Interim Management Statement & Directorate Change
17 May 2012
COOKSON GROUP PLC ("Cookson" or "the Group")
INTERIM MANAGEMENT STATEMENT AND INITIATION OF STRATEGIC REVIEW
Cookson Group plc, a leading materials science company, releases its Interim Management Statement regarding current trading, financial position, recent developments and outlook ahead of today's Annual General Meeting as well as the initiation of a strategic review. The Statement covers the period from 1 January 2012 to 16 May 2012.
Overview
· Trading for the first four months for the Group as a whole has been in line with internal expectations. Despite the previously identified continuing losses in the Fused Silica business, Group trading profit was slightly ahead of the equivalent period last year; management's expectations for the Group's full year performance in 2012 remain unchanged
· 'Bolt-on' acquisition of Metallurgica completed on 29 March 2012
· Disposal of the US operations of the Precious Metals Processing division completed, as planned, on 1 May 2012
· Strategic review initiated to consider a number of options, including a potential demerger or separation of Cookson's two main divisions
· Christer Gardell, Managing Partner of Cevian Capital, to join the Board as a non-executive Director
· Board remains confident of the Group's ability to achieve further progress in the current year towards its 2013 targets, driving further value for shareholders
Engineered Ceramics
The division is the world leader in the supply of advanced consumable products and systems to the global steel industry (which accounts for a little over half of revenue) and the global foundry industry (approximately one third of revenue) and a leading supplier of speciality products to the glass and solar industries.
According to the World Steel Association ("WSA"), global steel production in the first quarter of 2012 was 1.1% higher than the first quarter of 2011 (unchanged for the world excluding China), with the EU (27 countries) 3.9% lower, NAFTA 6.7% higher, and China 2.5% higher. This reflects a continuation of the weaker trends seen in the latter months of 2011, particularly in Europe and China. On 27 April 2012, the WSA issued a new short-range forecast for growth in global steel use of 3.6% for full year 2012 (3.2% higher for the world excluding China), with the EU 1.2% lower, NAFTA 5.2% higher, and China 4.0% higher. Growth in global steel use in 2013 is forecast to be 4.5%.
Foundry castings end-markets are currently experiencing mixed conditions. There are encouraging levels of activity in North America and Northern Europe (notably Germany and Scandinavia), but relative softness in Southern Europe, Korea and Japan and recent signs of a pick-up in China.
The performance of the division's three principal businesses (Steel Flow Control, Advanced Refractories and Foundry Technologies, together comprising around 95% of the division's revenue) for the first half of 2012 is expected to be marginally higher compared to the equivalent period last year and also to strengthen in the second half of 2012 when the comparatives become less demanding. As expected, the trading losses in the Fused Silica business (c.5% of divisional revenue) in the second half of 2011 have continued into this year compared to a profitable first half of last year. Action plans have been developed to further reduce costs in this business should the anticipated second half 2012 end-market recovery fail to materialise.
Therefore, due to the relatively weaker performance of the Fused Silica business, the division's overall first half 2012 performance continues to be expected to be marginally below that in the first half of 2011.
The acquisition of Metallurgica was completed on 29 March 2012. Metallurgica is one of the world's leading suppliers of mould flux used alongside refractory products in the enclosed continuous casting steel casting process. The business is being integrated into the Steel Flow Control business and is already making a positive contribution.
Performance Materials
The division is a world leading supplier of electronic assembly materials and advanced surface treatment and plating chemicals. The electronic equipment production end-market accounts for approximately three-quarters of revenue with the other quarter being direct non-electronics applications in automotive and industrial production.
As anticipated, continued strong performance in the Americas and Asia-Pacific has more than offset weak end-market conditions in Europe. The division has continued to benefit from its market penetration of the higher growth market segments, such as smartphones and tablets, based on innovative, higher margin products.
According to recent estimates from Henderson Ventures, global production of electronic equipment (measured in US dollars at constant currency) is forecast to grow by 5.4% in 2012 and 6.6% in 2013.
The division's first half performance is expected to be well ahead of the equivalent period last year, but slightly below the seasonally stronger second half of 2011.
Precious Metals Processing
The agreement to sell the division's US operations to Richline (a subsidiary of Berkshire Hathaway Inc.) was signed on 22 February 2012 with the sale being completed, as planned, on 1 May. Over the first four months of the year up to disposal, the US operations were modestly profitable.
The European operations have continued to trade well, benefiting from continuing high levels of reclaimed precious metals processing and refining activity.
The division's overall first half performance is therefore expected to be somewhat ahead of the first half of 2011.
Financial condition
Working capital trends in the first four months of 2012 have reflected normal seasonality with a build-up of working capital expected in the first half of the year with a corresponding reduction in the second half. Net debt as at 30 June 2012 will also reflect (i) the acquisition of Metallurgica in March 2012, (ii) the purchase by the Employees Benefit Trust in March 2012 of £15m of Cookson shares relating to the award of shares to employees under Long Term Incentive Plans, and (iii) the buy-out of the property lease relating to the Performance Materials division's operations in Woking, UK for £20.5m in May 2012. This property had been subject to a 'sale and leaseback' arrangement (with a twenty-seven year lease) in 2001, but due to the landlord going into receivership, an opportunity arose to acquire the property for a consideration that was significantly lower than the net present value of the outstanding lease payments.
On 2 May 2012, US$190m (£119m*) of US Private Placement loan notes dating from 2000 were repaid on their scheduled maturity date. Following this repayment, the Group's committed debt facilities now comprise the £600m five year Revolving Credit facility agreed in April 2011 and US$250m (£157m*) of US Private Placement loan notes which were issued in December 2010 with an average weighted duration remaining of just over seven years.
The Group is operating well within the stated target of a leverage ratio (net debt to EBITDA) of not more than 1.5 times at year-end and 1.75 times at the half year. Hence, the Group's financial position is strong with a good level of liquidity under long-term financing arrangements.
Outlook
The outlook for the remainder of 2012 remains in line with that stated in our 27 February 2012 Preliminary Results announcement.
While the macro-economic outlook continues to be uncertain, trading to date and feedback from customers and third party industry forecasters continues to indicate mid-single digit growth globally in the Group's main end-markets in 2012, with generally weaker demand in Europe offset by continued growth in the Americas and Asia-Pacific. For the small Fused Silica business, we still anticipate some recovery in the solar panel market in the second half of 2012, but we will take the necessary action should this not materialise.
Both the Engineered Ceramics and Performance Materials divisions are well positioned to deliver further performance improvement based on their global market coverage, strong presence in higher growth developing markets, leading technologies and strong new product pipelines, high technical service element and value selling competence. The Board remains confident of the Group's ability to achieve further progress in the current year towards its 2013 targets, driving further value for shareholders.
Strategic review
As part of its continued focus on maximising business performance and shareholder value, the Board routinely reviews the potential strategic portfolio options for the Group. The Board believes that there remains considerable scope to further enhance performance of the individual businesses and unlock further shareholder value. Accordingly it has initiated a strategic review which, over the coming months, will consider a number of options for the Group.
These options include a potential demerger or separation of Cookson's main divisions, given the limited operational or end-market overlap between the Engineered Ceramics division (a ceramic refractory business) and the Performance Materials division (a specialty chemicals business). The Board will update shareholders on the progress of this strategic review as and when appropriate.
An initial analysis of the frictional costs associated with any separation has been carried out. Whilst the ultimate quantum of these costs will depend on the structure of any such separation, this initial analysis suggests that the likely upfront, one-off cash costs on any separation (relating, inter alia, to additional pension contributions, taxation, debt refinancing costs, and professional fees) would be in the range of £50m to £70m. The level of on-going, incremental costs to the businesses resulting from any separation will continue to be assessed, but the net present value of these costs (which includes additional head office and taxation costs) is currently expected to be broadly similar to the level of the upfront cash costs.
Board changes
Steve Corbett, the Chief Executive of the Performance Materials division, joined the Board as an executive Director on 1 May 2012 and is standing for election at today's AGM. Dr Emma FitzGerald, having been appointed after the 2011 AGM, is also standing for election for the first time today. All other current Directors are standing for re-election.
The Board is pleased to announce that it has invited Christer Gardell to join the Board as a non-executive Director with effect from 1 June 2012. Christer Gardell is Managing Partner of Cevian Capital which currently owns just over 20% of Cookson's shares.
Mr. Gardell co-founded Cevian Capital in 2002. From 1996 to 2001, he was the Chief Executive Officer of AB Custos, the Swedish investment company. Prior to joining AB Custos he had been a Partner of Nordic Capital. Between 1984 and 1995 he worked with McKinsey & Company, ultimately as a Partner. He has served as chairman of five companies and as a director of thirteen companies. Mr. Gardell holds an MSc in Economics and Business Administration from the Stockholm School of Economics.
Mr. Gardell's extensive international and financial experience includes sitting as a non-executive director of the global Finnish technology and services company, Metso Corporation. He was also a director of AB Lindex until December 2007 and of Tieto Corporation until March 2012.
There are no further matters to be disclosed pursuant to Listing Rule 9.6.13 in relation to the appointment of Mr. Gardell.
The outcome of the above mentioned strategic review will, of course, have a bearing on Board succession planning and the future composition of the Board or Boards and respective Committees.
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 (17 May). To join the call, please use the dial in number below:
Conference call:
+44 (0)203 427 1931 all participants
Confirmation code: 6204420
A replay of the call will be available one hour after the event for two weeks on the following number:
Replay:
+44 (0)203 427 0598 non-US participants
+1 347 366 9565 US participants
Confirmation code: 6204420#
Further announcements
Cookson's half year results for the six months ending 30 June 2012 are expected to be announced in late July 2012.
- Ends -
Notes:
* translated at an exchange rate of US$1.59/£1
Shareholder/analyst enquiries:
Nick Salmon, Chief Executive Cookson Group plc
Mike Butterworth, Group Finance Director Tel: + 44 (0)20 7822 0000
Media enquiries:
John Olsen MHP Communications
Anthony Arthur Tel: +44 (0)20 3128 8100
+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 Engineered 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 products to the glass and solar industries.
The Performance Materials division is a leading supplier of electronic assembly materials and advanced surface treatment and plating chemicals 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 UK, France and Spain, and also has significant precious metal recycling operations.
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
This information is provided by RNS
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