Annual Financial Report

RNS Number : 9861J

Cookson Group PLC

09 April 2010

 



9 April 2010

Cookson Group plc

Pursuant to paragraphs 9.6.1R of the Listing Rules, two copies of the following documents have been submitted to the UK Listing Authority (the "UKLA") and will shortly be available for inspection at the UKLA's Document Viewing Facility, which is situated at:

Financial Services Authority
25 The North Colonnade
Canary Wharf
London
E14 5HS
Tel. no. + 44 (0) 20 7066 1000

-     Annual Report and Accounts for the year ended 31 December 2009 (the "2009 Annual Report and Accounts")

-     Circular and Notice of Annual General Meeting to be held on 13 May 2010

-     Form of proxy for the Annual General Meeting (the "AGM") to be held on 13 May 2010

-     Letter regarding availability of the 2009 Annual Report on the Company's website

The following resolution is being proposed as special business at the forthcoming AGM:

Resolution 12 seeks approval to continue to call general meetings on 14 clear days' notice. This resolution is required to reflect the implementation in August 2009 of the Shareholder Rights Directive.  The Regulations implementing this Directive increased the notice period for general meetings of the Company to 21 days unless certain requirements are satisfied.  The Company would like to preserve the ability to call general meetings (other than an AGM) on 14 clear days' notice. The Company does not propose to use this reduced notice period as a matter of routine, but wishes to maintain the flexibility to do so where it is merited by the business of the meeting, for example, because the matter to be discussed is time sensitive. The approval will be effective until the Company's next AGM, when it is intended that a similar resolution will be proposed. The Company will also need to meet the requirements for electronic voting under the Shareholder Rights Directive in order to be able to call a general meeting on 14 clear days' notice.  Resolution 12 is proposed as a special resolution.

Printed copies of the AGM documents are being posted to shareholders today.  Copies of the 2009 Annual Report and Accounts and 2010 Notice of Meeting, which includes explanatory notes on the proposed resolutions, will shortly be available on the Company's website at www.cooksongroup.co.uk.

IMPORTANT: EXPLANATORY NOTE AND WARNING

The primary purpose of this announcement is to inform the market about the publication of Cookson Group plc's 2009 Annual Report and Accounts.

The information below, which is extracted from the 2009 Annual Report and Accounts, is included solely for the purpose of complying with DTR 6.3.5R and the requirements it imposes on issuers as to how to make public annual financial reports. It should be read in conjunction with Cookson's Preliminary Results announcement issued on 2 March 2010. Together these constitute the material required by DTR 6.3.5R to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full 2009 Annual Report and Accounts.

Principal Risks and Uncertainties

"As described in the Corporate Governance Report, there is a continuous process for identifying, evaluating and managing any significant risks faced by Cookson. Group management operates a risk management process designed to identify the key risks facing each business and reports to the Audit Committee on how those risks

are being managed. The Board also reviews the role of insurance and other measures used in managing risks across the Group, receives regular reports on any major issues that have arisen during the year and makes an annual assessment of how the risks have changed over the period under review.

Throughout its global operations, Cookson faces various risks, both internal and external, which could have a material impact on the Group's long-term performance. Cookson manages the risks inherent in its operations in order to mitigate exposure to all forms of risk, where practical, and to transfer risk to insurers, where cost-effective.

The risks below are not the only ones that the Group will face. Some risks are not yet known and some that are not currently deemed material could later turn out to be material. All of these risks could materially affect the Group, its business, results of future operations or financial condition.

The financial performance and financial position of Cookson may be adversely affected by a significant weakening in demand in its core end-markets.

With operations worldwide, the Group's businesses are subject to various risks inherent in their international operations, including economic, political and operational risks. The deterioration in financial markets experienced worldwide during 2008 had an adverse impact on the wider global economy and, in 2009, recessionary conditions existed in the UK, other EU member states and the US, as well as in other countries where Cookson operates. The depressed economic situation was evidenced by a considerable reduction in global steel production, which had a very significant negative impact, particularly in the first half of 2009, on demand for Cookson's ceramic refractory products, which are consumable products used in the production of steel and which represent Cookson's largest single end-market. A severe deterioration in demand from the foundry and the electronics industries, the Group's other main end-markets, also had a significant adverse impact on the Group's trading performance, particularly in the first half of 2009, although the effects of this were mitigated partly by savings from the cost-saving initiatives introduced by management as the recessionary market conditions began to develop. In the second half of 2009, a number of the Group's main businesses saw a resurgence of demand from their end-markets, which led to a significantly improved level of trading performance compared to the first half of the year, again aided by the Group's now significantly lower cost base. However, some Group businesses, notably the Foundry product line of the Ceramics division, experienced only limited improvement and there remains some uncertainty as to the timing and strength of any upturn in this end-market.

There is also currently some uncertainty as to the degree to which the resurgence in demand experienced in the latter months of 2009 across many of the Group's main businesses will be sustained in 2010. Cookson's divisions predominantly supply consumable products, on short lead times, to the global steel, foundry, electronics and precious metals industries. As such the Group's expectations of future trading are based upon the Directors' assessment of end-market conditions, which conditions are subject to some uncertainty.

In the event that end-market conditions suffer further significant deterioration, Cookson may experience further reductions in trading activity, a lower share price, the financial failure of one or more of its key customers and suppliers, asset impairments, lower profitability and a material adverse impact on its financial position. In such an event, management may need to instigate further cost-reduction and rationalisation measures to respond to market conditions.

Financial indebtedness could limit Cookson's operational flexibility, particularly in the difficult economic and industry conditions

The existing level of Cookson's financial indebtedness and gearing, combined with covenants contained in its principal debt facility agreements, could: limit flexibility in the management of the Group; limit flexibility in making acquisitions; place Cookson at a competitive disadvantage compared to any competitors that have less debt; increase Cookson's vulnerability to, and limit its ability to withstand, continued adverse economic and industry conditions as well as to withstand downturns in demand for its products; and affect its ability to obtain raw materials, particularly precious metals, on a consignment basis. The principal debt maturities under Cookson's debt facilities are in 2011 and 2012 and the Group intends to reduce and/or refinance its financial indebtedness on commercially acceptable terms when it falls due beyond the next twelve months. If it is unable to do this, its future prospects, financial position and results of operations may be materially adversely affected.

The Group's financial position and trading results may be adversely affected by fluctuations in exchange rates, interest rates or the rate of inflation

The Group has no control over changes in foreign currency exchange rates, or inflation and interest rates. In the normal course of business, many transactions are carried out by Group businesses in currencies other than their reporting currency, leading to transactional foreign exchange risk, although this is not material for the Group overall. It is Cookson's policy that foreign currency transaction exposures that are material at an individual operating unit level are hedged using appropriate instruments such as forward foreign exchange contracts. The Group does not currently hedge translation exposures arising on unremitted non-UK earnings. While the Group attempts to manage transactional and balance sheet translation risks associated with currency exchange rate fluctuations through its hedging and funding policies, fluctuations in the value of currencies in which it operates may nevertheless adversely impact the Group's financial position, results of operations and ability to comply with its financial covenants. Where appropriate, the Group manages its interest rate exposures using interest rate swap agreements or other instruments; however, fluctuations in interest rates could materially adversely impact the Group's results of operations.

A withdrawal or reduction of precious metal consignment arrangements, or increased precious metal prices resulting in consignment lines being fully utilised, may cause a shortage of raw materials or may require precious metals to be supplied in a way which would materially increase the Group's financial indebtedness

The Group's precious metal fabrication operations utilise significant quantities of precious metals, primarily gold by value. These metals are held predominantly on consignment under arrangements the terms of which provide, inter alia, that the consignor retains title to the metal and has a right of return over the metal without penalty unless the consignee purchases such metal at a market price for such metal plus a premium. Consignors are party to either committed or uncommitted arrangements. Under uncommitted arrangements, the consignor has no obligation to supply the precious metal to the Group's fabrication operations and has the right, with limited or in some cases no notice, to demand physical return or purchase of its consigned metal. As the consignors retain title and associated risks and benefits of ownership under these arrangements, the physical metal so held is not recorded in the Group balance sheet. The utilisation of consigned precious metals is established practice in the precious metals industry. Should precious metals consignors decide to reduce or withdraw the facilities for whatever reason, or require a return of the consigned metal, or increased metal prices lead to the consignment arrangements becoming fully utilised, the Group's precious metal fabrication operations may suffer shortages of raw materials or may require precious metals to be supplied in a way which would materially increase the Group's financial indebtedness. In either case, the Group's business, financial position and results of operations may be materially adversely affected.

The Group's worldwide operations and businesses may be adversely affected by various political, legal, regulatory and other developments in countries in which it operates

Political risks include the imposition of trade barriers, changes of regulatory requirements and the volatility of input costs, selling prices, taxes and currencies. The Group is subject to various legal and regulatory regimes, including those covering taxation and environmental matters. Future global political, legal or regulatory developments concerning the businesses may affect the businesses' ability to operate and to operate profitably in the affected jurisdictions. Should the Group's businesses fail to comply with applicable legal and regulatory requirements, this may result in a financial loss or restriction on the businesses' ability to operate.

The Group's businesses are subject to a variety of operational risks, including the risk of possible natural catastrophe, terrorist action and fraud. If any of the operational risks materialise, this could result in a substantial interruption to a facility, a potential loss of customers and revenue and financial loss, which could have a material adverse effect on the Group's future prospects, financial position and results of operations.

The Group may suffer losses should a counterparty fail to perform as contracted

The Group transacts business with and through a number of counterparties, including customers, suppliers, financial institutions and insurers. The financial failure of one or more of the Group's key customers and suppliers may result in financial loss, loss of future business and a shortage of raw material supplies. In managing the risks inherent in its operations, Cookson transfers risk to insurers where cost-effective and, accordingly, the financial failure of one or more insurers used by the Group may result in a financial loss to Cookson.

Cash deposits and other financial instruments held with or through financial institutions give rise to credit risk, represented by the loss that would be recognised should a counterparty fail to perform as contracted. It is Cookson's policy to limit the latter counterparty exposure by dealing with reputable financial institutions and monitoring the credit ratings of those counterparties on a regular basis in accordance with Board approved guidelines. However, there can be no assurance that this policy will effectively eliminate such exposure. Any counterparty default may have a material adverse effect on Cookson's future prospects, results of operations and financial condition.

The Group may lose customers to competitors with new technologies if its businesses do not adequately adapt to market developments

The Group supplies materials and services primarily to the steel, foundry and electronics industries on a global basis and to the jewellery industry primarily in the US and Europe. The markets in which many of the Group's businesses operate can experience rapid changes due to the introduction of new technologies. The Group's continued success depends upon its ability to continue to develop and produce new and enhanced products and services on a cost-effective and timely basis in accordance with customer demands.

In addition, the markets for the Group's products are competitive in terms of pricing, product and service quality, product development and introduction time, customer service, financing terms and other similar factors. Cookson invests significant amounts in research and development to sustain its competitive advantage and takes appropriate action to ensure that its cost base remains competitive. If the Group fails to adequately adapt to market developments related to new products and technology, it could lose customers to suppliers with new technology which allows them to supply customers with better products or products which can be supplied more cheaply and/or easily than Cookson's products. Alternatively or additionally, the Group could fail to achieve its anticipated returns on the amounts it has invested in research and development. These outcomes could have a material adverse effect on the Group's future prospects, financial position and results of operations.

The Group's future prospects, financial position and results of operations could be adversely affected if it is unable to pass on to its customers fluctuations in the prices of the raw materials which it purchases

Tin, solvents, alumina, graphite, silver and gold are among the principal raw materials that the Group purchases. The Group's businesses may be affected by fluctuations in the price and supply of such raw materials. The Group's ability to pass on increases or decreases in the cost of raw materials to its customers is, to a large extent, dependent upon market conditions, established market practice and terms of trade. If the Group's ability to pass on increases in the cost of raw materials is limited, this could have a material adverse effect on the Group's future prospects, financial position and results of operations.

The Group's financial condition may be materially adversely affected by any significant liabilities for any defects of its products or services

A large proportion of the Group's products are used in the manufacturing processes of the Group's industrial customers. If a product of the Group or of one of the Group's industrial customers does not conform to agreed specifications or is otherwise defective, the Group may be subject to claims by its customers arising from end-product defects, injury to individuals or other such claims.

The Group's current and former businesses have used and/ or continue to use a wide range of hazardous materials, in the manufacture of industrial and consumer products. Legal claims have been brought against certain Group companies by third parties alleging that persons have been harmed by exposure to such materials, and further claims may be brought in the future. Certain of the Group's subsidiaries are subject to suits, predominantly in the US, relating to products containing asbestos manufactured prior to the acquisition of those subsidiaries by the Group. These suits usually also name many other product manufacturers. To date, the Group is not aware of there being any liability verdicts against

any of these subsidiaries. Provision is made for amounts payable in respect of known or probable costs. Management believes, taking into account legal advice received, the Group's insurance arrangements, indemnification provided by former owners of certain of the subsidiaries impacted and financial provisions, that none of the currently pending or potential claims will, either individually or in the aggregate, have a material adverse impact on the Group's financial position and results of operations. However, the outcome of legal action is uncertain and there is always the risk that it may prove more costly than expected and exceed the level of insurance cover, indemnifications and provisions made, which may have a material adverse effect on the Group's future prospects, financial position and results of operations.

If the Group fails or is unable to protect, maintain and enforce its intellectual property, the Group may lose its exclusive right to use its technologies and processes

The Group relies on a combination of trade secrets, patents, confidentiality procedures and agreements, and copyright and trade mark laws to protect its proprietary rights. The existence of complex factual and legal issues may give rise to uncertainty as to the validity, scope and enforceability of a particular patent or practice. If the Group fails to or is unable to protect, maintain and enforce its existing intellectual property, this may result in the loss of the Group's exclusive right to use technologies and processes which are included or used in its businesses. In addition, the laws of certain foreign countries in which the Group operates may not protect proprietary rights to the same extent as those of the UK or the US.

The Group has applied for patents in a number of jurisdictions, including in Europe and the US. These applications are at various stages in the application process and patents may not be issued, or may be issued in a form narrower than the Group's applications. If some of the patents or patent applications are not granted, expire or are successfully attacked, the Group may be unable to exclude competitors from using the technology covered by them. The Group has also acquired patents and patent applications from other parties.

The Group could become subject to lawsuits in which it is alleged that it has infringed the intellectual property rights of others or the Group could commence lawsuits against others whom it believes are infringing upon its rights. The Group's involvement in intellectual property litigation could result in significant expense, materially adversely affecting the development of sales of the challenged product or intellectual property and/or diverting the efforts of the Group's technical and management personnel.

Future expenditure on compliance with environmental and health and safety laws and regulations may materially adversely affect the Group's future prospects, financial position and results of operations

The Group is subject to applicable laws and regulations in all of the jurisdictions in which it operates, including those relating to pollution, the protection of the environment, human health and safety, the disposal of hazardous substances and waste materials and remediation of any land or water contaminated by such substances. Violations of legal or other regulatory requirements could result in restrictions on operations, the imposition of more stringent permitting conditions, damages, fines or other sanctions, all of which may have a material adverse effect on the Group's future prospects, financial position and results of operations. While the Board believes that the current and expected expenditures and risks connected with these and potential future liabilities are unlikely to impair the Group's financial position materially, there can be no assurance that the costs related to such liabilities will not exceed current or future financial and insurance provisions which may result in a material adverse effect on the Group's future prospects, financial position and results of operations.

The Group's financial position and results of operations may be materially adversely affected by any significant liabilities arising pursuant to indemnities or breaches of representations or warranties in contracts for the divestment of certain of its former companies and businesses

The Group has divested its interests in certain companies and businesses and has given indemnifications, representations and warranties with respect to the businesses of the divested companies at the time of their divestment. Management believes that sufficient provisions are in place to meet possible claims resulting from these indemnifications, representations and warranties. However, significant liabilities arising out of these transactions may arise in the future which have not been provided for and the emergence of such liabilities may have a material adverse effect on the Group's financial position and results of operations.

The funding level of the Group's pension plans may be detrimentally affected by adverse changes in the actuarial assumptions underlying the plan liabilities and/or a decline in the market value of plan investments

The Group operates defined benefit pension plans, principally in the UK and the US, where the Group's largest plans are located, each of which is closed to new members. The Group's largest US plans are also closed to further benefit accrual for existing members and it has been announced that consultation will take place on the proposed closure of the UK defined benefit pension plan to future benefit accrual for existing members. The calculation of plan liabilities, as required by international accounting standards, uses a discount rate based on the yield on high quality corporate bonds. The use of a lower discount rate for actuarial valuation and funding purposes results in a lower funding level of pension assets to liabilities. The funding levels of the Group's pension plans are also subject to adverse change resulting from movements in the other actuarial assumptions underlying the calculation of plan liabilities, including increasing inflation rates and increasing longevity of plan members and also from a decline in the market value of plan investments. Adverse changes in these underlying factors could result in increased cash contributions being required by funding agreements with pension trustees or under local regulatory requirements and could materially impact the Group's financial position.

Additional funding contributions into the Group's UK defined benefit pension plan may need to be made in response to a request from the plan Trustee should the Group's financial position deteriorate to a level which, in the opinion of the Trustee, materially impacts its financial covenant from Cookson

The Trustee of the Group's UK pension plan is responsible, in consultation with Cookson, for setting the level of funding contributions into the plan. The schedule of contributions currently in place aims at funding, by the end of June 2015, the plan deficit disclosed in the most recent actuarial valuation. This schedule of contributions is underwritten by the Trustee's assessment of the strength of the employer's covenant between Cookson and the Trustee, being the Trustee's assessment of Cookson's ability to meet those future funding payments as they fall due. Should Cookson's financial position deteriorate materially for whatever reason, the Trustee may demand, in consultation with Cookson, an increase in funding contributions to fund part or the whole of any outstanding funding deficit in the plan at that time. Additional funding contributions paid to meet such a demand could have a material adverse impact on the financial position of Cookson.

Depending on performance and market conditions, Cookson may not pay out cash dividends in the foreseeable future, or may pay out smaller dividends than the market expects

The Board has recently reviewed Cookson's near-term dividend policy in response to the recent global financial crisis and challenging trading conditions. As a consequence no interim dividend was declared and no final dividend will be recommended to shareholders in respect of the 2009 financial year. A decision to resume dividend payments will be made once a sustained recovery can be seen in our end-markets and trading performance, and in the context of the Group's cash requirements at that time. There can be no assurance

as to whether cash dividends or similar payments will be paid out in the foreseeable future or of their amount."

Statement of Directors' Responsibilities in respect of the Annual Financial Report

"We confirm that to the best of our knowledge:

·   the financial statements, prepared in accordance with the applicable set of accounting 

     standards, give a true and fair view of the assets, liabilities, financial position and profit or loss

     of the Company and the undertakings included in the consolidation taken as a whole; and

·   the Directors' Report includes a fair review of the development and performance of the business

     and the position of the issuer and the undertakings included in the consolidation taken as a

     whole, together with a description of the principal risks and uncertainties that they face.

On behalf of the Board

Mike Butterworth

2 March 2010"

Forward looking statements

This announcement contains certain forward looking statements which may include reference to one or more of the following: the Group's financial condition, results of operations, cash flows, dividends, financing plans, business strategies, operating efficiencies or synergies, budgets, capital and other expenditures, competitive positions, growth opportunities for existing products, plans and objectives of management and other matters.

Statements in this announcement that are not historical facts are hereby identified as "forward looking statements". Such forward looking statements, including, without limitation, those relating to the future business prospects, revenue, working capital, liquidity, capital needs, interest costs and income, in each case relating to Cookson, wherever they occur in this announcement, are necessarily based on assumptions reflecting the views of Cookson and involve a number of known and unknown risks, uncertainties and other factors that could cause actual results, performance or achievements to differ materially from those expressed or implied by the forward looking statements. Such forward looking statements should, therefore, be considered in light of various important factors. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward looking statements include without limitation: economic and business cycles; the terms and conditions of Cookson's financing arrangements; foreign currency rate fluctuations; competition in Cookson'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 on forward looking statements, careful consideration should be given to the foregoing factors and other uncertainties and events, as well as factors described in documents the Company files with the UK regulator from time to time including its annual reports and accounts.

Such forward looking statements speak only as of the date on which they are made. Except as required by the Rules of the UK Listing Authority and the London Stock Exchange and applicable law, Cookson undertakes no obligation to update publicly or revise any forward looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward looking events discussed in this announcement might not occur.

 

END

 

 

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