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Cookson Group plc Preliminary Results 2002 4 March 2003. Stephen Howard Group Chief Executive. Preliminary Results 2002. 2002: Overview. Operating profit of £56.8m; in line with expectations Sharp improvement in operating profit* in H2 2002 - Profit of £34.4m versus loss of £1.2m in 2001

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Cookson Group plc Preliminary Results 2002 4 March 2003

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Cookson group plc preliminary results 2002 4 march 2003

Cookson Group plc

Preliminary Results 2002

4 March 2003


Cookson group plc preliminary results 2002 4 march 2003

Stephen Howard

Group Chief Executive

Preliminary Results 2002


Cookson group plc preliminary results 2002 4 march 2003

2002: Overview

  • Operating profit of £56.8m; in line with expectations

  • Sharp improvement in operating profit* in H2 2002

    • - Profit of £34.4m versus loss of £1.2m in 2001

    • - All divisions recorded improved profitability 

  • Benefits of cost reduction programmes showed through as year progressed

  • Operating profit* for continuing operations up 6%

  • Strong cash flow for eighth successive year

    • - Free cash flow of £64m

  • Net debt reduced by £367m

  • Exited 2002 a stronger business, with high operational gearing

*(Before goodwill amortisation and exceptional items)


Cookson group plc preliminary results 2002 4 march 2003

Dennis Millard

Group Finance Director

Preliminary Results 2002


Cookson group plc preliminary results 2002 4 march 2003

Group - Continuing Operations

vs

GrowthReported

2001

2002

Actual

2002 rates

Turnover £1,721m

-11%

-8%

+7%

Operating Profit* £48.2m

+6%

Return on Sales* 2.8%

2001 : 2.4%

*(Before goodwill amortisation and exceptional items)


Cookson group plc preliminary results 2002 4 march 2003

Operating Profit*

£ m

46.8

50

34.4

25

13.8

0

(1.2)

H1

H1

H2

H2

H1

H1

H2

H2

2001

2001

2002

2002

Group - Continuing Operations

Turnover

£ m

1,100

1,050

1,000

879

900

864

857

800

700

*(Before goodwill amortisation and exceptional items)


Cookson group plc preliminary results 2002 4 march 2003

Volume: £(109)m + 2% Margin:£34m

Trading Results and Expense Reductions

Group - Continuing Operations

Variance

£m

2001

£m

2002

£m

Turnover1,7211,929(208)

Prime margin(1)9391,014(75)

- % sales 54.6% 52.6%

(1) Turnover minus raw materials


Cookson group plc preliminary results 2002 4 march 2003

550

500

450

400

0

Trading Results and Expense Reductions

Group - Continuing Operations

Variance

£m

2001

£m

£ m

2002

£m

Other Expenses (£m)

515

Turnover1,7211,929(208)

Prime margin(1)9391,014(75)

456

453

- % sales 54.6% 52.6%

Other expenses77

Operating profit(2)48462

435

(891)

(968)

H1

H2

H1

H2

2001

2002

(1) Turnover minus raw materials

(2) Before goodwill amortisation and exceptional items


Cookson group plc preliminary results 2002 4 march 2003

% of Continuing

Group Turnover

vs

GrowthReported

2001

2002

Actual

2002 rates

Electronics

40%

Turnover £694m

-18%

-16%


Cookson group plc preliminary results 2002 4 march 2003

Electronics: Turnover by Sector

vs

Growth

2001

2002

Actual

2002 rates

Division £694m

-16%

PWB Laminates£112m

-32%

PWB Chemistry£259m

-6%

-10%

Assembly Materials£233m

-26%

Equipment£90m


Cookson group plc preliminary results 2002 4 march 2003

Electronics

% of Continuing

Group Turnover

vs

GrowthReported

20012002 rates

2002

Actual

40%

Turnover £694m

-18%

-16%

-13%

Operating Loss£(14.9)m

-6%

Return on Sales (2.1)%

2001 : (1.7)%


Cookson group plc preliminary results 2002 4 march 2003

Volume: £(79)m + 1.8% Margin: £12m

Trading Results and Expense Reductions

Electronics

Variance

£m

2001

£m

2002

£m

Turnover694852(158)

Prime margin(1)361428(67)

- % sales 52.0%50.2%

(1) Turnover minus raw materials


Cookson group plc preliminary results 2002 4 march 2003

250

200

150

100

0

Trading Results and Expense Reductions

Electronics

Variance

£m

2001

£m

£ m

2002

£m

Other Expenses (£m)

240

Turnover694852(158)

Prime margin(1)361428(67)

202

198

178

- % sales 52.0%50.2%

Other expenses(376)(442)66

Operating loss(2)(15)(14)(1)

H1

H2

H1

H2

2001

2002

(1) Turnover minus raw materials

(2) Before goodwill amortisation and exceptional items


Cookson group plc preliminary results 2002 4 march 2003

Q4: Break-even

(1)

Q4: +2% vs 2001

H1

H2

H1

H2

H1

H2

H1

H2

Electronics

(2)

Turnover

Operating Profit

£ m

£ m

495

11.0

500

400

(3.2)

357

357

337

(11.7)

300

(25.1)

2001

2002

2001

2002

  • at 2002 exchange rates

  • Before goodwill and amortisation and exceptional items


Cookson group plc preliminary results 2002 4 march 2003

GrowthReported

2001

2002

Actual

Ceramics

% of Continuing

Group Turnover

vs

41%

2002 rates

Turnover £705m

4%

-1%

+16%

+14%

Operating Profit*£46.1

Return on Sales* 6.5%

2001 : 5.5%

*(Before goodwill amortisation and exceptional items)


Cookson group plc preliminary results 2002 4 march 2003

400

30

25

350

20

300

15

250

10

H1

H2

H1

H2

H1

H2

H1

H2

2001

2002

2001

2002

Ceramics

Turnover

Operating Profit*

£ m

£ m

Q4: ROS 9%

27.5

382

26.3

360

349

345

18.6

14.1

*(Before goodwill amortisation and exceptional items)


Cookson group plc preliminary results 2002 4 march 2003

Precious Metals

% of Continuing

Group Turnover

vs

GrowthReported

2001

2002

Actual

19%

2002 rates

Turnover £323m

-7%

-5%

-9%

-12%

Operating Profit*£17.0m

Return on Sales* 5.3%

2001 : 5.6%

*(Before goodwill amortisation and exceptional items)


Cookson group plc preliminary results 2002 4 march 2003

Group Operating Profit*

£ million

2002

Inc/(Dec)

vs 2001

CONTINUING OPERATIONS482Electronics (15)(1)Ceramics 465Precious Metals 17(2)

DISCONTINUED OPERATIONS

2002: Precision Products, Others9(2)2001: Mouldings, Magnesia Chemicals-(2)

GROUP 57(2)

*(Before goodwill amortisation and exceptional items)


Cookson group plc preliminary results 2002 4 march 2003

  • Higher rates

  • -Current ave. 6.6%

  • Higher fees

  • - £4m in 2002

  • Lower borrowings

  • -Rights issue

  • - Positive NCF

Group Profit Before Tax*

£ million

2002

Inc/(Dec)

vs 2001

OPERATING PROFIT57(2)

Less: Interest(53)(1)

*(Before goodwill amortisation and exceptional items)


Cookson group plc preliminary results 2002 4 march 2003

Group Profit Before Tax*

£ million

2002

Inc/(Dec)

vs 2001

OPERATING PROFIT57(2)

Less: Interest(53)(1)

PROFIT BEFORE TAX4(3)

*(Before goodwill amortisation and exceptional items)


Cookson group plc preliminary results 2002 4 march 2003

Group Profit Before Tax*

£ m

35

31

30

25

20

16

15

10

5

0

-5

-10

(12)

-15

-20

-25

(24)

H1

H2

H1

H2

2001

2002

*(Before goodwill amortisation and exceptional items)


Cookson group plc preliminary results 2002 4 march 2003

FRS 19 restate

£44m

Group Profit Before and After Tax*

£ million

2002

Inc/(Dec)

vs 2001

OPERATING PROFIT57(2)

Interest(53)(1)

PROFIT BEFORE TAX4(3)

Taxation(1)(40)

*(Before goodwill amortisation and exceptional items)


Cookson group plc preliminary results 2002 4 march 2003

Group Profit Before and After Tax*

£ million

2002

Inc/(Dec)

vs 2001

OPERATING PROFIT57(2)

Interest(53)(1)

PROFIT BEFORE TAX4(3)

Taxation(1)(40)

Minorities(2)(1)

PROFIT FOR YEAR1(44)

*(Before goodwill amortisation and exceptional items)


Cookson group plc preliminary results 2002 4 march 2003

Earnings and Dividends per Share

2002

2001

EARNINGS PER SHARE

Headline*

- pre-FRS 19

- post-FRS 19

Basic and diluted

N/A

(8.7)p

(14.9)p

0.7p

6.0p

0.1p

DIVIDEND

Interim

Final

-

-

-

4.5p

4.5p

-

*(Before goodwill amortisation and exceptional items)


Cookson group plc preliminary results 2002 4 march 2003

Operating Exceptionals

£ million

ELECTRONICS

Laminates 18

- Announced: H2/Jan 20038

- US East Coast and Europe10

Other sectors7

25

CERAMICS4

PRECIOUS METALS2

31

Cash related15

Asset write downs16

  • C/F to 20032


Cookson group plc preliminary results 2002 4 march 2003

Non-Operating Exceptionals - 2002

£ million

21

LOSS ON BUSINESS DISPOSALS*

15

-Loss before goodwill

6

-Goodwill written back/off

11

NET LOSS ON DISPOSAL OF FIXED ASSETS

8

-ESOP shares

3

-Other

32

* Dental Products and others - excludes gain on disposal of Precision Products £1.5m


Cookson group plc preliminary results 2002 4 march 2003

2003 (estimate)Cash outflow : £15m

Operating Cash Flow

£ million

Inflows/(Outflows)2002

Surplus/(Deficit)vs 2001

EBITDA*

Capital Expenditure

- Capital Expenditure (gross)

- Asset Disposals

Rationalisation

117

(35)

(43)

8

(20)

(7)

(1)

25

(26)

12

* (EBITDA from subcos plus dividends from JVs)


Cookson group plc preliminary results 2002 4 march 2003

Operating Cash Flow

£ million

Inflows/(Outflows)2002

Surplus/(Deficit)vs 2001

EBITDA*

Capital Expenditure

- Capital Expenditure (gross)

- Asset Disposals

Rationalisation

Working Capital /other

117

(35)

(43)

8

(20)

37

(7)

(1)

25

(26)

12

(31)

  • Inventory reduction: £30m

  • Improved receivables: £14m

* (EBITDA from subcos plus dividends from JVs)


Cookson group plc preliminary results 2002 4 march 2003

Operating Cash Flow

£ million

Inflows/(Outflows)2002

Surplus/(Deficit)vs 2001

EBITDA*

Capital Expenditure

- Capital Expenditure (gross)

- Asset Disposals

Rationalisation

Working Capital /other

117

(35)

(43)

8

(20)

37

(7)

(1)

25

(26)

12

(31)

99

OPERATING CASH FLOW

(27)

CASH CONVERSION:- % of operating profit

174%

* (EBITDA from subcos plus dividends from JVs)


Cookson group plc preliminary results 2002 4 march 2003

Ave. 99%

Cash Conversion - 5 Year History

Continuing Operations

£ m

280

240

200

160

120

80

40

0

Average

1998

1999

2000

2001

2002

Operating cash flow

Operating profit before goodwill amortisation and exceptional items


Cookson group plc preliminary results 2002 4 march 2003

Free Cash Flow

£ million

Inflows/(Outflows)2002

Surplus/(Deficit)vs 2001

OPERATING CASH FLOW

Interest

- paid

- swap proceeds

99

(46)

(56)

10

(27)

(15)

3

(18)

11

Taxation

33

Clawback of US prior period tax losses


Cookson group plc preliminary results 2002 4 march 2003

Free Cash Flow

£ million

Inflows/(Outflows)2002

Surplus/(Deficit)vs 2001

OPERATING CASH FLOW

Interest

- paid

- swap proceeds

99

(46)

(56)

10

(27)

(15)

3

(18)

11

64

-

64

Taxation

FREE CASH INFLOW - before dividend

Dividends

FREE CASH INFLOW - after dividend

33

(9)

72*

63

* (2000 Final and 2001 Interim)


Cookson group plc preliminary results 2002 4 march 2003

Free Cash Flow - 8 Year History

Before dividend

£ m

120

100

Avg. £80.4m

80

60

40

20

0

1995

1996

1997

1998

1999

2000

2001

2002


Cookson group plc preliminary results 2002 4 march 2003

Net Cash Flow - 2002

£ million2002

FREE CASH INFLOW

INVESTING ACTIVITIES

Disposals

Acquisitions

Other

64

(28)

4

(15)

(17)

NET CASH INFLOW - before financing

36

RIGHTS ISSUE - net proceeds

277

NET CASH INFLOW - after financing

313


Cookson group plc preliminary results 2002 4 march 2003

Borrowings and Ratios

31 December2001

31 December2002

  • £750mNET DEBT£428m

  • RATIOS

  • 1.6 times EBITDA: Interest 2.5 times

  • 6.3 timesNet Borrowings: EBITDA 3.7 times

  • Leverage (US GAAP)

773

(23)

470

(42)

Grossborrowings

Cash

37%

47%


Cookson group plc preliminary results 2002 4 march 2003

773

(23)

425

(42)

Borrowings and Ratios

Pro-Forma*

31 December2001

31 December2002

  • £750mNET DEBT£383m

  • RATIOS

  • 1.6 times EBITDA: Interest 2.5 times

  • 6.3 timesNet Borrowings: EBITDA 3.6 times

  • Leverage (US GAAP)

Grossborrowings

Cash

35%

37%

* (assumes cash proceeds of £45m from sale of Precision Products in January 2003 received at 31/12/02)


Cookson group plc preliminary results 2002 4 march 2003

£263m

Unutilised

Committed Facilities and Drawings

31 December 2002

£725m

Syndicated

bank facility

£291m*

£28m

£80m

Convertibles

£80m

USPP

notes

£354m

£354m

Facilities

Drawings

* (reduced to £250m in January 2003 following sale of Precision Products)


Cookson group plc preliminary results 2002 4 march 2003

Borrowings as at December 2002

Maturity Profile

£ million

Maturities

USPP Loan notes354 2005-2012

Convertible bond80Nov. 2004

Syndicated bank facility28 Sept. 2004

462


Cookson group plc preliminary results 2002 4 march 2003

Summary

Operating profit improvement

- Strong Y-O-Y and sequential growth in H2 2002

- Beneficial impact of cost savings initiatives

- Electronics: break-even Q4: high operational gearing

- Ceramics: sharp improvement in H2

Strong cash flow

- Further working capital reductions

- Positive free cash flow for 8th successive year

- High cash conversion

Borrowings reduced significantly

- Rights issue and cash flow

- Disposal of Precision Products £45m

- Long term committed facilities

- Stable financial position


Cookson group plc preliminary results 2002 4 march 2003

Stephen Howard

Group Chief Executive

Preliminary Results 2002


Cookson group plc preliminary results 2002 4 march 2003

Agenda

  • 2002 strategic actions

  • Benefits of cost reduction and efficiency programmes

  • Trading overview

  • Group strategy

  • 2003: Focus on further profitability improvement

  • Current trading and prospects


Cookson group plc preliminary results 2002 4 march 2003

2002 Strategic Actions

Debt Reduction

  • Rights issue raised £277m (net)

  • £63.8m of free cash flow generated- 8th year in succession of positive free cash flow

  • Further year-on-year working capital reduction of £42.3m

  • Sale of Precision Products completed January 2003- Cash proceeds £45.4m

Pro-forma debt reduced by 49%


Cookson group plc preliminary results 2002 4 march 2003

2002 Strategic Actions

Cost Reduction and Efficiency Programmes

  • Significant programmes initiated in 2001

    • - Headcount reductions, plant closures

  • New initiatives introduced in 2002

    • - Optimisation and rebalancing of installed laminates capacity

  • Since end of 2000

    • - Group headcount reduced by 17%

    • - Group cost base reduced by £100m

  • Operating efficiencies gained through increased inventory turns, improved accounts receivable collections,etc.

  • Benefits showed through clearly as 2002 progressed


Cookson group plc preliminary results 2002 4 march 2003

Ceramics - Overview

Operating Profit

  • Steady improvement in trading conditions as year progressed

  • Increase in steel production, especially in US market

  • Improved conditions in Glass sector in H2

  • Q4 saw highest RoS since 2000, highlighting benefits of restructuring programmes

Q4: ROS 9%

30

27.5

26.3

25

20

18.6

15

14.1

10

H1

H2

H1

H2

2001

2002


Cookson group plc preliminary results 2002 4 march 2003

Q4: Break-even

H1

H2

H1

H2

Electronics - Overview

Operating Profit

  • Severe downturn appeared to bottom out during 2002

  • Stabilisation reflected in essentially unchanged turnover over past three half-year periods

  • Q4 witnessed year-on-year turnover growth, and operating profit at break-even

£ m

11.0

(3.2)

(11.7)

(25.1)

2001

2002


Cookson group plc preliminary results 2002 4 march 2003

12

9

6

3

0

Precious Metals - Overview

Operating Profit

  • Slower consumer demand for jewellery in US and Europe

  • Traditional inventory build-up ahead of Q4 holiday period failed to materialise

  • Despite this, year-on-year profit improvement in H2

10.1

9.8

9.5

6.9

H1

H2

H1

H2

2001

2002


Cookson group plc preliminary results 2002 4 march 2003

50

25

0

H1

H1

H2

H2

H1

H1

H2

H2

2001

2001

2002

2002

Sales and Profit Trends

Operating Profit*

Turnover

£ m

£ m

1,100

1,050

46.8

1,000

34.4

879

900

864

857

800

13.8

700

(1.2)

*(Before goodwill amortisation and exceptional items)


Cookson group plc preliminary results 2002 4 march 2003

Near-Term Strategy

  • Concentrate on existing opportunities in core markets

  • Build on continuing leadership positions

  • Exploit high operational leverage

  • Focus on improvement in profitability and margin enhancement


Cookson group plc preliminary results 2002 4 march 2003

Ceramics

Market Leading Business

  • World leadership position enhanced during 2002

  • Long-term record of resilient performance

  • Established presence in emerging markets and regions-Asia-Pacific (China), India, Eastern Europe, South America

  • Leadership position in technologies for new production methods- Thin slab, direct strip, secondary steelmaking processes

  • Investment in new high growth market segments- Solar crucibles

  • Increased competitiveness derived from sharply reduced cost base


Cookson group plc preliminary results 2002 4 march 2003

Electronics

Long-Term Growth Business

  • Total electronics end-market $1 trillion

  • High long-term growth in demand for electronic devices

    • -2001-2005: CAGR 6% (forecast)*

  • Cookson market served: $13.5bn (materials and equipment)

  • Cookson leadership in markets served

* Source: Prismark, Henderson Ventures


Cookson group plc preliminary results 2002 4 march 2003

Electronics

Long-Term Growth Business

  • Market leadership through:

  • Innovation- Investment in new high growth market segments- R&D spend 3.2% of turnover in 2002

  • Global presence- 36% of sales into Asia-Pacific

  • Leveraging customer and partner relationships- Full service offering- Strategic alliances

  • Increased competitiveness derived from sharply reduced cost base


Cookson group plc preliminary results 2002 4 march 2003

Precious Metals

Sound, Cash Generative Business

  • Leadership position in USA and UK, growing presence in Continental Europe-Increasing cross-selling opportunities

  • Well positioned to benefit from:- Consolidation in retail sector- Growth of mass market jewellery- Acceleration of fashion cycles

  • Strong know-how, product and service differentiation

  • Excellent cash generator


Cookson group plc preliminary results 2002 4 march 2003

2003 - Focus on Profitable Organic Growth

  • Generate performance improvement, irrespective of market conditions

  • Continued tight management of the business

  • Strong emphasis on cash generation and internal efficiency

  • Continue to gain market share

  • Leverage leadership positions to pursue margin enhancement


Cookson group plc preliminary results 2002 4 march 2003

Current Trading and Prospects

  • Trading in year to date in line with improved Q4 2002

  • Improvement in Ceramics markets; evidence of stabilisation in Electronics

  • Stronger business than in early 2002

  • Continued opportunities for internally generated performance improvement and margin enhancement

  • Flexibility and staying power to overcome any further market challenges

  • Operational gearing will translate market upturn into rapidly improved performance


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