Yule Catto on track despite headwinds

Specialist chemicals maker Yule Catto said profitability from January 1 to date has been substantially ahead of the previous year and in line with company expectations despite a challenging environment.

"The economic issues, particularly in Europe, have produced an environment of high raw material volatility and a general lack of business confidence," the group said in a statement.

In its Europe and North America segment, volumes in the first quarter fell 11% from what was a strong start to 2011, but remained 14% ahead of the fourth quarter of 2011 following weakness in sales to the construction sector.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Margin management has more than compensated for the lower volume levels, and together with the benefit of the planned synergies, the segment operating profit was substantially ahead of prior year, it added.

At its Asia and rest of world segment, the Construction and Coatings business unit showed good year on year improvement. However, in Health and Protection, demand remained subdued, it said.

Synergies reached an annualised run rate of £20m at the end of March and remains on track for £25m at the end of first quarter next year. This represents a £15m full year synergy benefit to 2012 operating profits compared to prior year.

Meanwhile Yule Catto's latex expansion in Malaysia remains on track for production in the fourth quarter as demand increases.

"The environment remains both challenging and volatile. Against this background, the board is pleased with the group's financial performance year to date, and its expectations for the performance of the group over the remainder of the year remain unchanged," the group said.

Yule Catto, which made just over half of its operating profit in the euro zone in 2011, said it had noted the euro recently hit 1.25 against sterling.

The translation effect of a one cent movement in the euro equates to approximately £0.5M of operating profit, it said.

Net debt at the end of April was £171m, up slightly on the year-end position of £164m.

CJ