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29 th July 2003

Cookson Interim Results 2003. 29 th July 2003. Bob Beeston Chairman. Interim Results 2003. Stephen Howard Group Chief Executive. Interim Results 2003. 2003 H1 - Overview. Year-on-year improvement in operating profit, reflecting impact of recent management actions

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29 th July 2003

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  1. Cookson Interim Results 2003 29th July 2003

  2. Bob Beeston Chairman Interim Results 2003

  3. Stephen Howard Group Chief Executive Interim Results 2003

  4. 2003 H1 - Overview • Year-on-year improvement in operating profit, reflecting impact of recent management actions • Underlying conditions in major markets remain challenging, but showing signs of stabilisation • Positive free cash flow; debt reduced by £64m to £364m • Market leadership positions continue to be enhanced • Continued proactive approach to business portfolio and cost base • Decision to exit from Electronics division’s loss-making Equipment sector

  5. Dennis Millard Group Finance Director Interim Results 2003

  6. Group - Continuing Operations vs GrowthReported H102 H103 rates Turnover £827m -4% n/c +61% Operating Profit* £22.2m +67% Return on Sales* 2.7% H1 02: 1.5% *Before goodwill amortisation and exceptional items; includes Speedline

  7. Ceramics % of Continuing Group Turnover vs GrowthReported H102 43% 2003 rates Turnover £354m +3% +6% *Before goodwill amortisation and exceptional items

  8. Ceramics vs Growth H102 H103 rates +6% Division £354m +5% Steel £225m +9% Other Sectors* £129m * Industrial; Foundry; Glass

  9. Ceramics % of Continuing Group Turnover vs GrowthReported H102 43% 2003 rates Turnover £354m +3% +6% +34% +31% Operating Profit* £24.4m Return on Sales* 6.9% H1 02: 5.4% *Before goodwill amortisation and exceptional items

  10. Precious Metals % of Continuing Group Turnover vs GrowthReported H102 18% 2003 rates Turnover £148m -9% -7% *Before goodwill amortisation and exceptional items

  11. Precious Metals vs Growth H102 H103 rates -7% Division £148m -9% USA £72m -4% Europe £76m

  12. Precious Metals % of Continuing Group Turnover vs GrowthReported H102 18% 2003 rates Turnover £148m -9% -7% -87% -88% Operating Profit* £0.7m Return on Sales* 0.5% H1 02: 3.9% *Before goodwill amortisation and exceptional items

  13. Electronics % of Continuing Group Turnover vs GrowthReported H102 39% H103 rates (1) Turnover £326m -9% -2% (1) Excluding results of deconsolidated joint venture;includes Speedline

  14. Electronics: Turnover by Sector vs Growth H102 H103 rates (1) Division £326m -2% PWB Laminates £54m -2% PWB Chemistry £124m +3% -5% Assembly Materials £118m -2% Equipment (Speedline) £30m (1) Excluding results of deconsolidated joint venture; includes Speedline

  15. Electronics % of Continuing Group Turnover vs GrowthReported H102H103 rates (1) 39% Turnover £326m -9% -2% +71% Operating Loss(2) £(2.9)m +75% Return on Sales (0.9)% H1 02: (3.3)% (1) Excluding results of deconsolidated joint venture (2) Before goodwill amortisation and exceptional items; includes Speedline

  16. Electronics Operating Expenses (£m) £ m 200 184 175 173 150 0 H1 H1 2002 2003

  17. Speedline H103 £m H102 £m Year 2002 £m Turnover*30 3162 Operating loss* (9.8) (13.0) (23.6) At 30/6/03Net assets (£m) 32 Goodwill written off to reserves 101 Employees 611 Locations - Factories (USA) 2 - Other 3 * At constant exchange rates; operating profit before goodwill amortisation and exceptional items

  18. (2) Operating Profit £ m Inc. Speedline 15 Excl. Speedline 10 6.9 5 3.1 0 (2.9) -5 -10 (9.9) H1 H1 2002 2003 Electronics(1) Turnover £ m Speedline 350 Excl. Speedline 31 30 300 300 296 250 H1 H1 2002 2003 (1) Excluding results of deconsolidated joint venture; includes Speedline (2) Before goodwill and amortisation and exceptional items

  19. Group Operating Profit(1) £ million H103 Inc/(Dec) vs H102 CONTINUING OPERATIONS(2)325 Electronics: excl Speedline74Ceramics 24 6 Precious Metals 1 (5) TO BEDISCONTINUED(2) Speedline (10) 3 DISCONTINUED OPERATIONS(2)2002: Precision Products-(4) EXCHANGE - - GROUP - at reported rates 224 (1) Before goodwill amortisation and exceptional items (2) At constant H103 exchange rates

  20. £385m lower borrowings - Rights issue - Precision Productsproceeds - Positive FCF • Lower rates - Current ave. 6.0% excl. fees - Amortisation and Fees: £3.1m Group Profit Before and After Tax* £ million H103 Inc/(Dec) vs H102 OPERATING PROFIT22 4 Interest(16) 13 *Before goodwill amortisation and exceptional items

  21. Effective rate: 30% Group Profit Before and After Tax* £ million H103 Inc/(Dec) vs H102 OPERATING PROFIT22 4 Interest(16) 13 PROFIT BEFORE TAX 6 17 Taxation (2) (5) Minorities(1) - PROFIT FOR HALF YEAR 312 *Before goodwill amortisation and exceptional items

  22. Earnings and Dividend per Share H103 H102 EARNINGS PER SHARE Headline* Basic and diluted No. of shares (ave) 0.2p (1.0)p 1880m (1.2)p (5.5)p 740m DIVIDEND PER SHARE nil nil *Before goodwill amortisation and exceptional items

  23. Exceptional Items £million H103 (3) OPERATING EXCEPTIONALS Electronics division rationalisation (2) -Laminates and previously announced (1) -Other 1 NON-OPERATING EXCEPTIONALS 2 -Gain on sale of Precision Products -Net loss on sale of fixed assets/ non-core businesses (1) (2)

  24. Mainly Electronics division • £6m in H2, mainly Laminates • Speedline not included Operating Cash Flow £ million Inflows/(Outflows)H103 Surplus/(Deficit)vs H1 02 EBITDA*- Continuing: excl Speedline- Speedline- Discontinued Capital Expenditure - Capital Expenditure (gross) - Asset Disposals Rationalisation 48 56 (8) - (9) (14 ) 5 (7 ) (2 ) (1) 4 (5) (5 ) (1) (4) 4 * EBITDA from subcos plus dividends from JVs

  25. Operating Cash Flow £ million Inflows/(Outflows)H103 Surplus/(Deficit)vs H1 02 EBITDA*- Continuing: excl Speedline- Speedline- Discontinued Capital Expenditure - Capital Expenditure (gross) - Asset Disposals Rationalisation Working Capital /other 48 56 (8) - (9) (14 ) 5 (7 ) 7 (2 ) (1) 4 (5) (5 ) (1) (4) 4 (9) * EBITDA from subcos plus dividends from JVs

  26. 26% 26% 24% 23% 22% Trade Working Capital £ m % 461 450 30 400 383 367 346 25 350 334 300 20 H1 H2 H1 H2 H1 2001 2002 2003 Trade debtors + accounts receivable – trade creditors; at constant exchange rates Average trade working capital as % of annualised turnover in period

  27. Operating Cash Flow £ million Inflows/(Outflows)H103 Surplus/(Deficit)vs H1 02 EBITDA* Capital Expenditure - Capital Expenditure (gross) - Asset Disposals Rationalisation Working Capital /other 48 (9) (14 ) 5 (7 ) 7 (2 ) (5 ) (1) (4) 4 (9) OPERATING CASH FLOW 39 (12 ) CASH CONVERSION - % of Operating Profit 173% * EBITDA from subcos plus dividends from JVs

  28. Free Cash Flow £ million Inflows/(Outflows)H103 Surplus/(Deficit)vs H1 02 OPERATING CASH FLOW Interest - paid - swap proceeds 39 (18) (18) - (12) 1 11 (10) (12) Taxation (12) 2002: Clawback of US prior period tax losses

  29. Free Cash Flow £ million Inflows/(Outflows)H103 Surplus/(Deficit)vs H1 02 OPERATING CASH FLOW Interest - paid - swap proceeds 39 (18) (18) - (12) 1 11 (10) (12) 9 - 9 Taxation FREE CASH INFLOW - before dividend Dividend FREE CASH INFLOW - after dividend (12) (23) - (23)

  30. Net Cash Flow & Decrease in Net Debt £ millionH103 FREE CASH INFLOW INVESTING ACTIVITIES Disposals– mainly Precision Products Acquisitions/other 9 37 46 (9) NET CASH INFLOW EXCHANGE/OTHER DECREASE IN NET DEBT 46 18 64

  31. Borrowings and Ratios 31 December2002 30 June2003 £428mNET DEBT£364m RATIOS 2.5 times EBITDA*: Interest*3.4 times 3.7 timesNet Borrowings: EBITDA*3.3 times Leverage (US GAAP) 470 (42) 429 (65) Grossborrowings Cash 35% 37% * 12 months ended 30 June 2003

  32. £250m Unutilised £80m £342m Drawings Committed Facilities and Drawings 30 June 2003 £672m Syndicated bank facility £250m £80m Convertibles USPP notes* £342m Facilities * $570 million

  33. Facilities at 30 June 2003 Maturity Profile £ million Maturities USPP Loan notes 342 2005 - £15m 2006 - nil 2007 - £108m 2008-2012 - £219m Convertible bond 80 Nov. 2004 Syndicated bank facility 250 Sept. 2004 672

  34. Summary • Operating profit improvement • Profit before tax* £17m higher than H102 • Positive operating cash flow • Borrowings reduced by £64m * Before goodwill and amortisation and exceptional items

  35. Cookson Interim Results 2003 29th July 2003

  36. Focus for 2003 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 • Maximise benefits of high operational leverage

  37. H1 Trading Summary Turnover Operating Profit* £ m £ m 1,000 25 22.2 900 830 827 13.8 800 700 0 H1 H1 H1 H1 2002 2003 2002 2003 *Before goodwill amortisation and exceptional items

  38. Summary H1 Trading - Electronics Operating Profit* • Continued growth in Asia-Pacific, rate temporarily slowed by SARS • Activity in US and Europe depressed but stable • Benefits of rationalisation and cost savings continued to accrue • Division returned to profit in Q2 • Assembly Materials and PWB Chemistry continue to operate profitably • Process to exit Equipment underway • Major restructuring of PWB Laminates £ m Q2: £0.7m profit 15 0 (2.9) (9.9) -15 H1 H1 2002 2003 * Excluding results of deconsolidated joint venture; includes Speedline

  39. Electronics(1) (2) Operating Profit £ m Inc. Speedline 15 Excl. Speedline 10 6.9 5 3.1 0 (2.9) -5 -10 (9.9) H1 H1 2002 2003 (1) Excluding results of deconsolidated joint venture; includes Speedline (2) Before goodwill and amortisation and exceptional items

  40. Impact of SARS • Marked short-term impact in Electronics – Asia-Pacific represents 35% of divisional sales • Impact seen in end-customer activity, local workforce disruption, customers’ plant engineering programmes • Crisis appears to have receded, but some residual disruption possible in H2 • No evidence of customers’ long-term plans for Asia-Pacific being reviewed as a result • Development in Asia-Pacific remains a strategic priority - in both Electronics and Ceramics

  41. 30 25 20 15 10 Summary H1 Trading - Ceramics Operating Profit* • Sales up, as US and EU steel production rose • Profits ahead driven by high operational gearing • Robust cash flow • SARS exposure limited to China, where growth slowed in Q2 • Sales up in Glass and Industrial Processes sectors • Mixed forecasts for near-term US and EU steel production • Growth trends in emerging markets undiminished £ m 24.4 18.2 H1 H1 2002 2003 *Before goodwill amortisation and exceptional items

  42. Summary H1 Trading - Precious Metals Operating Profit* • Weak demand for gold jewellery in both USA and Europe • Large merchandisers’ de-stocking programmes appear to be nearing completion • Proactive response, including 7% headcount reduction giving £6.5m annualised savings - £3m benefit in H2 • Industry expectations of stronger H2, as more normal patterns return £ m 8 5.7 4 0.7 0 H1 H1 2002 2003 *Before goodwill amortisation and exceptional items

  43. Cash Generation Proactively Pursued • Positive free cash flow generated • Working capital as percentage of sales further reduced • Cash conversion - operating free cash flow as % of operating profit - remains strong • Net borrowings continue to reduce

  44. Market Leadership Positions Reinforced Innovation • Driving new Electronics product development in key growth areas - New PWB materials for high frequency/wireless applications - World leader in semiconductor copper for IC production – major plant upgrade - Leading position in lead-free solutions (across all sectors) • Continued leadership in growth technologies in Ceramics - Thin slab and direct strip casting - Solar crucible technology - Tiles for waste incinerators

  45. Market Leadership Positions Reinforced Geographic Presence • Strategy of investment in emerging markets has proven correct • Electronics growth in Asia-Pacific will continue - Now 35% of divisional sales - Structural changes to laminates industry validates decision to rebalance capacity to the region • Growing steel production in emerging markets - Established presence in China, India, Eastern Europe and South and Central America

  46. Cost Reduction Initiatives 2001/2002 Programmes • Significant programmes initiated - Headcount reductions - Facilities closed / integrated / mothballed - Salary freezes / furloughs - Optimisation and rebalancing of installed laminates capacity • Operating efficiencies gained through increased inventory turns, improved accounts receivable collections, etc.

  47. Cost Reduction Initiatives Programmes continued in 2003 • Rapid response to de-stocking in jewellery industry – repositioning for growth • Head office relocation: 60% reduction in occupancy costs and associated 10% reduction in head office headcount • Ongoing aggressive programmes to rationalise and restructure Laminates business • Planned exit from Electronics Equipment • Since Qtr 1 2001- Group headcount reduced by 21% - Electronics headcount reduced by 34%

  48. Laminates Reshaping for Long-term Competitive Advantage • Capacity management - Rationalising facilities, improving efficiency, reducing costs - Advanced products transferred to Asia-Pacific - Execution of Asian import strategy to USA and Europe • Market penetration - Implement QTA programme - Investment in OEM marketing - Quality improvement - Six Sigma - New product introductions • Margin improvement - Investment in productivity enhancement - QTA pricing - Selected price increases - Elimination of consigned inventory

  49. Laminates Reshaping for Long-term Competitive Advantage 2001 - 2002 • 3 sites closed, 2 downsized, other restructured (USA & Europe) • > 1,300 headcount reduction (53%) • £27.8m annualised cost savings 2003 to date • 1 site closed, 2 lines closed, ongoing restructuring (USA & Europe) • 175 headcount reduction (10%)

  50. Planned Exit from Electronics Equipment Background • Profitable before recent electronics industry downturn • Equipment sector driven by capacity utilisation rather than volumes • Significant actions taken on costs during downturn- 61% headcount reduction since December 2000- Moved from 4 to 2 manufacturing locations- De-layering / furloughs / plant shutdowns / pay freezes

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