30th Jun 2006 07:02
Cookson Group PLC30 June 2006 30 June 2006 PRE CLOSE PERIOD TRADING UPDATE - RECENT TRADING AHEAD OF EXPECTATIONS Cookson Group plc ("Cookson"), a leading materials science company, is issuingthis trading update ahead of its Interim Results for 2006, scheduled forannouncement on 2 August 2006. Highlights • Trading in May and June ahead of our previous expectations; • Ceramics and Electronics continue to demonstrate good growth; trading conditions remain encouraging; • Precious Metals in US benefiting from firmer retail markets and impact of 2005 restructuring; European operations expected to trade at break-even; • Results for six months to 30 June 2006 expected to be very significantly ahead of the corresponding period in the prior year; • Positive trading environment expected to continue into the second half of the year. Impact of cost reduction measures will also continue to benefit overall performance. Second half of 2005 comparatives markedly stronger than the first half setting a tougher comparative benchmark. Trading - continuing operations In the trading update given at the Annual General Meeting on 25 May 2006, westated that our performance for the year to date was well ahead of theequivalent period last year. We can now report that trading in May and June hasbeen ahead of our previous expectations, particularly for the Ceramics andElectronics divisions, and, accordingly, results for the first half of 2006 arenow expected to be very significantly ahead of the corresponding period in theprior year. Trading profit from continuing operations (after taking account ofthe amended treatment for the costs of pension and other post-retirement benefitplans as noted below) for the first half of 2006 is expected to be not less than£70 million (first half 2005 comparable: £57 million). The main end-markets forour two largest divisions, Ceramics and Electronics, continue to demonstrategood growth and general trading conditions for these divisions remainencouraging. The benefit of the restructuring initiatives enacted in the lasttwo years is also reflected in an improved trading profit margin performancecompared to the prior period. Metal market prices (notably for tin, gold and silver), whilst easing in recentweeks, have been at higher levels in the first half of 2006 than thecorresponding prior year period. These higher costs are typically passedthrough to customers such that absolute profitability is not negativelyimpacted. The principal impacts are to increase reported revenues and workingcapital (particularly trade receivables) in our Assembly Materials, Chemistryand Precious Metals businesses. Ceramics Global steel production has continued to accelerate such that production grew by7.1% in the five month period to the end of May 2006, up from 5.5% in the firstthree months of the year. Growth has been recorded in all major regions withstrong growth in China (19%) and India (17%) and 2% growth in NAFTA and theEuropean Union. This growth, combined with the beneficial impact of therestructuring implemented in 2005 and early 2006, is expected to result intrading profit in the first half of 2006 being very significantly ahead of thecorresponding prior year period. All geographic regions are expected to reportimprovements in profitability, with the largest improvements being in NAFTA andthe Far East. The £10 million of new investment in China, announced on 31 May,will strengthen our already well established position in this growing market andprovide further profitable growth starting in 2007. Electronics End-market growth in our electronics markets reflects continuing strong growthin demand for consumer electronic products, particularly mobile phones, MP3players, personal computers and digital televisions. Automotive markets remainbroadly flat in both Europe and the US. Within the Assembly Materials sector, the transition to lead-free solder, drivenby European Union legislation which becomes effective on 1 July 2006, continuesto increase both revenue and profits such that trading profit for the first halfis expected to be significantly ahead of the corresponding prior year period.In the second quarter of 2006, 44% of solder revenue is expected to be derivedfrom lead-free products, up from 37% in the first quarter, with sales of lowsilver, lead-free solder continuing to grow. The Chemistry sector is also expected to see trading profit for the first halfwell ahead of the prior year period. Strong demand for the sector's productsserving the electronics markets, and the non-repeat of the significant copperdamascene de-stocking issue which negatively impacted the first quarter of 2005,have more than offset the impact of flat automotive markets. Precious Metals Trading in May and June was affected by volatility in precious metal prices.The US continues to benefit from some firming of retail markets and the ongoingimpact of the restructuring implemented in the second quarter of 2005. TheEuropean operations are expected to trade at break-even for the first halfdespite continuing weak retail demand for jewellery. The restructuring of theUK operations continues in line with our expectations. Whilst precious metal prices have reduced significantly from the levels seen inmid-May, the volatility in prices over the last few months and its potentialimpact on retail demand continues to create uncertainty for the division'strading prospects. Trading - discontinued operations The Laminates business traded profitably in the period up to completion of itsdisposal on 21 April 2006, reflecting both the restructuring of this business in2005 and the discontinuation of any depreciation charge as required by itsaccounting treatment as a business "held for sale". Cash flow and net debt The Group's overall cash performance in the first half is expected to be in linewith our previous guidance and to reflect the Group's historic strongsecond-half cash generation bias. Working capital, and in particular tradereceivables, has been negatively impacted by higher metal prices although thisimpact has been somewhat offset by the beneficial impact on net debt of theweakening of the US dollar since year end. Net debt at 30 June 2006 will alsobenefit from £64 million of proceeds from the disposal of the Laminates andCeramic Fibres businesses received during the first half. Pension and other post-retirement obligations The forthcoming Interim Results will reflect an amendment to the accountingtreatment for the 'interest' element (in effect the non-current service cost) ofthe total expense relating to the Group's defined benefit pension and otherpost-retirement benefit plans. This element of post-retirement expense (whichconstitutes the net of the interest on the total plan liabilities and theexpected return on the plan assets), which was previously included withintrading profit, will now be included within finance costs. The post-retirementexpense relating to service cost remains within trading profit. This reclassification between trading profit and finance costs will have noimpact on profit before tax or earnings per share and complies withInternational Accounting Standard 19 'Accounting for Retirement Benefits inFinancial Statements of Employers', as indeed did the previous treatment. Theamended treatment will reduce the volatility within trading profit from changesrelating to the post-retirement deficit in respect of past service and alsoensures better comparability of Cookson's results with those of its peer group.For the year ended 31 December 2005, the interest cost was £5.3 million out of atotal expense for defined benefit post-retirement plans of £13.9 million (firsthalf 2005: £2.8 million and £7.9 million respectively). The interest cost forthe full year 2006 is expected to be around £5 million. The increase in long-term corporate bond rates used in the calculation ofpost-retirement liabilities combined with the increased level of 'top-up'contributions agreed with the UK Trustees in February 2006, means that theGroup's total post-retirement deficit is expected to have reduced by over £30million from £225 million in the period from 31 December 2005 to 30 June 2006. Outlook Market conditions generally remain positive, particularly for our two largestdivisions, Ceramics and Electronics. Furthermore, opportunities for furthercost reduction are being implemented as part of our ongoing restructuringprogrammes. As a result, we expect to see the trends which have improved theoverall performance of our operations continue into the second half of the year.It should be noted, however, that the second half of 2005 was markedlystronger than the first half setting a tougher comparative benchmark for thesecond half. FURTHER ANNOUNCEMENTS Cookson expects to announce interim results for the six months ending 30 June2006 on 2 August 2006. 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 Vilela, 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. 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 ceramics products for the glass and foundry industries.It is 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. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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