15th Mar 2005 07:02
Cookson Group PLC15 March 2005 15 March 2005 ANNOUNCEMENT OF 2004 PRELIMINARY RESULTS 2004 2003 Increase/(decrease) vs. 2003Continuing Operations Reported rates Constant ratesTurnover £1,698m £1,624m +5% +11%Operating profit* £119.6m £81.2m +47% +60%Return on sales* 7.0% 5.0% +2.0 pts +2.1 pts GroupProfit/(loss) before tax - headline* £93.1m £32.6m +186% - basic £(18.7)m £(187.3)m Earnings per share - headline* 3.3p 1.1p +200% - basic (2.7)p (10.9)p Free cash flow £51.6m £15.7m +£35.9mNet debt £306.9m £358.5m £(51.6)m *(before amortisation of intangibles and exceptional items) Highlights • Operating profit up 60% at constant exchange rates - all three divisions record strong increases in operating profit• Significant improvement in return on sales• Headline EPS increases three-fold• Marked reduction in net debt• New £200 million bank facility announced in March 2005• Strategic review concluded Commenting on the Group's results and current trading, Nick Salmon, ChiefExecutive, said: "2004 has shown a further strong improvement in Cookson's performance, withsignificantly enhanced profitability across all three divisions and a muchimproved balance sheet. This stemmed from healthy growth in our mainend-markets and the benefits of extensive restructuring and repositioningactions. We have also improved Cookson's risk profile over the past two yearsby eliminating some of the most cyclical and underperforming elements of thebusiness. "Trading in the early weeks of 2005 suggests that the robust market conditionsexperienced by the Ceramics division in 2004 are continuing. In the Electronicsdivision, there was evidence in late January and February that customers werede-stocking inventories of some higher margin products, although momentum nowappears to be returning. The relatively weak retail trading environment whichimpacted the Precious Metals division throughout the second half of 2004 remainsbut many jewellery industry observers remain optimistic of a recovery. "From this position, we are confident that we can deliver additionalimprovements as we execute our strategy to enhance operational performance,strengthen our balance sheet further via the disposal programme and build on ourcore businesses." OVERVIEW Summary of Group results Turnover for the Group's continuing operations of £1,698 million was 5% higherthan 2003 at reported exchange rates and 11% higher at constant rates.Operating profit of £120 million rose by 47% over 2003 at reported rates and by60% at constant rates. This, in turn, resulted in a 2 percentage pointimprovement in return on sales in 2004 at reported rates to 7%. Higher operating profit from continuing activities, the eradication of lossesfrom discontinued businesses and lower interest costs led to a marked increasein Group profit before tax, amortisation of intangibles and exceptional items to£93 million, up from £33 million in the prior year. Headline earnings per shareincreased three-fold to 3.3p compared with 1.1p in 2003. Exceptional operating charges of £23 million were incurred in 2004 as the Groupcontinued to streamline and rationalise operations. Non-operating exceptionalcosts of £57 million arose from the further divestment of non-core andunderperforming businesses. Amortisation of intangibles amounted to £33million. As a consequence, the loss for 2004 after all exceptional items andamortisation of intangibles was £50 million (2003: £205 million loss). Continued tight management of working capital and capital expenditure, as wellas strong cash generation in the fourth quarter and a positive exchange rateeffect, resulted in Group net debt at the year end falling by £52 million to£307 million. In March 2005, the Group's £148 million secured committed bank facility wasreplaced with a new £200 million bank facility. The new facility has a term ofthree years, with options to extend for a further two years. It is unsecured,with all security and guarantees attached to the previous facility being fullyreleased, and contains improved pricing and terms. Strategic Initiatives and Strategic Review Action was taken during 2004 to address underperforming businesses, as outlinedbelow. These measures are expected to yield improved operating results goingforward and to improve the Group's risk profile by significantly reducing itsexposure to highly cyclical markets. • Restructuring of Precious Metals in Europe: two manufacturing sitesin France were closed during 2004 and seven sales offices were consolidated intothree. European production was reorganised to focus on gold products in the UKand silver products in Spain. Completion of this programme will take place inthe second quarter of 2005. • Restructuring of Electronics in the USA and Europe: in the secondhalf of the year, a further phase of restructuring in the Laminates sectorcommenced in the USA and Germany, including rationalisation of the US-baseddivisional head office. Completion of the US initiatives and implementation ofa social plan in Germany, which has been agreed with the local unions, arescheduled to take place in the first half of 2005. • Disposals and rationalisation in Ceramics: as part of the strategyto exit low margin commodity activities, two brickmaking businesses based inBelgium and Germany were sold in December 2004. In addition, three facilitieswere rationalised in the USA with production transferred to existing sites inthe USA and Mexico. • Sale of fraternity rings business: this non-core Precious Metalsbusiness was sold in December 2004. After his appointment in July 2004, Chief Executive Nick Salmon, together withthe Board, conducted an in-depth strategic review, the outcome of which waspresented to the financial markets on 18 January 2005. The main conclusions arising out of the strategic review were that: - there has been a common misconception that Cookson is a pureelectronics company. In reality, since the disposal of the loss-makingequipment business Speedline and the restructuring of Laminates, less than 30%of Group sales and profits come from electronics markets; - all of the Group's main businesses command strong market shares andtechnology positions and have production facilities that are well adapted totheir geographic markets, however more can be done to improve performance; - the Group has adequate financial resources. The new £200 millionunsecured bank facility is a clear and tangible confirmation of the Group'simproved financial condition and prospects; and - disposal of one of the two larger divisions or a demerger of the Groupinto its constituent parts is unlikely to create shareholder value for a numberof reasons, including significant earnings dilution. As a result of the review, the Group will pursue a strategy which incorporatesthe following: • Operational focus will be on developing the performance of theGroup's core businesses by capitalising on existing strong market shares andtechnological expertise and investing further in growing markets. Operationalimprovement plans are being introduced at all businesses designed to producemarked gains in competitiveness, profitability and cash generation. • Debt will be reduced significantly over the next 2-3 years through acombination of stronger operational cash flow - from improved profitability andworking capital management - and a disposal programme which aims to raise over£100 million from the sale of a number of non-core businesses across all threedivisions. • Specific financial targets set for each division for the next threeyears envisage a return to double digit return on sales being achieved acrossthe Group by the end of 2007. • The Board intends to return Cookson to the dividend list as soon aspossible, with dividends funded on an ongoing basis from free cash flow. CURRENT TRADING AND OUTLOOK Trading in the early weeks of 2005 suggests that the robust market conditionsexperienced by the Ceramics division in 2004 are continuing. In the Electronicsdivision there was evidence in late January and February that customers werede-stocking inventories of some higher margin products, although momentum nowappears to be returning. The relatively weak retail trading environment whichimpacted the Precious Metals division throughout the second half of 2004 remainsbut jewellery industry observers generally remain optimistic of a recovery. From this position, we remain confident that we can deliver additionalimprovements as we execute our strategy to enhance operational performance,strengthen our balance sheet further via the disposal programme and build on ourcore businesses. RESULTS OF OPERATIONS Note. The data provided in the tables on pages 4 to 8 are at constant exchangerates, i.e. expressing 2003 results at 2004 exchange rates, as this provides amore meaningful comparison of underlying trading performance. Reported resultsfor the year for the Group and each division can be found in the financialstatements and notes on pages 15 to 20. In addition, all information: excludesthe results of discontinued operations in 2003, primarily Speedline; excludesthe Group's share of results attributable to joint ventures (unless statedotherwise); and states operating profit before amortisation of intangibles andexceptional items. The impact of acquisitions was immaterial in 2004 and 2003. Group - Continuing operations Turnover (£m) Operating Profit (£m) Return on Sales (%) 2004 2003 2004 2003 2004 2003 First half 842 746 55.1 29.8 6.5 4.0 Second half 856 778 64.5 45.2 7.5 5.8 Year 1,698 1,524 119.6 75.0 7.0 4.9 Turnover for the Group's continuing operations, including joint ventures, was11% higher in 2004 than 2003. In the second half of 2004, turnover increased by10% over the second half of 2003 and fourth quarter turnover of £437 million was4% higher than the same quarter last year. These growth rates reflect the factthat Group performance had begun to recover in the second half of 2003,particularly in the fourth quarter of that year. Higher profits across all three divisions resulted in a 60% increase inoperating profit in 2004; fourth quarter operating profit of £35.6 million was18% higher than the same quarter last year. All three divisions registeredimprovements in operating profit for the year over 2003: Ceramics increased by£10.6 million (23%), Electronics was £30.0 million (154%) higher and PreciousMetals was up £1.7 million (23%). Profits from joint ventures rose by £2.3million at constant exchange rates to £4.0 million. Return on sales for the Group's continuing operations improved by 2.1 percentagepoints in 2004 to 7.0% and has risen sequentially in each half year since thebeginning of 2003. All divisions recorded year-on-year rises in return on sales. The fastest growing and most profitable region for the Group continued to beAsia-Pacific which accounted for 24% of the Group's customer base in 2004 and47% of operating profit. The USA remained the Group's largest region in termsof turnover, representing 30% of the total in 2004. There was a majorimprovement in profitability in this region where the rationalisationinitiatives outlined above, and others that had commenced in 2003, began to bearfruit. Ceramics division Turnover (£m) Operating Profit (£m) Return on Sales (%) 2004 2003 2004 2003 2004 2003 First half 358 330 25.9 22.4 7.2 6.8 Second half 381 337 30.9 23.8 8.1 7.1 Year 739 667 56.8 46.2 7.7 6.9 (Note. Data shown for the Ceramics division excludes the share of resultsattributable to joint ventures.) Market Conditions Approximately 70% of the Ceramics division's turnover is linked to the level ofsteel produced in the markets in which it operates. Global steel productionsurpassed one billion tonnes for the first time in 2004, rising 9% over theprevious year. Production in the division's established markets - the USA andEurope - was 5% higher year-on-year. China continued to be the world's largestproducer of steel, accounting for over 25% of total world production. Steelproduction in the division's other emerging steel markets remained strong,including India, Russia, Ukraine and Brazil. In the division's Foundry sector, activity is largely centred on US and Europeanmarkets and market conditions in this sector were, as is often the case, similarto those seen in the steel industry. The Industrial Processes sector has adiverse market base which experienced mixed conditions in 2004. In the Glasssector, furnace relining and glass output remained solid and sales for thesector's products grew soundly. Demand for solar energy - and thus for theGlass sector's crucibles used in the manufacturing of photovoltaic cells - wasrobust. Divisional Performance Turnover for 2004 of £739 million was 11% higher than 2003. Turnover for theIron & Steel sector rose 12% which was driven by the growth in steel productionin the regions in which it operates and was boosted by relatively low marginsupply and construction contracting. Turnover in the Foundry sector was upmarginally and was slightly lower for Industrial Products, whereas in the Glasssector, turnover grew strongly. Growth in turnover was steady throughout theyear and in the fourth quarter rose 9% to £195 million. Continental Europe and the UK collectively remained the division's largestregion, accounting for 41% of total turnover and the USA was the next largestwith 30% in 2004. Turnover in the Asia-Pacific region continued to grow stronglyand accounted for 13% of the total in 2004. The division registered another year of solid profit performance in 2004 withoperating profit increasing by 23% to £56.8 million. The year's results werepositively impacted by solid growth in profits by the Iron & Steel sector andparticularly strong growth in the Glass sector. As a result, return on salesfor the division improved by 0.8 percentage points to 7.7%. In the fourthquarter, operating profit was £15.9 million, up 20% over the same period in2003. Electronics division Turnover (£m) Operating Profit (£m) Return on Sales (%) 2004 2003 2004 2003 2004 2003 First half 308 258 23.3 6.3 7.6 2.4 Second half 318 269 26.2 13.2 8.2 4.9 Year 626 527 49.5 19.5 7.9 3.7 (Note. Data shown for the Electronics division and sectors excludes the shareof results attributable to joint ventures.) Market Conditions The Electronics division began to see a recovery in its markets in the fourthquarter of 2003 and trading conditions remained favourable throughout 2004.Double digit year-on-year growth rates were recorded by the electronics industryin the first three quarters of 2004 but, as anticipated, the rate of growthslowed in the fourth quarter. The electronics industry's established marketdrivers - PCs and mobile handsets - grew strongly in 2004 as did demand forconsumer electronic devices which are driving the industry to an increasingdegree. The Asia-Pacific region enjoyed the strongest industry growth in termsof both production and local end market demand; North America also grew, whereasactivity in Europe was subdued. In the division's non-electronics markets, which account for some 30% of itssales, sound conditions prevailed for the year, particularly in its automotiverelated markets in the USA, Europe and Asia-Pacific. Divisional Performance Turnover for the division rose by 19% in 2004. As for the wider electronicsindustry, the division's year-on-year turnover growth for each of the firstthree quarters was strong and averaged 23%. In the fourth quarter, as expectedgiven the strong recovery seen in the last quarter of 2003, turnover of £159million was up 8% year-on-year and unchanged sequentially. Higher turnover and the benefits of wide-ranging restructuring initiatives ledto operating profit for 2004 being more than twice that of 2003. Return onsales improved strongly year-on-year to 7.9% in 2004 and has grown sequentiallyfor each half year since the beginning of 2003. Operating profit in the fourthquarter was £14.3 million, an increase of 32% over 2003. Asia-Pacific continued to be the division's largest and most profitable region,again reflecting the experience of the wider electronics industry. In 2004,operations in Asia-Pacific accounted for 40% of the Electronics division'sturnover and three-quarters of its operating profit. The second largest region,the USA, contributed 27% of the division's turnover and, although onlymarginally profitable, recorded a vastly improved performance than in 2003 whenlosses of some £19 million were registered. Assembly Materials Turnover for the Assembly Materials sector grew by 28% in 2004 to £280 million.However, approximately two-thirds of this increase was related to a significantrise in the price of tin - the sector's major raw material - which rose by some70% and was, in the main, passed on to customers during the course of the year.In line with the division as a whole, the performance of the sector's operationsin the Asia Pacific region was particularly robust. Operating profit for the Assembly Materials sector grew by 48% in 2004 to £22.2million, helped by both higher volumes in the sector's surface mount andspeciality coatings product areas and by lower manufacturing costs. Return onsales for the year also improved, rising to 7.9%, despite the impact of sharplyhigher tin prices. Chemistry The Chemistry sector, whose sales address the electronics and industrial marketsin equal measure, experienced strong demand for PCB fabrication chemistries inAsia-Pacific whilst growth for these products was flat in Europe and contractedin North America. High margin semiconductor copper sales were robust on aworldwide basis. The industrial segments - particularly automotive - achievedsound growth across all regions. In addition, a decision was taken in the secondhalf of the year to withdraw from certain low margin, precious metal decorativeproducts. Overall, the sector's turnover was 5% higher year-on-year at £214 million.Operating profit improved markedly to £27.2 million, an increase of 45% over2003, and return on sales rose to 12.7% for the year. Laminates Market conditions for Laminates improved significantly in 2004, with demand forproducts related to high reliability server applications and lead free assemblyfuelling growth. The sector reported turnover of £132 million, 26% higher than2003. The improvement arose mainly from strong growth in Asia-Pacific, passingon higher raw material costs, the benefits of the new product introductions andsome important market share gains. Following heavy losses in the three previous years, the sector operated at oraround break-even during the year and, as a consequence, contributed ayear-on-year improvement in operating profit of £14.4 million. This resultedfrom both higher turnover and the benefits of the extensive cost cutting andcapacity realignment measures in the USA and Europe undertaken in 2004 and inprevious years. The US and European operations operated at a loss in 2004 andhence the focus of the restructuring and rationalisation initiatives remains inthese regions. In the sector's profitable Asia-Pacific operations, whichaccount for some 50% of turnover, the emphasis is on increasing capacity. Precious Metals division Turnover (£m) Operating Profit (£m) Return on Sales (%) 2004 2003 2004 2003 2004 2003 First half 151 139 3.3 0.4 2.2 0.3 Second half 137 151 6.0 7.2 4.4 4.7 Year 288 290 9.3 7.6 3.2 2.6 Market Conditions The Precious Metals division faced difficult market conditions again in 2004 asconsumer confidence remained depressed in the USA and Europe, the division'smain markets. The fourth quarter holiday shopping season was lacklustre acrossthe retail industry, including jewellery sales. White metals and gemstone itemscontinued to be popular with jewellery purchasers at the expense of the yellowgold items which are the division's core products. The gold price was volatile,as it had been in 2003, whilst maintaining an underlying upward trend. Divisional Performance The Precious Metals division's turnover for 2004 was 1% lower than 2003;excluding the precious metal content, the net sales value of £116 million wasalso 1% lower than 2003. After year-on-year growth of 8% in the first half,turnover fell by 10% in the second half. Higher turnover in the first halfreflects the non-recurrence of the US retailer de-stocking experienced in thatperiod in 2003, whereas sales in the second half were lower due to the weakholiday season and to an anticipated slippage in sales following the transfer ofthe division's French production capacity to the UK and Spain. Turnover in thefourth quarter was £73 million, 11% lower than the same period in 2003. Despite marginally lower turnover, the Precious Metals division's operatingprofit was 22% higher than 2003. This is due to the benefits of the cost savinginitiatives in the USA and France and to improved manufacturing efficiencies.Further improvement is expected in Europe once the programme to manufacture allgold products in the UK and silver in Spain has been fully implemented. Some55% of the division's net sales value originates from its US operations with thebalance in Europe, although the US operations remain significantly moreprofitable. Return on net sales value was 8.0%, 1.1 percentage points higherthan 2003. Fourth quarter operating profit was £4.8 million, 6% lower than thefourth quarter of 2003. Joint ventures Joint venture turnover in 2004 was £45.2 million, up 16% on 2003. Operatingprofit from joint ventures was £4.0 million, an increase of 135% on the prioryear. The majority of the joint venture results related to the Chemistry sector'sjoint venture in Japan. This business performed well, with turnover of £39.6million up 36% and operating profits increasing by £1.6 million to £3.5 millionon the back of a very strong performance in the first quarter of 2004. The Laminates sector's loss-making joint venture with Fukuda was wound up during2004 after recording sales of £1 million and an operating loss of £0.4 millionin the year. GROUP PROFIT AND LOSS Profit before tax, exceptional items and amortisation of intangibles £millions* 2004 2003 First half 42.0 5.5 Second half 51.1 27.1 Year 93.1 32.6 *(at reported exchange rates) Group profit before tax, exceptional items and amortisation of intangibles was£93.1 million for 2004, which was £60.5 million higher than 2003. This increasearose as follows: • £44.6 million (60%) increase in operating profit from continuing operations at constant exchange rates; • eradication of losses of £17.0 million that were incurred by operations discontinued in 2003, predominantly Speedline; • £5.1 million decrease in interest; and • £6.2 million adverse exchange rate translation variance for operating profit of continuing operations. The adverse exchange rate translation effect arose mainly as a consequence ofthe weakness of the US dollar and its "tracking" currencies versus sterling. The decrease in interest in 2004 from £31.6 million to £26.5 million aroseprimarily from a lower charge for the amortisation of refinancing fees and afavourable exchange rate impact of £2.8 million. The average interest rate ondrawn borrowings, excluding the amortisation of refinancing fees and thedeferred income from interest rate swaps, was 6.8%, similar to that of 2003.The margins on the new bank facility arranged in March 2005 are at a lower levelthan the previous facilities. Exceptional items and amortisation of intangibles Operating exceptional items In 2004, operating exceptional charges of £22.7 million (2003: £22.2 million)arose, consisting of £7.9 million of asset write-offs and £14.8 million ofcash-related costs. Of the total charge for 2004: • £2.9 million arose in the Ceramics division for therationalisation of three manufacturing facilities in the USA; • £9.9 million related to programmes to optimise the manufacturingcapacity and product offering of the Laminates sector of the Electronicsdivision in the USA and Europe and to reorganise the divisional and sectormanagement structures; and • £9.9 million arose in respect of the programme to reorganise thePrecious Metals division's European operations. A further operating exceptional charge of approximately £10 million is expectedto accrue in 2005 to continue these initiatives. An exceptional interest charge of £2.4 million arose in 2003; no charge arose in2004. Net loss on disposal of operations A net loss on disposal of operations of £39.8 million arose in 2004 (2003:£165.7 million), consisting of a net loss before goodwill of £27.5 million and awrite-back/off of goodwill of £12.3 million, primarily from the following: • sale of two brickmaking plants in Europe in the Ceramicsdivision (£33.2 million); and • winding up of the Cookson Fukuda joint venture in the UK inwhich the Group had a 50% share (£7.4 million). The net loss in 2003 of £165.7 million was mainly in respect of the sale ofSpeedline and the Precision Products businesses. Net (loss)/profit on fixed assets A net loss of £16.8 million in 2004 (2003: £5.1 million profit) was dueprimarily to a £17.9 million write-down in the value of the Group's investmentin a revenue sharing arrangement put in place in 1998 with ELI Inc. over a fibreoptic cable network in the USA. Amortisation of intangibles In 2004, the charge for the amortisation of intangibles, mainly goodwill, was£32.5 million (2003: £34.7 million). Profit/loss before tax on ordinary activities The loss on ordinary activities before tax for 2004 of £18.7 million was £168.6million lower than the loss of £187.3 million recorded in 2003. This significantimprovement arose, as set out above, from higher operating profits, lowerinterest and decreased losses on disposal of operations. Taxation The Group recorded a total tax charge of £27.4 million (2003: £14.8 million).This consists of: • a charge of £26.2 million (2003: £9.8 million) on profit beforetax, exceptional items and amortisation of intangibles, representing aneffective rate of 28% (2003: 30%); and • exceptional tax charges and a net tax charge on exceptionalitems and goodwill of £1.2 million (2003: £5.0 million). The Group wrote down its deferred tax assets by £10.0 million in light of areassessment of expected future geographical profit contributions. This waspartly offset by £3.6 million of tax credits arising from disposals andoperating exceptional costs and the release of £5.2 million from fair value taxprovisions in respect of a prior period acquisition. Profit/loss for the year Profit for the year before exceptional items and amortisation of intangibles was£62.8 million (2003: £20.4 million) with the £42.4 million increase over 2003arising from the significant rise in profit before tax and a lower effective taxrate, partly offset by £1.7 million higher minority interests on increasedprofits. After taking account of exceptional items and amortisation of intangibles aftertax of £113.0 million (2003: £224.9 million), the Group recorded a loss for theyear of £50.2 million; this was £154.3 million lower than the £204.5 millionloss incurred in 2003. Earnings per share (EPS) Headline EPS, based on profit for the year before exceptional items andamortisation of intangibles, amounted to 3.3 pence per share in 2004, athree-fold increase on the 1.1 pence recorded in 2003. The Company believesthis basis of calculating EPS gives the most appropriate measure of theunderlying earnings per share of the Group. Basic EPS, based on profit for the year after amortisation of intangibles andexceptional items, was a loss per share of 2.7p (2003: 10.9p loss). The average number of shares in issue during 2004 was 1,883 million (2003: 1,880million) and the number of shares in issue at 31 December 2004 was 1,895million. Dividends No dividends have been paid or proposed in respect of 2003 or 2004. It is theBoard's intention to return Cookson to the dividend list as soon as possible,with dividends paid on a sustainable basis from free cash flow. GROUP CASH FLOWS Net cash inflows from operating activities In 2004, the Group generated £145.5 million of net cash inflow from operatingactivities, which was £38.0 million more than 2003. This increase arose from: • a £47.5 million increase in EBITDA to £162.3 million; • a cash outflow of £17.0 million for trade working capital in 2004compared with an inflow of £10.3 million in 2003; • a net increase in cash inflow for operating provisions and accruals of£18.0 million; and • a similar cash spend for rationalisation costs of £14.2 million. In the first half of 2004, cash outflows for trade working capital were £53.7million in response to significantly higher levels of trading activity at theend of June 2004 compared with the end of December 2003. In the second half of2004, cash inflows from trade working capital of £36.7 million were generateddue to both normal fourth quarter seasonal inflows and continued attention paidto the management of working capital. The latter is evidenced by the percentageof average trade working capital to sales decreasing from 22.8% in 2003 to 21.3%in 2004. Cash outlaid for rationalisation costs of £14.2 million arose primarily in theElectronics division (£6.6 million) and in the Precious Metals division (£6.4million) in respect of programmes which commenced in 2004 and in prior years.Some £10 million is expected to be outlaid in 2005 for rationalisationprogrammes which commenced in 2004. Capital expenditure Payments to acquire fixed assets were £42.3 million in 2004, £6.2 million lowerthan 2003 and representing 0.9 times depreciation (2003: 0.9 times). Receipts from the disposal of fixed assets, primarily for properties, were £1.5million in 2004, down from £5.8 million in 2003. Operating cash flow Operating cash flow for 2004 for the Group, i.e. cash flow from operatingactivities plus dividends received from joint ventures less net capitalexpenditure, amounted to £107.0 million, which was £40.0 million, or 60%, higherthan 2003. The cash conversion rate for continuing operations, i.e. operatingcash flow as a percentage of operating profit excluding joint ventures, was 91%,in line with that achieved on average in the last five years. Interest and dividends paid to minority shareholders Net cash outflows for interest in 2004 were £31.6 million compared with £29.1million in 2003. The £2.5 million year-on-year increase comprised a decrease inpayments on borrowings of £2.8 million offset by a cash inflow for the close-outof long-dated interest rate swaps of £5.3 million in 2003. Dividends paid to minorities of £3.1 million (2003: £1.5 million) rose in linewith increased profits. Taxation Tax cash outflows for 2004 were £20.7 million, the same as in 2003. Free cash flow £ millions 2004 2003 First half (21.2) 8.8 Second half 72.8 6.9 Year 51.6 15.7 Free cash flow - being net cash flow before financing, acquisitions anddisposals - improved from £15.7 million in 2003 to £51.6 million in 2004, withthe increase arising primarily from higher operating profitability. In thesecond half, free cash flow increased strongly compared with both the prior yearand the first half of 2004 due to higher profits and significantly higher cashinflows from trade working capital. Acquisitions and disposals Acquisitions In 2004, net cash outflow for acquisitions was £12.0 million (2003: £19.1million), of which £10.0 million was in respect of deferred consideration forprior period acquisitions with the balance for the acquisition of a smallCeramics business in China. The balance owing for deferred consideration forprior period acquisitions is £13.4 million, of which £7.9 million falls due in2005. Disposals Net cash inflow from disposals amounted to £1.4 million (2003: £49.7 million)and relates to the sale of certain of the Ceramics division's brick plants inEurope and the fraternity ring business of the Precious Metals division, partlyoffset by the costs of winding up the Cookson Fukuda joint venture. In 2003, thecash inflows from disposals related primarily to the sale of the PrecisionProducts sector. In addition, outlays in respect of costs arising from prior years' disposalsamounted to £10.0 million (2003: £9.1 million). Net cash inflow before financing and decrease in net debt The aggregate effect of the above cash flows resulted in net cash inflow beforefinancing of £31.0 million for 2004 (2003: £37.2 million). This, together with apositive translation effect of £21.8 million due primarily to a decrease in thevalue of US dollar denominated borrowings, resulted in a decrease in net debt of£51.6 million to £306.9 million. GROUP BORROWINGS The following table presents the Group's reported net debt position at 31December 2003 and 2004: At 31 December 2004 (£m) At 31 December 2003 (£m) US Private Placement loan notes 296.7 318.4 Convertible bonds - 80.0 Committed bank facilities 40.0 - Other loans, overdrafts, other 17.6 16.9 Gross borrowings 354.3 415.3 Cash and short-term deposits (47.4) (56.8) Net debt 306.9 358.5 In 2004, the Group's core borrowing requirements were satisfied by $570 million(£296.7 million) of US Private Placement loan notes that are due for repaymentbetween 2005 and 2012 and a £188 million committed syndicated bank facility thatwas arranged in December 2003. During the year, £80 million of convertible bondswere repaid and £40 million of the bank facility was cancelled. In March 2005, a new £200 million bank facility was arranged which replaced thethen remaining £148 million facility. The new facility carries improved pricingand terms, including a term of three years to 1 March 2008, with options toextend by a further two years. It is unsecured, with all security andguarantees under the previous facility fully released. Taking account of the newfacility, together with the Group's existing private placement notes, totalcommitted borrowing facilities available to the Group now amount toapproximately £500 million. Shareholder/analyst enquiries: Nick Salmon, Chief Executive Cookson Group plcDennis Millard, Group Finance Director Tel: 020 7061 6500Lisa Williams, Investor Relations Manager Press enquiries: John Olsen, Hogarth Partnership Hogarth Partnership 020 7357 9477 Copies of Cookson's 2004 Annual Report are due to be posted to the shareholdersof the Company on 22 April 2005 and will be available on the Company's websiteand at the Registered Office of the Company after that date. Cookson management will make a presentation to analysts on 15 March 2005 at 9:30am (UK time). This will be broadcast live on Cookson's website. An archiveversion of the presentation will be available on the website from mid-afternoonon 15 March. Forward Looking Statements This announcement contains certain forward looking statements regarding theGroup's financial condition, results of operations, cash flows, dividends,financing plans, business strategies, operating efficiencies or synergies,budgets, capital and other expenditures, competitive positions, growthopportunities for existing products, plans and objectives of management andother matters. Statements in this document that are not historical facts arehereby identified as "forward looking statements" for the purpose of the safeharbour provided by Section 21E of the US Exchange Act and Section 27A of the USSecurities Act. Such forward looking statements, including, without limitation,those relating to the future business prospects, revenues, working capital,liquidity, capital needs, interest costs and income, in each case relating toCookson, wherever they occur in this document, are necessarily based onassumptions reflecting the views of Cookson and involve a number of known andunknown risks, uncertainties and other factors that could cause actual results,performance or achievements to differ materially from those expressed or impliedby the forward looking statements. Such forward looking statements should,therefore, be considered in light of various important factors. Importantfactors that could cause actual results to differ materially from estimates orprojections contained in the forward looking statements include withoutlimitation: economic and business cycles; the terms and conditions of Cookson'sfinancing arrangements; foreign currency rate fluctuations; competition inCookson's principal markets; acquisitions or disposals of businesses or assets;and trends in Cookson's principal industries. The foregoing list of important factors is not exhaustive. When relying onforward looking statements, careful consideration should be given to theforegoing factors and other uncertainties and events, as well as factorsdescribed in documents the Company files with the UK and US regulators from timeto time including its annual reports and accounts. Such forward looking statements speak only as of the date on which they aremade. Except as required by the Rules of the UK Listing Authority and the LondonStock Exchange and applicable law, Cookson undertakes no obligation to updatepublicly or revise any forward looking statements, whether as a result of newinformation, future events or otherwise. In light of these risks, uncertaintiesand assumptions, the forward looking events discussed in this report might notoccur. Cookson Group plc, 265 Strand, London WC2R 1DBRegistered in England and Wales No. 251977www.cooksongroup.co.uk Group Profit and Loss Accountfor the year ended 31 December 2004 2004 2003 Before Exceptional Before Exceptional exceptional items and exceptional items and items and amortisation items and amortisation amortisation of intangibles amortisation of of intangibles Total of intangibles intangibles Total note £m £m £m £m £m £m Turnover, including joint ventures 1 Continuing operations 1,698.2 - 1,698.2 1,623.9 - 1,623.9 Discontinued operations - - - 57.8 - 57.8 Total turnover 1,698.2 - 1,698.2 1,681.7 - 1,681.7Share of joint ventures (45.2) - (45.2) (41.2) - (41.2)Turnover of Group subsidiaries 1,653.0 - 1,653.0 1,640.5 - 1,640.5 Operating profit/(loss) 1 Continuing operations 115.6 - 115.6 79.2 - 79.2 Operating exceptional items 2 - (22.7) (22.7) - (22.2) (22.2) Amortisation of intangible assets - (32.5) (32.5) - (34.7) (34.7) Continuing operations 115.6 (55.2) 60.4 79.2 (56.9) 22.3 Discontinued operations - - - (17.0) - (17.0) Group operating profit/(loss) 115.6 (55.2) 60.4 62.2 (56.9) 5.3Share of joint ventures 4.0 - 4.0 2.0 - 2.0Total operating profit/(loss) 119.6 (55.2) 64.4 64.2 (56.9) 7.3 Net loss on business divestments 3 Loss before goodwill written-back/off - (27.5) (27.5) - (23.2) (23.2) Goodwill written-back/off - (12.3) (12.3) - (142.5) (142.5) - (39.8) (39.8) - (165.7) (165.7)Net profit/(loss) on fixed assets 4 Profit on disposal of fixed assets - 1.1 1.1 - 5.1 5.1 Amounts written-off fixed asset - (17.9) (17.9) - - - investments - (16.8) (16.8) - 5.1 5.1 Profit/(loss) on ordinary activities 119.6 (111.8) 7.8 64.2 (217.5) (153.3)before interestNet interest (26.5) - (26.5) (31.6) (2.4) (34.0) Profit/(loss) on ordinary activities 93.1 (111.8) (18.7) 32.6 (219.9) (187.3)before taxationTaxation on profit/(loss) on ordinary (26.2) (1.2) (27.4) (9.8) (5.0) (14.8)activities Profit/(loss) on ordinary activities 66.9 (113.0) (46.1) 22.8 (224.9) (202.1)after taxationMinority interests (4.1) - (4.1) (2.4) - (2.4) Profit/(loss) for the year 62.8 (113.0) (50.2) 20.4 (224.9) (204.5)Dividends - - - - - - Net loss transferred to reserves 62.8 (113.0) (50.2) 20.4 (224.9) (204.5) Earnings per share - basic and diluted 5 3.3p (2.7)p 1.1p (10.9)p Statement of Group Cash Flowsfor the year ended 31 December 2004 2004 2003 note £m £m Net cash inflow from operating activities (see analysis below) 145.5 107.5 Dividends from joint ventures 2.3 2.2 Capital expenditurePayments to acquire fixed assets (42.3) (48.5)Receipts from disposal of fixed assets 1.5 5.8 (40.8) (42.7) Operating cash flow 107.0 67.0 Net interest paid 7 (31.6) (29.1)Dividends paid to minority interests (3.1) (1.5)Taxation (20.7) (20.7) Free cash flow 51.6 15.7 Net proceeds from business divestments 1.4 49.7Consideration for business acquisitions (12.0) (19.1)Other, including prior year disposals costs (10.0) (9.1) Net cash flow before financing 31.0 37.2Issue of shares 0.9 -Refinancing costs paid (1.1) (1.5) Decrease in net debt resulting from cash flows 30.8 35.7 Decrease in short-term deposits 3.4 -Decrease in debt (39.7) (21.9) (Decrease)/increase in cash during the year (5.5) 13.8 Analysis of Group Net Debt Net debt at 1 January (358.5) (428.2) Decrease in net debt resulting from cash flows 30.8 35.7Foreign exchange adjustments 21.8 37.6Amortisation of refinancing costs (1.0) (3.6) Net debt at 31 December (306.9) (358.5) Analysis of Net Cash Inflow from Operating Activities Total operating profit before exceptional items and amortisation of intangibles 119.6 64.2Depreciation 46.7 52.6Less: share of profit of joint ventures (4.0) (2.0) EBITDA from subsidiaries 162.3 114.8Net (increase)/decrease in trade working capital and other movements 6 (2.6) 6.7Rationalisation costs (14.2) (14.0) Net cash inflow from operating activities 145.5 107.5 Group Balance Sheetas at 31 December 2004 2004 2003 as restated (note 11) note £m £m Fixed assets 8 798.1 913.8 Current assets 9 596.3 626.9 Creditors: amounts falling due within one year (362.1) (430.5)Net current assets 234.2 196.4 Total assets less current liabilities 1,032.3 1,110.2 Creditors: amounts falling due after more than one year (403.9) (412.0) Provisions for liabilities and charges (57.3) (71.3) 571.1 626.9 Equity capital 375.5 375.4 Reserves 10 183.9 239.7 Minority interests 11.7 11.8 571.1 626.9 Net borrowings included above:Borrowings - short-term 28.2 95.0 - long-term 326.1 320.3Total gross borrowings 354.3 415.3 Less: cash and short-term deposits (47.4) (56.8) Total net borrowings 306.9 358.5 Notes to the accounts 1 Segmental analyses The results reported for 2003 as discontinued operations mainly comprise theElectronics division's Speedline business. Speedline was largely based in theUSA, with satellite operations in Europe and Asia. Other disposals in 2003included the Precision Products sector of the Precious Metals division which wassold in January 2003 and largely based in the USA, three non-core Europeanbusinesses in the Ceramics and Precious Metals divisions and a non-coreAsia-Pacific joint venture in the Electronics division. These discontinuedoperations previously formed part of the Group's ongoing operations. 2004 2003 Operating OperatingBy division/sector Turnover profit/ Turnover profit/ (loss) (loss) £m £m £m £m Ceramics 739.4 56.8 706.9 49.8Electronics 626.0 49.5 567.0 20.8 Assembly Materials 280.1 22.2 236.7 16.2 Chemistry 214.2 27.2 216.9 20.2 Laminates 131.7 0.1 113.4 (15.6) Precious Metals 287.6 9.3 308.8 8.6Joint ventures 45.2 4.0 41.2 2.0 1,698.2 119.6 1,623.9 81.2 Amortisation of intangible - (32.5) - (34.7)assetsExceptional items - (22.7) - (22.2) Continuing operations 1,698.2 64.4 1,623.9 24.3Discontinued operations - - 57.8 (17.0) Group 1,698.2 64.4 1,681.7 7.3 Of the joint venture turnover of £45.2m (2003: £41.2m), £3.3m related toCeramics (2003: £4.2m) and £41.9m related to Electronics (2003: £37.0m). Themajority of joint venture results related to a Chemistry sector joint venture inJapan which recorded turnover of £39.6m (2003: £30.5m) and operating profit of£3.5m (2003: £2.0m) in the year. The Laminates sector's UK joint venture withFukuda, which was wound-up during 2004, contributed turnover of £1.1m (2003:£2.3m) and an operating loss of £0.4m (2003: loss of £1.8m) in the year. Of the amortisation charge of £32.5m (2003: £34.7m), £13.6m related to Ceramics(2003: £15.1m), £16.9m to Electronics (2003: £17.5m) and £2.0m to PreciousMetals (2003: £2.1m). Of the Electronics goodwill amortisation charge of£16.9m, £3.3m related to Assembly Materials (2003: £3.6m), £11.2m to Chemistry(2003: £12.1m) and £2.4m to Laminates (2003: £1.8m). Of the total exceptional items of £22.7m (2003: £22.2m), £2.9m related toCeramics (2003: £0.8m), £9.9m to Electronics (2003: £18.5m) and £9.9m toPrecious Metals (2003: £2.9m). Of the Electronics exceptional items of £9.9m,£0.2m related to Assembly Materials (2003: £4.8m), £0.8m to Chemistry (2003:£2.4m) and £8.9m to Laminates (2003: £11.3m). 2004 2003 By geographic location By By geographic By customer location customer of Group operations location of Group operations Location Operating OperatingGeographical Turnover profit/ Turnover Turnover profit/ Turnover (loss) (loss) £m £m £m £m £m £m United Kingdom 159.3 2.0 144.7 166.2 2.8 123.6Continental Europe 485.2 32.4 449.8 486.1 21.4 471.2USA 551.5 16.5 511.5 546.4 (1.4) 519.6Asia-Pacific 360.2 56.4 410.2 289.2 44.3 331.5Rest of the World 142.0 12.3 182.0 136.0 14.1 178.0 1,698.2 119.6 1,698.2 1,623.9 81.2 1,623.9 Amortisation of intangible - (32.5) - - (34.7) -assetsExceptional items - (22.7) - - (22.2) - Continuing operations 1,698.2 64.4 1,698.2 1,623.9 24.3 1,623.9Discontinued operations - - - 57.8 (17.0) 57.8 Group 1,698.2 64.4 1,698.2 1,681.7 7.3 1,681.7 Of the amortisation charge of £32.5m (2003: £34.7m), £3.6m (2003: £3.6m) was inthe UK, £4.3m (2003: £4.7m) in Continental Europe, £17.7m (2003: £19.0m) in theUSA, £5.3m (2003: £5.7m) in Asia-Pacific and £1.6m (2003: £1.7m) in the Rest ofthe World. Of the exceptional items of £22.7m (2003: £22.2m), £1.0m (2003: £1.0m) was inthe UK, £15.7m (2003: £10.7m) in Continental Europe, £5.7m (2003: £7.4m) in theUSA, £0.3m (2003: £3.0m) in Asia-Pacific and nil (2003: £0.1m) in the Rest ofthe World. The majority of discontinued operations were located in the USA. 2 Operating exceptional Items The charges of £22.7m in 2004 and £22.2m in 2003 were the result of theimplementation of initiatives aimed at ensuring that the cost base of each ofthe Group's major businesses is aligned with prevailing and near-term marketconditions. The initiatives implemented included redundancy programmes, theconsolidation of facilities, plant closures, the streamlining of manufacturingprocesses and the rationalisation of product lines. Of the exceptional charges,£7.9m represents asset write-downs (2003: £7.3m) the majority of which, togetherwith the plant closures, were in the USA and Continental Europe. Note 1 setsout the charge by division/sector and geographic region. Total cash spend in 2004 in respect of operating exceptional items was £14.2m(2003: £14.0m), leaving aggregate provisions after exchange made but unspent inRelated Shares:
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