Preliminary Results for 2002
Cookson Group PLC
04 March 2003
4 March 2003
ANNOUNCEMENT OF 2002 PRELIMINARY RESULTS
• Sharp improvement in operating profit* of continuing operations in H2 2002
• £34.4m profit versus loss of £1.2m in H2 2001
• all divisions recorded improved profitability
• Group operating profit* of £56.8m for the year, in line with market
expectations
• Benefits of cost reduction programmes showed through as year progressed
• High operational gearing, particularly in Electronics division
• Strong cash generation; free cash flow of £64m
• Precision Products sold for £47.6m in January 2003
• Net debt, on pro forma basis, reduced by 49%
*(before goodwill amortisation and exceptional items)
Stephen Howard, Group Chief Executive, said:
'2002 was a year in which we made difficult strategic decisions, took the
necessary management actions and competed effectively in our markets despite a
challenging trading environment, especially in the electronics industry. The
benefits of cost reduction initiatives showed through increasingly as the year
progressed. This was evidenced by the sharp improvement in profitability in the
second half compared to both the second half of 2001, and the first half of
2002. The balance sheet was also substantially strengthened, primarily through
the rights issue but also through strong cash generation and from disposals. As
a result, we exited 2002 a much stronger business than we entered it,
financially and operationally.
'Trading conditions in Cookson's major markets in the year to date have remained
largely unchanged from the fourth quarter of 2002. In the Electronics division,
activity levels appear to have stabilised, as evidenced by the weekly sales and
order book position, whilst the timing and nature of a sustained electronics
industry upturn remain uncertain. Steel production levels in the USA and in
other major markets, which have been improving since the third quarter of 2002,
have been maintained in the year to date. This has been reflected in the
continued improvement in performance of the Ceramics division. Trading activity
in the Precious Metals division's markets has remained similar to that of the
fourth quarter of 2002.
'We will continue to manage the business tightly, with a particular emphasis on
cash generation, internal efficiency and organic growth. Our strengthened
balance sheet and the resilience that comes from our leading market positions
provide us with the flexibility and robustness to address any difficult
conditions that may persist. We believe there are continuing opportunities for
margin enhancement and will pursue these vigorously to ensure that Cookson
continues to improve its financial and competitive position in 2003,
irrespective of the trading environment.'
OVERVIEW
Over the last two years, Cookson has experienced exceptionally weak trading
conditions in many of its key markets, particularly the electronics industry.
However, by managing the business tightly, with a strong emphasis on cash
generation and internal efficiency, Cookson has maintained its competitiveness
and strengthened its financial position. This is evidenced by the sharp
improvement in profitability recorded in the second half of 2002, compared with
both the second half of 2001 and the first half of 2002.
Although the severe downturn that first became evident in the electronics
industry early in 2001 appeared to 'bottom out' in 2002, there were no signs
that a meaningful recovery had yet taken hold. The rate of decrease in industry
demand began to abate during the first half of 2002 and the level of destocking
stabilised during the second half. This was reflected in the performance of the
Electronics division where turnover has remained essentially unchanged for the
past three half-year periods at constant exchange rates. However, in contrast to
many of the division's competitors and other electronic industry participants,
during the fourth quarter of 2002 Cookson Electronics achieved year-on-year
turnover growth, albeit marginal, and operating profit was at break even.
In the Ceramics division, trading conditions began to improve gradually as the
year progressed, reflecting an increase in steel production levels and, in turn,
demand for the division's products, especially in its key US market. Improving
conditions in the Glass sector were also experienced in the second half of the
year. By the fourth quarter, the Ceramics division's return on sales was at its
highest level for two years, also reflecting the beneficial impact of the
significant restructuring programme which has been implemented over that period.
Weak consumer demand for jewellery in the USA and Europe resulted in trading
being slower than expected for the Precious Metals division. The traditional
inventory build-up by jewellery manufacturers and retailers in anticipation of
the holiday sales period failed to materialise, resulting in slow fourth quarter
trading activity. Nevertheless, the division returned a year-on-year profit
improvement in the second half.
Reducing the level of debt and strengthening the balance sheet were strategic
priorities during 2002 and, in August 2002, the rights issue raised £277
million, net of expenses. At the time of the rights issue, it was also announced
that the Company would seek to dispose of the Precision Products sector of the
Precious Metals division. This was completed in early January 2003. Had the
proceeds of this disposal been received before the end of 2002, net borrowings,
on a pro forma basis, would have been £383 million compared with £750 million at
the end of 2001. The profile of the Company's remaining debt is mainly long-term
in nature, being comprised of loan notes which mature between 2005 and 2012 and
convertible bonds which are due for repayment in November 2004.
The intense focus on cash generation, which has been a key element of
management's strategy throughout the Company for some time, was also maintained
during 2002. This resulted in positive post-exceptional free cash flow of £64
million for the year. This is the eighth year in succession that positive free
cash flow has been generated.
Improving the profitability of Cookson's businesses, even at the severely
depressed levels of activity some have experienced, remained a priority in 2002.
Cost saving measures introduced in 2001 had already resulted in a significant
reduction in the Company's cost base in that year. These initiatives continued
into 2002 and a number of new programmes were established, including the
optimisation of installed capacity at Polyclad's two US West Coast laminate
facilities in the USA and a further drive to accomplish the same objective in
its US East Coast and European facilities, thereby achieving a better balance to
its global production capacity.
The cumulative effect of all of the cost-saving initiatives that have been put
in place since the beginning of 2001 is a decrease in the Group's cost base of
some £100 million, on an annualised basis. It has also resulted in a net
reduction in the Company's headcount of 3,500 people since the end of 2000. The
benefits of these actions showed through increasingly in all three divisions,
resulting in Cookson recording a sharp improvement in operating profit in the
second half of 2002 over both the second half of 2001 and the first half of
2002.
The geographic footprint of Cookson's businesses continued its move towards
Asia-Pacific during 2002. This trend is particularly evident in the Electronics
division where, as a consequence of an industry-wide relocation of activity to
Asia-Pacific and further investment, sales into the region accounted for 36% of
the division's total in 2002. Over the last three years, Cookson's Asia-Pacific
operations have also consistently outperformed its operations in other parts of
the world in terms of both revenue growth and levels of profitability.
DIRECTORATE
Sir Bryan Nicholson, Chairman of Cookson since 1998, is retiring at this year's
AGM having reached the age of 70. Richard Haythornthwaite, who has been a
non-executive Director since 1999, retires at the same time. The process of
identifying both a new Chairman and a new non-executive Director is at an
advanced stage and the Company expects to make an announcement shortly.
CURRENT OUTLOOK
Trading conditions in Cookson's major markets in the year to date have remained
largely unchanged from the fourth quarter of 2002. In the Electronics division,
activity levels appear to have stabilised, as evidenced by the latest weekly
sales and the order book position, whilst the timing and nature of a sustained
upturn remain uncertain. Steel production levels in the USA and in other major
markets, which have been improving since the third quarter of 2002, have been
maintained in the year to date. This has been reflected in the continued
improvement in performance of the Ceramics division. Trading activity in the
Precious Metals division's markets has remained similar to that of the fourth
quarter of 2002.
The quality of Cookson's businesses provides a strong platform for revenue
growth as its markets improve. The significantly lower cost base across all
three divisions provides Cookson with a high level of operational gearing,
especially in the Electronics division. The Group will continue to be managed
tightly, with a particular emphasis on cash generation, internal efficiency and
organic growth. Further opportunities for efficiency and margin enhancement will
be pursued vigorously to ensure that Cookson continues to improve its financial
and competitive position in 2003, irrespective of the trading environment.
RESULTS OF OPERATIONS
Group - Continuing operations
Turnover Operating profit/(loss)
2002 2002
2001 2001
£m £m £m £m
First half 864 1,050 13.8 46.8
Second half 857 879 34.4 (1.2)
Year 1,721 1,929 48.2 45.6
(Note. The above data and those in the divisional tables below: are at reported
exchange rates; exclude the results of discontinued operations including the
results of Precision Products which was sold in January 2003; include the
Group's share of results attributable to joint ventures; and operating profit is
stated before goodwill amortisation and exceptional items. The impact of
acquisitions was immaterial in 2001 and 2002.)
Turnover. Turnover for 2002 was 11% lower than 2001 and down 8% at constant
exchange rates. The rate of decrease in turnover moderated in the second half of
2002, declining by only 3% versus the second half of 2001; this compares with a
fall of 18% in the first half of 2002 over the first half of 2001. The improving
trend was also evident in the fourth quarter of 2002 in which turnover was 5%
higher than the fourth quarter of 2001, at constant exchange rates.
Operating profit. Despite turnover being 11% lower than 2001, operating profit
increased by 6% in 2002 and by 7% at constant exchange rates. This improvement
in profitability arose from a £77 million decrease in operating expenses, due
principally to the benefits derived from cost-cutting programmes, which more
than offset the £75 million loss of prime margin from £208 million lower
turnover. The impact of these programmes was particularly evident in the second
half of 2002, with operating profit of £34.4 million up £35.6 million on the
second half of 2001. The increased rate at which the cost-cutting benefits
accrued during 2002 was also evidenced by operating profit in the fourth quarter
of the year of £24.2 million in comparison to a loss of £1.2 million in the
fourth quarter of 2001.
Geographic analysis of turnover and operating profit. Cookson's US businesses
remained the biggest contributors to total Group turnover, accounting for 40%
from continuing operations in 2002. However, US operations continued to incur an
operating loss which amounted to £22.0 million in 2002. The Company's
Continental European operations, which contributed 27% of total turnover,
recorded lower profits than in 2001.
In contrast, Cookson's activities in the Asia-Pacific region experienced better
trading conditions; turnover from operations in the region rose to 16% of the
Group total and operating profit increased to £37.3 million, whilst total sales
to customers in the region increased to 20% of the Group total. In addition,
although turnover from UK activities decreased to 10% of the total,
profitability improved.
Electronics division
Turnover Operating profit/(loss)
2002 2001 2002 2001
£m £m £m £m
First half 357 495 (11.7) 11.0
Second half 337 357 (3.2) (25.1)
Year 694 852 (14.9) (14.1)
Turnover. In 2002, turnover decreased by 18% versus 2001 and by 16% at constant
exchange rates. The division's contribution to Group turnover from continuing
operations decreased from 44% in 2001 to 40% in 2002.
Following sharp falls in activity in 2001, the rate of decrease in industry
demand began to abate in the first half of 2002 and the level of destocking
stabilised. This was evidenced by turnover in the Electronics division, at
constant exchange rates, being unchanged for the last three half-year periods at
£347 million. A marginal improvement in trend was noticeable in the fourth
quarter of 2002 with turnover 2% higher than the fourth quarter of the previous
year, at constant exchange rates.
In the division's PWB Laminates sector, turnover for 2002 was down 32% on 2001
following a sharp fall in demand for printed circuit boards (PCBs). However, for
the PWB Chemistry sector, where demand for its non-PCB products was less
affected, turnover for 2002 was only 6% lower than 2001, at constant exchange
rates. In the Equipment sector, turnover in both the first and second halves of
2002 remained depressed at a similar level to the second half of 2001 and, as a
consequence, was 26% lower than the full year of 2001. The Assembly Materials
sector was relatively less impacted by the downturn in the electronics industry,
due to its broader product range and market reach, and turnover for 2002 was 10%
lower than 2001, at constant exchange rates.
Operating profit. Despite a £158 million year-on-year reduction in turnover, the
Electronics division recorded a broadly unchanged operating loss for 2002
compared with 2001. Significantly, the loss of prime margin from the lower
turnover was almost entirely offset by extensive cost-cutting measures. Since
the end of 2000, the division's headcount has been reduced by some 2,700
employees, representing 32% of its workforce, and 13 facilities have been closed
or decommissioned. The impact on operating profit of these initiatives is also
evidenced by a £21.9 million reduction in the division's operating loss in the
second half of 2002 compared to the second half of 2001, despite £20 million
lower sales. Furthermore, on turnover of £169 million in the fourth quarter of
2002, the division operated at marginally better than break-even.
The particularly sharp falls in turnover experienced by the PWB Laminates sector
and by the Equipment sector resulted in both sectors registering operating
losses in 2002. Both the Assembly Materials and PWB Chemistry sectors, however,
were profitable in 2002 and by the fourth quarter of 2002 the level of return on
sales achieved by both sectors was similar to that of the fourth quarter of
2000.
Ceramics division
Turnover Operating profit
2002 2002
2001 2001
£m £m £m £m
First half 345 382 18.6 26.3
Second half 360 349 27.5 14.1
Year 705 731 46.1 40.4
Turnover. The Ceramics division's turnover for 2002 was down by 4% on 2001 and
by 1% at constant exchange rates. The division's relative contribution to Group
turnover of continuing operations increased from 38% in 2001 to 41% in 2002.
Approximately 80% of the division's turnover is linked to the level of steel
produced in the markets within which it operates, principally the USA and
Europe. A fall in US and UK steel production, which took hold in the fourth
quarter of 2001 and continued into the first half of 2002, contributed to a
decrease in demand for many of the division's products. This resulted in an 8%
fall in turnover in the division's Iron and Steel sector in the first half of
2002, at constant exchange rates, compared with the first half of 2001. However,
steel production recovered in the USA and in Continental Europe in the second
half of 2002 and turnover for the Iron and Steel sector increased by 9% in the
second half of 2002, at constant exchange rates, over the same period last year.
As a result, the sector's turnover for 2002 was unchanged compared to 2001.
Turnover in 2002 in the Foundry sector, which is indirectly linked to the level
of US and European steel production, decreased by 4% compared with 2001, at
constant exchange rates. In the Glass sector, turnover was down 3% for the year
although, with previously deferred furnace-lining projects coming on stream and
strong growth in solar crucibles, turnover for this sector grew by 11% at
constant exchange rates in the second half of 2002 over that of 2001.
Operating profit. The operating profit of the Ceramics division in 2002 was 14%
higher than 2001 and was up by 16% at constant exchange rates. Despite turnover
being £26 million lower than 2001, a £5.7 million improvement in operating
profit was achieved. This was a result of both a better geographic sales mix and
a reduction in the division's cost base due to a combination of cost-cutting
initiatives and the now-completed three-year programme to integrate the Premier
acquisition. The full benefits of these measures, together with a 3% increase in
turnover, resulted in operating profit in the second half of 2002 being 95%
higher than the second half of 2001. In the fourth quarter of 2002, the level of
profitability improved further and, on sales of £188 million, return on sales
for the division of 9% was at virtually the same level as that achieved in 2000.
Precious Metals division*
Turnover Operating profit
2002 2002
2001 2001
£m £m £m £m
First half 163 174 6.8 9.5
Second half 160 172 10.2 9.8
Year 323 346 17.0 19.3
*(Excludes the results of the Precision Products sector that has been disposed).
Turnover. The Precious Metals division's turnover was down by 7% on 2001 and by
5% at constant exchange rates. The division's relative contribution to Group
turnover increased from 18% in 2001 to 19% in 2002.
Traditionally, the division's turnover is higher in the second half of the year
than in the first half due to a build-up in inventory by both jewellery
manufacturing customers and retailers prior to the late November/December
holiday season. In 2001, this increase did not arise, mainly due to the events
of September 11, and the market remained soft in the first half of 2002.
Furthermore, the customary inventory build up did not take place in the second
half of 2002 and, due to continued weakness in jewellery demand in the
division's key markets in the USA and Europe, turnover was down 4% over the
second half of 2001, at constant exchange rates.
Operating profit. The Precious Metals division's operating profit was 12% lower
in 2002 than 2001 and down by 9% at constant exchange rates. The decrease arose
entirely in the first half of 2002 as in the second half operating profit was 9%
higher than the same period a year ago at constant exchange rates. This
improvement in profitability was primarily due to increased higher value added
sales in the USA and a reduction in headcount, principally in the European
activities as part of the Cookson-CLAL integration programme that was initiated
in 2001.
Discontinued operations
Turnover of £71 million (2001: £83 million) and operating profit of £8.6 million
(2001: £10.9 million) for 2002 relates to the Company's Precision Products
businesses and a number of small, non-core businesses that were sold in January
2003 and 2002 respectively. Turnover and operating profit of £87 million and £3
million respectively arose in 2001 primarily from the Magnesia Chemicals and
Plastic Mouldings businesses which were sold in 2001.
GROUP PROFIT AND LOSS
Profit/(loss) before taxation
Profit/(loss) before Tax*
2002 2001
£m £m
First Half (11.9) 30.9
Second Half 16.0 (24.2)
Year 4.1 6.7
*(before exceptional items and goodwill amortisation)
Group profit before tax, exceptional items and goodwill amortisation for 2002
was £4.1 million compared with a profit of £6.7 million in 2001. However, in the
second half of 2002, following both an improvement of £36.7 million in Group
operating profit and £3.5 million lower interest costs, profit before tax
improved by £40.2 million over the second half of 2001.
Group loss before taxation, after both exceptional items of £63.1 million and
goodwill amortisation of £37.9 million, amounted to £96.9 million compared with
a loss of £107.4 million in 2001.
Operating exceptional items
Operating exceptional items of £31.4 million were charged as a result of
cost-saving initiatives instigated in 2001 and 2002 and included £16.2 million
of asset write-offs. Of the total charge, £25.2 million arose in the Electronics
division, primarily related to programmes to optimise the manufacturing capacity
of the PWB Laminates sector in the USA and Europe. Operating exceptional charges
of approximately £2 million are expected to accrue in 2003 in relation to
programmes initiated in 2002.
Non-operating exceptional items
Net loss on sale or closure of operations
In 2002, the net loss on sale or closure of operations was £20.8 million which
includes £6.3 million of goodwill previously written-off against reserves. This
primarily relates to the sale of the Dental Products businesses and the disposal
of certain small non-core activities in the Electronics division. The charge in
2001 of £57.6 million, as restated, primarily related to the sale of the
Magnesia Chemicals and Plastic Mouldings businesses.
Net (loss)/profit on sale of fixed assets
The net loss on sale of fixed assets of £10.9 million in 2002 includes a gain on
sales of land and buildings offset by an increase in the provision against the
carrying value of the Company's ESOP shares and a write-off of certain fixed
assets associated with closed facilities and product lines.
The net profit in 2001 of £13.3 million primarily arose from sales of land and
buildings.
Net interest expense
Net interest expense increased marginally from £52.4 million in 2001 to £52.7
million in 2002. A decrease in interest paid on lower borrowings, due to both
positive cash flow before financing and the £277.2 million net proceeds from the
rights issue in August 2002, was offset by both higher average interest rates
and a £3.6 million increase in amortisation of financing fees to £4.4 million.
The average interest rate on borrowed monies, excluding amortisation of
financing fees, at the end of 2002 was 6.6%. The Group enters 2003 with
significantly lower borrowings than 2002 which will result in a lower interest
charge.
Taxation
The Group recorded a net tax credit of £0.6 million in 2002 which consisted of a
tax charge of £1.2 million on the Group profit before taxation, exceptional
items and goodwill amortisation and a £1.8 million tax credit on net exceptional
items and goodwill amortisation.
Following the adoption of FRS 19 'Deferred Taxation', the tax charge for 2001
was restated. This has resulted in a credit for taxation of £46.9 million
arising for 2001 versus a credit of £3.1 million as previously reported.
Earnings per share (EPS)
Headline EPS, which is based on profit after tax but before goodwill
amortisation and all exceptional items, amounted to 0.1 pence per share in 2002.
This compared with the 0.7 pence EPS reported in 2001, before restatement to
account for the adoption of FRS 19, as set out above. After restatement, EPS in
2001 amounted to 6.0 pence.
The average number of shares in issue during 2002 was 1,129 million, after
taking account of the rights issue in August 2002, which compares with 740
million in 2001. The number of shares in issue at 31 December 2002 was 1,892
million.
Dividends
No dividend has been declared for 2002. This is consistent with the dividend
policy outlined in December 2001 in which the Board stated that no cash
dividends would be paid in 2002 or until certain financial targets had been
achieved. For the first half of 2001, an interim dividend of 4.5 pence per share
was paid in October 2001.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow statement
Cash flows from operating activities
In 2002, the Group generated £131.6 million net cash inflow from operating
activities after exceptional operating costs. A feature of the strong cash flow
performance was the £42.3 million improvement in trade working capital. The
continued improvement in working capital in 2002 arose primarily from tight
supply chain management and cash conservation initiatives implemented throughout
the Group. This resulted in a £30.3 million reduction in inventory and a
decrease in accounts receivable of £13.5 million. Cash outflows for
rationalisation costs were £20.2 million in 2002 and the expected cash outflow
in 2003 for rationalisation programmes already announced is approximately £14
million.
Capital expenditure
Payments to acquire fixed assets in 2002 decreased by 37% to £43.2 million from
£68.4 million in 2001, principally attributable to reduced capacity requirements
on lower activity levels. Capital expenditure payments were 0.7 times
depreciation compared with 1.1 times in 2001. Receipts from the disposal of
fixed assets, primarily in respect of the sale and sale and leaseback of
properties, were £8.0 million in 2002, down from £34.0 million in 2001.
Operating cash flow
Operating cash flow for 2002, being cash flow from operating activities less
capital expenditure, amounted to £88.4 million; this compares favourably with an
operating profit before exceptional items and goodwill amortisation of £56.8
million. The high rate of cash conversion, i.e. operating cash flow as a
percentage of operating profit, that was achieved in 2002 has been a consistent
feature of Cookson's performance in the last 5 years with the cash conversion
rate for continuing operations over the period being 99%.
Net interest paid
The cash outflow for interest paid in 2002 was £56.1 million compared with £59.5
million in 2001. Cash proceeds from the close-out of interest rate swaps
amounted to £10.3 million in 2002 compared with £28.2 million in 2001.
Taxation
The £10.8 million net tax receipts for 2002 was primarily due to a refund of tax
paid in prior periods arising from a carry-back of losses, mainly in the Group's
US activities in 2001 and 2002. In 2001, net tax payments amounted to £21.6
million.
Dividends paid
No dividends were paid in 2002, whereas dividends of 10.0 pence per share,
amounting to £72.3 million, were paid in 2001.
Free cash flow
As a result of the above, free cash flow before and after dividends was £63.8
million in 2002 compared with £73.3 million before dividends and £1.0 million
after dividends in 2001.
Acquisitions and disposals
In 2002, net cash outflow from acquisitions and disposals was £28.0 million.
This comprised: an inflow of £3.8 million related to the disposal of Dental
Products and a number of small non-core businesses; £14.6 million outflow for
certain small acquisitions and a prior period acquisition earnout payment; and
£17.2 million related to accrued costs for certain prior period business
disposals.
Net cash inflow before and after financing
The aggregate effect of the above resulted in net cash inflow before financing
of £35.8 million for 2002 compared with £36.2 million in 2001.
In August 2002, the Group completed an 8-for-5 rights issue which raised net
cash proceeds of £277.2 million which resulted in net cash inflow after
financing of £313.0 million in 2002.
Subsequent event
In January 2003, Cookson disposed of its Precision Products sector for a total
consideration of £47.6 million, payable as to £45.4 million in cash and £2.2
million in a subordinated loan note repayable in 8 years. The cash proceeds were
used to reduce borrowings.
GROUP BORROWINGS
The following table presents the Group's net debt position at 31 December 2001
and 2002, and also on a pro forma basis had the £45.4 million cash proceeds from
the sale in January 2003 of the Precision Products businesses been received on
31 December 2002:
At 31 December At 31 December At 31 December
2001 2002 2002
Actual Actual Pro Forma
£m £m £m
391.6 Loan notes 354.1 354.1
80.0 Convertible bonds 80.0 80.0
291.1 Drawn committed bank facilities 28.1 -
10.5 Other loans and overdrafts 8.5 8.5
773.2 Borrowings 470.7 442.6
(23.6) Cash and short-term deposits (42.5) (59.8)
749.6 Net debt 428.2 382.8
The Group's current long-term borrowing requirements have been satisfied by $570
million (£354.1 million) of long-term loan notes due for repayment between 2005
and 2012 and by £80 million of convertible bonds that are due for repayment in
November 2004. The Group's near-term and mid-term borrowing requirements have
been met primarily by a £291 million committed syndicated bank facility which
matures on 30 September 2004. As at 31 December 2002, £28.1 million had been
drawn down against the syndicated bank facility. All of the drawn amount was
secured against certain assets of some of the Group's subsidiaries. Since the
year end, the syndicated bank facility was reduced to £250 million following the
sale of Precision Products.
CURRENCY
The principal exchange rates used for the period were as follows:
Year ended 31 December
2002 2001 2002 2001
Average rate Year end rate
_____________________ _____________________________
US dollar ($ per £) 1.50 1.44 1.61 1.46
Euro (€ per £) 1.59 1.61 1.53 1.63
Singapore dollar (S$ per £) 2.69 2.58 2.79 2.69
Japanese yen (Y per £) 188 174 191 191
Applying the average and year end currency rates for the year and as at 31
December 2001 respectively would have resulted in a reduction to the reported
amounts for 2001 for operating profit before goodwill amortisation and
exceptional items of £0.7 million and net debt of £27.3 million.
PENSIONS AND OTHER POST-EMPLOYMENT PLANS
The Group has defined benefit pension plans, primarily operative in the UK and
USA. The valuation deficit on these plans, net of notional tax and actual
balance sheet accruals, if accounted for in accordance with FRS 17, would have
resulted in a reduction in shareholders' funds of £73.2 million as at 31
December 2002.
The net valuation deficit reported at the end of 2001 amounted to £20.9 million
with the increase in deficit in 2002 primarily due to a decrease in the value of
equity investments held by the pension plans. As at 31 December 2002, 62% of the
pension plans' £211 million assets were invested in equities, with the balance
in bonds. After consultation with the trustees of the UK and US pension plans,
it has been agreed to increase cash contributions to these plans by £5.0 million
and £1.9 million respectively in 2003. The increase in cash contributions takes
into account both the current valuation deficit and the long-term nature of the
funding of the plans. The charge to the profit and loss account in 2003 for the
UK pension plan will be unaffected by these increased cash contributions.
In addition, the Group has various post-employment plans which, based on
actuarial estimates, have future liabilities of £30.3 million. All of these
liabilities are unfunded, however, full provision for such is currently held on
the Group balance sheet.
CHANGE IN ACCOUNTING POLICY - DEFERRED TAX
The FRS 19 'Deferred Taxation' accounting standard was adopted in 2002 and, as a
consequence, prior year comparatives have been restated. The effect of the
change in accounting policy was to increase profit after tax in 2001 by £45.6
million (6.2 pence per share) and the value of deferred tax assets by £36.5
million as at 31 December 2001.
CARRYING VALUE OF FIXED ASSETS
In accordance with FRS 11 'Impairment of Fixed Assets and Goodwill', the Company
has carried out a review of the carrying value of the Group's tangible fixed
assets and goodwill. No impairment charges relating to tangible fixed assets
were required to be recognised in 2002, but £87.8 million of goodwill, which had
previously been written-off directly to reserves in respect of the Equipment
sector of the Electronics division, was determined to have become impaired.
However, in accordance with the Company's accounting policy, no charge to the
profit and loss account arises in respect of this goodwill impairment, having
already been written-off.
Shareholder/analyst enquiries:
Cookson Group plc Tel: 020 7766 4500
Stephen Howard, Group Chief Executive
Dennis Millard, Group Finance Director
Lisa Williams, Investor Relations & Corporate Comms.
Press enquiries:
Hogarth Partnership Tel: 020 7357 9477
John Olsen
Copies of Cookson's 2002 Annual Report are being posted to the shareholders of
the Company on 24 March 2003 and will be available on the Company's website and
at the Registered Office of the Company after that date.
Cookson management will make a presentation to analysts on 4 March 2003 at 9:
30am (UK time). This will be broadcast live on Cookson's website. An archive
version will be available on the website from 5 March.
Cookson Group plc, The Adelphi, 1-11 John Adam Street, London WC2N 6HJ
Corporate website: www.cooksongroup.co.uk
Forward Looking Statements
This announcement contains certain forward looking statements regarding 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 document that are not historical facts are
hereby identified as 'forward looking statements' for the purpose of the safe
harbour provided by Section 21E of the Exchange Act and Section 27A of the
Securities Act. Such forward looking statements, including, without limitation,
those relating to the future business prospects, revenues, working capital,
liquidity, capital needs, interest costs and income, in each case relating to
Cookson, wherever they occur in this document, 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 and US regulators 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 report might not
occur.
Group Profit and Loss Account
for the year ended 31 December 2002
Before Before
exceptional Exceptional exceptional Exceptional
items and items and items and items and 2001
goodwill goodwill goodwill goodwill as
amortisation amortisation 2002 amortisation amortisation restated
(note 9)
note £m £m £m £m £m £m
Turnover, 1 1,791.9 - 1,791.9 2,099.4 - 2,099.4
including
joint
ventures
Operating
profit/(loss),
including
joint
ventures
Continuing 1 48.2 - 48.2 45.6 - 45.6
operations,
including
joint
ventures
Operating 1, 2 - (31.4) (31.4) - (31.2) (31.2)
exceptional
items
Goodwill 8 - (37.9) (37.9) - (38.6) (38.6)
amortisation
Continuing 48.2 (69.3) (21.1) 45.6 (69.8) (24.2)
operations
Discontinued 1 8.6 - 8.6 13.5 - 13.5
operations
Total 56.8 (69.3) (12.5) 59.1 (69.8) (10.7)
operating
profit/(loss)
Net loss on 3 - (20.8) (20.8) - (57.6) (57.6)
sale of
operations
Net 4 - (10.9) (10.9) - 13.3 13.3
(loss)/profit
on sale of
fixed assets
Profit/(loss) 56.8 (101.0) (44.2) 59.1 (114.1) (55.0)
on ordinary
activities
before
interest
Net Interest (52.7) - (52.7) (52.4) - (52.4)
Profit/(loss) 4.1 (101.0) (96.9) 6.7 (114.1) (107.4)
on ordinary
activities
before
taxation
Taxation on 7,9 (1.2) 1.8 0.6 39.4 7.5 46.9
profit/(loss)
on ordinary
activities
Profit/(loss) 2.9 (99.2) (96.3) 46.1 (106.6) (60.5)
on ordinary
activities
after
taxation
Minority (2.1) - (2.1) (1.5) - (1.5)
interests
Profit/(loss) 0.8 (99.2) (98.4) 44.6 (106.6) (62.0)
for the
financial
year
Dividends - - - (32.3) - (32.3)
Net 0.8 (99.2) (98.4) 12.3 (106.6) (94.3)
profit/(loss)
transferred
to reserves
Earnings per 7
share:
Basic and 0.7p (14.9)p
diluted - as
previously
reported
- as restated 0.1p (8.7)p 6.0p (8.4)p
Statement of Group Cash Flows
for the year ended 31 December 2002
2002 2001
note £m £m
Net cash inflow from operating activities (see analysis below) 131.6 154.4
Dividends from joint ventures 2.4 6.2
Net interest paid 5 (45.8) (31.3)
Taxation 10.8 (21.6)
Net capital expenditure (35.2) (34.4)
Free cash flow before dividends 63.8 73.3
Net proceeds from business divestments 3.8 60.1
Consideration for business acquisitions (14.6) (19.5)
Other, including prior year disposals costs (17.2) (5.4)
Dividends paid - (72.3)
Net cash inflow before financing 35.8 36.2
Issue of shares 6 277.2 1.7
Net cash inflow after financing 313.0 37.9
Increase in short-term deposits (8.9) -
Decrease in debt (294.4) (27.7)
Increase in cash during the year 9.7 10.2
Analysis of Group Net Debt
Net debt at 1 January (749.6) (794.0)
Net cash inflow after financing 313.0 37.9
Foreign exchange and other movements 8.4 6.5
Net debt at 31 December (428.2) (749.6)
Analysis of Net Cash Inflow from Operating Activities
Group operating profit before exceptional items and goodwill amortisation 56.8 59.1
Depreciation 59.8 62.7
less: share of profit of joint ventures (1.8) (3.4)
EBITDA 114.8 118.4
Net decrease in trade working capital and other creditors 37.0 68.2
Rationalisation costs (20.2) (32.2)
Net cash inflow from operating activities 131.6 154.4
Group Balance Sheet
as at 31 December 2002
2001
as restated
2002 (note 9)
note £m £m
Fixed assets 8 1,076.0 1,231.9
Current assets 10 648.2 737.8
Creditors: amounts falling due within one year (375.7) (433.6)
Net current assets 272.5 304.2
Total assets less current liabilities 1,348.5 1,536.1
Creditors: amounts falling due after more than one year (552.6) (847.8)
Provisions for liabilities and charges (67.8) (91.2)
728.1 597.1
Equity capital 6 375.4 363.8
Reserves 6, 8, 9 341.9 223.3
Minority interests 10.8 10.0
728.1 597.1
Net borrowings included above:
Borrowings - short-term 14.5 17.0
- long-term 456.2 756.2
Total gross borrowings 470.7 773.2
Less: cash and short-term deposits (42.5) (23.6)
Total net borrowings 428.2 749.6
Notes to the accounts
1 Segmental analyses
The results reported in 2002 as discontinued operations comprise the Group's
Precision Products business and certain small, non-core, Electronics operations.
These discontinued businesses previously formed part of the Group's continuing
operations and comparatives have been restated. In 2001, the results reported as
discontinued operations represent those reported as such in 2002, together with
those of the Group's Plastic Mouldings and Magnesia Chemicals businesses.
2002 2001
as
restated
Turnover Operating Turnover Operating
(loss)/ (loss)/
profit profit
By Division £m £m £m £m
Electronics 694.0 (14.9) 851.5 (14.1)
Ceramics 704.6 46.1 731.1 40.4
Precious Metals 322.5 17.0 346.5 19.3
Ongoing operations 1,721.1 48.2 1,929.1 45.6
Goodwill amortisation - (37.9) - (38.6)
Exceptional items - (31.4) - (31.2)
Continuing operations 1,721.1 (21.1) 1,929.1 (24.2)
Discontinued operations 70.8 8.6 170.3 13.5
Total Group 1,791.9 (12.5) 2,099.4 (10.7)
Of the goodwill amortisation charge of £37.9m (2001: £38.6m), £19.9m related to
Electronics (2001: £20.3m), £15.2m to Ceramics (2001: £15.4m) and £2.8m to
Precious Metals (2001: £2.9m).
Of the total exceptional items of £31.4m (2001: £31.2m), £25.2m related to
Electronics (2001: £25.1m), £4.3m to Ceramics (2001: £6.1m) and £1.9m to
Precious Metals (2001: nil).
2002 2001
as
restated
By geographic By By geographic By
location of Group location of
operations customer customer
location Group operations location
Turnover Operating Turnover Turnover Operating Turnover
(loss)/ (loss)/
profit profit
Geographical £m £m £m £m £m £m
United Kingdom 178.5 3.5 136.0 214.0 (3.9) 162.8
Continental Europe 459.9 17.1 463.0 533.1 21.5 550.2
USA 688.3 (22.0) 602.4 784.2 (20.0) 692.1
Asia-Pacific 278.7 37.3 347.1 276.6 36.8 336.7
Rest of the World 115.7 12.3 172.6 121.2 11.2 187.3
Ongoing operations 1,721.1 48.2 1,721.1 1,929.1 45.6 1,929.1
Goodwill amortisation - (37.9) - - (38.6) -
Exceptional items - (31.4) - - (31.2) -
Continuing operations 1,721.1 (21.1) 1,721.1 1,929.1 (24.2) 1,929.1
Discontinued operations 70.8 8.6 70.8 170.3 13.5 170.3
Total Group 1,791.9 (12.5) 1,791.9 2,099.4 (10.7) 2,099.4
Of the goodwill charge of £37.9m (2001: £38.6m), £3.6m (2001: £3.6m) was in the
UK, £4.3m (2001: £4.3m) in Continental Europe, £22.1m (2001: £23.2m) in the USA,
£6.6m (2001: £6.3m) in Asia-Pacific and £1.3m (2001: £1.2m) in the Rest of the
World.
Of the exceptional items of £31.4m (2001: £31.2m), £2.4m (2001: £5.7m) was in
the UK, £9.7m (2001: £1.3m) in Continental Europe, £19.1m (2001: £22.8m) in the
USA, £0.2m (2001: nil) in Asia-Pacific and nil (2001: £1.4m) in the Rest of the
World.
The majority of discontinued operations were located in the USA.
2 Operating exceptional Items
The charges in 2002 and 2001 related to the implementation of rationalisation
initiatives aimed at ensuring that the cost base of each of the Group's major
businesses is aligned with prevailing and near-term market conditions. The
initiatives implemented included redundancy programmes, the consolidation of
facilities, plant closures, the streamlining of manufacturing processes and the
rationalisation of product lines.
3 Net loss on sale of operations
The sale of non-core businesses in 2002, including certain of the Group's
Precision Products businesses, produced a net loss of £20.8m, after goodwill
written-off of £6.3m. In January 2003, the Group disposed of the remainder of
its Precision Products businesses for consideration of £47.6m, generating a net
profit of £1.5m after goodwill written-off of £19.4m. The sale of non-core
businesses in 2001, including the Group's Plastic Mouldings and Magnesia
Chemicals businesses, produced a net loss of £57.6m, as restated, and after
goodwill written-off of £63.2m.
4 Net (loss)/profit on sale of fixed assets
The net loss on sale of fixed assets of £10.9m in 2002 (2001: £13.3m net profit)
included provisions to write down certain fixed assets associated with closed
facilities and product lines and a charge of £7.8m in respect of the Company's
ESOP comprising a provision against the carrying cost of the ESOP-held Company
shares, together with the write-off of options taken out over shares to satisfy
ESOP obligations no longer likely to be exercised. The sale of certain of the
Group's properties generated a profit of £2.3m (2001: £13.5m), for cash proceeds
of £8.0m (2001: £28.4m).
5 Interest
In 2002, as part of an ongoing hedging programme to optimise the mix of fixed
and floating rate debt and to maintain stable and predictable effective interest
rates, a number of interest rate swaps were closed out. This generated £10.3m
(2001: £28.2m) in cash proceeds which are included in arriving at net interest
payments for 2002 of £45.8m (2001: £31.3m).
6 Rights issue
Ordinary shareholders of the Company on the register at the close of business on
1 August 2002 were offered, by way of a rights issue, 1,164.1m new ordinary
shares on the basis of eight new ordinary shares of 1p each for every five
ordinary shares of 50p each they held. These shares were fully subscribed,
resulting in total proceeds on issue of £277.2m, net of expenses.
7 Earnings per share (EPS)
Basic and diluted EPS are calculated using a weighted average of 1,129m ordinary
shares in issue during the year, as adjusted for the rights issue in August
2002.
The Directors believe that the calculation of EPS excluding goodwill
amortisation and all exceptional items, together with the associated tax charge
or credit, gives the most appropriate measure of the underlying earnings of the
Group. Using this measure, EPS amounted to 0.1p per share in 2002. This compared
with the 0.7p EPS reported in 2001, before restatement to account for the
adoption of FRS 19 'Deferred Taxation' (see note 9 below). After restatement,
EPS in 2001 amounted to 6.0p.
8 Goodwill
Included in fixed assets is £598.3m of goodwill (2001: £664.9m). Goodwill
arising in 2002 amounted to £13.3m (2001: £1.8m) and all goodwill is amortised
over its estimated life of 20 years. Accumulated goodwill arising prior to 1998,
which remains fully written-off against Group reserves, amounts to £430.6m
(2001: £433.6m). Of the goodwill previously written-off against Group reserves,
£87.8m was recognised as being impaired following a review of the carrying value
of the Group's goodwill as required by FRS 11. In accordance with the Company's
accounting policy, no charge to the profit and loss account arises in respect of
this impairment.
9 Reserves
2002
£m
At 1 January 2002 - as previously reported 186.8
Prior year adjustment 36.5
At 1 January 2002 - as restated 223.3
Premium on issue of shares by way of rights issue 265.6
Loss for the financial year (98.4)
Exchange adjustments (51.6)
Goodwill written-back on disposals 3.0
At 31 December 341.9
The prior year adjustment represents the effect of a change in accounting policy
for deferred taxation following the Company's adoption, for 2002 reporting, of
FRS 19 'Deferred Taxation'.
10 Current assets
Total current assets at 31 December 2002 of £648.2m (2001: £737.8m) comprise the
following:
2002 2001
£m £m
Stocks 190.1 230.7
Debtors - amounts falling due within one year 348.8 379.8
- amounts falling due after more than one year 66.8 103.7
Cash and short-term deposits 42.5 23.6
Total current assets 648.2 737.8
In addition to the stocks recorded in the balance sheet as current assets, the
Group held precious metals on consignment terms with a total value at 31
December 2002 of £241.3m (2001: £232.9m). The consignor retains title to the
metal and Cookson and the consignor have a right of return over the metal
without penalty.
11 Financial information
This preliminary results announcement has been prepared on the basis of the
accounting policies adopted in the Group's audited statutory accounts for 2001,
except as explained in note 9 above in relation to the change in accounting
policy resulting from the Company's adoption of FRS 19 with effect from 1
January 2002. The financial statements were approved by the Board of Directors
on 4 March 2003. The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2002 or 2001, but
is derived from those accounts. Statutory accounts for 2001 have been reported
on by the Company's auditor and delivered to the Registrar of Companies. The
report of the auditor was unqualified and did not contain a statement under
section 237 (2) or (3) of the Companies Act 1985. These sections address whether
proper accounting records have been kept, whether the Company's accounts are in
agreement with these records and whether the auditor has obtained all the
information and explanations necessary for the purposes of their audit.
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