4th Nov 2005 07:00
Cookson Group PLC04 November 2005 4 November 2005 COOKSON GROUP plc - THIRD QUARTER 2005 TRADING UPDATE Third Quarter Highlights • Revenue up 1% (down 2% at constant exchange rates) • Trading profit up 16% (up 11% at constant exchange rates) • Return on sales increases by 0.9 points to 8.1% • 24% increase in headline profit before tax • Strong trading profit growth in Ceramics and Electronics divisions • Precious Metals division maintained its profitability despite difficult markets • Net debt £40m lower than 30 September 2004 Trading profit and headline profit before tax are stated before rationalisationcosts, amortisation of intangible assets, profit/(loss) relating to fixed assetsand disposal of operations, income from swap close-out and the write-off ofprepaid debt-raising fees. Commenting on the third quarter, Nick Salmon, Cookson's Chief Executive, said: "The improving profitability produced in the third quarter and year to datehighlights the solid progress we are achieving in implementing the strategicplan announced in January. With both our Electronics and Ceramics divisions under new leadership, continuedcost reduction across the Group, and a focus on newer technology products, weare making significant progress towards the divisional margin targets announcedat the start of the year. Given the market conditions we are experiencing, we continue to expect thatoverall performance for the full year will be slightly better than that achievedin 2004." Group - Trading results Third quarter Change 2005 2004 Reported exchange Constant exchange rates rates Revenue (£m) 411 408 +1% -2%Trading profit (£m) 33 29 +16% +11%Return on sales (%) 8.1 7.1 +1.0 points +0.9 points Group revenue in the third quarter was marginally down on the same quarter lastyear at constant exchange rates. Both the Ceramics and Electronics divisionsreported broadly flat revenue whilst the Precious Metals division's revenue wasdown 7%. However, once both the revenue of the brick-making businesses disposed of inDecember 2004 and the impact of lower tin prices in the Assembly Materialssector are excluded, revenue for the Group increased by 1%. Trading profit inthe third quarter was up by 11% (on a constant exchange rate basis) reflectingthe beneficial impact of cost reduction initiatives and increasing sales ofnewer technology, higher margin products. Significant progress has been madetowards the divisional margin targets announced at the Group's strategic reviewin January 2005, with the return on sales in the third quarter increasing bynearly one percentage point to 8.1%. Year to date Change 2005 2004 Reported exchange Constant exchange rates rates Revenue (£m) 1,206 1,225 -2% -2%Trading profit (£m) 88 81 +9% +7%Return on sales (%) 7.3 6.6 +0.7 points +0.7 points Revenue for the nine month period to 30 September 2005 was £1,206m, down 2%compared to the equivalent nine month period last year both at constant andreported exchange rates. Once both the revenue of the brick-making businessesdisposed of in December 2004 and the impact of lower tin prices in the AssemblyMaterials sector are excluded, revenue for the Group for the nine months was inline with the equivalent period last year. This reflected growth in both theCeramics and Electronics divisions, offset by a 17% decrease in the PreciousMetals division (at constant exchange rates). Trading profit year to date was£88m, an increase of 9% at reported exchange rates and 7% at constant exchangerates. Return on sales year to date was 7.3% compared to 6.6% in the equivalentperiod last year. Ceramics division Third quarter Change 2005 2004 Reported exchange Constant exchange rates rates Revenue (£m) 188 185 +2% -2%Trading profit (£m) 18 16 +13% +9%Return on sales (%) 9.7 8.7 +1.0 points +0.8 points Revenue for the Ceramics division was marginally down on the same quarter lastyear at constant exchange rates. Once the revenue of the brick-makingbusinesses disposed of in December 2004 is excluded, revenue for the divisionincreased by 3%. In the third quarter, steel production fell by 10% and 9%respectively in the division's main markets of NAFTA and Europe. In China - theworld's largest steel producing country and where the division has a strongpresence - output grew by 26%. Overall, worldwide steel production grew by 4%.At the time of the Group's interim results, it was noted that the strong growthin global steel production experienced in the first half was expected tomoderate in the third quarter as global inventories corrected. Whilst there havebeen some cut-backs in steel production in the third quarter, notably in NAFTAand Europe, the extent of these reductions has been less marked than expectedwith a number of these production cut-backs likely to be deferred into thefourth quarter. As a result of these deferrals, the fourth quarter is expectedto be weaker than both the third quarter of this year and the equivalent quarterof last year. Whilst there is limited visibility beyond this point, growth inglobal steel production is expected to continue in 2006. Trading profit for the Ceramics division increased by 9% at constant exchangerates, reflecting not only the recent investment in new production capacity inemerging economies (such as China, Brazil and Poland), but also therestructuring of facilities and disposals in the more mature markets of theUnited States and Europe. The return on sales for the division increased from8.7% to 9.7% representing solid progress towards the 10% margin target outlinedin the January 2005 strategic review. Electronics division Third quarter Change 2005 2004 Reported exchange Constant exchange rates rates Revenue (£m) 163 159 +3% -Trading profit (£m) 16 13 +19% +15%Return on sales (%) 9.6 8.3 +1.3 points +1.2 points Revenue in the Electronics division reflected strong growth in Asia-Pacificoffset by weaker markets, both electronic and industrial, in the United Statesand Europe. Profitability has increased in all three of the sectors, drivenboth by the success of new, higher margin products and also the beneficialimpact of cost-saving initiatives. This resulted in a 15% growth in tradingprofit for the division as a whole. The return on sales has grown by over onepercentage point to 9.6%, just under the 10% margin target for this divisionoutlined in the January 2005 strategic review. Assembly Materials Third quarter Change 2005 2004 Reported exchange Constant exchange rates rates Revenue (£m) 77 73 +6% +3%Trading profit (£m) 8 6 +30% +26%Return on sales (%) 10.2 8.4 +1.8 points +1.9 points Revenue for the sector at £77m was up by 3% at constant exchange rates.However, underlying revenue growth was approximately 9% taking into account thenegative impact of lower tin prices passed onto customers. This increasereflects strong growth in Asia-Pacific more than offsetting declines in theUnited States and Europe. The transition to lead-free technology also gatheredsignificant momentum during the quarter with approximately 26% of all solderrevenue now being lead-free compared to 8% in the third quarter of last year.Trading profit increased by 26% at constant exchange rates reflecting the impactof lead-free solder products. The return on sales was 10.2%, a near twopercentage point increase compared to the third quarter of last year. Chemistry Third quarter Change 2005 2004 Reported exchange Constant exchange rates rates Revenue (£m) 53 53 - -2%Trading profit (£m) 7 7 +6% +2%Return on sales (%) 13.2 12.4 +0.8 points +0.5 points At £53m, the sector's revenue was marginally down on the third quarter of lastyear at constant exchange rates reflecting difficult electronic and industrialmarkets in the United States and Europe. This weakness was largely offset bystrong growth in Asia-Pacific combined with strong demand for the sector'smarket-leading copper damascene product used in the microelectronic industry.Trading profit increased marginally giving a return on sales of 13.2%, anincrease of half a percentage point. Laminates Third quarter Growth 2005 2004 Reported exchange Constant exchange rates rates Revenue (£m) 33 33 -1% -3%Trading profit (£m) 1 - +60% +75%Return on sales (%) 2.4 1.5 +0.9 points +1.0 points Third quarter revenue of £33m was 3% lower than the same quarter last year atconstant exchange rates. The migration of printed circuit board fabrication toAsia-Pacific continues with revenue for the sector's businesses in the UnitedStates and Europe declining slightly more than the growth in Asia-Pacific.Volumes of higher margin products, such as GETEK(TM) and other high temperature/reliability laminates were encouraging. Following a trading loss of £2.2m in the first half of this year, the sector hasreturned to profitability in the third quarter, reflecting both increased salesof higher margin products and the benefit of the cost-reduction programme inEurope starting to be reflected in the results. Production was streamlined inSweden in the second quarter and, following the reduction of laminates capacityin Germany in the first half of the year, in August the complete closure of theGerman facility was announced. This will take full effect in the fourthquarter. Given the recent stabilisation in overall sales, the improved marketpenetration of higher margin products and the beneficial impact of the Germanfacility closure, this improved performance should be maintained. Precious Metals division Third quarter Change 2005 2004 Reported exchange Constant exchange rates rates Revenue (£m) 60 64 -7% -7%Net sales value (£m) 25 27 -8% -9%Trading profit (£m) 2 2 -11% -15%Return on net sales value (%) 6.5 6.7 -0.2 points -0.5 points Revenue of £60m in the Precious Metals division was down 7% at constant exchangerates and, after excluding the precious metals content, net sales value was alsodown 9% at constant exchange rates. This reflected the depressed retailenvironment for precious metal jewellery products in all of the division's keymarkets, particularly in the United Kingdom. Despite very difficult marketconditions, the division has remained profitable due to the cost savinginitiatives enacted over the last year. These included headcount reductions inthe United States and the complete restructuring of operations in France. Group - Headline* and Reported results £m unless stated otherwise Third quarter Year to date 2005 2004 Change 2005 2004 ChangeHeadline* results:Trading profit 33 29 +16% 88 81 +9%Interest (7) (7) -3% (22) (24) -6%Share of post-tax profits of JV's 1 - 1 2Profit before tax 27 22 +24% 67 59 +13%Tax (8) (6) (20) (17)Profit after tax 19 16 +19% 47 42 +12%Earnings per share (pence) 10p 8p +25% 24p 20p +17%Reported results:Profit before tax - Headline 27 22 +24% 67 59 +13%Rationalisation of operating (4) (1) (12) (12)activitiesOther items (net)** (1) - 1 (2)Profit before tax - Reported 22 21 +5% 56 45 +24%Earnings per share (pence) 7p 7p -4% 15p 12p +31% * before rationalisation costs, amortisation of intangible assets, profit/(loss) relating to fixed assets and disposal of operations, income from swapclose-out and the write-off of prepaid debt-raising fees. ** other items (net) included amortisation of intangible assets, profit/(loss)relating to fixed assets and disposal of operations, income from swap close-outand the write-off of prepaid debt-raising fees. Headline profit before tax for the third quarter increased 24% to £27mreflecting a 16% increase in trading profits and a 3% reduction in the interestcharge. The effective tax rate was 30%, in line with the anticipated rate forthe full year included in the first half results. Headline earnings per shareof 10 pence were 25% higher than the third quarter of last year. Profit before tax on a reported basis of £22m reflects rationalisation chargesof £4m in the third quarter which related primarily to the restructuring of theLaminates sector's European operations in Sweden and Germany and the closure ofthe Ceramics division's facility in Oleggio, Italy. Charges for rationalisationfor the year to date totalled £12m (2004: £12m). Profit before tax for the year to date, as reported, of £56m is after a profitrelating to fixed assets of £1m (2004: £1m), interest income from swap close-outof nil (2004: £3m) and the write-off of prepaid debt raising fees of £1m (2004:nil). Profit arising on the disposal of operations for the year to date was £2m(2004: £6m loss). Group - Cashflow and Net debt Third quarter Year to date 2005 2004 Change 2005 2004 Change Free cashflow (£m) (2) (9) n/a (25) (30) +19%Net debt (£m) (383) (423) +9% Free cashflow for the third quarter was a little improved on the £9m outflow inthe comparable period last year. As in prior years, the fourth quarter isexpected to generate strong free cashflows to give positive free cashflow forthe full year. Free cashflow generated in the twelve months to 30 September2005 was £57m. Net debt at 30 September 2005 was £383m, £40m lower than 30September 2004, reflecting the strong free cashflow over the last twelve months. Outlook Based on current trading conditions, expectations for the fourth quarter are asfollows: As mentioned above, the Ceramics division experienced less of a market slow-downin the third quarter than had previously been expected with a number of steelproduction cutbacks likely to be deferred into the fourth quarter. It istherefore expected that fourth quarter trading will be weaker than that in thethird quarter but with growth returning in 2006. In the Electronics division, the trends experienced to date are expected tocontinue to the year end, with growth in Asia-Pacific offsetting previouslyreported slowdowns in Europe and NAFTA. Last year's fourth quarter resultsbenefited from the exceptionally high trading in high margin copper damasceneproducts which led to the overstocking issues reported for the first quarterthis year. This is not anticipated to be repeated in the fourth quarter thisyear. The difficult trading environment experienced by the Precious Metals divisionthroughout 2005 is expected to continue to the year end. Thus, while the fourthquarter's trading is expected to show the normal seasonal improvement over theprevious three quarters, it is expected to be weaker than the same period lastyear. The Group continues to expect overall performance for the full year to beslightly better than that achieved in 2004. Notes: (1) All financial information is preliminary and unaudited. The results forthe Group for the three months period and the nine months period ended 30September 2005 have been prepared in accordance with International FinancialReporting Standards (IFRS) and the comparatives have been restated accordingly. (2) This announcement contains forward looking statements about Cookson.Although the Company believes its expectations are based on reasonableassumptions, any such statements may be influenced by factors that could causeoutcomes and results to be materially different from those predicted. Theseforward looking statements are subject to numerous risks and uncertainties thatcould cause actual results to differ materially from those in such statements,certain of which are beyond the control of Cookson. A conference call for shareholders and analysts will be held today at 10:00am UKtime. This can be accessed via a live audio webcast at www.cooksongroup.co.uk. Shareholder/analyst enquiries:Nick Salmon, Chief Executive +44 (0)20 7061 6500Mike Butterworth, Group Finance Director +44 (0)20 7061 6500Isabel Vilela, Investor Relations Manager +44 (0)20 7061 6500 Media enquiries:John Olsen, Hogarth Partnership +44 (0)20 7357 9477 About Cookson Group plc Cookson Group plc is a leading materials science company which providesmaterials, processes and services to customers worldwide. The Group's operationsare formed into three divisions - Ceramics, Electronics and Precious Metals. TheCeramics division is the world leader in the supply of advanced flow control andrefractory products and systems to the iron and steel industry and is also aleading supplier of refractory lining materials for iron and steelmaking andother industrial processes. The Electronics division is a leading manufacturerand supplier of materials and services to the electronics industry, primarilyserving fabricators and assemblers of printed circuit boards, assemblers ofsemiconductor packaging and the electrical and industrial markets. The PreciousMetals division is a leading supplier to the jewellery industry of fabricatedprecious metals products. Headquartered in London, Cookson employs some 16,000 people in more than 35countries and sells its products in over 100 countries. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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