Half Yearly Report

RNS Number : 4845Q

Cookson Group PLC

04 August 2010

 



4 August 2010        

COOKSON GROUP PLC - 2010 HALF YEAR FINANCIAL REPORT

HIGHLIGHTS

·    Continued recovery in performance driven by revenue growth and strong profit drop-through:

-        Revenue of £1,233m - 28% higher than H1 2009 and 13% higher than H2 2009 on underlying basis¹

-        Trading profit of £120m, £104m higher than H1 2009 and £25m higher than H2 2009 

-        Return on sales margin of 9.8% (Ceramics 11.8%; Electronics 9.1%), versus 1.8% in H1 2009 and 9.2% in H2 2009

·    Recovery in steel production and electronics end-markets continued throughout first half; recent signs of recovery in foundry casting end-markets in Europe and NAFTA

·    Full year effective tax rate² of 25% anticipated (FY 2009: 35%)

·    Headline EPS of 27.0p (H1 2009: loss of 6.2p)

·    Net debt of £405m; leverage ratio (net debt to EBITDA) of 1.5 times

·    Pension deficit reduced by £24m to £114m; UK DB Pension Plan closed to future benefit accrual

¹ At constant currency; adjusted for the impact of differences in commodity metal prices; and eliminating back-to-back customer equipment sales

² Tax rate on headline profit/(loss) before tax (before share of post-tax (loss)/profit of joint ventures)

                    First Half             Increase/(decrease) vs H1 2009         Year

		2010	2009		Reported rates	Constant rates		2009
Revenue		£1,233m	£929m		33%	31%		£1,961m
Trading profit1		£120.3m	£16.5m		£103.8m	£100.8m		£111.7m
Return on sales1		9.8%	1.8%		8.0pts	7.7pts		5.7%
Profit/(loss) before tax	- headline1	£104.0m	£(3.3)m		£107.3m			£75.7m
	- basic	£92.5m	£(89.7)m		£182.2m			£(20.9)m
Tax rate2	- headline	25.3%	n/a					35.2%
Earnings/(loss) per share	- headline1	27.0p	(6.2)p		33.2p			18.0p
	- basic	23.4p	(42.6)p		66.0p			(17.8)p
Dividends per share		-	-					-
Free cash flow1		£(14.9)m	£84.4m		down £99.3m			£157.3m
Net debt1		£405.1m	£438.2m					£371.4m

¹   Refer to Note 1 of the attached condensed financial statements for definitions

²   Tax rate on headline profit/(loss) before tax (before share of post-tax (loss)/profit of joint ventures)

Commenting on the Group's results and outlook, Nick Salmon, Chief Executive, said:

"The Group's very encouraging performance in the first half of 2010 has been ahead of our earlier expectations.

"This strong performance reflects the continued recovery in our end-markets, the benefits of the significant cost reduction programme completed last year and increased market penetration of new, higher margin products.  

"Global steel production and electronics end-markets have been slightly stronger than anticipated, and we are also now seeing clear signs of recovery in our foundry castings market in Europe and NAFTA complementing the emerging markets recovery which started earlier in the year.

"The positive second quarter trading trends have continued through July.  For the second half overall, we currently expect global steel production volumes to decline slightly from second quarter levels but that this will be offset by continued improvement in our foundry castings end-markets.  Overall, the Ceramics division's second half performance should be broadly in line with that of the first half.  The Electronics division's performance is expected to follow its normal seasonality with a strong third quarter and a stronger second half.  After a strong first half, the Precious Metals division is expected to deliver a similar performance in the second half.

"Provided that there is no major deterioration in the macro-economic environment, we currently expect the Group's second half performance to be slightly ahead of the first half."

INTERIM MANAGEMENT REPORT

The Directors submit their Interim Management Report ("IMR"), together with condensed financial statements of the Group, for the six months ended 30 June 2010.

This announcement contains certain forward-looking statements with respect to the operations, performance and financial condition of the Group.  By their nature, these statements involve uncertainty since future events and circumstances can cause results and developments to differ materially from those anticipated.  The forward-looking statements reflect knowledge and information available at the date of the preparation of this announcement and the Company undertakes no obligation to update these forward-looking statements.  Nothing in this IMR should be construed as a profit forecast.

This IMR has been prepared for the Group as a whole and therefore gives greater emphasis to those matters which are significant to Cookson Group plc and its subsidiaries when viewed as a whole.

OVERVIEW

Summary of Group results

Trading performance

Group revenue of £1,233m was 33% higher, as reported, than the first half of 2009 and 28% higher on an underlying basis.  Compared with the second half of 2009, revenue was 13% higher on an underlying basis.  Trading profit of £120.3m was £103.8m higher than that reported for the first half 2009 and 26% (£25.1m) ahead of the second half's reported result.  The Group's end-markets have continued to recover and were slightly stronger in the second quarter than anticipated when we issued our last trading statement in April, but remain significantly below the levels experienced in the first half of 2008, prior to the global economic crisis first impacting trading.  First half revenue and trading profit were 12% and 25% lower, on an underlying basis and pro-forma for Foseco, than those recorded in the first half of 2008.

The recovery in the Ceramics division's steel production end-market has continued progressively since mid-2009 and, for the second quarter of 2010, global steel production (excluding China) was at 91% of the equivalent period in 2008, before the dramatic slump in demand started.  The division's other main end-market, foundry castings, remained at low levels throughout 2009 but started to recover in emerging markets from early 2010 and, in recent months, some improvements in Europe and NAFTA have also been evident.  The division's revenue of £734m was, respectively, 35% and 25% higher than the reported results for the first and second halves of 2009.  Trading profit of £86.8m was £75.4m higher than in the first half of 2009 and 46% (£27.3m) above that reported for the second half.  The return on sales margin was 11.8% (second half 2009: 10.1%).

The Electronics division's revenue of £344m was 43% and 18% higher, as reported, than the first and second halves of 2009 respectively.  In part this was due to the pass-through of higher tin and silver prices in our solder product sales, which had the effect of increasing revenue by about £30m compared with the same period last year when commodity prices were lower.  However, the principal reason for the higher revenue was the continuing recovery in electronics end-markets, particularly in the high-end consumer segment.  Trading profit of £31.3m was £25.0m higher than that reported for the same period last year but was £1.6m less than the result recorded for the second half, reflecting normal seasonality.  The return on sales margin was 9.1% (second half 2009: 11.3%), reflecting in part higher metal prices and precious metal sales increasing revenue but having little impact on trading profit.

The Precious Metals division's net sales value (being revenue excluding the precious metals content) of £68m was marginally ahead of the prior year.  Continued weakness in retail jewellery markets was more than offset by strong sales of coin blanks to the US mint and high levels of precious metals reclaim business in Europe.  Trading profit of £6.6m was £4.3m above the same period last year reflecting the benefits of the restructuring completed in the US operations in the first half of 2009 and the high level of reclaim business, particularly in Spain.

Exceptional items

A net charge, pre-tax, of £11.5m was incurred, principally relating to restructuring (£8.6m), amortisation of intangible assets (£8.9m), and a partially offsetting gain relating to the closure of the UK defined benefit pension plan to future benefit accrual (£4.7m).  The equivalent charge in the first half of 2009 was £86.4m, reflecting the major cost reduction/restructuring programme then underway.

Taxation

The effective tax rate for the first half of 2010 was 25.3%, a significant improvement on the 2009 full year rate of 35.2%.  The improvement reflects a return to a more normal geographic distribution of profitability combined with the benefit of the utilisation in the first half of 2010 of some previously unrecognised tax losses.  A tax rate of around 25% is expected for the full years 2010 and 2011.

Attributable profits and earnings

Headline attributable profit was £74.7m (first half 2009: loss of £14.2m).

After taking into account all items excluded from headline profit as exceptional, the Group recorded a profit of £64.5m compared with a loss of £97.6m recorded for the first half of 2009.

Dividend

Whilst end-markets and trading performance have improved markedly, the macro-economic outlook remains uncertain.  As a result the Board has decided not to declare an interim dividend for 2010 (2009 interim dividend: nil).  A decision to resume dividend payments will be made once the sustainability of the recovery in the global economy is more assured.

Financial position

As expected, net debt at 30 June 2010 increased slightly to £405m over the 31 December 2009 level of £371m, but was £33m lower than as at June 2009.  There was a working capital cash outflow of £98.5m reflecting both the strong increase in revenue and the return to the Group's more normal seasonality, with a build up of working capital in the first half of the year and some expected reduction in the second half.  Whilst the absolute level of trade working capital rose during the first half of 2010, the ratio of average trade working capital to sales in the first half of 2010 of 19.8%, improved 1.6 percentage points from that achieved in 2009. 

The Group has very substantial liquidity headroom within its committed debt facilities which total approximately £800m.  The principal maturities in these facilities are in late 2012.

As at June 2010, the Group's EBITDA to interest on borrowings ratio was 12.2 times (as compared with not less than 4.0 times for bank covenant purposes) and the net debt to EBITDA ratio was 1.5 times (as compared with not more than 3.0 times for bank covenant purposes).

Outlook

The positive second quarter trading trends have continued through July.  For the second half overall, we currently expect global steel production volumes to decline slightly from second quarter levels due to normal seasonality and some cut-backs to support higher steel prices.  This should be offset by continued improvement in our foundry castings end-markets.  Overall, the Ceramics division's second half performance should be broadly in line with that of the first half.  The Electronics division's performance is expected to follow its normal seasonality with a strong third quarter and a stronger second half.  After a strong first half, the Precious Metals division is expected to deliver a similar performance in the second half.

Provided that there is no major deterioration in the macro-economic environment, we currently expect the Group's second half performance to be slightly ahead of the first half.

REVIEW OF OPERATIONS

Note: the data provided in the tables below are at reported exchange rates.

Group

	First Half				Year
	2010	2009			2009
Revenue (£m)	1,233	929			1,961
Trading profit (£m)	120.3	16.5			111.7
Return on sales	9.8%	1.8%			5.7%

The first half of 2010 was marked by continued strong recovery in the performance of the Group's businesses, which started towards the end of the first half of 2009, although trading is still not back to the levels experienced prior to the onset of the global economic crisis.

Group revenue in the first half of 2010 of £1,233m was 31% higher than the same period in 2009 at constant currency and 33% higher at reported exchange rates.  Underlying revenue (being revenue at constant currency; adjusted for the impact of differences in commodity metal prices; and eliminating back-to-back customer equipment sales) was 28% higher than the first half of 2009.  2009 saw a gradual improvement in a number of the Group's key end-markets as the year progressed and underlying revenue in the first half of 2010 was 13% higher than the second half of 2009.  Revenue for the Group was well balanced geographically with 38% coming from the Group's operations in Europe, 28% from Asia-Pacific, 25% from NAFTA and 9% from the Rest of the World.

Following the extensive cost reduction measures implemented since the fourth quarter of 2008, the majority of which were completed by mid-2009, profit 'drop-through' from the increased revenue in the first half has been strong.  As a result, trading profit in the first half of 2010 rose significantly to £120.3m (first half 2009: £16.5m), being £100.8m higher at constant currency and £103.8m higher at reported exchange rates.  Trading profit improved significantly in all three of the Group's divisions.  Trading profit was also 20% higher than the second half of 2009 at constant currency (26% at reported exchange rates). 

The return on sales margin in the first half of 2010 was 9.8%, higher than both halves of 2009 (first half 2009: 1.8%; second half 2009: 9.2%).  The impact of higher metal prices, which increased reported revenue in the Electronics and Precious Metals divisions without any impact on profitability, reduced the return on sales in the first half of 2010 by around 0.3 percentage points.

Ceramics division

Trading under the Vesuvius and Foseco brand names, the Ceramics division is the world leader in the supply of advanced consumable products and systems to the global steel and foundry industries and a leading supplier of speciality products to the glass and solar industries.

	First Half				Year
	2010	2009			2009
Revenue (£m)	734	543			1,131
Trading profit (£m)	86.8	11.4			70.9
Return on sales	11.8%	2.1%			6.3%

The Ceramics division experienced a continuation of the improvement in the majority of its end-markets which had started towards the end of the first half of 2009.  Revenue of £734m was 31% higher than the first half of 2009 and 19% higher than the second half of 2009 (both at constant exchange rates; at reported exchange rates the percentages were 35% and 25% respectively).

As a result of the higher revenue, trading profit in the first half of 2010 rose significantly to £86.8m (first half 2009: £11.4m), being £72.3m higher at constant currency and £75.4m higher at reported exchange rates.  Trading profit was also significantly higher than the second half of 2009, being 38% higher at constant currency and 46% at reported exchange rates.  The return on sales margin in the first half of 2010 was 11.8%, higher than both halves of 2009 (first half 2009: 2.1%; second half 2009: 10.1%). 

Steel end-market: global steel production is the division's main end-market corresponding to a little over half of its total revenue.  According to the World Steel Association ("WSA"), global steel production was 706m tonnes in the first half of 2010.  This compares to production of 548m tonnes in the first half of 2009, a 29% increase, and 646m tonnes in the second half of 2009, a 9% increase.  Global steel production was 344m tonnes in the first quarter and 362m tonnes in the second quarter, an increase of 5%.

Within these totals, steel production in China (which now accounts for just under 50% of global steel production) grew 8% compared to the second half of 2009 (21% higher than the first half of 2009).  However, market trends outside of China are more significant for the Ceramics division in the short-term as China currently accounts for less than 10% of the division's steel-related revenue.  In the Steel Flow Control product line, for which global steel production represents almost 100% of the end-market, China represents slightly less than 20% of total global revenue as a large part of steel production in China is not yet based on the enclosed continuous casting technology which uses Vesuvius's flow control products.  Whilst there is significant installed capacity for the production of 'flat' steel which uses Vesuvius's products, currently around 60% of actual steel production is for 'long' products (which are typically used in construction and rail applications) which require a smaller quantity of, and less technologically advanced, flow control products.  The use of enclosed continuous casting is expected to increase over time as the Chinese steel industry continues to modernise and demand for 'flat' steel product increases.  In the Linings product line, for which iron and steel production represents more than three-quarters of the end-market, there is only modest revenue arising in China as yet as this market has only recently been addressed.

Excluding China, steel production in the first half of 2010 was 11% higher than the second half of 2009 and 36% higher than the first half of 2009.  Following the unprecedented collapse in steel production in the fourth quarter of 2008, production levels started to recover from May 2009 onward.  This recovery has continued throughout the first half of 2010 with sequential quarter-on-quarter steel production growth (excluding China) of 3% and 7% in the first and second quarters of 2010.  Whilst this improvement in steel production is encouraging, production levels in most regions are still materially below the levels seen prior to the economic downturn.  Global production (excluding China) in the second quarter of 2010 represented only 91% of the production levels seen in the second quarter of 2008. 

Foundry castings end-market: this market, which represents around one-third of the division's revenue, produces castings which are used in a wide variety of engineered products.  Approximately 40% of castings (and therefore a similar percentage of the revenue for the Foundry product line) are produced for the vehicle sector, being 25% for cars and light trucks ('automotive') and 14% for heavy trucks.  Other end-markets for foundry castings include construction, agriculture and mining machinery; power generation equipment, pipes and valves; railroad, and general engineering equipment.  The foundry castings market deteriorated significantly towards the end of 2008 with the unprecedented reduction in automotive and heavy truck production (particularly in the US and Europe) and the widespread cut in production of other engineering products.

Automotive production improved in the second half of 2009, stimulated by government sponsored vehicle replacement schemes, whilst global truck production remained at very low levels throughout the year.  The first half of 2010 has seen further growth in automotive production compared to the second half of 2009 with, according to JD Power, 16% growth in North America, 7% growth in Europe and 6% growth in the Rest of the World (excluding China).  Truck production has similarly grown in the first half of 2010 (compared to the second half of 2009), albeit from low levels, with 4% growth in North America, 35% growth in Europe and 28% growth in the Rest of the World (excluding China).  The other end-markets mentioned above typically exhibit more "late-cycle" characteristics.  Whilst the growth in automotive and truck production is encouraging, there has been an extended period of de-stocking through the supply chain and, other than for some specific regional markets, it was only towards the end of the first half of 2010 that the Foundry product line started to experience a more generally positive impact on its revenue.    

Solar and glass end-markets: the principal products in Vesuvius' Fused Silica product line are Solar Crucibles™, which are used in the production of photovoltaic ("solar") panels, and tempering rollers used mainly in the production of glass for construction and automotive applications.  Both products experienced very weak trading conditions in 2009 with weak end-markets exacerbated by a sharp de-stocking of solar panels, particularly in China.  However, the significant improvement in demand for Solar Crucibles™, which started in the fourth quarter of 2009 as the de-stocking phase ended, has continued throughout the first half of 2010, and demand for tempering rollers has now started to recover.

Note: in the product line analysis below for the Ceramics division, all of the financial information is presented at constant currency.  References to profitability of individual product lines refers to the relative contribution they make to the trading profit of the division before centralised divisional costs.      

Steel Flow Control

The Steel Flow Control product line provides a full range of products and services to control, regulate and protect the flow of steel in the enclosed continuous casting process.  Products include VISO™ and VAPEX™ products, slide-gate and tube changer systems and refractories, gas purging and temperature control devices, and mould and tundish fluxes.

Global steel production represents almost 100% of the end-market for Steel Flow Control products and services.  Underlying revenue in Steel Flow Control of £248m was 50% higher compared to the first half of 2009 and 17% higher compared to the second half of 2009.  These growth rates were ahead of the increase in steel production in the key markets in which Vesuvius operates, reflecting favourable product mix, including increased market penetration of the new, higher value-added, tundish tube changer and ladle shroud products, and some limited inventory restocking of Vesuvius products by customers.  Revenue in the first half of 2010 represented 95% of the revenue achieved in the first half of 2008, the last half year period prior to the impact of the recent global economic downturn. 

Underlying profit contribution increased over five times compared to the first half of 2009, and by nearly a quarter compared to the second half of 2009.  There was strong profit contribution drop-through on the additional revenue and the contribution margin in the first half of 2009 was broadly consistent with that achieved in the first half of 2008. 

Projects are ongoing during 2010 to increase capacity in the Chinese and Indian facilities in order to meet the continuing growth in demand in these countries.  In China, capacity has been expanded at the main facility in Suzhou, whilst production has recently re-started at the Tianjin facility.  The Tianjin facility had previously been decommissioned following its acquisition with Foseco in April 2008.  Approval has also recently been given to double the capacity by the end of 2010 of the existing Wuhan facility, part of the joint venture with Wuhan Iron & Steel Corporation (China's third largest steel producer).  The project to double capacity at the Indian facility in Kolkata is well advanced and will be completed by the end of 2010.

Linings

Linings includes products and services that enable customers' plants to withstand the effects of extreme temperatures or erosive chemical attack.  The business manufactures castables, gunning materials, ramming mixes, pre-cast shapes, tap hole clay, bricks, mortars, and provides construction and installation services.

Global iron and steel production represents more than 75% of the end-market for Linings products and services with the remainder arising from a variety of non-steel markets including the cement, lime, aluminium, power generation, petrochemical and waste incineration industries.

Underlying revenue in the Linings product line of £241m represented a 21% increase compared to the first half of 2009 and a 15% increase compared to the second half of 2009.  The growth reflected increased levels of maintenance as steel producers restarted or increased production.  The level of activity in non-steel markets has remained subdued throughout the first half of 2010.  The Linings product line is more project-based than the others and, as a result, experienced a less severe downturn in activity in the first half of 2009 than the Steel Flow Control product line.  As a consequence the strong recovery in steel production in the first half of 2010 has had a less marked impact on revenue for the Linings product line than for Steel Flow Control.

Underlying profit contribution more than doubled compared to the first half of 2009 and increased by more than one quarter compared to the second half of 2009.  The contribution margin in the first half of 2010 was two percentage points lower than for the first half of 2008.

The Chinese brick-lining business, BRC, is currently operating at full capacity.  A project nearing completion will increase production capacity by around one-half.  The Linings facility in Sao Paulo is being relocated to a larger site to serve better the growing demands of the Brazilian steel market.  The relocation is expected to be completed by the end of the first half of 2011.    

Foundry

The Foundry business is a leading supplier of products, services and solutions to the foundry industry worldwide and trades under the Foseco brand name.  Products include feeding systems, filters, metal treatments, metal transfer systems, crucibles, stoppers, sand binders, coatings and moulding materials.

Underlying revenue in the Foundry product line of £210m represented a 28% increase compared to the first half of 2009 and a 24% increase compared to the second half of 2009.  The end-markets for the Foundry product line have more 'late-cycle' characteristics and this, combined with significant de-stocking in the supply chain, resulted in only modest revenue growth during 2009.  However, the beginning of 2010 saw strong and progressive revenue growth in certain regional markets, including Japan, China and Brazil, driven by recovery in their automotive and truck sectors.  Revenue growth only started to be evident in Europe, which constitutes around half of the Foundry product line's total revenue, in May and June.  As a result, underlying revenue for the Foundry product line in the second quarter of 2010 was 13% higher than for the first quarter.  Whilst these trends are encouraging, revenue in the first half of 2010 was still only 74% of the revenue achieved in the first half of 2008 (pro-forma for Foseco).      

Underlying profit contribution increased by more than five times compared to the first half of 2009 and by just under two and a half times compared to the second half of 2009, reflecting the very strong profit drop-through on the additional revenue.  The contribution margin in the first half of 2010 reached double-digits but was still four percentage points lower than for the first half of 2008.

The closure of the Foundry product line's manufacturing facility in Chambery, France has recently been announced and is expected to be completed by mid-2011. 

The Chinese foundry castings end-market is expected to grow strongly over the next few years.  In anticipation of this growth, it has recently been decided to build a new production facility in Shanghai due for completion by the end of 2012.

Fused Silica

The principal products in the Fused Silica product line are Solar Crucibles™ used in the manufacture of photovoltaic ("solar") panels and tempering rollers used in the glass industry. 

Underlying revenue in the Fused Silica product line of £35m represented a 13% increase compared to the first half of 2009 and a 27% increase compared to the second half of 2009, principally driven by a strong recovery in the photovoltaic end-market.

Solar Crucible™ revenue, which represents around 60% of total Fused Silica revenue, increased by 28% compared to the first half of 2009 and by 35% compared to the second half of 2009 reflecting the end of the severe de-stocking of solar panels, particularly in China, during the first three quarters of 2009.  For tempering rollers and other speciality products used in the manufacture of glass, revenue fell 3% compared to the first half of 2009 but grew 16% compared to the second half of 2009 as the construction sector started to recover.

Underlying profit contribution increased by four times compared to the first half of 2009 and nearly doubled compared to the second half of 2009, reflecting the very strong profit drop-through on the additional Solar Crucible™ revenue.  The contribution margin in the first half of 2010 was broadly in line with that achieved in the first half of 2008.

In late 2008, a new Solar Crucible™ production facility in China was completed but as demand was falling rapidly the plant was immediately mothballed.  Following the strong pick up in demand for Solar Crucibles™, this facility is now being commissioned with commercial production expected to start in the third quarter of 2010.  

Electronics division

The Electronics division is a world leading supplier of electronic assembly materials and advanced surface treatment and plating chemicals, and comprises two product lines; the Assembly Materials product line is a supplier of solder and related products and the Chemistry product line is a supplier of electro-plating chemicals.

	First Half				Year
	2010	2009			2009
Revenue (£m)	344	240			530
Trading profit (£m)	31.3	6.3			39.2
Return on sales	9.1%	2.6%			7.4%

Revenue of £344m was 43% higher than the first half of 2009 and 12% higher than the second half of 2009 (both at constant exchange rates; at reported exchange rates the percentages were 43% and 18% respectively).  Revenue for the first half of 2010 was £209m for the Assembly Materials product line and £135m for the Chemistry product line. 

The higher revenue partially reflects the 'pass through' to customers of higher tin and silver prices, the Assembly Materials product line's major raw materials.  In the first half of 2010, the average prices of tin and silver were respectively 46% and 32% higher than the same period last year, such that approximately £30m of the division's revenue increase was as a result of these higher metal prices.  Excluding both the impact of higher metal prices in Assembly Materials and precious metal sales and back-to-back electro-plating equipment sales in Chemistry, underlying revenue was 25% higher than the first half of 2009 (with Assembly Materials 23% higher and Chemistry 28% higher), and 7% higher than the second half of 2009 (with Assembly Materials 7% higher and Chemistry 6% higher).  Electronics end-markets (which make up three-quarters of the division's revenue) have been progressively improving during the half year with particularly strong growth in demand for personal computers and mobile phones.  According to estimates from Gartner, global personal computer unit shipments in the first half of 2010 were 24% higher than the first half of 2009, whilst, according to estimates from Nokia, global unit shipments of mobile phones increased 13% compared to the first half of 2009.  Automotive markets have similarly shown good improvement, although industrial end-markets have generally remained subdued.

For solder products in the Assembly Materials product line, sales of higher margin, more value-added products such as solder paste (for which volumes were up 50%) have been stronger than the more commoditised products such as bar solder (for which volumes were up 21%).  This reflected both the continuing shift from wave soldering to surface mount technology for the production of PCBs and the strategy of focusing on higher margin, more value-added products.  For the Chemistry product line, sales of plating-on-plastics and corrosion and wear-resistant products for automotive and industrial applications were up 26% compared to the first half of 2009, whilst sales of surface coating products serving the PCB fabrication market were up 22%.  Copper damascene sales into the semi-conductor market were up by a half compared to the first half of 2009.     

Trading profit for the first half of 2010 rose significantly to £31.3m (first half 2009: £6.3m), being £25.1m higher at constant currency and £25.0m higher at reported exchange rates.  The trading profit in the first half of 2010 was marginally lower than the £32.9m achieved in the second half of 2009, principally reflecting the normal seasonality of the business.  The return on sales margin in the first half of 2010 was 9.1%, well ahead of the 2.6% achieved in the first half of 2009 but below the 11.3% in the second half of 2009.  This reduction in margin was partially due to higher commodity metal prices and precious metal sales in the first half of 2010 which increased revenue but had relatively little impact on trading profit.  On an underlying basis, the margin reduction was 1.7 percentage points which reflects the normal seasonality of the business. 

Asia-Pacific, the division's largest region, accounted for 44% of revenue in the first half of 2010 (by location of customer), marginally ahead of full year 2009.

With the continued growth of China's electronic materials, automotive and industrial end-markets, the construction of the new £14m Chemistry facility in Shanghai, which had been delayed through 2009, was started in the first quarter of 2010 with expected completion by late 2011.  Currently the Chinese market is served from Cookson facilities in Shenzhen, Tianjin and Singapore.

Precious Metals division

The Precious Metals division is a leading supplier of fabricated precious metals (primarily gold, silver and platinum) to the jewellery industry in the US, UK, France and Spain, and also has significant precious metal recycling operations in Europe.     

	First Half				Year
	2010	2009			2009
Revenue (£m)	155	147			300
Net sales value (£m)	68	63			133
Trading profit (£m)	6.6	2.3			8.9
Return on net sales value	9.7%	3.7%			6.7%

The Precious Metals division operates in two distinct geographic regions; the US, which constitutes 44% of the total net sales value (being revenue excluding the precious metals content) of the division, and Europe (which is focused on the UK, France and Spain).  Average precious metal prices in the first half of 2010 have been significantly higher than the first half of 2009, being approximately 24% higher for gold, 32% for silver and 43% for platinum. 

Net sales value of £68m in the first half of 2010 was 10% higher at constant exchange rates (8% higher at reported exchange rates) compared to the same period last year.  This reflected continuing weak retail jewellery markets, particularly in the US, being more than offset by strong sales to the US Mint of gold coin blanks and higher levels of precious metal reclaim in Europe, stimulated by the high price of gold. 

Trading profit for the first half of 2010 at £6.6m was £4.3m above the same period last year due to both improved profits in Europe reflecting the high level of reclaim business, particularly in Spain, and the return to profitability of the US business following its small loss in the first half of 2009.  The return on net sales value was 9.7%, well ahead of the 3.7% achieved in the first half of 2009.

Group corporate

The Group's corporate costs, being the costs directly related to managing the Group holding company were £4.4m, £0.9m higher than the same period last year.

GROUP FINANCIAL REVIEW

	First Half			Year
	2010	2009		2009
Profit/(loss) before tax (£m)
- headline	104.0	(3.3)		75.7
- basic	92.5	(89.7)		(20.9)
Earnings/(loss) per share (pence)
- headline	27.0	(6.2)		18.0
- basic	23.4	(42.6)		(17.8)
Dividends per share (pence)	-	-		-
Free cash flow (£m)	(14.9)	84.4		157.3
Net debt (£m)	405.1	438.2		371.4

Group Income Statement

Headline profit/(loss) before tax

Headline profit before tax was £104.0m for the first half of 2010, compared to a headline loss before tax of £3.3m for the same period in 2009.  The increase in headline profit before tax arose as follows:

	First half
	2010		2009		Change
	£m		£m		£m
Trading profit:
Total operations  - at first half 2010 exchange rates	120.3		19.5		100.8
Currency exchange rate impact			(3.0)		3.0
Trading profit - as reported	120.3		16.5		103.8
Net finance charges - ordinary activities	(15.8)		(20.2)		4.4
Post-tax JV (loss)/profit	(0.5)		0.4		(0.9)
Headline profit/(loss) before tax	104.0		(3.3)		107.3

The £4.4m lower charge for net finance costs (interest) principally comprised of £3.8m lower interest on borrowings due mainly to a decrease in the average level of borrowings throughout the period and £0.6m lower pension interest.  The lower average level of borrowings in the first half of 2010 reflects the benefits of the proceeds (net of expenses) of £241m from the rights issue in March 2009 and the strong operating cash flow generation in the second half of 2009. 

Items excluded from headline profit/(loss) before tax

A net charge of £11.5m was incurred in the first half of 2010 (first half 2009: £86.4m) for the following items excluded from headline profit/(loss) before tax:

Amortisation of intangible assets: costs of £8.9m (first half 2009: £8.9m) were incurred in the first half of 2010 relating to the amortisation of intangible assets, being customer relationships, intellectual property rights and the Foseco trade name, arising on the acquisition of Foseco in April 2008.  These intangible assets are being amortised over lives varying between 10 and 20 years.

Restructuring and integration costs: of the total charge of £8.6m (first half 2009: £66.0m) incurred in the first half of 2010, £7.6m related to items, principally redundancies, where there will be a short-term cash cost, and £1.0m to non-cash asset write-offs.  The principal items included in the charge for the first half of 2010 were as follows:

·    £5.8m arose in the Ceramics division, of which the principal element was £4.6m related to the recently announced closure of the Foundry product line's manufacturing facility in Chambery, France.  This closure is expected to be completed by mid-2011; and

·    £2.6m in the Electronics division, of which the principal element was £1.4m for redundancy costs in the Chemistry product line in Europe.

Cash-related restructuring costs of around £10m are expected to be incurred in full year 2010.     

Exceptional gains relating to employee benefits plans: of the total non-cash credit of £5.3m (first half 2009: £nil), £4.7m relates to the closure of the UK defined benefit plan to future benefit accrual.  A new Group Personal Pension Plan has been established in place of that plan and the current UK defined contribution plan to provide defined contribution benefits for all eligible UK employees.

Profit relating to non-current assets: the profit relating to non-current assets of £0.7m (first half 2009: loss of £0.6m) arose on the disposal by the Electronics division of a trade investment.

Group profit before tax and after the items noted above was £92.5m for the first half of 2010 compared to a loss before tax of £89.7m in the first half of 2009.

Taxation

The tax charge on ordinary activities was £26.5m on a headline profit before tax of £104.0m, an effective tax rate (before share of post-tax loss of joint ventures) of 25.3% (full year 2009: 35.2%).  For full year 2009, the effective tax rate was negatively impacted by the Group's low level of profit before tax which meant that the Group reported profit before tax in a number of tax-paying jurisdictions (such as China and India), whilst incurring losses before tax in jurisdictions (notably the US) where it was not appropriate to record a tax credit.  The significantly higher level of profit before tax in the first half of 2010 has meant that this situation has not repeated.  In addition, the Group has benefited in the first half of 2010 from the utilisation of tax losses and similar attributes in a number of countries where a deferred tax asset for those items had not previously been recognised.  Whilst the Group's effective tax rate going forward will be affected by the geographic split of profit before tax, it is currently expected that the effective tax rate for the full years 2010 and 2011 will be around 25%. 

A tax credit of £1.3m (first half 2009: £3.0m) arose in relation to all the items excluded from headline profit before tax noted above. 

Profit/(loss) attributable to owners of the parent

Headline profit attributable to owners of the parent for the first half of 2010 was £74.7m (first half 2009: loss of £14.2m).

After taking account of all items excluded from headline profit/(loss) before tax noted above (net of the related tax impact), the Group recorded a profit of £64.5m for the first half of 2010 compared to a loss of £97.6m recorded in the first half of 2009.

Earnings/(loss) per share ("EPS")

The average number of shares in issue during the first half of 2010 was 276.2m, 47.1m higher than for the first half of 2009, principally reflecting the issue of 255.1m new shares in respect of the rights issue in March 2009.  In accordance with IAS 33, the average number of shares in issue used in the calculation of EPS for all periods prior to the rights issue has been multiplied by an adjustment factor to reflect the bonus element in the new shares issued.  The adjustment factor used was 6.6391.  The average number of shares also reflects the share consolidation in May 2009 whereby shareholders exchanged 10 existing shares for 1 new share.

Headline EPS, based on the headline profit attributable to owners of the parent divided by the average number of shares in issue, amounted to 27.0p per share in the first half of 2010, compared to a loss per share of 6.2p in the first half of 2009.  The Board believes this basis of calculating EPS is an important measure of the underlying earnings capacity of the Group.  Basic EPS, based on the net profit attributable to owners of the parent, was 23.4p (first half 2009: loss per share of 42.6p).

Dividend

Whilst end-market conditions and the Group's trading performance have improved considerably in the first half of 2010, the macro-economic situation remains uncertain.  As a result, the Board has decided not to declare an interim dividend for 2010 (2009 interim dividend: nil).  

A decision to resume dividend payments will be made once the sustainability of the recovery in the global economy is more assured.

Group cash flow

Net cash flows from operating activities

In the first half of 2010, there was a £6.6m net cash outflow from operating activities compared to a £86.7m net cash inflow in the first half of 2009.  This decrease arose from:

	First Half
	2010		2009		Change
	£m		£m		£m
EBITDA	147.8		43.7		104.1
Trade and other working capital	(98.5)		120.8		(219.3)
Restructuring and integration costs paid	(14.2)		(24.1)		9.9
Additional pension plan funding contributions	(8.8)		(9.8)		1.0
Net interest paid	(8.7)		(20.2)		11.5
Taxation paid	(23.7)		(23.7)		-
Assets held for sale	(0.5)		-		(0.5)
Net cash (outflow)/inflow from operating activities	(6.6)		86.7		(93.3)

The cash outflow of £98.5m from trade and other working capital reflects both the strong increase in underlying revenue in the first half of 2010 and the return to the Group's more normal seasonality, with a build up of working capital in the first half of the year and some reduction expected during the second half.  Whilst the absolute level of trade working capital rose during the first half of 2010, the ratio of average trade working capital to sales in the first half of 2010 of 19.8%, improved 1.6 percentage points from that achieved in the full year 2009.  

Cash outflow for restructuring and integration was £14.2m, of which the majority related to the cost-saving initiatives in the Ceramics and Electronics divisions which were initiated in the fourth quarter of 2008 and the first half of 2009.  A cash outflow for restructuring and integration of around £25m is expected in the full year 2010.

The cash outflow for additional pension plan funding contributions related to a payment of £8.8m in March 2010 into the Group's US defined benefit pension plan to ensure continued compliance with the minimum funding levels required under the US Pension Protection Act.

Net cash flows from investing activities

Capital expenditure: payments to acquire property, plant and equipment in the first half of 2010 were £15.7m, £3.1m higher than the first half of 2009 and representing 57% of depreciation (first half 2009: 46%).  A cash outflow for capital expenditure of around £60m is expected in the full year 2010 principally reflecting the expansion of production capacity in the Ceramics and Electronics divisions in the emerging markets of China, India and Brazil. 

Free cash flow

Free cash flow is defined as net cash flow from operating activities after net outlays for the purchase and sale of property, plant and equipment, dividends received from joint ventures and paid to non-controlling shareholders, but before additional funding contributions to Group pension plans.

Free cash outflow for the first half of 2010 was £14.9m, £99.3m lower than the £84.4m inflow in the first half of 2009, due principally to the £93.3m decrease in cash flow from operating activities for the reasons described above. 

The Group traditionally experiences lower free cash inflows in the first half of the year compared with the second half, due to the seasonality of trade working capital cash flows.  In the full year 2009, the significantly reduced trading activity resulted in strong free cash inflow in both the first and second halves of 2009.  Free cash flow is currently expected to be positive in the second half of 2010.  The annualised free cash inflow for the year ended June 2010 was £58.0m (year ended June 2009: £151.0m; year ended June 2008: £91.0m). 

Net cash flow before financing

Net cash outflow before financing for the first half of 2010 was £26.5m, compared with a net cash inflow of £78.2m in the first half of 2009.  The decrease arose principally from the reduction in cash flow from operating activities described above.

Cash flow from financing activities

Net cash outflow from financing activities (before movement in borrowings) was £1.5m compared to an inflow of £194.8m in the first half of 2009.  The cash inflow in the first half of 2009 arose principally from the proceeds (net of expenses) of £240.7m from the rights issue in March 2009.

Net cash outflow and movement in net debt

Net cash outflow for the first half of 2010 (before movement in borrowings) was £28m, £301m lower than the first half of 2009.

With a £4.7m negative foreign exchange adjustment and £1.0m in other non-cash movements, this resulted in an increase in net debt from £371.4m at 31 December 2009 to £405.1m at 30 June 2010, an increase of £33.7m.

Group borrowings

The net debt of £405.1m as at 30 June 2010 was primarily drawn on available committed facilities of around £800m.  The Group's net debt comprised the following:

	30 June	31 December	30 June
	2010	2009	2009
	£m	£m	£m
US Private Placement loan notes	127.0	201.3	221.7
Committed bank facility	400.0	324.9	336.9
Lease financing	3.7	3.6	3.6
Other	12.9	1.8	(2.1)
Gross borrowings	543.6	531.6	560.1
Cash and short-term deposits	(138.5)	(160.2)	(121.9)
Net Debt	405.1	371.4	438.2

Following a repayment of US$135m made in May 2010, the US Private Placement loan notes as at 30 June 2010 amount to US$190m, which is repayable in May 2012.

On 10 October 2007, the Group entered into a new multi-currency, committed bank facility which currently is for approximately £670m, raised for the purpose of the acquisition of Foseco.  This facility is repayable in two tranches; £75.0m and €37.5m in October 2011 and £500.0m and €75.0m in October 2012.

As at June 2010, the Group's EBITDA to interest on borrowings ratio was 12.2 times (as compared with not less than 4.0 times for bank covenant purposes) and the net debt to EBITDA ratio was 1.5 times (as compared with not more than 3.0 times for bank covenant purposes).  Based on these covenant ratios, the Group will pay a margin of 75bps over LIBOR on its borrowings under the committed bank facility.   

As at 30 June 2010, the Group had undrawn committed debt facilities totalling around £270m.

The average interest rate on net debt for full year 2010 - excluding pension interest - is expected to be around 6%.  This rate reflects both the relatively expensive US Private Placement loan notes - which have an interest rate of just over 8% - and the low levels of interest income earned on cash balances.  In January 2010, the Group entered into a number of interest rate swaps, following which around two-thirds of the Group's current gross borrowings are now at fixed interest rates for an average period of just under two years from June 2010.

Currency

The slight strengthening of sterling over the last year has had a small impact on the average exchange rates used to translate the Group's overseas results into sterling for the first halves of 2009 and 2010.  Between these periods, the average exchange rates for sterling strengthened against the euro and the US Dollar by 3%, and the Chinese Renminbi by 2%.

In the first half of 2010, the net translation impact of currency changes compared to the same period last year was to decrease 2009 revenue by around £15m and 2009 trading profit by around £3m. 

During the course of the second half of 2008, the majority of the currency-denominated borrowings under both the US Private Placement loan notes and the syndicated bank facility were switched into sterling such that changes in exchange rates would not have a material impact on the level of gross borrowings.  Following the significant improvement in the Group's financial position, since the beginning of 2010 there has been a progressive return to the previous policy of broadly matching the currency of borrowings to the currency of operating activities.  Currently, around 60% of the Group's gross borrowings are non-sterling denominated, principally in US dollars and euros.

Pension fund and other post-retirement obligations

The Group operates defined contribution and defined benefit pension plans, principally in the UK, the US and Germany.  In addition, the Group has various other post-retirement defined benefit ("PRB") arrangements, being principally healthcare arrangements in the US.  The Group's two principal defined benefit pension plans in the US are closed to new members and to further accruals for existing members.  The Group's UK defined benefit pension plan ("the UK Plan") is closed to new members and, having completed the required period of consultation with its employees, the closure of the UK Plan and the UK defined contribution plan to future benefit accrual took effect from 31 July 2010; a new Group Personal Pension Plan has been established in their place to provide defined contribution benefits for all eligible UK employees.

As at 30 June 2010, a net deficit of £113.8m was recognised in respect of employee benefits.  The reduction of £23.9m from the net deficit as at 31 December 2009 of £137.7m primarily arose in respect of the UK arrangements, where the UK Plan assets increased by £28.8m, driven by a strong performance by its swap portfolio and as a result of a curtailment gain of £4.7m in connection with the UK Plan closure. The deficit in the Group's US pension arrangements increased by £8.9m to £63.0m, despite additional contributions into the plans of £8.8m.  The main contributing factors were increased liabilities (£9.3m) resulting from a reduction in the discount rate, reduced asset values (£5.6m) and exchange rate movements (£4.5m).  The net deficit in the plans in the remainder of the Group was broadly the same as at the end of 2009. 

The total Group net deficit primarily comprises a surplus of £6.9m relating to the UK Plan and deficits of £63.0m relating to the Group's defined benefit pension plans in the US, £33.6m to plans in Germany, £13.1m to pension arrangements in other countries, and £10.2m to unfunded post-retirement defined benefit arrangements, being mainly healthcare benefit arrangements in the US.

During 2009 it was agreed, in consultation with the Trustee of the UK Plan, to reduce the level of 'top-up' payments (made in addition to normal cash contributions) from £14.0m per annum such that, with effect from 1 February 2009, no further additional payments would be made until August 2010.  A new triennial funding valuation for the UK Plan as at the end of 2009 was completed in July 2010, based upon which the Company and Trustee have agreed a new schedule of contributions to commence in August 2010 whereby the Company will make 'top-up' payments of £7.0m per annum until February 2016, targeted at eliminating the deficit in the UK Plan by that date.  The level of 'top-up' payments will be reviewed based on the UK Plan's next triennial valuation as of December 2012, which should be available in mid-2013.

The UK Plan has, since 2006, operated a hedging strategy, using a combination of swaps and money market instruments, to mitigate the impact of interest rate and inflation rate movements on the value of its projected liabilities for meeting future pension payments (the UK Plan's "economic liabilities"), the value of which is related more to interest rate and inflation rate swap yields than to corporate bond yields, upon which the discount rate used for IAS19 valuation purposes is based.  When the relationship between the relevant swap yields and corporate bond yields is stable, the UK Plan's hedging strategy should deliver a broadly stable 'funding ratio' (the ratio of plan assets to plan liabilities) not just in relation to the UK Plan's economic liabilities, but also under an IAS 19 basis of valuation.  As at 30 June 2010, the estimated funding position (incorporating the UK Plan's economic liabilities) showed a funding ratio of 91%, with the IAS 19 valuation reflected a funding ratio of 102%.  This represents a valuation difference of around £47m, of which some £30m is due to the use of the stronger Long Cohort mortality assumption for funding purposes.  The Group continues to fund the UK Plan with reference to its economic funding position.

In 2006, in order to reduce significantly the future volatility of the Group's UK Plan the plan Trustee implemented risk mitigation elements within its investment strategy which included, inter alia, entering into an equity hedge.  The equity hedge has provided a significant level of protection to the UK Plan's assets arising from the fall in global equity markets in the last two years.  In January 2010, to ensure that the equity hedge continued to provide risk protection to the UK Plan's assets going forward, the equity hedge was restructured to reflect better the then current level of equity markets.  

In March 2010, the Group made a top-up payment of £8.8m into the US defined benefit pension plan to ensure continued compliance with the minimum funding levels required under the US Pension Protection Act.  With effect from the beginning of 2011, additional top-up payments of approximately £6m per annum are expected to be made into the US pension plan.

The total charge to the income statement in the first half of 2010 for all pension plans (including defined contribution plans) was £7.1m, a decrease of £5.9m over the first half of 2009.  Of this charge, £10.3m (first half 2009: £10.3m) has been deducted in arriving at trading profit and £2.1m (first half 2009: £2.7m) has been included within net finance charges.  In addition, an exceptional credit of £5.3m was reported (first half 2009: £nil) relating mainly to the termination of future benefit accrual in the UK Plan.  Total pension cash contributions amounted to £21.3m in 2010 (first half 2009: £21.9m), which included no additional cash funding contributions into the UK Plan.

RISKS AND UNCERTAINTIES

Throughout its global operations, Cookson faces various risks, both internal and external, which could have a material impact on the Group's long-term performance. Cookson manages the risks inherent in its operations in order to mitigate exposure to all forms of risk, where practical, and to transfer risk to insurers, where cost effective.

On pages 38 to 41 of its 2009 Annual Report (a copy of which is available at Cookson's website at www.cooksongroup.co.uk), the Company set out what the Directors regarded as being the principal risks and uncertainties facing the Group as at 2 March 2010 and which could have a material impact on the Group's long-term performance. Many of these risks are such that their potential to impact the Group's operations are inherent to Cookson as a global business and they remain valid as regards their potential to impact the Group during the remainder of the second half of 2010.

In particular, the Company's 2009 Annual Report made reference to an uncertainty as to the degree to which the resurgence in demand experienced in the latter months of 2009 across many of the Group's main businesses will be sustained in 2010.  This uncertainty is the subject of considerable management focus and this will continue to be the case during the remainder of the second half of the year; however, in view of the extent of the de-stocking which took place during 2009 in the Group's major end-markets, the Directors believe that any downturn in its end-markets is likely to be less severe than that experienced in 2009. Furthermore, following the cost-reduction initiatives and equity raising successfully completed during 2009, the Directors believe that the Group is well positioned financially to sustain a further downturn in end-market activity should this occur.

Shareholder/analyst enquiries: Nick Salmon, Chief Executive Mike Butterworth, Group Finance Director	Cookson Group plc Tel: [phone]
Media enquiries: John Olsen / Anthony Arthur	Hogarth Tel: [phone]

Copies of the Half Year Financial Report will not be mailed to shareholders.  Copies can be obtained from the Cookson website (www.cooksongroup.co.uk), or by contacting the Investor Relations department at the Company's registered office (see below).

Cookson management will make a presentation to analysts on 4 August 2010 at 9.00am (UK time).  This will be broadcast live on Cookson's website.  An archive version of the presentation will be available on the website later that day.

Cookson Group plc, 165 Fleet Street, London EC4A 2AE

Registered in England and Wales No. 251977

www.cooksongroup.co.uk

Directors' responsibility statement

We confirm that to the best of our knowledge:

(a) The condensed financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the EU; and

(b) This half-yearly financial report includes a fair review of the information required by:

- DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

- DTR 4.2.8R of the Disclosure and Transparency Rules, being related parties' transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or the performance of the Group during that period; and any changes in the related parties' transactions described in the last annual report that could have a material effect on the financial position or performance of the Group in the first six months of the current financial year.

On behalf of the Board 

Mike Butterworth

Finance Director

4 August 2010

Independent review report to Cookson Group plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 which comprises the condensed Group income statement, the condensed Group statement of comprehensive income, the condensed Group statement of cash flows, the condensed Group balance sheet, the condensed Group statement of changes in equity and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Services Authority ("the UK FSA"). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FSA.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34, Interim Financial Reporting, as adopted by the EU.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA.

 Stephen Oxley

for and on behalf of KPMG Audit Plc

Chartered Accountants

15 Canada Square

London, E14 5GL

4 August 2010

Condensed Group Income Statement

For the six months ended 30 June 2010

		Unaudited		Unaudited
		Half year		Half year		Full year
		2010		2009		2009
	Notes	£m		£m		£m
Revenue	2	1,232.9		929.4		1,960.6
Manufacturing costs               - raw materials		(599.0)		(464.4)		(972.7)
- other		(278.5)		(235.5)		(470.1)
Administration, selling and distribution costs		(235.1)		(213.0)		(406.1)
Trading profit	2	120.3		16.5		111.7
Amortisation of intangible assets	3	(8.9)		(8.9)		(17.6)
Restructuring and integration costs	4	(8.6)		(66.0)		(75.6)
Profit/(loss) relating to non-current assets	5	0.7		(0.6)		(2.8)
Exceptional gains relating to employee benefits plans	6	5.3		-		9.7
Profit/(loss) from operations	2	108.8		(59.0)		25.4
Finance costs         - ordinary activities	7	(35.0)		(40.4)		(75.6)
- exceptional items	7	-		(14.0)		(14.0)
Finance income	7	19.2		20.2		38.6
Share of post-tax (loss)/profit of joint ventures		(0.5)		0.4		1.0
Net profit on disposal of continuing operations	8	-		3.1		3.7
Profit/(loss) before tax		92.5		(89.7)		(20.9)
Income tax costs     - ordinary activities	9	(26.5)		(9.9)		(26.3)
- exceptional items	9	1.3		3.0		5.9
Discontinued operations		-		-		(3.4)
Profit/(loss) for the period		67.3		(96.6)		(44.7)
Profit/(loss) for the period attributable to:
Owners of the parent		64.5		(97.6)		(48.5)
Non-controlling interests		2.8		1.0		3.8
Profit/(loss) for the period		67.3		(96.6)		(44.7)
Headline profit/(loss) before tax
Trading profit		120.3		16.5		111.7
Net finance costs - ordinary activities		(15.8)		(20.2)		(37.0)
Share of post-tax (loss)/profit of joint ventures		(0.5)		0.4		1.0
Headline profit/(loss) before tax	1.5	104.0		(3.3)		75.7
Income tax costs - ordinary activities		(26.5)		(9.9)		(26.3)
Profit attributable to non-controlling interests		(2.8)		(1.0)		(3.8)
Headline profit/(loss) attributable to owners of the parent		74.7		(14.2)		45.6
Earnings/(loss) per share (pence)	10
From profit/(loss) from continuing operations attributable to owners of the parent:
Basic and diluted		23.4		(42.6)		(17.8)
From profit/(loss) attributable to owners of the parent:
Basic and diluted		23.4		(42.6)		(19.2)

Condensed Group Statement of Comprehensive Income

For the six months ended 30 June 2010

		Unaudited		Unaudited
		Half year		Half year		Full year
		2010		2009		2009
	Note	£m		£m		£m
Profit/(loss) for the period		67.3		(96.6)		(44.7)
Other comprehensive income/(loss) for the period
Exchange differences on translation of the net assets of foreign operations		40.2		(170.3)		(94.5)
Exchange translation differences arising on net investment hedges		(15.3)		27.6		16.8
Change in fair value of cash flow hedges		(5.2)		(0.8)		(1.0)
Change in fair value of cash flow hedges transferred to profit for the period		-		12.8		12.8
Actuarial gains on employee benefits plans		28.7		18.1		24.4
Actuarial losses on employee benefits plans		(20.4)		(78.8)		(101.7)
Change in fair value of available-for-sale investments		0.4		(0.5)		0.5
Change in fair value of available-for-sale investments transferred to profit for the period		(0.6)		-	-	-
Income tax relating to components of other comprehensive income	9	(1.8)		19.6		21.8
Other comprehensive income/(loss) for the period, net of tax		26.0		(172.3)		(120.9)
Total comprehensive income/(loss) for the period		93.3		(268.9)		(165.6)
Total comprehensive income/(loss) for the period attributable to:
Owners of the parent		88.2		(268.1)		(168.2)
Non-controlling interests		5.1		(0.8)		2.6
Total comprehensive income/(loss) for the period		93.3		(268.9)		(165.6)

Condensed Group Statement of Cash Flows

For the six months ended 30 June 2010

		Unaudited		Unaudited
		Half year		Half year		Full year
		2010		2009		2009
	Notes	£m		£m		£m
Cash flows from operating activities
Profit/(loss) from operations		108.8		(59.0)		25.4
Adjustments for:
Amortisation of intangible assets		8.9		8.9		17.6
Restructuring and integration costs		8.6		66.0		75.6
(Profit)/loss relating to non-current assets		(0.7)		0.6		2.8
Exceptional gains relating to employee benefits plans		(5.3)		-		(9.7)
Depreciation		27.5		27.2		53.6
EBITDA	1.5	147.8		43.7		165.3
Net (increase)/decrease in trade and other working capital		(98.5)		120.8		152.5
Net operating outflow related to assets and liabilities classified as held for sale		(0.5)		-		(0.8)
Outflow related to restructuring and integration costs	4	(14.2)		(24.1)		(49.3)
Additional funding contributions into Group pension plans	14	(8.8)		(9.8)		(8.3)
Cash generated from operations		25.8		130.6		259.4
Interest paid		(15.6)		(27.8)		(43.8)
Interest received		6.9		7.6		8.6
Income taxes paid		(23.7)		(23.7)		(40.5)
Net cash (outflow)/inflow from operating activities		(6.6)		86.7		183.7
Cash flows from investing activities
Purchase of property, plant and equipment		(15.7)		(12.6)		(35.0)
Proceeds from the sale of property, plant and equipment	5	0.5		0.4		1.2
Proceeds from the sale of investments	5	0.7		0.4		0.1
Acquisition of subsidiaries and joint ventures, net of cash acquired		(0.3)		(0.2)		(5.9)
Disposal of subsidiaries and joint ventures, net of cash disposed of		0.2		6.1		6.2
Dividends received from joint ventures		0.3		0.6		1.1
Other investing outflows, including additional costs for prior periods' disposals		(5.6)		(3.2)		(8.9)
Net cash outflow from investing activities		(19.9)		(8.5)		(41.2)
Net cash (outflow)/inflow before financing activities		(26.5)		78.2		142.5
Cash flows from financing activities
Repayment of borrowings	13	(89.0)		(250.5)		(284.1)
Increase in borrowings	13	79.8		-		-
Settlement of forward foreign exchange contracts		0.5		(43.0)		(38.0)
Proceeds from the issue of share capital	12	0.2		240.7		240.7
Borrowing facility arrangement costs		-		(2.4)		(2.4)
Dividends paid to non-controlling shareholders		(2.2)		(0.5)		(2.0)
Net cash outflow from financing activities		(10.7)		(55.7)		(85.8)
Net (decrease)/increase in cash and cash equivalents	13	(37.2)		22.5		56.7
Cash and cash equivalents at beginning of period		157.7		105.6		105.6
Effect of exchange rate fluctuations on cash and cash equivalents		6.1		(8.6)		(4.6)
Cash and cash equivalents at end of period		126.6		119.5		157.7
Free cash flow
Net cash (outflow)/inflow from operating activities		(6.6)		86.7		183.7
Additional funding contributions into Group pension plans		8.8		9.8		8.3
Purchase of property, plant and equipment		(15.7)		(12.6)		(35.0)
Proceeds from the sale of property, plant and equipment		0.5		0.4		1.2
Dividends received from joint ventures		0.3		0.6		1.1
Dividends paid to non-controlling shareholders		(2.2)		(0.5)		(2.0)
Free cash (outflow)/inflow	1.5	(14.9)		84.4		157.3

Condensed Group Balance Sheet

As at 30 June 2010

		Unaudited				Unaudited
		30 June 2010		31 Dec 2009		30 June 2009
	Notes	£m		£m		£m
Assets
Property, plant and equipment		385.8		391.9		380.2
Intangible assets		1,129.3		1,115.6		1,081.0
Employee benefits - net surpluses	14	6.9		-		-
Interests in joint ventures		25.2		23.5		18.9
Investments		10.1		9.8		8.3
Deferred tax assets		11.3		12.0		18.6
Other receivables		10.7		11.0		11.7
Derivative financial instruments		-		-		0.2
Total non-current assets		1,579.3		1,563.8		1,518.9
Cash and short-term deposits		138.5		160.2		121.9
Inventories		277.8		222.0		231.2
Trade and other receivables		506.2		405.1		365.7
Income tax recoverable		4.6		5.5		1.0
Derivative financial instruments		1.0		0.2		0.7
Assets classified as held for sale		5.3		3.2		6.1
Total current assets		933.4		796.2		726.6
Total assets		2,512.7		2,360.0		2,245.5
Equity
Issued share capital	12	276.5		276.4		276.4
Share premium account		0.1		-		-
Other reserves		145.1		127.9		62.7
Retained earnings		718.7		643.9		610.9
Equity attributable to the owners of the parent		1,140.4		1,048.2		950.0
Non-controlling interests		21.1		18.2		16.3
Total equity		1,161.5		1,066.4		966.3
Liabilities
Interest-bearing loans and borrowings		527.7		441.6		448.9
Employee benefits - net liabilities	14	120.7		137.7		131.5
Other payables		21.8		27.2		30.3
Provisions		56.5		56.6		57.7
Derivative financial instruments		14.2		7.7		3.7
Deferred tax liabilities		102.4		99.3		106.9
Total non-current liabilities		843.3		770.1		779.0
Interest-bearing loans and borrowings		15.9		90.0		111.2
Trade and other payables		398.0		337.5		291.7
Income tax payable		47.6		45.8		46.1
Provisions		31.3		36.9		40.4
Derivative financial instruments		12.9		11.9		9.1
Liabilities directly associated with assets classified as held for sale		2.2		1.4		1.7
Total current liabilities		507.9		523.5		500.2
Total liabilities		1,351.2		1,293.6		1,279.2
Total equity and liabilities		2,512.7		2,360.0		2,245.5
Net debt
Interest-bearing loans and borrowings  - non-current		527.7		441.6		448.9
- current		15.9		90.0		111.2
Cash and short-term deposits		(138.5)		(160.2)		(121.9)
Net debt	1.5, 13	405.1		371.4		438.2

Condensed Group Statement of Changes in Equity

For the six months ended 30 June 2010

	Issued	Share	Exchange	Cash	Available-			Owners of	Non-
	share	premium	translation	flow	for-sale	Retained		the parent	controlling	Total
	capital	account	differences	hedges	investments	earnings		total	interests	equity
	£m	£m	£m	£m	£m	£m		£m	£m	£m
As at 1 January 2009	21.3	8.1	202.1	(12.0)	2.0	753.1		974.6	17.6	992.2
(Loss)/profit for the period	-	-	-	-	-	(97.6)		(97.6)	1.0	(96.6)
Other comprehensive loss for the period
Exchange differences on translation of the net assets of foreign operations	-	-	(168.5)	-	-	-		(168.5)	(1.8)	(170.3)
Exchange translation differences arising on net investment hedges	-	-	27.6	-	-	-		27.6	-	27.6
Change in fair value of cash flow hedges	-	-	-	(0.8)	-	-		(0.8)	-	(0.8)
Change in fair value of cash flow hedges transferred to profit for the period	-	-	-	12.8	-	-		12.8	-	12.8
Actuarial gains on employee benefits plans	-	-	-	-	-	18.1		18.1	-	18.1
Actuarial losses on employee benefits plans	-	-	-	-	-	(78.8)		(78.8)	-	(78.8)
Change in fair value of available-for-sale investments	-	-	-	-	(0.5)	-		(0.5)	-	(0.5)
Income tax relating to components of other comprehensive income	-	-	-	-	-	19.6		19.6	-	19.6
Other comprehensive loss for the period, net of tax	-	-	(140.9)	12.0	(0.5)	(41.1)		(170.5)	(1.8)	(172.3)
Total comprehensive loss for the period	-	-	(140.9)	12.0	(0.5)	(138.7)		(268.1)	(0.8)	(268.9)
Transactions with owners
Shares issued in the period	255.1	(8.1)	-	-	-	(6.3)		240.7	-	240.7
Recognition of share-based payments	-	-	-	-	-	2.8		2.8	-	2.8
Dividends paid	-	-	-	-	-	-		-	(0.5)	(0.5)
Total transactions with owners for the period	255.1	(8.1)	-	-	-	(3.5)		243.5	(0.5)	243.0
As at 1 July 2009	276.4	-	61.2	-	1.5	610.9		950.0	16.3	966.3
Profit for the period	-	-	-	-	-	49.1		49.1	2.8	51.9
Other comprehensive income for the period
Exchange differences on translation of the net assets of foreign operations	-	-	75.2	-	-	-		75.2	0.6	75.8
Exchange translation differences arising on net investment hedges	-	-	(10.8)	-	-	-		(10.8)	-	(10.8)
Change in fair value of cash flow hedges	-	-	-	(0.2)	-	-		(0.2)	-	(0.2)
Actuarial gains on employee benefits plans	-	-	-	-	-	6.3		6.3	-	6.3
Actuarial losses on employee benefits plans	-	-	-	-	-	(22.9)		(22.9)	-	(22.9)
Change in fair value of available-for-sale investments	-	-	-	-	1.0	-		1.0	-	1.0
Income tax relating to components of other comprehensive income	-	-	-	-	-	2.2		2.2	-	2.2
Other comprehensive income for the period, net of tax	-	-	64.4	(0.2)	1.0	(14.4)		50.8	0.6	51.4
Total comprehensive income for the period	-	-	64.4	(0.2)	1.0	34.7		99.9	3.4	103.3
Transactions with owners
Recognition of share-based payments	-	-	-	-	-	(1.7)		(1.7)	-	(1.7)
Dividends paid	-	-	-	-	-	-		-	(1.5)	(1.5)
Total transactions with owners for the period	-	-	-	-	-	(1.7)		(1.7)	(1.5)	(3.2)
As at 1 January 2010	276.4	-	125.6	(0.2)	2.5	643.9		1,048.2	18.2	1,066.4
Profit for the period	-	-	-	-	-	64.5		64.5	2.8	67.3
Other comprehensive income for the period
Exchange differences on translation of the net assets of foreign operations	-	-	37.9	-	-	-		37.9	2.3	40.2
Exchange translation differences arising on net investment hedges	-	-	(15.3)	-	-	-		(15.3)	-	(15.3)
Change in fair value of cash flow hedges	-	-	-	(5.2)	-	-		(5.2)	-	(5.2)
Actuarial gains on employee benefits plans	-	-	-	-	-	28.7		28.7	-	28.7
Actuarial losses on employee benefits plans	-	-	-	-	-	(20.4)		(20.4)	-	(20.4)
Change in fair value of available-for-sale investments	-	-	-	-	0.4	-		0.4	-	0.4
Change in fair value of available-for-sale investments transferred to profit for the period	-	-	-	-	(0.6)	-		(0.6)	-	(0.6)
Income tax relating to components of other comprehensive income	-	-	-	-	-	(1.8)		(1.8)	-	(1.8)
Other comprehensive income for the period, net of tax	-	-	22.6	(5.2)	(0.2)	6.5		23.7	2.3	26.0
Total comprehensive income for the period	-	-	22.6	(5.2)	(0.2)	71.0		88.2	5.1	93.3
Transactions with owners
Shares issued in the period	0.1	0.1	-	-	-	-		0.2	-	0.2
Recognition of share-based payments	-	-	-	-	-	3.8		3.8	-	3.8
Dividends paid	-	-	-	-	-	-		-	(2.2)	(2.2)
Total transactions with owners for the period	0.1	0.1	-	-	-	3.8		4.0	(2.2)	1.8
As at 30 June 2010	276.5	0.1	148.2	(5.4)	2.3	718.7		1,140.4	21.1	1,161.5

Notes to the condensed financial statements

1. BASIS OF PREPARATION

1.1 GENERAL INFORMATION

These condensed financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting, as adopted by the EU and in accordance with the Disclosure and Transparency Rules of the UK's Financial Services Authority.

Except as noted in 1.3 below, these condensed financial statements have been prepared using the same accounting policies as used in the preparation of the Group's annual financial statements for the year ended 31 December 2009, which were prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS"). They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2009. The financial information presented in this document is unaudited, but has been reviewed by the Company's auditor.

The comparative figures for the financial year ended 31 December 2009 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the Registrar of Companies. The report of the auditor was unqualified, did not include reference to any matters to which the auditor drew attention by way of emphasis without qualifying its report and did not contain a statement under section 498(2) or (3) of the Companies Act 2006. These sections address whether proper accounting records have been kept, whether the Company's accounts are in agreement with those records and whether the auditor has obtained all the information and explanations necessary for the purposes of its audit.

1.2 PREPARATION OF CONDENSED FINANCIAL STATEMENTS ON A GOING CONCERN BASIS

The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they have continued to adopt the going concern basis in preparing the condensed financial statements for the six months ended 30 June 2010.

1.3 REVISED AND AMENDED STANDARDS AND INTERPRETATIONS

The following revised and amended standards and interpretations, which have all been endorsed by the EU, have been adopted by the Group in these condensed financial statements. With the possible exception of the IFRS 3 (Revised) requirement to expense acquisition costs, none of these revised and amended standards and interpretations is expected to have a material impact on the Group's net cash flows, financial position, total comprehensive income or earnings per share.

·      IFRS 1 (Revised), First-time Adoption of International Financial Reporting Standards, which is effective for accounting periods beginning on or after 1 July 2009, simplifies the structure of IFRS 1 without making any technical changes.

·      Amendments to IFRS 2, Group Cash-Settled Share-based Payments Transactions, which is effective for accounting periods beginning on or after 1 January 2010, provides a clear basis to determine the classification of share-based payment awards in both consolidated and separate financial statements.

·      IFRS 3 (Revised), Business Combinations, which is effective for accounting periods beginning on or after 1 July 2009, harmonises business combination accounting with US GAAP. The standard continues to apply the acquisition method to business combinations, but with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with some contingent payments subsequently re-measured at fair value through profit or loss; goodwill and non-controlling interests may be calculated on a gross or net basis; and all transaction costs, which under previous practice were treated as part of the cost of a business combination, are to be expensed.

·      IAS 27, Consolidated and Separate Financial Statements, which is effective for accounting periods beginning on or after 1 July 2009, requires the effects of all transactions with non-controlling interests where there is no change in control to be recorded in equity. Such transactions will no longer result in goodwill or gains and losses.

·      Amendment to IAS 39, Financial Instruments: Recognition and Measurement, for Eligible Hedged Items, which is effective for accounting periods beginning on or after 1 July 2009, clarifies how to apply the principles that determine whether a hedged risk or portion of cash flows is eligible for designation.

·      IFRIC 12, Service Concession Arrangements, which is effective for accounting periods beginning on or after 29 March 2009, clarifies existing requirements in relation to accounting for government sponsored infrastructure projects.

·      IFRIC 15, Agreements for the Construction of Real Estate, which is effective for accounting periods beginning after 31 December 2009, standardises accounting practice for the recognition of revenue by real estate developers for sales before construction is complete.

·      IFRIC 16, Hedges of a Net Investment in a Foreign Operation, which is effective for accounting periods beginning on or after 1 July 2009, clarifies which currency exposures qualify for hedge accounting; which entity within a group can hold the hedging instrument; and how to determine the amounts to be reclassified from equity to profit or loss for both the hedging instrument and the hedged item when an investment in a foreign operation is disposed of.

·      IFRIC 17, Distributions of Non-cash Assets to Owners, which is effective for accounting periods beginning on or after 1 November 2009, clarifies how an entity should measure distributions of assets, other than cash, when it pays dividends to its owners.

·      IFRIC 18, Transfers of Assets from Customers, which is effective for transfers after 31 October 2009, clarifies the accounting for arrangements where an item of property, plant and equipment provided by the customer, is used to provide an ongoing service.

1.4 DISCLOSURE OF EXCEPTIONAL ITEMS

IAS 1 (Revised) provides no definitive guidance as to the format of the income statement, but states key lines which should be disclosed. It also encourages the disclosure of additional line items and the re-ordering of items presented on the face of the income statement when appropriate for a proper understanding of the entity's financial performance. In accordance with IAS 1 (Revised), the Company has adopted a policy of disclosing separately on the face of its condensed Group income statement the effect of any components of financial performance considered by the Directors to be exceptional, or for which separate disclosure would assist both in a better understanding of the financial performance achieved and in making projections of future results.

Both materiality and the nature and function of the components of income and expense are considered in deciding upon such presentation. Such items may include, inter alia, amortisation charges relating to intangible assets, the financial effect of major restructuring and integration activity, profits or losses relating to non-current assets, exceptional gains or losses relating to employee benefits plans, finance costs, profits or losses arising on business disposals, and other items, including the taxation impact of the aforementioned items, which have a significant impact on the Group's results of operations due either to their size or nature.

1.5 NON-GAAP FINANCIAL MEASURES

The Company uses a number of non-Generally Accepted Accounting Practice ("non-GAAP") financial measures in addition to those reported in accordance with IFRS. Because IFRS measures reflect all items which affect reported performance, the Directors believe that certain non-GAAP measures, which reflect what they view as the underlying performance of the Group, are important and should be considered alongside the IFRS measures. The following non-GAAP measures are used by the Company:

(a) Net sales value

Net sales value is calculated as the total of revenue less the amount included therein related to any precious metal component. The Directors believe that net sales value provides an important measure of the underlying sales performance of the Group's Precious Metals division.

(b) Return on sales and return on net sales value

Return on sales is calculated as trading profit divided by revenue. Return on net sales value is calculated as trading profit divided by net sales value. The Directors believe that return on sales provides an important measure of the underlying trading performance of the Group and the Group's Ceramics and Electronics divisions and that return on net sales value provides an important measure of the underlying trading performance of the Group's Precious Metals division.

(c) Underlying revenue growth

Underlying revenue growth measures the organic growth in revenue from one period to the next after eliminating the effects of changes in exchange rates and metals prices, the effects of business acquisitions, disposals and closures, and one-off equipment sales in the Electronics division. The Directors believe that underlying revenue growth gives an important measure of the organic revenue generation capacity of the Group.

(d) Trading profit

Trading profit, defined as profit from operations before amortisation charges relating to intangible assets, restructuring and integration costs, profits or losses relating to non-current assets and exceptional gains or losses relating to employee benefits plans, is separately disclosed on the face of the condensed Group income statement. The Directors believe that trading profit is an important measure of the underlying trading performance of the Group.

(e) Headline profit before tax

Headline profit before tax is calculated as the net total of trading profit, net finance costs associated with ordinary activities and the Group's share of post-tax (loss)/profit of joint ventures. The Directors believe that headline profit before tax provides an important measure of the underlying financial performance of the Group.

(f) Headline earnings per share

Headline earnings per share is calculated as headline profit before tax after income tax costs associated with ordinary activities and profit attributable to non-controlling interests, divided by the weighted average number of ordinary shares in issue during the period. The Directors believe that headline earnings per share provides an important measure of the underlying earnings capacity of the Group.

(g) Free cash flow

Free cash flow, defined as net cash flow from operating activities after net outlays for the purchase and sale of property, plant and equipment, dividends from joint ventures and dividends paid to non-controlling shareholders, but before additional funding contributions to Group pension plans, is disclosed on the face of the condensed Group statement of cash flows. The Directors believe that free cash flow gives an important measure of the underlying cash generation capacity of the Group.

(h) Average working capital to sales ratio

The average working capital to sales ratio is calculated as the percentage of average working capital balances for the period (being inventories, trade and other receivables, and trade and other payables) to the annualised revenue for the period. The Directors believe that the average working capital to sales ratio provides an important measure of the underlying effectiveness with which working capital balances are managed throughout the Group.

(i) EBITDA

EBITDA is calculated as the total of trading profit before depreciation charges. The Directors believe that EBITDA provides an important measure of the underlying financial performance of the Group.

(j) Net interest

Net interest is calculated as interest payable on borrowings less interest receivable, excluding any item therein considered by the Directors to be exceptional.

(k) Interest cover

Interest cover is the ratio of EBITDA to net interest. The Directors believe that interest cover provides an important measure of the underlying financial position of the Group.

(l) Net debt

Net debt comprises the net total of current and non-current interest-bearing loans and borrowings and cash and short-term deposits. The Directors believe that net debt is an important measure as it shows the Group's aggregate net indebtedness to banks and other external financial institutions.

(m) Net debt to EBITDA

Net debt to EBITDA is the ratio of net debt at the period-end, to EBITDA for the preceding 12 month period. The Directors believe that net debt to EBITDA provides an important measure of the underlying financial position of the Group.

(n) Return on net assets

Return on net assets ("RONA") is calculated as trading profit plus the Group's share of post-tax (loss)/profit of joint ventures, divided by average operating net assets (being property, plant and equipment, trade working capital and other operating receivables and payables). The Directors believe that RONA provides an important measure of the underlying financial performance of the Group's divisions.

(o) Return on investment

Return on investment ("ROI") is calculated as trading profit after tax plus the Group's share of post-tax (loss)/profit of joint ventures, divided by invested capital (being shareholders' funds plus net debt, employee benefits net liabilities and goodwill previously written off to, or amortised against, reserves). The Directors believe that ROI provides an important measure of the underlying financial performance of the Group.

2. SEGMENT INFORMATION

2.1 BUSINESS SEGMENTS

For reporting purposes, the Group is organised into three main business segments: Ceramics, Electronics and Precious Metals. The Chief Executive of each of these business segments reports to the Chief Executive of the Group and it is the Cookson Board which makes the key operating decisions in respect of these segments. The information used by the Cookson Board to review performance and determine resource allocation between the business segments is presented with the Group's activities segmented between the three business segments, Ceramics, Electronics and Precious Metals. Taking into account not only the basis on which the Group's activities are reported to the Cookson Board, but also the nature of the products and services of the product lines within each of these segments, the production processes involved in each and the nature of their end-markets, the Directors believe that these three business segments are the appropriate way to analyse the Group's results. The principal activities of each of these segments are described in the Review of Operations.

In addition to the Group's three business segments, corporate costs, being the costs directly related to managing the parent company, are reported separately in the reconciliation of segment result to profit/(loss) before tax below.

Segment revenue represents revenue from external customers (inter-segment revenue is not material) and segment result is equivalent to trading profit before corporate costs. Segment result includes items directly attributable to a segment as well as those items that can be allocated on a reasonable basis.

2.2 SEGMENT REVENUE AND SEGMENT RESULT

	Segment revenue				Segment result
	Unaudited	Unaudited			Unaudited	Unaudited
	Half year	Half year	Full year		Half year	Half year	Full year
	2010	2009	2009		2010	2009	2009
	£m	£m	£m		£m	£m	£m
Ceramics	733.7	543.1	1,130.8		86.8	11.4	70.9
Electronics	343.8	239.6	529.9		31.3	6.3	39.2
Precious Metals	155.4	146.7	299.9		6.6	2.3	8.9
Segment totals	1,232.9	929.4	1,960.6		124.7	20.0	119.0

2.3 RECONCILIATION OF SEGMENT RESULT TO PROFIT/(LOSS) BEFORE TAX

	Unaudited	Unaudited
	Half year	Half year	Full year
	2010	2009	2009
	£m	£m	£m
Segment result	124.7	20.0	119.0
Corporate costs	(4.4)	(3.5)	(7.3)
Trading profit	120.3	16.5	111.7
Amortisation of intangible assets	(8.9)	(8.9)	(17.6)
Restructuring and integration costs	(8.6)	(66.0)	(75.6)
Profit/(loss) relating to non-current assets	0.7	(0.6)	(2.8)
Exceptional gains relating to employee benefits plans	5.3	-	9.7
Profit/(loss) from operations	108.8	(59.0)	25.4
Finance costs         - ordinary activities	(35.0)	(40.4)	(75.6)
- exceptional items	-	(14.0)	(14.0)
Finance income	19.2	20.2	38.6
Share of post-tax (loss)/profit of joint ventures	(0.5)	0.4	1.0
Net profit on disposal of continuing operations	-	3.1	3.7
Profit/(loss) before tax	92.5	(89.7)	(20.9)

3. AMORTISATION OF INTANGIBLE ASSETS

Intangible assets are amortised over their useful lives as summarised below.

			Unaudited	Unaudited
			Charged in	Charged in	Charged in
	Cost on	Remaining	half year	half year	full year
	acquisition	useful life	2010	2009	2009
	£m	years	£m	£m	£m
Foseco    - customer relationships	103.7	17.8	3.1	3.1	6.0
- trade name	72.4	17.8	1.8	1.8	3.6
- intellectual property rights	80.3	7.8	4.0	4.0	8.0
	256.4		8.9	8.9	17.6

4. RESTRUCTURING AND INTEGRATION COSTS

In the first half of 2010, £8.6m (2009: half year £66.0m; full year £75.6m) of restructuring costs were incurred, all (2009: half year £40.0m; full year £48.7m) of which related to the cost of a number of initiatives throughout the Group aimed at reducing the Group's cost base and re-aligning its manufacturing capacity with its customers' markets. These latter initiatives included redundancy programmes, the downsizing or closure of facilities, the streamlining of manufacturing processes and the rationalisation of product lines.

Additionally, in the first half of 2009, £4.0m (full year £4.9m) of costs were incurred in relation to the integration of Foseco into the Group's Ceramics division and £22.0m (full year £22.0m) was incurred in relation to onerous lease costs in the Ceramics and Electronics divisions, of which £16.3m arose in the Electronics division's UK operations.

Of the restructuring and integration costs in the period, £1.0m (2009: half year £nil; full year £nil) related to non-cash asset write-downs.

A cash outflow of £14.2m (2009: half year £24.1m; full year £49.3m) was incurred in the period in respect of the restructuring and integration initiatives commenced both in 2010 and in prior years, leaving provisions made but unspent of £37.8m as at 30 June 2010 (2009: 30 June £56.3m; 31 December £44.5m). The net tax credit attributable to these restructuring and integration costs was £0.3m (2009: half year £2.7m; full year £3.7m).

5. PROFIT/(LOSS) RELATING TO NON-CURRENT ASSETS

Non-current assets were disposed of during the first six months of 2010 at a profit of £0.7m (2009: half year loss of £0.6m; full year loss of £2.8m), generating cash proceeds of £1.2m (2009: half year £0.8m; full year £1.3m). No tax was payable in relation to these disposals (2009: half year £nil; full year credit of £1.3m).

6. EXCEPTIONAL GAINS RELATING TO EMPLOYEE BENEFITS PLANS

With effect from 31 July 2010 the main UK defined benefit pension plan was closed to future benefit accrual. This closure, together with the closure of one of the remaining defined benefit plans in the US, resulted in the recognition of curtailment gains of £5.3m in the period.

The net exceptional gain relating to employee benefits plans of £9.7m in the full year 2009 principally arose in relation to the reduction in the costs of providing benefits under the Group's US post-retirement medical arrangements.

7. FINANCE COSTS AND FINANCE INCOME

7.1 ORDINARY FINANCE COSTS AND FINANCE INCOME

Included within finance costs from ordinary activities of £35.0m (2009: half year £40.4m; full year £75.6m) is the interest cost associated with the liabilities of the Group's defined benefit pension and other post-retirement benefit plans of £18.3m (2009: half year £17.5m; full year £34.2m) and included within finance income of £19.2m (2009: half year £20.2m; full year £38.6m) is the expected return on the assets of the Group's defined benefit pension plans of £16.2m (2009: half year £14.8m; full year £29.4m).

7.2 EXCEPTIONAL FINANCE COSTS

The exceptional finance costs of £14.0m reported in both the half year and full year for 2009, arose in relation to the early repayment of certain of the Group's borrowings and the conversion into sterling of the remainder of the Group's foreign currency-denominated borrowings: £12.8m of these costs related to the close-out of interest rate swaps that had been used to hedge the interest payable in relation to the borrowings; £0.5m related to the write-off of costs that had been capitalised in relation to the borrowings; and £0.7m related to early repayment costs.

The tax associated with these exceptional finance costs was £nil.

8. NET PROFIT ON DISPOSAL OF CONTINUING OPERATIONS

The net profit on disposal of continuing operations in 2009 (half year £3.1m; full year £3.7m) related to a number of small disposals, one from each of the Group's divisions, which generated net proceeds of £6.1m at the half year and £6.2m for the full year.

The tax charge associated with these disposals was £0.9m in both the first half and full year of 2009.

9. INCOME TAX COSTS

The Group's total income tax cost of £25.2m (2009: half year £6.9m; full year £20.4m) comprised a tax charge on ordinary activities of £26.5m (2009: half year £9.9m; full year £26.3m), and a credit relating to exceptional items of £1.3m (2009: half year £3.0m; full year £5.9m), which is analysed in the table below.

	Unaudited	Unaudited
	Half year	Half year	Full year
	2010	2009	2009
	£m	£m	£m
Amortisation of intangible assets	2.6	2.6	5.1
Restructuring and integration costs	0.3	2.7	3.7
Loss relating to non-current assets	-	-	1.3
Deferred tax on goodwill	(1.6)	(1.4)	(3.3)
Net profit on disposal of continuing operations	-	(0.9)	(0.9)
Tax credit relating to exceptional items	1.3	3.0	5.9

The £1.8m of income tax charged in the condensed Group statement of comprehensive income (2009: half year £19.6m credit; full year £21.8m credit) relates to actuarial gains and losses on employee benefits plans.

10. EARNINGS/(LOSS) PER SHARE ("EPS")

10.1 PER SHARE AMOUNTS

	Unaudited	Unaudited
	Half year	Half year
	2010	2009	Full year 2009
	Total	Total	Continuing	Discontinued	Total
	Group	Group	operations	operations	Group
	pence	pence	pence	pence	pence
Earnings/(loss) per share       - basic	23.4	(42.6)	(17.8)	(1.4)	(19.2)
- diluted	23.4	(42.6)	(17.8)	(1.4)	(19.2)
- headline	27.0	(6.2)	18.0	-	18.0
- diluted headline	27.0	(6.2)	18.0	-	18.0

10.2 EARNINGS FOR EPS

Basic and diluted EPS are based upon profit/(loss) attributable to owners of the parent, as reported in the condensed Group income statement. Headline and diluted headline EPS are based upon headline profit/(loss) attributable to owners of the parent. The table below reconciles the profit/(loss) attributable to owners of the parent as reported in the condensed Group income statement to headline profit/(loss) attributable to owners of the parent.

	Unaudited	Unaudited
	Half year	Half year
	2010	2009	Full year 2009
	Total	Total	Continuing	Discontinued	Total
	Group	Group	operations	operations	Group
	£m	£m	£m	£m	£m
Profit/(loss) attributable to owners of the parent	64.5	(97.6)	(45.1)	(3.4)	(48.5)
Adjustments for exceptional items:
Amortisation of intangible assets	8.9	8.9	17.6	-	17.6
Restructuring and integration costs	8.6	66.0	75.6	-	75.6
(Profit)/loss relating to non-current assets	(0.7)	0.6	2.8	-	2.8
Exceptional gains relating to employee benefits plans	(5.3)	-	(9.7)	-	(9.7)
Exceptional finance costs	-	14.0	14.0	-	14.0
Net profit on disposal of continuing operations	-	(3.1)	(3.7)	-	(3.7)
Net post-tax loss attributable to discontinued operations	-	-	-	3.4	3.4
Tax relating to exceptional items	(1.3)	(3.0)	(5.9)	-	(5.9)
Headline profit/(loss) attributable to owners of the parent	74.7	(14.2)	45.6	-	45.6

10.3 WEIGHTED AVERAGE NUMBER OF SHARES

	Unaudited	Unaudited
	Half year	Half year	Full year
	2010	2009	2009
	m	m	m
Weighted and diluted weighted average number of ordinary shares	276.2	229.1	252.8

For the purposes of calculating diluted EPS, the weighted average number of ordinary shares is adjusted to include the weighted average number of ordinary shares that would be issued on the conversion of all dilutive potential ordinary shares. Potential ordinary shares are only treated as dilutive when their conversion to ordinary shares would decrease earnings per share, or increase loss per share, from continuing operations. There were no dilutive potential ordinary shares in issue during the period.

11. DIVIDENDS

The Directors have decided not to declare an interim dividend in respect of the year ending 31 December 2010 (year ended 31 December 2009: nil). No final dividend was paid in respect of the year ended 31 December 2009 (year ended 31 December 2008: nil).

12. SHARE CAPITAL

During the period, the Company issued 40,819 ordinary shares under its executive and employee share plans for a consideration of £0.2m.

On 4 March 2009, under the terms of a fully underwritten rights issue, shareholders of the Company on the register at the close of business on 13 February 2009 were offered 2,551,293,144 new ordinary shares of 10p each on the basis of twelve new ordinary shares for every existing ordinary share held. Total proceeds on issue amounted to £240.7m, net of expenses of £14.4m.

At the Company's Annual General Meeting held on 14 May 2009, shareholders approved a share consolidation, which took effect following the close of business on that same date, whereby shareholders received one new ordinary share of 100p each for every 10 existing ordinary shares of 10p each.

13. BORROWINGS

		Unaudited	Unaudited	Unaudited	Unaudited
	Balance at	Foreign			Balance at
	1 January	exchange	Non-cash		30 June
	2010	adjustment	movements	Cash flow	2010
	£m	£m	£m	£m	£m
Cash and cash equivalents
Short-term deposits	44.8	0.1	-	(28.5)	16.4
Cash at bank and in hand	115.4	5.7	-	1.0	122.1
Bank overdrafts	(2.5)	0.3	-	(9.7)	(11.9)
				(37.2)
Borrowings, excluding bank overdrafts
Current	(89.5)	(5.3)	-	89.0	(5.8)
Non-current	(444.3)	(5.5)	-	(79.8)	(529.6)
Capitalised borrowing costs	4.7	-	(1.0)	-	3.7
				9.2
Net debt	(371.4)	(4.7)	(1.0)	(28.0)	(405.1)

In May 2010, in accordance with the agreed repayment schedule, the Group repaid $135m of borrowings under its US Private Placement Loan Notes, leaving a balance at 30 June 2010 of $190m which is due to be repaid in May 2012.

The Group's syndicated bank facility at 30 June 2010 amounted to approximately £670m with repayments of £75.0m and €37.5m due in 2011, and the balance of £500.0m and €75.0m repayable in 2012.

14. EMPLOYEE BENEFITS

The net employee benefits balance as at 30 June 2010 of £113.8m (2009: half year £131.5m; full year £137.7m) in respect of the Group's defined benefit pension and other post-retirement benefit obligations, comprised net surpluses of £6.9m (2009: half year £nil; full year £nil) and net liabilities of £120.7m (2009: half year £131.5m; full year £137.7m), and results from an interim actuarial valuation of the Group's defined benefit pension and other post-retirement obligations as at that date.

	Unaudited		Unaudited
	30 June	31 December	30 June
	2010	2009	2009
	£m	£m	£m
Employee benefits - net surpluses
UK defined benefit pension plan	6.9	-	-
Employee benefits - net liabilities
UK defined benefit pension obligations	0.8	22.3	7.8
US defined benefit pension plans	63.0	54.1	56.7
ROW defined benefit pension plans	46.7	46.0	41.4
Other post-retirement benefit obligations, mainly US healthcare arrangements	10.2	15.3	25.6
	120.7	137.7	131.5

The total net charges in respect of the Group's defined benefit pension and other post-retirement benefit obligations are shown in the table below.

	Unaudited	Unaudited
	Half year	Half year	Full year
	2010	2009	2009
	£m	£m	£m
In arriving at trading profit               - within other manufacturing costs	1.3	1.8	2.3
- within administration, selling and distribution costs	2.1	2.1	3.9
In arriving at profit from operations - within restructuring and integration costs	-	-	0.8
- as exceptional gains relating to employee benefits plans	(5.3)	-	(9.7)
In arriving at profit before tax         - within ordinary finance costs	18.3	17.5	34.2
- within finance income	(16.2)	(14.8)	(29.4)
Total net charge	0.2	6.6	2.1

Cash contributions into the Group's defined benefit pension plans amounted to £14.4m (2009: half year £15.5m; full year £20.5m), which included additional funding contributions of £8.8m (2009: half year £9.8m; full year £8.3m).

15. RELATED PARTY TRANSACTIONS

All transactions with related parties are conducted on an arm's length basis and in accordance with normal business terms. Transactions between related parties that are Group subsidiaries are eliminated on consolidation.

There have been no changes in the nature of the related party transactions undertaken by the Group as described in the Group's 2009 annual report and no significant related party transactions undertaken that could have had a material effect on the financial position or performance of the Group in the first six months of the financial year.

16. CONTINGENT LIABILITIES

There have been no significant changes to the Group's contingent liabilities from the position reported in the Group's 2009 annual report.

17. EXCHANGE RATES

The Group reports its results in pounds sterling. A substantial portion of the Group's revenue and profits are denominated in currencies other than pounds sterling. It is the Group's policy to translate the income statements and cash flow statements of its overseas operations into pounds sterling using average exchange rates for the period reported (except when the use of average rates does not approximate the exchange rate at the date of the transaction, in which case the transaction rate is used) and to translate balance sheets using period end rates. The principal exchange rates used were as follows:

	Period end rates of exchange				Average rates of exchange for the period
	30 June 2010	30 June 2009	31 Dec 2009		Half year 2010	Half year 2009	Full year 2009
US dollar	1.50	1.65	1.61		1.53	1.49	1.57
Euro	1.22	1.17	1.13		1.15	1.12	1.12
Czech Republic koruna	31.36	30.48	29.69		29.54	30.38	29.70
Polish zloty	5.05	5.23	4.63		4.59	5.00	4.86
Chinese renminbi	10.15	11.25	11.03		10.42	10.17	10.70

 

END

 

 

IR DXLFBBVFZBBF