TI Group Announces Interim Results for the 6 Months Ended June 30, 2000
3 August 2000
TI Group Announces Interim Results for the Six Months Ended June 30, 2000
Business Editors
NEW YORK - TI Group--
Sales Up 35% to (pound)1,679m
PBT Up 12% At (pound)146.5m
(before goodwill and exceptional items)
Half Year to 30 June 2000 1999 Change
Total Sales (pound)1,679m (pound)1,248m +35%
Profit before taxation
- Before goodwill and
exceptionals (pound)146.5m (pound)130.4m +12%
- After goodwill and
exceptionals (FRS3) (pound)117.8m (pound)104.0m
Earnings per share
- Before goodwill
and exceptionals 20.1p 18.2p +10%
- After goodwill and
exceptionals (FRS3) 14.5p 13.6p
Dividend per share 6.1p 5.8p +5%
-- Strong first half performance underpinned by global businesses.
-- High level of free cash flow at(pound)146m (1999:(pound)108m).
-- Strong underlying businesses supported by increasing
contribution from acquisitions.
-- Significant level of contract wins across all businesses.
-- Group continues on track - good top line and double-digit
profit growth.
"The Group has achieved a strong first half result, with
double-digit growth in both sales and profit, and a high level of cash
generation. We have started the second half with healthy order books
and the acquisitions are making an increasing contribution to our
performance. The Board is confident that the Group will produce strong
revenue growth along with double-digit profit growth and strong cash
flow."
W J Laule Sir Christopher Lewinton
Chief Executive Chairman
INTERIM RESULTS
UK-based TI Group today reports strong results for the six months
to June 30, 2000 with sales up 35% to (pound)1,679m (1999:
(pound)1,248m) and profit before tax, goodwill and exceptional items
up 12% to (pound)146.5m (1999: (pound)130.4m). Earnings per share
before goodwill and exceptional items increased by 10% to 20.1p (1999:
18.2p).
The (pound)1.5bn of acquisitions made in the last two years have
strengthened TI Group's world leadership positions and have doubled
the size of its addressable markets to some (pound)18bn, bringing
significant growth opportunities. All the acquisitions are being
successfully integrated and are making an increasing contribution to
the Group's performance in line with expectations.
PERFORMANCE SUMMARY
TI Group's world leader businesses all continued to perform
strongly against their underlying markets. John Crane, serving both
the process and marine industries, continued to strengthen its market
position and secure valuable new business. Although revenue was down,
due largely to weak process markets and delivery phasing in the marine
business, John Crane overall is well positioned to continue to gain
market share and to resume growth as the process industry recovers, as
anticipated, next year. TI Group Specialty Polymer Products performed
strongly, benefiting from an improved marketing culture and branding,
from further globalisation of its product range, and from the
acquisition of Busak+Shamban in October 1999. TI Group Automotive
Systems delivered strong growth, particularly in Europe and North
America. Following the acquisition of Walbro in June 1999, the
integration of which is proceeding successfully, the business has won
important new contracts to supply fully integrated fuel storage and
delivery systems. Dowty performed ahead of expectations as the
underlying civil aerospace cycle began to soften. The business
benefited from its key position on a wide range of military, regional
and civil growth programs, and from continuing efficiency gains
throughout the business. It is anticipated that the aerospace business
will sustain a strong performance relative to the cycle and resume
year on year profit growth in 2001.
All four businesses are positioned to benefit from the recent
acquisitions and significant capital and revenue investment. Together
they will generate strong top line growth and double-digit profit
growth.
Sterling remained strong throughout much of the first half and the
year on year effects of changes in exchange rates were not material to
the translation of sales and profits of overseas subsidiaries. As a
global group, with some 80% of sales made in the country of origin, TI
Group has no material foreign currency transaction exposure.
Total sales for the half year were(pound)1,679m
(1999:(pound)1,248m), a 35% increase over 1999.
Profit before interest, goodwill and exceptional items was
(pound)185.1m, up (pound)36.4m or 24% from last year. The Group
operating margin was 11.0% (1999: 11.9%) principally reflecting the
impact of lower margin businesses acquired during 1999. Their margins
will progressively be improved to bring them more in line with the
Group's strong underlying margins which will also be progressively
strengthened.
Profit before taxation, goodwill and exceptional items was
(pound)146.5m, up (pound)16.1m or 12% from last year.
In line with FRS10, goodwill on acquisitions completed since
January 1, 1998 is being amortized over 20 years, resulting in a
non-cash charge of (pound)27.0m in the period (1999: (pound)14.3m),
with the increase reflecting the recent substantial acquisition
activity.
The exceptional charge against operating profit of (pound)2m
represents integration investment relating to Walbro and Marwal. The
remaining (pound)9m expenditure announced at the time of these
acquisitions will be incurred in the second half.
Net interest expense increased to (pound)38.6m (1999:
(pound)18.3m), reflecting the significant acquisition activity over
the last two years. The interest charge was covered 5 times (1999: 8
times) by profit before interest, goodwill and exceptional items.
The effective tax rate on profit before goodwill and exceptional
items was 31%, unchanged from 1999.
Earnings per share before goodwill and exceptional items were
20.1p (1999: 18.2p).
Capital and revenue investment increased by 29% to(pound)68m
(1999:(pound)53m). Within this, capital expenditure was(pound)46m
(1999:(pound)33m) and revenue investment, excluding the exceptional
integration investments of(pound)2m (1999:(pound)12m) referred to
above, was(pound)22m (1999:(pound)20m).
Cash flow from operations was again strong at (pound)190.5m (1999:
(pound)142.5m). After capital investment, free cash flow was
(pound)145.7m, 35% ahead of last year. Excluding exceptional items
this covered, as in previous years, the Group's net interest, tax and
dividend payments.
TI shareholders' funds were (pound)763.3m at June 30, 2000
(December 31, 1999: (pound)717.8m). Net debt at June 30, 2000 was
(pound)1,168m compared with (pound)1,161m at December 31, 1999.
TI Group launched two Eurobond Issues. (pound)150m of unsecured
fixed rate Bonds due 2010 were issued on 27 June with a coupon rate of
7.875%. (pound)300m of unsecured fixed rate Bonds due 2005 were issued
on 4 July with a coupon rate of 6.375%. Both issues have been admitted
to the Official List of the London Stock Exchange and are rated A3 and
BBB+ by Moody's and Standard & Poor's respectively. The Eurobonds have
extended the maturity of (pound)330m of debt outstanding to between 5
and 10 years.
The Board has declared an interim dividend of 6.1p per Ordinary
Share, an increase of 5%, which will be paid on October 11, 2000 to
shareholders on the register at the close of business on August 18,
2000.
OPERATIONS
John Crane
John Crane, the world leader in the supply of engineered sealing
solutions and related products for process, marine and general
industrial applications, saw process industry markets remain weak.
Sales were down 5% at (pound)324.8m (1999: (pound)341.9m), with
operating profits down 16% at (pound)30.9m (1999: (pound)37.0m)
reflecting pricing pressure in the current industrial markets. Overall
margins softened to 9.5% (1999: 10.8%) reflecting phasing of
deliveries in marine and weaker performance in the capital project
related vacuum and filtration markets. However, margins in the
underlying Mechanical Seals business improved during the first six
months of the year. The acquisitions made in the last two years have
increased John Crane's addressable markets to over (pound)4bn. John
Crane is well positioned for growth.
Industry consolidation is still causing new capital investment to
be held back in John Crane's important oil, gas and petrochemical
markets notwithstanding the recovery in the oil price. In addition,
with capacity utilization across a number of segments showing little
improvement, end users in process industries continue to constrain
maintenance budgets. Against this difficult market backdrop, John
Crane continued to capture market share benefiting from its world
leadership position with its unrivalled global sales and service
capability, broad product portfolio and strong customer base.
In the first half, John Crane won several important new contracts.
These include a number of full service maintenance contracts with
Shell Oil in the UK and DSM in the Netherlands, among others. In
addition, John Crane secured a number of important OEM contracts
including new projects for Elf, the Sincor refinery in Venezuela and
the Athabasca Oil Sands Project in Alberta.
Marine markets remained firm, with commercial shipbuilding,
particularly in Asia Pacific, remaining at high levels and with
continuing demand for cruise ships and cable laying vessels for the
telecommunications industry. The timing of orders has weighted
deliveries more heavily into the second half of the year. The
cooperation agreement recently signed with Wartsila NSD to market
integrated marine power and propulsion systems provides John
Crane-Lips with significant growth opportunities through enhanced
access to new build, servicing and maintenance work.
Looking forward, whilst it is not anticipated that there will be
any material recovery in John Crane's process industry markets in the
current year, the business is well positioned to improve profitability
in the second half. This improvement reflects benefits from the
acquisitions made over the last two years, improvements in the marine
business with deliveries weighted to the second half, and the
investment it has made in advanced IT business and engineering
systems.
TI Group Specialty Polymer Products
TI Group Specialty Polymer Products, a world leader in applied
polymer sealing technology for industrial, automotive and aerospace
markets, performed strongly. Sales were up 66% at (pound)214.6m (1999:
(pound)128.9m) and operating profit was up 73%, in line with
expectations, at (pound)31.2m (1999: (pound)18.0m). Margins improved
by 0.5 percentage points to 14.5%, reflecting increasing focus on
value added products, cost efficiencies and early benefits from the
integration of Busak+Shamban, which was acquired in October 1999 and
is on course to achieve the synergies and growth expected at the time
of acquisition.
The acquisition of Busak+Shamban significantly enhanced the
Group's presence in the advanced polymer sealing market. TI Group
Specialty Polymer Products now has one of the most comprehensive
portfolios of polymer sealing solutions for its markets, coupled with
extensive proprietary knowledge of materials and applications, and
world leading marketing and distribution capabilities.
During the first half, industrial markets, particularly in North
America, remained firm. Activity was strong in the semiconductor
markets and demand for rail gangways continued to expand. The market
for concrete pipe seals remained subdued, although the market for
plastic pipes was strong with important contract wins in both Europe
and North America providing good opportunities for polymer sealing
systems.
In aerospace, demand was sustained at high levels, particularly
reflecting build levels at Airbus on the A320-321 series. In the
military market, TI Group Specialty Polymer Products was selected as
the sole supplier for canopy and windscreen seals on the
Eurofighter/Typhoon program. The new grouping of TI Group Specialty
Polymer Products' aerospace sealing activities under the strong
Shamban aerospace brand will bring further opportunities for growth.
In automotive, TI Group Specialty Polymer Products benefited from
the high build rate in North America and the increasing complexity of
sealing demands. For example, the division won a significant contract
to supply Siemens Automotive with the entire polymer sealing
requirements for the next generation of natural vacuum leak detection
systems developed to meet new emission legislation. Demand for airbags
remained strong as manufacturers stepped up the level of fitment on
new models, with recent contracts for VW, Fiat and Jaguar.
In the half year, TI Group Specialty Polymer Products launched the
new high temperature grade of its Isolast(TM) proprietary range of
sealing products. The material is used in applications for chemical
processing, semiconductor manufacture, pharmaceutical plants and oil
and gas. Overall, Isolast(TM) orders are now running at record levels.
Going forward, TI Group Specialty Polymer Products is well placed
in an expanding (pound)4bn addressable market to achieve a high level
of growth with continued margin improvement, focusing on opportunities
where its extensive proprietary knowledge of materials and
applications brings significant value added to its customers.
TI Group Automotive Systems
TI Group Automotive Systems, the world leader in fluid storage and
delivery systems, continued to outperform the underlying global
automotive market. Its strong results reflect the acquisitions of
Walbro and Marwal and the increasing value added it is achieving from
the design and supply of proprietary systems. Sales increased by 76%
to (pound)847.7m (1999: (pound)481.6m) and operating profit by 52% to
(pound)90.0m (1999: (pound)59.1m). Margins fell to 10.6% (1999:
12.3%), reflecting solely the initial impact of Walbro's and Marwal's
lower margins, which are showing improvement.
Car and light truck production reached record levels in North
America, and Europe saw new build rise as economies strengthened,
particularly in France where TI Group Automotive Systems has good
positions on the highly successful PSA and Renault product ranges.
Latin American markets have recovered from their low point in 1999
and, in the Asia Pacific region, India and Korea have been
particularly strong. In refrigeration, North American markets remained
buoyant, while Asia Pacific, Latin American and European markets
continued to improve.
TI Group Automotive Systems has won around $1bn of new platform
business in the first half, including major contracts from
DaimlerChrysler, on the Mercedes C-class, Ford, on the new Ranger
sports utility platform, and GM on the Blazer light truck program.
These contract wins include significant orders for integrated fuel
storage and delivery systems, underlining the strategic importance of
the Walbro acquisition. This acquisition established TI Group
Automotive Systems as the only independent supplier with design and
manufacturing capability in complete proprietary fuel storage and
delivery systems. In combination with its world leading brake line and
powertrain products, TI Group Automotive Systems is now achieving
values on new business in excess of $200 a vehicle, compared with an
average of only $30 a few years ago. TI Group Automotive Systems is
currently on 87 of the top 100 platforms in production around the
world.
Air conditioning penetration continued to grow and TI Group
Automotive Systems successfully transferred its air conditioning
technology from North America to Europe where production began for the
GM Corsa which is due to be manufactured in four countries.
Walbro Engine Management is benefiting from better management
focus following its reorganization into one global business. Lean
manufacturing initiatives have produced rapid productivity
improvements.
The refrigeration business has performed well. The delivery into
North American markets of patented "Optimiser" no-frost evaporator
systems, developed to meet new energy efficiency regulations, has
successfully begun from a state of the art Greenfield facility in
Monterrey, Mexico.
For the remainder of the year, the automotive markets in North
America and Europe are expected to remain strong, with Latin America
and Asia Pacific set to improve further. The acquisitions made over
the last two years have increased TI Group Automotive Systems'
addressable markets by over (pound)4 bn to (pound)7 bn, and broadened
its system capability, creating significant growth opportunities. TI
Group Automotive Systems is well positioned going forward to sustain
significant outperformance over its underlying markets, with further
margin improvement to come over time as Walbro and Marwal are fully
integrated.
Dowty
Dowty, a world leader in specialized aerospace systems, performed
well in the first half and ahead of expectations at this point in the
civil aerospace cycle. Sales were down 1% at (pound)291.7m (1999:
(pound)295.2m) with profits down 3% at (pound)35.5m (1999:
(pound)36.7m). Profit margins were broadly unchanged over the prior
year.
As anticipated, the civil aerospace cycle began to soften during
the first half, reflected in a decrease in Boeing deliveries, although
Airbus saw some growth. The market for regional aircraft continued to
increase and Dowty's military market saw steady activity which is
expected to be sustained going forward. Against these market trends,
Dowty saw, as expected, a softening in hydraulics and actuation
activity but it continued to increase its share of the turbine engine
component market through significant outsourcing wins.
Dowty won important new contracts totalling over $300m during the
first half, including contracts worth $200m from Hurel-Dubois as the
preferred supplier of thrust reverser actuation systems, a product in
which Dowty has the world leadership position. This alliance with
Hurel-Dubois significantly strengthens Dowty's position on key
programs in the expanding regional jet aircraft market and marks a
breakthrough for Dowty as a supplier of thrust reversers on Airbus
aircraft. In addition, Tri-Industries secured a long-term agreement
with GE for redesigned air manifolds on the successful CFM56 engine as
well as an initial production order for Pratt & Whitney's F119 engine
sidewall and air pump components. Hamble, which is continuing to
perform well with margins now in excess of 10% (1999: 8%), won a
production contract worth around US $50m, to supply supersonic fuel
tanks to the Eurofighter/Typhoon program.
Dowty is set to benefit from the UK Ministry of Defence's decision
to lease four Boeing C-17 Globemaster III aircraft and to order 25 of
the new Airbus A400M to meet its requirement for heavy lift aircraft.
Dowty is on a wide range of key growth programs including regional
jets and military aircraft, and has a strong aftermarket position. Its
spread of activities, in a (pound)3bn addressable market, will reduce
its exposure to softening civil deliveries at Boeing and, going
forward, enable it to sustain a strong performance relative to the
cycle with growth returning in 2001.
E-Business
In order to take full advantage of the opportunities that are now
presenting themselves with the emergence of web technology, the Group
is continuing to progress a series of significant initiatives both on
the `buy-side' and the `sell-side' of its supply chain.
Through the previously announced arrangement with the world's
primary e-procurement vendor (Ariba), pilot activity for each of the
four divisions was up and running in 40 days. The latter half of the
year will see an extension of this capability deeper into the supplier
community unlocking pricing and performance benefits as expected.
In the US, John Crane and TI Group Specialty Polymer Products are
well advanced in implementing focused e-commerce sales portals,
initially for a limited number of key customers. Lessons from these
activities will be leveraged across the Group to support TI Group
Automotive Systems and Dowty in the work that they are undertaking to
come online with the industry standard portals that are evolving in
their respective markets.
Such e-initiatives, together with the appointment in May of TI
Group's first Chief Information Officer, will enable the Group to
drive forward its e-business program as a strategic plank to support
accelerated growth.
OUTLOOK
The Group has achieved a strong first half result, with
double-digit growth in both sales and profit and a high level of cash
generation. It has started the second half with healthy order books
and the acquisitions are making an increasing contribution to
performance. The Board is confident that the Group, with its focus on
its world leader businesses, will produce strong revenue growth along
with double-digit profit growth and strong cash flow.