7th Nov 2006 07:02
Cookson Group PLC07 November 2006 7 November 2006 TRADING AND STRATEGIC PLAN UPDATES Cookson Group plc, a leading materials science company, will make a presentationto analysts and shareholders at 10.30am today giving an update on trading andthe execution of its Strategic Plan. A copy of the slides will be available onthe Cookson website, www.cooksongroup.co.uk, from 10.30am today. A fullarchived webcast will be available from mid-afternoon today. Commenting on the trading and Strategic Plan updates, Nick Salmon, ChiefExecutive commented: "Following an encouraging performance in the third quarter we now expectperformance for the year as a whole to be slightly ahead of our earlierexpectations. We have made good progress in executing the Strategic Planoutlined in January 2005 and most of the original targets have been achievedahead of schedule. We are convinced there is more to go for in the continuedexecution of this strategy which will deliver further significant growth. Ourfinancial condition is now robust. We can therefore also start to contemplateadditional growth by acquisition in the event that suitable opportunities arise." Trading Update End-market trends have been generally positive throughout the third quarter of2006 and our trading in this period has been slightly ahead of our previousexpectations. Global steel production, the most important end-market indicator for theCeramics division, grew over 8% in the third quarter of 2006 compared to thesame period last year. Globally we expect growth to continue, albeit at lowerlevels as in recent weeks certain steelmakers in NAFTA have been temporarilyshutting some production capacity to reduce inventory levels. The investment innew production capacity in China, Poland and Mexico and the restructuring of theCeramics division's UK operations are all progressing in line with the previousannouncements made in May and August of 2006. The Electronics division has continued to benefit from good end-market growth inour electronics markets but there has been some softness in automotive markets,notably in the US. The market transition to lead-free products (including ourproprietary lower cost, lead-free solder with a low silver content - Alpha SACX(TM)) has progressed as expected during the third quarter. The Precious Metals division has seen an encouraging pick-up in activity levelsafter the Summer holiday season, in anticipation of the important Thanksgivingand Christmas seasons. Jewellery demand in the US appears stronger than lastyear and, although European demand remains weak, our European operations haveall remained profitable. Precious metal prices, notably for gold and silver, have displayed lessvolatility during the third quarter which has helped stimulate demand. Based on trading in the third quarter and the trends experienced so far in thefourth quarter, it is anticipated that the Group's full year trading performancewill be slightly ahead of our previous expectations. Update on execution of the Strategic Plan - Key Points Ceramics division • Good progress has been made since January 2005 in exiting marginalactivities through their sale or closure • Similarly, good progress has been achieved in our previously announcedrestructuring plans in NAFTA and Europe, including the plans announced in August2006 for restructuring in the UK • Two-thirds of revenue is now in higher margin, speciality products suchas Flow Control, Foundry and Fused Silica, which we can continue to grow byexpansion in emerging markets (in particular China, India and the CIS) whilstmaintaining competitiveness in NAFTA and Europe through efficiency improvements(including expansion in the lower-cost countries of Mexico and Poland) • One-third of revenue is in Linings, primarily Monolithics and theConstruction & Installation business, where our current profitability issignificantly below that of our main competitors. Whilst progress has been madeduring 2006 to date to restore profitability, further significant improvementscan be made • In the medium-term, the Ceramics division is very well placed tobenefit from the expected modernisation of the steel industry in countries suchas China, India and the CIS, as well as the general trend towards consolidationwithin the steel industry • As reported in the 2006 Interim Results, the Ceramics division hasalready exceeded the return on sales margin target set in January 2005, a targetwhich was to be achieved by 2007. Given the increased expectations for theprospects for this division, the return on sales margin target has beenincreased to 13% (from 10.5%), which is expected to be achieved by 2008.Revenue from continuing operations is also expected to grow at some 5-6% peryear in the medium-term Electronics division • Profitable growth going forward will be driven by: - New products and technical developments. These include products tomeet the markets' increasing transition to lead-free production, such as AlphaSACX(TM) low-silver solder and AlphaStar(TM) immersion silver, together with higher margin products for the PCB and semi-conductor related markets, including copper damascene and products for the wafer bumping process - Strong growth in the Chemistry sector in China, following thesuccessful buyout in October 2006 of our former 49% joint venture partners for acash cost of £2.4 million. As well as enhancing our ability to service thefast-growing industrial sector in China, this transaction is highly earningsaccretive and will enhance net earnings by around £1.5 million per annum - Further restructuring of the Chemistry sector's production and sales& marketing infrastructure in Europe to save £2.0 million per annum with effectfrom 2008 - Further restructuring of the Assembly Materials sector's productioncapacity in NAFTA to save £2.2 million per annum with effect from 2008 • The return on sales margin target of 10.5% has already been achieved in2005. Looking forward, revenue growth and return on sales margin targets are,we believe, less relevant in this division due to the recent very significantvolatility of tin and precious metal prices, which impacts both the AssemblyMaterial and Chemistry sectors, coupled with the impact of the ongoing lead-freetransition affecting silver volumes, particularly in the Assembly Materialssector. However, significant growth in the absolute performance of the divisionis expected going forward Precious Metals division • The US operations, which constitute nearly 60% of the division's netsales, are in good shape: - Having being substantially restructured in 2005, the 15% return onnet sales value margin target for these US operations is maintained for 2007 andis close to being achieved in 2006 - Restructuring of the ear-stud business, announced in August 2006,will be completed by mid-2007 giving cost savings of £1.5 million per annum. • Turnaround of the UK operations is proceeding as planned and willcontinue in 2007. As a result, return on net sales value margins for theEuropean operations as a whole should reach mid single-digit levels in 2007 Group • Financial position: as a result of the successful implementation of thedisposal programme announced in January 2005 and the Group's recent strong cashgeneration, the Group's financial position is robust. Expectations for year-endnet debt are in line with previous guidance • Rationalisation costs: cash-related rationalisation costs, relating tothe various cost-reduction programmes initiated during 2006 and prior years, areexpected to total around £20 million for 2006, in line with our previousexpectations. Current expectations are for the level of cash-relatedrationalisation charges to fall to between £10-15 million in 2007 and between£5-8 million per annum from 2008. In addition to the cash-relatedrationalisation costs, non-cash related asset write-offs of around £15 million,principally related to factory closures, are expected in 2006 • Capital Expenditure: capital expenditure is expected to total around£40 million for 2006, rising to between £45-50 million in 2007 reflecting, inparticular, the previously announced investments in the Ceramics division inChina, Poland and Mexico, together with the expansion of capacity in China forthe Chemistry sector. Capital expenditure should return to the underlying rateof around £40 million per annum for 2008 • Employee Benefits: in order to significantly reduce the futurevolatility of the UK employee benefit deficit (which stood at £96 million as at30 June 2006), the Cookson Group Pension Scheme has recently implemented riskmitigation elements within its investment strategy which have involved itentering into a portfolio of inflation and interest rate swaps, executing anequity hedge and planning an increase in its asset diversification. The effectof these arrangements is to significantly narrow the range of likely outcomesfor the employee benefit deficit arising from variability in the investmentperformance of the Scheme's assets due to the impact of future changes ineconomic circumstances and other aspects of financial market pricing which arelargely outside of the Group's control. These risk mitigation enhancements havenot impacted on the expected return assumptions in the Group's financialreporting under IAS19. In addition, further progress has been made in reducingboth the quantum and future volatility of the employee benefit deficit in the USthrough planned amendments to the Group's major US schemes • Acquisitions: our strategy is targeted to deliver continued stronggrowth and cash generation without the need for significant acquisitions.However, the Group's financial position is now robust and the potential existsto make acquisitions in the event that suitable opportunities arise. Potentialinterest, in particular, would be for bolt-on acquisitions which couldcomplement the Ceramics division's technical service offering to the steelindustry, and in the Electronics division, companies with good technology butwhich lack global reach such that they can therefore be leveraged via theGroup's worldwide sales, technical support and production network. For further information please contact: Shareholder/analyst enquiries:Nick Salmon, Chief Executive Cookson Group plcMike Butterworth, Group Finance Director Tel: +44 (0)20 7822 0000Isabel Luetgendorf, Investor Relations Manager Media enquiries:John Olsen Hogarth Partnership Tel: +44 (0)20 7357 9477 About Cookson Group plc Cookson Group plc is a leading materials science company operating on aworldwide basis in Ceramics, Electronics and Precious Metals markets. The Ceramics division is the world leader in the supply of advanced flow controlrefractory products and systems to the global steel industry and a leadingsupplier of specialist ceramic products to the glass and foundry industries. Itis also the regional leader in the US, UK and Australia in the supply andinstallation of monolithic refractory linings. The Electronics division is a leading supplier of advanced surface treatment andplating chemicals and assembly materials to the automotive, construction andelectronics markets. The Precious Metals division is the leading supplier of fabricated preciousmetals (gold, silver, platinum, etc.) to the jewellery industry in the US, theUK, France and Spain. Products include alloy materials, semi-finished jewellerycomponents and finished jewellery. Forward Looking Statements This announcement contains certain forward looking statements regarding theGroup's financial condition, results of operations, cash flows, financing plans,business strategies, operating efficiencies or synergies, budgets, capital andother expenditures, competitive positions, growth opportunities for existingproducts, plans and objectives of management and other matters. Statements inthis document that are not historical facts are hereby identified as "forwardlooking statements". Such forward looking statements, including, withoutlimitation, those relating to the future business prospects, revenues, workingcapital, liquidity, capital needs, interest costs and income, in each caserelating to Cookson, wherever they occur in this document, are necessarily basedon assumptions 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 regulator from time to timeincluding 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 announcement mightnot occur. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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