RNS Number:4374S
European Colour PLC
25 November 2003
For Immediate Release 25 November 2003
European Colour plc
Interim Results for the Six Months Ended 30 September 2003
European Colour, the speciality chemical pigments manufacturer, announces
interim results for the six months ended 30 September 2003.
Chairman's Statement
In my first statement to shareholders, I want to start by thanking Paul Deakin
for his excellent work as Non-executive Chairman and, for a brief period,
Executive Chairman. Paul joined the Board during a difficult time and guided
our company through a period of change.
Group results and dividend
Group results for the first six months of the financial year are not directly
comparable to those of last year as they included the contribution of Tor
Coatings, subsequently sold on 7 October 2002. We will, therefore, additionally
give details of the comparisons for the EC Pigments activity, which is a more
suitable reference for our business going forward.
Group turnover for the six months to 30 September 2003 was #14.8 million (2002:
#23.9 million) generating profit before goodwill amortisation, exceptional items
and taxation of #0.6 million (2002: #2.2 million). EC Pigments reported
turnover for the period of #14.8 million (2002: #17.4 million) and operating
profit before exceptional items of #0.9 million (2002: #1.7 million). Group
headline earnings per share amounted to 0.88 pence (2002: 2.98 pence). These
results are after the fixed asset write down of #119,000 as detailed below.
As you will read below, EC Pigments is in a challenging and fluid trading
environment. With the level of uncertainty around the business at the moment,
the Directors consider that the prudent course is to not declare an interim
dividend. The Board will continue to monitor the situation closely and will
assess the appropriateness of a final dividend following the year end.
EC Pigments results
EC Pigments continues to operate in a challenging trading environment, evident
from the weaker second half of our last financial year. EC Pigments turnover
for the six month period ended 30 September 2003 was #14.8 million, #2.6 million
less than the first half of last year but only #0.3 million less than last
year's second half. Operating profit before exceptional items of #0.9 million
was #0.8 million less than the first half of last year and #0.2 million more
than the six months to 31 March 2003. The result is #0.3 million more than the
six months to 31 March 2003 before adjustments for accounting practices as
detailed below, reflecting improved margins due to an improved product mix.
The difficult trading environment reflects the competitive market conditions
that our major customers face in Europe and North America. Although pigments
for printing inks is an attractive, growing sub sector of the inks market,
demand over the past year has been weak and we believe that these challenging
market conditions will continue for the remainder of the year. This environment
puts additional pressure on pricing as customers seek to lower costs.
Consequently, we are working on specific programmes to support our customers,
but these have resulted in lower margins and profitability. EC Pigments wants
to be a positive element of our customer's strategic options, both in the short
term and long term.
There are currently some indications of a stronger US economy. However, though
we are ready to respond to higher demand, it is too early to assume a durable
economic recovery and therefore we remain cautious.
Group strategic direction
The entire European Colour team is focussed on strengthening our business. The
immediate task is the advancement of our Operational Excellence programme, which
emphasises top quality performance in all aspects of our business. We will
measure our success through introduction of successful new products and improved
business performance.
Through the Operational Excellence programme, we are paying particular attention
to our business fundamentals. Improved focus and attention on this important
area will positively impact our marketing efforts, manufacturing standards and
the success rate of new product development. We have made significant
organisational changes with special focus on operational management where the
team is new and still in a development phase. We are seriously evaluating how
our business processes are executed and establishing targets that are more
challenging. Progress is being made but there is some way to go before we can
deliver the level of customer service and new products that we strive to
achieve.
When we are comfortable with our progress organically, we will consider external
growth opportunities. If we do grow by acquisition, we will do so while
maintaining a suitably prudent balance sheet. We will also maintain sufficient
flexibility so that we can continue to manage our company strategically during
difficult as well as healthy periods.
EC Pigments strategy
Our pigments activity will continue to serve its customers globally with
specially developed products designed to add value to their coloration
processes. EC Pigments will emphasise proprietary products developed to meet
specific customer needs. This focus on product development will be supported by
a co-ordinated sales and marketing campaign and a production and supply chain
organisation that is sensitive to maintaining a quality product at a competitive
cost. The organisational steps taken over the past year have supported this
strategy.
Changes to accounting practices
As part of Operational Excellence, we have reviewed our accounting practices.
We have decided, with auditor approval, to revise our practice of absorbing
indirect overheads within finished goods and work in progress. This change will
value our stocks more prudently and will lessen the variability of our earnings
as stock levels change. The total impact of this is to reduce stock valuation
by #364,000 as at 30 September 2003. We are also adjusting fixed asset values
in the UK for equipment not fully utilised and the investment cost of our
jointly owned captive insurance investment in the USA. These adjustments reduce
fixed assets by #119,000 as at 30 September 2003. These adjustments are
non-cash but they are reflected in the profit and loss account and balance sheet
included with this results statement.
Corporate governance
Corporate governance has dominated the UK and international business news
recently. Good corporate governance is not a fad; it is a philosophical
approach to managing a business. As directors of a public company we all feel a
strong sense of responsibility to our shareholders. We support current
governance initiatives and have aligned ourselves to them.
Board changes
I joined the Board on 4 August 2003 as Chairman. Dr. David Ingles joined the
Board on 23 September 2003 as an Independent Non-executive Director. On 21 July
2003, John E. Colchester resigned as a Director after seven years on the Board.
His counsel has been of constant benefit to our company. Phillip Myles also
resigned as a Director with effect from 15 July 2003 after a 12-year career with
European Colour including nine months as a Director. Upon my appointment, Paul
Deakin assumed the role of Senior Independent non executive director. At its
September meeting the Board discussed Paul's independence and unanimously agreed
that his six month tenure as Executive Chairman did not prejudice his
independence. He was never directly involved in business operations and
reverted to a non executive role as soon as possible.
Board committees
The Board committees have been re-energised. The Audit Committee comprises
David Ingles (Chairman) and Paul Deakin. The Remuneration Committee comprises
Nick Hawkins (Chairman) and Paul Deakin. I chair the Nominations Committee, the
other member of which is David Ingles.
European Colour people
A good organisation is made up of teams of people working together. European
Colour people have been through a period of restructuring and uncertainty. We
are now in a phase of rebuilding and refocusing on our traditional strengths and
business fundamentals in order to give us a solid platform for continued growth.
I want to thank all of our people for their effort, support and, most
importantly, ideas as we work together to build our company.
Current trading and prospects
At the beginning of my statement I characterised trading as challenging. In
particular, we are in the process of reformulating a product line to meet a
lower price expectation for an application. Several large customers are
re-evaluating their purchasing forecasts. We are also working with targeted
customers to supply additional volumes of existing products and new products,
but at a somewhat lower margin for existing products. In both Europe and the
USA, pricing continues to be difficult. To offset these pressures we are
increasing our technical resources and our supply chain team is working with
suppliers to lower our costs.
The current environment is quite fluid and uncertain. We believe our
performance for the full year is likely to be materially below current market
forecasts. There are a number of economic forecasts that indicate brighter
prospects and probably an equal number that see a softening after an initial
burst of growth. Our reading of key markets indicates to us that we should
maintain a prudent approach to our business. Consequently, we will continue to
be cautious and strive to manage our company with professionalism and diligence.
Steve Smith
Chairman
25 November 2003
For further information, please contact:
European Colour
Steve Smith, Chairman Tel: +44 (0) 161 480 3891
Buchanan Communications
Charles Ryland/Suzanne Brocks Tel: +44 (0) 20 7466 5000
Consolidated Profit and Loss Account
6 months ended 30 September 6 months ended 30 September 12 months ended 31 March
2003 2002 2003 (audited)
(unaudited) (unaudited)
Continuing Discontinued Total Continuing Discontinued Total Continuing Discontinued Total
operations Operations operations operations operations Operations
Note #'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000 #'000
Turnover 14,837 - 14,837 17,441 6,418 23,859 32,510 6,418 38,928
Gross profit 4,008 - 4,008 4,448 2,857 7,305 7,968 2,857 10,825
OPERATING
PROFIT/LOSS
Before goodwill 625 - 625 1,222 1,401 2,623 1,556 1,434 2,990
amortisation and
exceptional items
Exceptional (364) - (364) (114) - (114) (1,051) - (1,051)
items
Share of - - - - - - (562) - (562)
operating loss in
joint venture
- exceptional items
Amortisation (68) - (68) (73) - (73) (142) - (142)
of goodwill
193 - 193 1,035 1,401 2,436 (199) 1,434 1,235
Provision 2 - - - - (201) (201) - - -
for costs
incurred on
disposal of
subsidiary
Loss on disposal - - - - - - - (4,237) (4,237)
of discontinued
operations
Net interest (45) - (45) (494) 27 (467) (1,157) 22 (1,135)
payable
PROFIT 148 - 148 541 1,227 1,768 (4,137)
BEFORE TAX
Tax 2 (76) (685) (863)
PROFIT AFTER 72 1,083 (5,000)
TAX
Paid and - (148) (345)
proposed
dividends
RETAINED
PROFIT 72 935 (5,345)
Headline 4 0.88p 2.98p 2.49p
earnings per
share
Earnings per 4 0.16p 2.22p (11.07p)
share
(basic)
Earnings per 4 0.16p 2.22p (11.07p)
share
(diluted
Consolidated Balance Sheet
Notes 30 September 30 September 31 March
2003 2002 2003
(unaudited) (unaudited) (audited)
#000 #000 #000
FIXED ASSETS Intangible assets 2,077 2,448 2,242
Tangible assets 7,864 9,940 7,696
Investments 438 948 405
10,379 13,336 10,343
CURRENT ASSETS Stocks 4,705 6,435 4,824
Debtors 6,221 9,624 6,341
Cash 408 71 462
11,334 16,130 11,627
CREDITORS - less than one year
Borrowings (1,479) (4,624) (1,748)
Other (5,343) (7,820) (5,152)
(6,822) (12,444) (6,900)
NET CURRENT ASSETS 4,512 3,686 4,727
TOTAL ASSETS LESS CURRENT LIABILITIES 14,891 17,022 15,070
CREDITORS - greater than one year
Other (27) (7,203) -
Deferred taxation (612) (590) (611)
Other provisions (285) - (285)
TOTAL NET ASSETS 13,967 9,229 14,174
CAPITAL AND RESERVES
Called up share capital 2,330 2,480 2,330
Share premium account 4,864 4,864 4,864
Capital redemption reserve 550 400 550
Revaluation reserve 429 438 434
Special reserve - 3 3
Profit and loss account 6 5,794 1,044 5,993
SHAREHOLDERS' FUNDS 13,967 9,229 14,174
Attributable to:
Equity shareholders' funds 13,967 8,179 14,174
Non-equity shareholders' funds - 1,050 -
Total shareholders' funds 13,967 9,229 14,174
Consolidated Cash Flow Statement
6 months ended 6 months ended 12 months
30 September 30 September ended
2003 2002 31 March
(unaudited) (unaudited) 2003
(audited)
#000 #000 #000
Net cash inflow from operating activities 1,254 1,885 2,253
Dividends from joint ventures - - 27
Returns on investments and servicing of finance (126) (510) (828)
Tax paid 11 (317) (99)
Capital expenditure and financial investment (679) (519) (769)
Proceeds of disposal - - 12,515
Less cash disposed of with subsidiary - - (562)
Equity dividends paid (195) - (95)
Cash inflow before financing 265 539 12,442
Financing (46) 721 (7,475)
Preference share redemptions - (1,000) (2,105)
Increase in cash in the period 219 260 2,862
Reconciliation of net cash flow to movement in net debt
Increase in cash in the period 219 260 2,862
Cash inflow from increase in loans - (1,000) (1,500)
Cash outflow from repayment of loans and finance - 288 8,830
leases
Change in net debt resulting from cash flows 219 (452) 10,192
Exchange movement (4) 822 804
New finance leases (32) - -
Other non-cash movements - 30 (126)
Movement in net debt in the period 183 400 10,870
Net debt at 1 April (1,286) (12,156) (12,156)
Net debt at 30 September / 31 March (1,103) (11,756) (1,286)
Analysis of net debt At 1 April Cash Exchange Other non- cash At 30 Sept
2003 Flow differences changes 2003
#000 #000 #000 #000 #000
Cash 462 (54) - - 408
Overdrafts (1,248) 273 (4) - (979)
(786) 219 (4) - (571)
Debt due within one year (500) - - - (500)
Debt due after one year - - - - -
Finance leases - - - (32) (32)
Total (1,286) 219 (4) (32) (1,103)
Notes to the Financial Statements
1. The financial information set out above does not constitute the Company's
statutory financial statements for 2003 or 2002. Full accounts for the year
to 31 March 2003, on which the auditors gave an unqualified report, have
been delivered to the Registrar of Companies.
2. The interim report has been prepared on the basis of the accounting policies
set out in the March 2003 financial statements.
3. The charge for taxation on the profit for the period is based on the
estimated effective rate for the full year.
4. With the exception of the profit for the financial period and the prior
year adjustment, there were no recognised gains or losses in the group.
5. Earnings per ordinary share have been calculated using 44,902,760
(basic and diluted), being the weighted average of ordinary shares in issue
in the period (2002: 46,569,698 basic and 48,743,174 diluted)
Headline earnings per share has been stated before goodwill amortisation and
exceptional items and on a diluted basis. The directors consider that this
gives a better understanding of the group's earnings.
6. Copies of this report are being sent to all shareholders. Further copies
are available on request from the registered office of the Company.
7. Statement of retained profit:
30 September 2003 30 September 2002 31 March 2003
(unaudited) (unaudited) (audited)
#000 #000 #000
Reserves at 1 5,993 1,102 1,102
April
Transfer from revaluation reserve 5 7 11
Retained profit for the period to date 72 935 (5,345)
Preference share redemption - (1,000) (2,105)
Goodwill taken to the profit and loss - - 12,321
account on disposal
Write back of special reserve 3 - -
Foreign exchange (279) - 9
Reserves at 30 September / 31 March 5,794 1,044 5,993
Directors
Paul Deakin, Senior Independent Non-Executive Director
Nick Hawkins ACA, Non-Executive Director
George Hughes, Managing Director
Dr. David Ingles, Non-Executive Director
Steve Smith, Chairman
Senior Management Team
George Hughes, Managing Director
Neil McKinlay, Supply Chain Director
Brian Quinn, Sales and Marketing Director
Lee Schofield, Technology Director
Christine Thompson FCCA, Chief Financial Officer
Company Secretary
Lisa de Caux ACA
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BIBFTMMITBIJ