6th May 2005 07:00
Cookson Group PLC06 May 2005 6 May 2005 COOKSON GROUP plc - FIRST QUARTER 2005 TRADING UPDATE Group Turnover for the first quarter of 2005 was £387 million which was 1% lower thanthe same quarter a year ago with increases by the Ceramics and Electronicsdivisions being offset by a decrease in the Precious Metals division. Groupoperating profit before exceptional items of £21 million in the first quarterwas £2 million lower than the first quarter of 2004 with an increase by theCeramics division being offset by lower year-on-year contributions from theElectronics and Precious Metals divisions and from Joint Ventures. Profit before tax and exceptional items of £13 million was £1.5 million lowerthan the first quarter last year at reported exchange rates. Profit before taxbut after exceptional items was £10 million which was £6 million higher thanlast year. The charge for exceptional items consisted of £2 million forrestructuring initiatives and a £1 million write-off of unamortised bankfinancing fees following the successful renegotiation of the Group's bankingfacilities in March 2005. Ceramics Steel production, to which approximately 70% of the Ceramics division'sactivities are linked, was virtually unchanged in its two largest markets -NAFTA and Europe - but increased by 14% in the fast growing Asia-Pacific regionmainly due to a 24% rise in China. As a consequence of both increased volumesand higher average selling prices - primarily to recover raw material costincreases - turnover for the Ceramics division's Steel sector rose by 7% in thefirst quarter of 2005 over 2004. Conditions in the Foundry and Industrial Processes sectors were generally soundand, collectively, turnover for these sectors was unchanged over 2005. Turnoverin the Glass sector - excluding that of the European brick businesses sold lastyear - was up on last year. Low margin construction projects, where the divisionprovides installation services to certain customers for re-lining work,decreased from the relatively high levels last year. As a consequence, the Ceramics division's turnover of £175 million was 3% higherthan the first quarter last year and up 6% on a like-for-like basis, i.e.excluding turnover of the European brick businesses. The increase in salesvolumes and prices, together with lower overhead costs, more than offset higherraw material costs resulting in the division's operating profit rising £1.5million to £13.5 million in the first quarter. The plant rationalisation programme in the NAFTA region, which commenced in2004, is nearing completion and the newly installed capacity in Mexico will befully commissioned by the end of the first half. The planned restructuring ofthe division's South African operations is now underway and includes therelocation of all activities on to a single site. An operating exceptionalcharge of £1 million was raised in the first quarter for both of theseinitiatives and the financial benefits will begin to be fully derived from thethird quarter of 2005. Electronics Turnover for the Electronics division of £152 million was 4% higher than thesame quarter last year but, excluding the impact of passing on higher tinprices, turnover was up by 1%. Consistent with last year, activity levels in theAsia-Pacific region were buoyant. In both the USA and Europe, however,underlying demand weakened in January and February though stabilised in March. Operating profit for the Electronics division for the first quarter of £7million was £2 million lower than 2004. This shortfall was primarily due tolower profits from the Chemistry sector's semi-conductor copper activities andfrom the Laminates sector's European operations. Collectively, these areascontributed a £3 million operating profit shortfall vs. last year. The performance of each sector was as follows: - Assembly Materials: first quarter turnover of £67 million was 10%ahead of last year; however, excluding the impact of the c.30% year-on-yearincrease in the price of tin that was substantially passed on to customers ,turnover for the sector increased by 2%. Operating profit was virtuallyunchanged in comparison with last year with profit growth in the sector's coreactivities being held back by lower sales and profits for high marginsemi-conductor packaging products. - Chemistry: sales of £52 million for the first quarter were 4% lowerthan last year for two principal reasons. Firstly, a decision was made to foregosales of certain low margin precious metals decorative coating products.Secondly, the sector experienced temporary de-stocking by its distributor ofhigh margin copper damascene products for the semi-conductor market following abuild up in inventory in the fourth quarter of 2004. This was exacerbated by thefact that there was an exceptionally high off-take of copper damascene in thefirst quarter last year when the distributor was also building inventory. Theunderlying demand for copper damascene, however, remains robust. Profitabilitywas therefore negatively affected by these largely one-off events and operatingprofit was, as a result, lower than in the first quarter last year. - Laminates: first quarter sales of £33 million were 7% higher than thesame quarter last year, with strong growth in the Asia-Pacific region beingpegged back by sales declines in the USA and, in particular, the Europeanoperations. The sector, however, operated marginally below break-even in thefirst quarter of the year, with virtually all of the profit shortfall vs. lastyear arising from the European operations. As outlined in the 2004 PreliminaryResults announcement in March, the manufacturing site in Germany is in theprocess of being downsized under a Social Plan agreed with local unions. Thiswill result in the production of laminates for the European market being centredon the plant in Sweden. The exceptional charge for this initiative of £7 millionwas taken in December 2004 and cost savings of some £3 million per annum willbegin to accrue from the second half of the year. Further improvements inprofitability are also expected to arise when production of the GETEK(R) rangebegins to ramp up in both the USA and Asia-Pacific. Precious Metals Trading conditions for the Precious Metals division remained difficult in thefirst quarter following a weak fourth quarter 2004 holiday buying season. In thedivision's US activities, sales were well down on a relatively buoyant firstquarter last year with customer re-stocking levels at a low ebb. For thedivision's European operations, sales were also well down on the first quarterof 2004 due to both a weak retail environment in the UK and to some loss ofmarket share in France following the significant downsizing in 2004 of itsmanufacturing facilities. As a consequence, turnover for the division of £60million and net sales value of £23 million (turnover less precious metalscontent) were down 22% on the first quarter of 2004. Despite the sharp fall in turnover and net sales value, the negative impact onprofits was mitigated by the significant benefits of the recently completedrestructuring of the European operations and operating profit for the firstquarter of £0.5 million was £0.5 million lower than last year. In response to the weak market conditions in the US and to Tiffany increasingits level of in-house manufacture, management is now implementing an 8%reduction in its US workforce and consolidating the majority of its NorthAmerican activities on to a single site, realising annualised savings of £3million which will begin to flow from the second half of the year. This hasresulted in a one-off exceptional charge of £1 million in the quarter. Joint Ventures Attributable profits after tax of the Group's Joint Ventures were nil in thefirst quarter of 2005 with the Chemistry sector's Japanese joint ventureaccounting for all of the £1 million shortfall over the first quarter of 2004.This shortfall was anticipated following an exceptionally high level ofequipment sales and profits in the first quarter of 2004. Outlook Trading conditions in the steel and electronics industries are expected toremain basically unchanged for the second quarter and management has assumed asimilar pattern for the remainder of the year. For the Precious Metals division,it has been assumed that market conditions will not deteriorate any further andthat there will be a more normal holiday buying season. Based on theseassumptions, and in light of the cost saving and market share initiatives bothcurrently underway and planned for the second half of the year, the expectationfor an improvement in profitability for the year as a whole remains unchanged. A conference call for shareholders and analysts will be held at 10:00am UK timeon Friday 6th May 2005. The call will be broadcast live onwww.cooksongroup.co.uk. Shareholder/analyst enquiries:Nick Salmon, Chief Executive 020 7061 6500Dennis Millard, Group Finance Director 020 7061 6500 Media enquiries:John Olsen, Hogarth Partnership 020 7357 9477 About Cookson Group Cookson Group is a leading materials science company which provides materials,processes and services to customers worldwide. The Group's operations are formedinto three divisions - Ceramics, Electronics and Precious Metals. The Ceramicsdivision 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 Cookson Group plc, 265 Strand, London WC2R 1DBTel: 020 7061 6500 Fax: 020 7061 6600www.cooksongroup.co.uk NOTES ON FINANCIAL INFORMATION The financial information set out in the above announcement is preliminary andunaudited and profits have been rounded off to the nearest half million pounds.The financial information has been compiled under International FinancialReporting Standards ("IFRS"). A reconciliation between IFRS and UK GAAP for thefirst quarters of 2004 and 2005 is set out below. Unless stated otherwise, operating profit is stated before exceptional items(1)and turnover and operating profit comparisons are at constant exchange rates,i.e. 2004 results have been restated using 2005 exchange rates; nevertheless,the impact of exchange rate variations on the Group's turnover and operatingprofit has not been material. Reconciliation between IFRS and UK GAAP: Q1 2005 and Q1 2004 Q1 2005 Q1 2004 £m £m Turnover - Under UK GAAP 395 404 Less: turnover of Joint Ventures (IAS 1) (8) (13) Turnover - under IFRS 387 391 Operating profit before exceptional items and amortisation ofintangibles under UK GAAP 22.0 24.0 IFRS adjustments (1.5) (1.5) Share option charge (IFRS 2) (1.0) (0.5) Joint Ventures: profit stated after tax and interest (IAS 1) - (1.0) Others, including pension and holiday pay (IAS 19) and marking-to-market (0.5) - tin hedging contracts (IAS 39) (2) Operating profit before exceptional items(1) and amortisation of 20.5 22.5intangibles under IFRS Net interest charge under IFRS (7.5) (8.0) Net interest charge under UK GAAP (6.5) (6.5) Add back: deferred income on interest rate swaps (IAS 39) (2) (1.0) (1.5) Profit before tax and exceptional items(1) and amortisation ofintangibles under IFRS 13.0 14.5 (1) Exceptional items as defined under UK GAAP. (2) Based on early adoption of IAS 39, i.e. with effect from 1 January 2004. FORWARD LOOKING STATEMENTS This announcement contains forward looking statements about Cookson. Althoughthe Company believes its expectations are based on reasonable assumptions, anysuch statements may be influenced by factors that could cause actual outcomesand results to be materially different from those predicted. These forwardlooking statements are subject to numerous risks and uncertainties that couldcause actual results to differ materially from those in such statements, certainof which are beyond the control of Cookson. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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