divisions in Europe, offset by slow
first quarter in U.S.A. and impact of economic crisis in Asia
* Sales up 5% at constant exchange rates
* Strong cash flow; gearing reduced to 26% from 30% at last year end
* Interest cover before exceptional costs 8 times (1997: 9.5 times)
* US$55m debt placement successfully concluded; 7 times over-subscribed
* Volumes from Devon Clays 7% up on last year, exports 11% higher on
growth in European sanitaryware and tile markets
* Growth in revenues and profits from German Division
* New joint venture commenced in China (domestic sanitaryware, electro-
porcelain)
* Investment increased in R & D
* Board encouraged by start of second-half trading
Enquiries:
Dr. Graham Lawson, Chief Executive, Direct Line: +44 (0) 1626 322 302
Dr. Michael Young, Finance Director, Direct Line: +44 (0) 1626 322 312
Tel: 0171 450 4440 (29th September 1998) until 12 noon
WBB switchboard: 01626 332 345 WBB Web site: http://www.wbb.co.uk
Peter Binns, John Wade: Binns & Co - Tel: 0171 786 9600
A briefing for analysts is being held at 9:00am for 9:15am start today at The
Court Room, The Merchant Taylors' Hall, 30 Threadneedle Street, London EC2.
Editor's Note:
Watts Blake Bearne ("WBB") is the leading international ball clay producer,
whose operations are in the UK, Germany, Europe, the USA and the Asia-Pacific
region. WBB specialises in the supply of ball clays, kaolins and prepared
ceramic bodies to the ceramics and other industries worldwide.
Ball Clay is a relatively rare mineral, but is an important white-firing
plastic component in ceramics such as sanitaryware, tiles and tableware.
CHAIRMAN'S STATEMENT
In a period of some turbulence in financial markets and many of the world's
economies, I am pleased to report, apart from exceptional costs to which I
refer below, a solid and creditable result from your Company for the first six
months of 1998. Profit before Taxation and exceptional costs at #5.2m
compares well with #5.5m for the first half of 1997, noting that it would have
equalled last year had the same foreign exchange rates applied. The reported
Profit before Taxation is #4.6m. Earnings per share are 15.7p (1997:15.0p)
excluding exceptional costs and 13.8p on a fully charged basis.
The interim dividend is maintained at 4.4p per share. The dividend will be
payable on 20th November 1998 to shareholders on the Register at the close of
business on 9th October 1998.
In the light of strong cash flow in the first half-year, gearing has reduced
to 26% from 30% at the last year-end (30 June 1997:22%) and interest cover
before exceptional costs is 8 times (1997:9.5 times). The Balance Sheet and
Cash Flow Statement each reflect the US $55m debt placement, which was
concluded in February and has already been referred to in the 1997 Annual
Report. In the Balance Sheet an amount of #5m due in December 1998 in respect
of the second instalment for the purchase late last year of extensive mineral
reserves in Germany continues to be included under "Other Creditors".
Shareholders will be aware that our UK Division's application for a quarry
extension was called into Public Inquiry in 1997. At the end of August it
became apparent that independent experts advising us had misinterpreted a
crucial piece of data relating to the behaviour of river flows. As a result,
management decided to withdraw the application. We are currently engaged on
the urgent preparation of a re-submission. Costs relating to the first design
have accordingly been written off against the first half-year profits and are
treated as exceptional. Otherwise, the pattern shown in the Group Profit &
Loss Account portrays encouraging sales volume growth for our major divisions
in Europe, offset by a slow first quarter in USA and the impact of the
economic crisis in Asia.
Management continues to pursue opportunities for new ventures, consistent with
its strategy outlined in the 1997 Annual Report. It is the nature of today's
global ceramics market that such developments are more likely to arise in
developing regions of the world, such as Asia, South America and Eastern
Europe. We recognise the potential risks that this strategy involves. We
believe, however, that the balance management brings between entrepreneurial
zeal and financial control will favour success and add long-term value to your
Company.
We are encouraged by the way second half trading has started. Results for the
full year, however, will also inevitably be affected by the exceptional costs
noted here.
I conclude by congratulating management and all employees throughout the Group
on their fine effort in producing a result, which, apart from matters outside
their control, was most satisfactory for the first half of 1998 and was
achieved despite difficult trading conditions.
Michael Beckett
Chairman
CHIEF EXECUTIVE'S REVIEW OF OPERATIONS
The stability of the Group's results, exceptional costs apart, is not only a
credit during a period of worldwide volatility in financial markets, but
reflects the energetic development of the business which management continues
to pursue.
The exceptional costs relate to the first design of our Southacre quarry
extension in Devon which, because of a misinterpretation by one of our
external experts of data concerning water flows in the proposed river
diversion, we decided to abandon. This decision was taken because our
confidence that this scheme would now meet our high standards of ecological
and environmental performance had been lowered significantly. The specific
clays we seek to gain from the quarry extension remain important to our UK
Division and we have already commenced work on a new design. Inevitably,
implementation of this key project will be delayed, possibly by two years, but
we have sufficient reserves to maintain security of supply to our customers in
the meantime.
Measured in local currency, sales growth has been achieved in all Divisions
except those in the UK and the USA. Like other international groups, however,
we are affected by Sterling's continued strength, which has translated growth
in underlying operating profit into a slightly lower value compared to the
first half of 1997. Our operating margin has inevitably been affected by the
economic crisis in Asia, which impacts not only our businesses located in that
region, but also important export sales of speciality clays, particularly from
the UK. Operating margin is also tempered by product mix changes, especially
in the UK and Germany, the impact of which has been neutralised by prudent
cost management. It should not be inferred, therefore, from our reported
operating margin (before exceptional costs) of 11.8% (1997:12.1%) that
management has eased its pressure on cost control; this is emphatically not
so.
Our core UK Division, WBB Devon Clays, recorded a profit (before exceptional
costs) just 3.5% below the 1997 level, mainly due to loss of high-value
business in Asia. In the Pacific Clays Division, our established ventures in
Thailand and Indonesia continue to operate profitably having secured much of
the business lost in the region by Devon Clays. However, reduced customer
off-take and the depreciation of local currencies have resulted in a
significant overall reduction in profit derived by the Group from its
business in the region. Despite the downturn in Asian sales, volumes from
Devon Clays were 7% ahead of last year, with exports 11% higher due to
encouraging growth in the European sanitaryware and tile markets. The
strength of Sterling continues to maintain pressure on prices. Good progress
has been made in the sale of non-clay products from Devon, with sales
significantly ahead of last year's level.
In the USA, markets were poor during the first quarter, a legacy of inventory
reduction by some customers, although these have now picked up in line with
our expectations. It is pleasing to note significant production and sales
success in our newly constituted Eastern Europe Division through its Ukranian
joint venture as well as continuing growth in revenues from our German
Division following the purchase of key mineral reserves in Germany at the end
of last year.
Real price increases remain difficult to achieve. I am pleased to report,
however, that prudent cost management has resulted in gross margin
improvements in most of the Divisions. Shareholders are aware that a high
proportion of our direct costs are fixed in nature, so margins have also
improved as a result of the sales volume increases achieved in a number of
operations throughout the Group.
Despite the demands of our investment in developing our strategic technology
base and the embryonic divisions in Asia and Eastern Europe, overheads across
the Group have been strictly controlled. We have, in this first half,
incurred pre-operational expenses in relation to our newest joint venture in
China, which has now commenced production for plant trials in the domestic
sanitaryware and electro-porcelain sectors.
Following the successful debt placement initiative we completed in February,
we have both ready funds and financial capacity to conclude negotiations in
bringing suitable target acquisitions and further joint ventures into the WBB
Group. I am pleased to advise that interest earned on our surplus funds more
than covers its servicing cost thus relieving the pressure on making important
purchases in unwarranted haste. The interest charge in the Profit and Loss
Account reflects higher levels of net borrowing which have largely arisen from
the purchase of German mineral reserves in December last year.
We continue to pursue our strategy for long term profitable growth. We are
determined to source and market world-class clay minerals to both developing
and mature centres of population using the excellent resources that underpin
WBB: its people, minerals, technical know-how and financial capacity. I look
forward to reporting to you continued success in this quest in our Annual
Report next year.
Graham Lawson
Chief Executive
GROUP PROFIT & LOSS ACCOUNT
Six months ended Year to
30.06.98 30.06.97 31.12.97
#'000 #'000 #'000
Unaudited Unaudited
Notes
Turnover
United Kingdom 4,894 4,904 9,809
Germany 8,727 8,478 16,361
Rest of Europe 25,143 23,140 45,950
North America 5,858 6,801 12,755
Rest of World 5,763 7,200 13,862
_________ _________ ________
50,385 50,523 98,737
Operating Costs (44,446) (44,417) (85,802)
_________ _________ _________
Operating Profit 5,939 6,106 12,935
Exceptional Costs 1 (640) - -
_________ _________ _________
Profit on Ordinary activities
before interest 5,299 6,106 12,935
Net Interest (739) (638) (1,295)
_________ _________ _________
Profit on Ordinary Activities
before Taxation 4,560 5,468 11,640
Tax on Profit on Ordinary
Activities (1,710) (2,297) (4,428)
_________ _________ _________
Profit on Ordinary Activities
after Taxation 2,850 3,171 7,212
Minority Interests 47 (24) (156)
Dividends (929) (926) (3,719)
_________ _________ _________
Balance Retained 1,968 2,221 3,337
======== ======== ========
Earnings per ordinary share
Including exceptional costs
Basic 4 13.8p 15.0p 33.5p
Fully diluted 13.4p 14.5p 33.1p
Earnings per ordinary share
Excluding exceptional costs
Basic 15.7p 15.0p 33.5p
Fully diluted 15.3p 14.5p 33.1p
Dividend per Ordinary Share 3 4.4p 4.4p 17.6p
STATEMENT OF RECOGNISED GAINS & LOSSES
6 Months 6 Months 12 Months
1998 1997 1997
Unaudited Unaudited
Profit for the financial year 2,897 3,147 7,056
Currency translation differences
on foreign currency net investments (1,161) (2,241) (4,375)
_________ _________ _________
1,736 906 2,681
_________ _________ _________
GROUP CASH FLOW STATEMENT
6 Months 6 Months 12 Months
1998 1997 1997
Notes Unaudited Unaudited
Cash flow from operating
activities 2 8,627 8,400 16,553
_________ _________ _________
Returns on investments
and servicing of finance
Interest received 268 128 320
Interest paid (1,007) (765) (1,615)
Preference dividend (3) (3) (6)
Dividend paid to a
minority shareholder in
a subsidiary - - (15)
_________ _________ _________
(742) (640) (1,316)
_________ _________ _________
Taxation
Taxation paid (1,132) (1,834) (4,882)
_________ _________ _________
Capital expenditure
Purchase of tangible
fixed assets (4,381) (2,654) (10,435)
Purchase of intangible
fixed assets (175) - (29)
Sale of tangible fixed
assets 219 81 837
assets _________ _________ _________
(4,337) (2,573) (9,627)
_________ _________ _________
Acquisitions (53) - -
_________ _________ _________
Equity dividends paid - - (3,407)
_________ _________ _________
Cash inflow/(outflow)
before financing 2,363 3,353 (2,679)
Financing issue of
shares 11 273 286
increase in borrowings 7,560 2,901 3,066
_________ _________ _________
Increase in cash in
period 9,934 6,527 673
======== ======== ========
Reconciliation of net
cash flow to movement in
net borrowings
Increase in cash in
period 9,934 6,527 673
Cash inflow from
increase in borrowings (7,560) (2,901) (3,066)
_________ _________ _________
Change in net borrowings
resulting in cash flows 2,374 3,626 (2,393)
Translation difference 297 178 562
_________ _________ _________
Movement in net
borrowings in period 2,671 3,804 (1,831)
Opening net borrowings (22,387) (20,556) (20,556)
_________ _________ _________
Closing net borrowings (19,716) (16,752) (22,387)
======== ======== ========
GROUP BALANCE SHEET SUMMARY
30.06.98 30.06.97 31.12.97
#'000 #'000 #'000
Unaudited Unaudited
Fixed Assets
Intangible assets 226 30 45
Tangible assets 90,554 84,142 91,886
Investments 1,052 1,415 1,017
_________ _________ _________
91,832 85,587 92,948
_________ _________ _________
Current Assets
Stocks 8,691 7,482 9,504
Trade Debtors 21,404 20,061 19,164
Other Debtors 5,532 4,129 4,240
Cash at bank and in hand 13,852 10,490 4,014
_________ ________ _________
49,479 42,162 36,922
Creditors
Amounts falling due within
one year
Borrowings (145) (5,398) (5,294)
Other Creditors (22,331) (15,728) (19,924)
_________ _________ _________
Net Current Assets 27,003 21,036 11,704
_________ _________ _________
Total assets less current
liabilities 118,835 106,623 104,652
Creditors
Amounts falling due after more
than one year
Borrowings (33,423) (21,844) (21,107)
Other Creditors (33) (176) (144)
Provisions for liabilities and
charges (9,225) (8,811) (8,195)
_________ _________ _________
Total Net Assets 76,154 75,792 75,206
_________ _________ _________
Capital and Reserves
Called up share capital 5,408 5,389 5,407
Reserves 69,916 70,119 69,109
_________ _________ _________
Total Shareholders' funds 75,324 75,508 74,516
Minority interests 830 284 690
_________ _________ _________
76,154 75,792 75,206
_________ _________ _________
Net Borrowings 19,716 16,752 22,387
As a percentage of shareholders'
funds 26% 22% 30%
NOTES TO THE ACCOUNTS
1. Exceptional Costs
Exceptional costs refer to the first design, now withdrawn, for a proposed
quarry extension in the UK with associated river diversion.
2. Reconciliation of Operating Profit to Operating Cash Flows
6 Months 6 Months 12 Months
1998 1997 1997
Unaudited Unaudited
Operating profit 5,939 6,106 12,935
Exceptional costs (640) - -
_________ _________ _________
Profit on Ordinary Activities 5,299 6,106 12,935
Depreciation 4,076 4,188 7,453
Profit on disposal of fixed
assets (53) (69) (201)
Share of profit of associated
undertaking (38) (108) (369)
Increase in other provisions
and deferred income 1,179 932 (136)
Decrease/(Increase) in stocks 672 594 (1,557)
Increase in debtors (2,672) (1,615) (1,347)
Increase/(Decrease) in
creditors 164 (1,628) (225)
_________ _________ _________
Net cash inflow from operating
activities 8,627 8,400 16,553
_________ _________ _________
3. Dividends Proposed
The dividend will be payable on 20th November 1998 to shareholders on the
Register at the close of business on 9th October 1998.
4. Earnings per Ordinary Share
The earnings per ordinary share have been calculated on Group Profit (after
tax, minority interests, preference dividends and exceptional costs) of
#2,894m (1997: #3,144m) and on a weighted average of issued ordinary shares
of 21,044,501 (1997: 21,024,024).
The fully diluted earnings per share are calculated on a weighted average of
21,616,929 shares (1997: 21,634,975).
On the face of the Group Profit and Loss Account, earnings per share are
shown both including and excluding exceptional costs. The Directors believe
that for 1998 the calculation for earnings per share excluding the
exceptional costs together with the associated tax relief gives the most
appropriate measure of the underlying earnings capacity of the Group.
5. Foreign Currency Exchange Rates
1998 Half-year 1997 Half-year 1997 Year-end
Average As at Average As at Average Year end
30.06.98 30.06.97
Deutschmark 3.00 3.02 2.77 2.89 2.85 2.96
US Dollar 1.66 1.66 1.63 1.66 1.64 1.64
Portuguese
Escudo 307.12 309.00 278.55 291.72 288.38 302.64
French Franc 10.06 10.12 9.34 9.73 9.58 9.90
Dutch Guilder 3.38 3.40 3.11 3.25 3.21 3.34
Italian Lira 2,958.68 2,967.36 2,739.73 2,824.86 2,808.99 2,906.98
Ukrainian
Hryvna 3.38 3.45 2.88 2.94 2.98 3.12
Singapore
Dollar 2.74 2.88 2.33 2.38 2.45 2.78
Hong Kong
Dollar 12.82 12.89 12.65 12.88 12.69 12.72
Indonesian
Rupiah 17,274.14 25,000.00 3,937.01 4,048.58 4,816.19 7,708.79
Thai Baht 70.88 70.49 42.08 43.01 52.71 78.99
If the average exchange rates extant for the half-year in 1997 had been
applicable in 1998, turnover would have been approximately #52.9m and profit
before taxation approximately #5.5m.
6. The interim results are unaudited. The financial information does not
amount to full accounts within the meaning of section 20 of the
Companies Act 1985 (as amended). Full accounts for the year to 31 December
1997 with an unqualified audit report have been filed with the Registrar of
Companies.
Further copies of the Interim Statement are available from:
The Company Secretary
WATTS BLAKE BEARNE & CO PLC
Park House, Courtenay Park
Newton Abbot TQ12 4PS
Telephone: +44(0) 1626 332345 Fax: +44(0)1626 332344
END
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