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Sector
Industrials
Size
Mid Cap
Market Cap £1.11bn
Enterprise Value £1.47bn
Revenue £1.79bn
Position in Universe 391st / 1847

Cookson Group PLC Interim Management Statement

Thu 14th May, 2009 7:00am
TIDMCKSN

RNS Number : 2189S
Cookson Group PLC
14 May 2009

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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(TM) 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 GBP40 million of annualised savings, of which GBP30 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
GBP13 million of additional annualised savings, of which GBP5 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 GBP13 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 GBP40
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 GBP50 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 GBP241 million of right issue proceeds, the Group prepaid GBP75 million and
EUR37.5 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 GBP14 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 GBP16 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 GBP241 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:
+44 (0)207 138 0821UK participants
+1 718 354 1361US 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):
+44 (0)207 806 1970UK participants
+1 718 354 1112 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 | Tel: + 44 (0)20 7822 0000 |
| Director | |
+--------------------------------------+---------------------------------+
| Anna Hartropp, Investor Relations | |
| Manager | |
+--------------------------------------+---------------------------------+
| | |
+--------------------------------------+---------------------------------+
| Media enquiries: | |
+--------------------------------------+---------------------------------+
| John Olsen | Hogarth Partnership |
+--------------------------------------+---------------------------------+
| Anthony Arthur | Tel: +44 (0)20 7357 9477 |
| | + 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

This information is provided by RNS
The company news service from the London Stock Exchange
END

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