Interim Management Statement

RNS Number : 2189S

Cookson Group PLC

14 May 2009

 



14 May 2009

INTERIM MANAGEMENT STATEMENT

Cookson Group plc ('Cookson'), a leading materials science company, releases the following Interim Management Statement regarding current trading, financial position and outlook ahead of today's Annual General Meeting. This statement covers the period from 1 January 2009 to 13 May 2009.

Nick Salmon, Chief Executive, commented:

'Through the first four months of 2009, our Ceramics division's main end-market, global steel production, remained at December 2008's low levels. The Electronics division has seen some progressive pick up in demand through March and April, particularly in Asia, following very low levels in January and February.

'For the first four months, the Group's underlying revenue* was down around one-third compared with the prior year. Trading in January and February was at break-even with a modest profit in each of March and April.

'Given the continued weakness in our ceramics end-markets, particularly steel and vehicle production in Europe and NAFTA, we are now initiating a third phase of restructuring initiatives involving further Ceramics manufacturing capacity and overhead reductions.

'We expect some modest improvement in our trading profitability through the remainder of the second quarter as further benefits from our previously announced cost reduction programmes come through and as electronics end-markets continue to improve. Our much reduced cost base and high inherent operational gearing should ensure a strong recovery in our trading profit as and when end-markets show some sustained pick up.'

* at constant currency and as if Foseco had been acquired with effect from the beginning of January 2008

Ceramics

According to the World Steel Association ('WSA'), global steel production, which represents around half of the Ceramics division's revenue, fell 23% in the first quarter of 2009 compared to the same period last year, with decreases in the months of January, February and March of 24%, 22% and 24% respectively. This reduced level of production is in line with that experienced in the last two months of 2008. Excluding China (which currently accounts for just under half of global steel production), steel production fell by 37% in the first quarter of 2009, with Europe down 44%, the CIS down 34% and NAFTA down 52%. On 27 April 2009, the WSA published a new short range forecast for full year 2009 for apparent steel consumption which forecast a 15% reduction globally, with Europe down 29%, the CIS down 23% and NAFTA down 32%. Around two-thirds of the division's revenue in the Steel Flow Control and Linings product lines arises in Europe and NAFTA. This reflects both the leading market positions we maintain in these markets and the much higher proportion of steel manufactured in these regions (as compared to emerging markets such as China and India) using enclosed continuous casting technology which requires the division's Steel Flow Control products.  

The foundry castings market, which represents around one-third of the Ceramics division's revenue, has similarly experienced weak trading reflecting, in particular, very low levels of light vehicle and heavy truck production. Fused silica markets have also seen reduced demand compared to last year with broadly unchanged revenue for Solar Crucibles™ but significantly lower revenue for glass rollers.

These weak end-markets have resulted in underlying revenue year to date (at constant currency and as if Foseco had been acquired with effect from the beginning of January 2008) in the Ceramics division being lower by around 32% compared to last year. Reported revenue year to date (at reported exchange rates and including Foseco only from the date of its acquisition on 4 April 2008) is 13% higher than the corresponding period last year reflecting the reduction in underlying revenue being more than offset by the additional three month contribution from Foseco and the beneficial impact of currency translation due to the weakness of sterling. There has been some improvement in trading profit for the division as the year progressed despite the weak end-markets as more of the cost-reduction initiatives launched at the beginning of the year were realised. Trading was at breakeven in January and February with modest levels of trading profit in each of March and April.

Electronics

All of the key end-markets for the Electronics division - electronics, industrial and automotive - have been very weak year to date compared to last year, continuing the trends seen in the last two months of 2008. However, since late March certain sectors within electronic materials end-markets (which account for two-thirds of the division's revenue), have shown signs of improvement as customer de-stocking appears to be coming to an end. However, industrial and automotive markets (which account for the other one-third of the division's revenue) have continued to be weak.

Underlying revenue year to date (being revenue at constant currency and adjusted for the impact of lower metal prices) is down by around 40% compared to last year. Reported revenue year to date (at reported exchange rates and not adjusting for the impact of lower metal prices) is 24% lower than the corresponding period last year reflecting the reduction in underlying revenue only partially being offset by the beneficial impact of currency translation due to the weakness of sterling. Monthly trading profit year to date has shown a modestly improving trend both as a result of the recent improvement in electronics end-markets but also due to the increasing benefit of cost-reduction initiatives enacted in the first quarter. The division traded at breakeven in January and February but recorded a small, and increasing, trading profit in each of March and April.  

Precious Metals

Retail jewellery markets in both the US and Europe remain very weak. Significant cost-reduction measures have been taken during the year to date including reducing the headcount in the US production facility in Attleboro (Massachusetts), which is now some 21% lower than in September 2008. The division has remained profitable in the year to date, benefiting both from these restructuring initiatives and from an increase in precious metal reclaim activity in Europe, stimulated by the high price of gold.  

Cost-reduction initiatives

In our rights issue announcement of 29 January 2009, we detailed two phases of cost-reduction initiatives. Phase I was completed in the fourth quarter of 2008 and Phase II was initiated in early 2009. Together they are expected to generate around £40 million of annualised savings, of which £30 million is expected to be realised in the full year 2009. Given the continued weakness in the Ceramic division's end-markets, a further phase ('Phase III') of cost reductions will shortly be launched which is expected to generate approximately £13 million of additional annualised savings, of which £5 million is expected to be realised in the full year 2009. Plans for Phase III are still being finalised and are subject to normal employee consultation, but could include the closure of further Ceramics facilities (in addition to the intended closure of six facilities already announced), plus additional overhead reductions. These new initiatives are expected to result in a further reduction in the division's headcount of up to 600. The cash-related costs of realising these Phase III savings are expected to total approximately £13 million, which will be reflected as an additional restructuring charge in full year 2009.

As a result of these restructuring and integration initiatives, Group headcount by the end of 2009 is expected to be around 3,200 lower than at September 2008, a reduction of 19%.  

Total restructuring and integration costs for the full year 2009, including those related to all three phases of the cost-reduction initiatives and the continuing integration of Foseco, are now expected to be approximately £40 million. The cash outflow in full year 2009 relating to restructuring and integration initiatives (including some announced in 2008) is expected to be just under £50 million.  

Exceptional items

In addition to the restructuring and integration costs noted above and normal amortisation of intangible assets, two further exceptional items are expected to be incurred in the full year 2009 as follows. 

In recent months the Group's borrowing profile has been amended such that all of the foreign currency-denominated borrowings drawn under the syndicated bank facility have been converted into sterling. In March 2009, following receipt of the £241 million of right issue proceeds, the Group prepaid £75 million and €37.5 million of its syndicated bank facility. Following these transactions, the Group closed out a number of interest rate swaps that had originally been taken out to hedge the interest payments relating to these borrowings. As a result of the reduction in global interest rates over the last year, these swaps were 'out-of-the-money' and the cumulative loss of approximately £14 million, which had previously been reported in reserves, has been charged to the income statement as an exceptional finance cost. On the assumption that interest rates remain at current levels, the closing out of these interest rate swaps will have a beneficial impact on the Group's finance costs going forward.

The recent restructuring of the Electronics division's UK operations has resulted in the transfer of a significant amount of UK production to other existing Electronics division facilities outside of the UK. As a result, there is significant unutilised space at the division's facility in the UK. This facility is subject to a lease under which the future rentals which relate to the now unutilised part of this facility represent an onerous obligation. The discounted future rental costs associated with the onerous element of the lease of £16 million will be treated as an exceptional charge for full year 2009.  

Financial position

The Group's financial position has been significantly strengthened by the successful completion of the right issue, which resulted in the receipt of net proceeds of £241 million in early March 2009. Reduced levels of working capital resulting from the lower underlying revenue combined with a continued strong focus on cash generation is expected to result in positive cash generation from working capital in the first half of the year. Combined with the suspension of expansion capital expenditure, dividend payments and UK pension 'top-up' payments, this is expected to result in net debt as at 30 June 2009 being broadly in line with December 2008 (once adjusted for the rights issue proceeds). We are expecting to be in full compliance with the financial covenants contained within our debt facilities as at 30 June 2009.  

Outlook

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 an assessment of end-market conditions and these conditions are subject to greater uncertainty than usual in the current economic climate.  

Our major markets have remained very weak in the first four months of 2009 compared to last year, although certain electronics end-markets have seen some increased levels of activity since late March. Whilst the timing and extent of any recovery in our end-markets remains very difficult to predict, we are still expecting a gradual improvement in our trading results going forward particularly as we go into the second half of the year as further cost-reduction benefits materialise and sales volumes improve as the de-stocking in our end-markets comes to an end.  

As evidenced by the launch of a further phase of cost-reduction initiatives in the Ceramics division, we remain committed to aligning our cost base to the expected level of activity in our end-markets. These initiatives, combined with the realisation of further Foseco-related integration synergies, will increasingly benefit our results as we progress through 2009. Our reduced cost-base and the high level of operational gearing in our operations should ensure that our trading results benefit strongly as and when market conditions improve.

For the longer term we believe that Cookson is well positioned, with a portfolio of businesses supplying high-technology consumable products and related technical services, with leading positions in markets with sound prospects for growth as the global economy recovers.

Conference call

Nick Salmon, Chief Executive, and Mike Butterworth, Group Finance Director, will be hosting a conference call for analysts and investors at 8.00am (UK time) today (14 May). To join the call, please use the dial in number below:

Conference call:

[phone]    UK participants 

[phone]          US participants

Access code: 8218943#

A replay of the call will be available one hour after the event on the following number:

Replay (available until 28 May 2009):

[phone]    UK participants 

[phone]          US participants 

Access code: 8218943# 

Further announcements

Cookson's Half Year results for the six months ending 30 June 2009 are expected to be announced on 4 August 2009.

- Ends -

For further information please contact

Shareholder/analyst enquiries:
Nick Salmon, Chief Executive	Cookson Group plc
Mike Butterworth, Group Finance Director	Tel: + 44 (0)20 7822 0000
Anna Hartropp, Investor Relations Manager
Media enquiries:
John Olsen	Hogarth Partnership
Anthony Arthur	Tel: [phone]           + 44 (0)7770 272082

About Cookson Group plc 

Cookson Group plc is a leading materials science company operating on a worldwide basis in Ceramics, Electronics and Precious Metals markets.

The Ceramics division is the world leader in the supply of advanced consumable refractory products and systems to the global steel and foundry industries and a leading supplier of speciality ceramic products to the glass and solar industries. It is also a regional leader in the US, UK and Australia in the supply and installation of monolithic refractory linings.

The Electronics division is a leading supplier of advanced surface treatment and plating chemicals and assembly materials to the electronics, automotive, industrial and construction markets.

The Precious Metals division is a leading supplier of fabricated precious metals (primarily gold, silver and platinum) to the jewellery industry in the US, the UK, France and Spain. Products include alloy materials, semi-finished jewellery components and finished jewellery.

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.

Cookson Group plc, 165 Fleet Street, London EC4A 2AE    

Registered in England and Wales No. 251977 

www.cooksongroup.co.uk 

 

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