13 Sep 1999
Fairey Group plc, the international process technology group, announces results for the six months ended 3 July 1999. Key features of the announcement include:
- Sales down to £129m (1998: £135m) and pre-tax profits £13m (1998: £16.5m) due primarily to the impact of the Asian crisis and the cyclical downturn in the semiconductor industry
- Upturn in trading apparent in second quarter, which appears sustainable into the second half of the year
- Product gross margins have been maintained
- Development of the group continued with the acquisition of Servomex plc, a manufacturer of high specification gas analysis instrumentation
- Dividend increased by 5% to 3.35p (1998: 3.20p), reflecting the Board's confidence in the outlook for the group
Commenting on the results, Chief Executive John Poulter said:
´The results for the first half were adversely impacted by some of the most difficult trading conditions witnessed by Fairey in its 12 year history. I am however pleased to report signs of an upturn in trading and this positive trend has continued into the third quarter.´
´Despite the challenges faced by the group, we have husbanded our resources carefully and have not been deflected from continuing investment in Fairey's long term development including the acquisition of Servomex.´
Chairman´s statement
Overview
The first half year trading result reflected the very difficult climate which the group has experienced over the past 18 months after the Asian crisis manifested itself in the exaggerated cyclical swing in the semiconductor industry and reduced confidence in other manufacturing markets.
Results
Compared with the equivalent period in 1998, continuing sales were down 3% (£3.8m) and operating profit was down 13% (£2.3m). Our experience across the first half year was of a particularly weak first quarter followed by some improvement in the Spring. In achieving this result, on what for Fairey were unusually low volumes, benefits have come from cost restraints and a 14% headcount reduction since the beginning of 1998, although product development investment has been maintained throughout.The trading result masks considerable progress in upgrading product portfolios, market presence, manufacturing efficiency and systems in our businesses. In addition to volume pressures, there has been some selective price weakness, especially in Europe, and inflationary pressures associated with key technical skills which are in short supply, particularly in the United States. Management actions have, however, maintained product gross margins.
Operating review
All three of our business sectors showed some erosion in the sales line and this resulted in reduced operating profit. In Process Instrumentation and Filtration, these reductions were broadly consistent with the lower sales volumes. In Electronic Controls, the disproportionate fall in profit reflected substantial revenue investments made at Arcom. The company, which produces embedded communications and control devices for telecom-related collection of operational data, has invested heavily in new product offerings for the oil and gas, communication and transportation markets. This attenuated profitability in the first half but the positive effects are now being seen in accelerating order intake which will lead to strong growth in the second half and subsequently.
Outlook
Turning to the second half generally, our order intake curves have shown improvement during the latter part of the first half year and this has continued through July and August. The semiconductor equipment industry is recovering and orders have picked up steadily, although it will be some time before the levels of activity reach those seen in the mid-90´s. The recovery beginning to be apparent in Asia is benefiting our businesses, as is the improvement in U.S. manufacturing confidence. However, our companies exposed to more traditional industries, continue to experience depressed demand.
Overall, the upturn in the second quarter appears to be sustainable and we look forward to an improving trend in the second half year.
The group continues to have an excellent rate of conversion of profits into cash and used this to good advantage in the acquisition of Servomex plc immediately before the end of the half year. Servomex is an international group designing, manufacturing and selling high specification gas analysis instrumentation into a diversity of markets. Since acquisition, a new Managing Director has been appointed and a complex organisational structure rationalised. Peripheral operations are close to disposal and it is intended to increase investment in the core business. This acquisition is expected to enhance earnings per share in the current year before goodwill amortisation.
Keith Mackrell has retired, having completed six years service as a director of the group. I wish to record our thanks to him and to wish him good health and happiness in the future.
I am pleased to announce that we have appointed Mr. Martin Lamb to the Board as a non-executive director. Mr. Lamb is a director of IMI plc with responsibility for the global drinks dispense business. His wide business and technical experience, both here and in North America, will be of considerable value and we welcome him to the Board.
The Board intends to pay an interim dividend of 3.35p, a 5% increase on that paid in the previous year, reflecting continuing confidence in the outlook for the group. It will be paid on 12th November, 1999 to shareholders on the register at 15th October, 1999.
Sir Robin Biggam, Chairman, 13 September 1999
