Interim Results
5 August 2008
COOKSON GROUP PLC - 2008 HALF YEARLY FINANCIAL REPORT
HIGHLIGHTS
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Further strong improvement in performance:
- Revenue of £1,058 million, up 26%*
- Trading profit of £113 million, up 30%*
- Return on sales up 0.7 percentage points to 10.7%
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Significant growth in Ceramics, including a better than expected contribution from recently-acquired Foseco. Ceramics now represents over 75% of total Group trading profit
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Foseco integration proceeding well with synergy savings reconfirmed
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Electronics maintaining its performance at 2007 levels; Precious Metals remaining profitable
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Headline PBT and EPS up 45% and 32% respectively
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Interim dividend of 5.85 pence per share, up 38%
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Strong improvement in free cash flow, with inflow of £7 million compared to £37 million outflow in first half 2007
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Anticipate a continued strong improvement in full year performance
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First Half
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Increase/(decrease) vs 2007
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Year
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2008
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2007
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Reported rates
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Constant rates
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2007
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Revenue1
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£1,058m
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£785m
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+35%
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+26%
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£1,620m
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Trading profit1,2
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£113.3m
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£78.4m
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+45%
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+30%
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£169.6m
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Return on sales1,2
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10.7%
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10.0%
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+0.7pts
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10.5%
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Profit before tax1
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- headline2
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£99.1m
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£68.3m
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+45%
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£149.8m
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- basic
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£75.2m
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£67.7m
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+11%
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£151.6m
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Tax rate – headline3
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27.5%
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27.5%
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-
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26.9%
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Earnings per share1
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- headline2
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33.3p
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25.2p
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+32%
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54.4p
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- basic
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22.7p
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24.1p
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(6)%
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53.5p
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Dividends per share
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5.85p
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4.25p
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+38%
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13.0p
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Free cash flow2
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£6.5m
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£(36.9)m
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£43.4m
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£47.6m
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Net debt2
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£706.3m
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£245.0m
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£461.3m
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£50.6m
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1 Continuing operations only
2 Refer to Note 1 of the attached condensed financial statements for definitions
3 Tax rate on headline profit before tax from continuing operations (before share of post-tax profit of joint ventures)
Commenting on the Group's results and outlook, Nick Salmon, Chief Executive, said:
'The Group has delivered a very strong improvement in its results, driven by the continued strong performance of our Ceramics division, augmented by a contribution ahead of our expectations from Foseco, acquired in April.
'For the second half, continued growth in the global production of steel, foundry castings and solar panels should support a further strong improvement in the performance of the Ceramics division, benefiting from a full period contribution from Foseco and from our continuing investment in capacity in higher growth, higher margin areas.
'The Electronics division is expected to continue to maintain performance around 2007 levels. The Precious Metals division is expected to remain profitable despite the weak retail jewellery markets.
'Cookson's profile has been transformed over the past few years. As well as delivering a marked improvement in financial performance, this transformation has left the Group much less cyclical and therefore more resilient.
'Against this background, we anticipate a continued strong improvement in our full year performance.'
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 2008.
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
Group revenue in the first half of 2008 of £1,058 million was 26% ahead of the same period in 2007 at constant exchange rates and up 35% at reported exchange rates. Trading profit increased significantly to £113.3 million, an increase of 30% at constant exchange rates and 45% at reported exchange rates. These increases were driven by the continued strong organic growth and margin improvement in the Ceramics division and the contribution from Foseco since its acquisition on 4 April 2008. Revenue and trading profit growth, excluding the impact of the Foseco acquisition and at constant exchange rates, were 10% and 5% respectively.
The return on sales margin increased to 10.7% from 10.0% for the first half of 2007 (at reported exchange rates). The underlying rate of improvement is 1.4 percentage points, but is masked by the impact of higher metal prices being 'passed through' to customers which has the effect of increasing revenue but not trading profit.
Headline profit before tax increased 45% and headline earnings per share were up 32% to 33.3 pence.
Following the acquisition of Foseco, net debt at 30 June 2008 stood at £706 million with a pro-forma net debt to EBITDA ratio of 2.4 times, in line with our expectations.
In 2006, it was agreed to make additional 'top-up' payments (in addition to the normal cash contributions) of £26.5 million per annum to the UK pension plan. Following a review in consultation with the Trustee, these additional annual payments will be reduced by £12.5 million to £14.0 million with effect from 1 September 2008.
Foseco
The acquisition of Foseco was completed on 4 April 2008. To satisfy the EU and US competition authorities' requirements, Foseco's Carbon Bonded Ceramics ('CBC') business was sold to RHI AG on 16 April 2008 and an agreement to sell Cookson's Hi-Tech ceramics filters business is expected to be signed shortly.
The retained Foseco businesses are now managed within Cookson's Ceramics division. Foseco's 'plc' headquarters have been closed and the global integration process is proceeding well, giving high confidence that the original synergy target of £18 million of annualised cost savings will be achieved.
The retained Foseco businesses have traded strongly in 2008 and well ahead of our original expectations. On a pro-forma basis (excluding CBC and 'plc' costs), for the first six months of the year they delivered revenue of £255 million and trading profit of £40.3 million, up by 11% and 20% respectively on a constant exchange rate basis compared with the same period last year.
This good performance reflects continuing growth in the foundry casting market and increasing sales penetration, with particularly good performance in infrastructure and commodity-related markets such as mining machinery, oil and gas, railway and heavy transportation, construction and agricultural machinery, and wind power generation.
Earlier this year, Foseco completed a new feeding system production line in Poland and a coatings plant in South Africa. In addition, two further new feeding system facilities are under construction in Turkey and India for completion in the second half of the year.
Ceramics division
The enlarged division - which now trades under the Foseco brand in foundry markets and the Vesuvius brand in all other markets - performed very strongly in the first half of 2008 with revenue of £582 million, up 51%, and trading profit of £85.1 million, an increase of 62% (both at reported exchange rates), giving a return on sales margin of 14.6%.
Excluding the contribution from Foseco, underlying revenue was up 8%, trading profit was up 10% (both at constant exchange rates) and the return on sales margin increased to 14.3%, compared to 13.6% for the first six months of 2007.
End-markets have continued to grow. Global steel production, our main end-market, grew 5.7% compared with the first six months of 2007, which was in line with our expectations. A similar growth rate for global steel production is expected in the second half of the year. The foundry castings market has been generally strong, particularly in Brazil, Germany, India and China. Solar panel production, the end-market for Vesuvius' Solar Crucibles™, has continued its very high growth trend.
The results reflect these end-market growth trends, together with the benefits of our on-going investments in expanding production capacities in China, Poland, Czech Republic, India and Mexico.
Sales of our market-leading steel flow control products (including VISO™ and slide-gates), used in the enclosed continuous casting process, grew 6%. The VISO™ joint venture with Wuhan Iron and Steel ('WISCO'), announced in October 2007, started production in July. The new VISO™ production line under construction in Ostend, Belgium, should start production by year end. Agreements have also recently been signed with the local and regional authorities in Nizhny Novgorod, Russia, under which a new £10 million VISO™ plant will be constructed, to be operational in 2010.
Linings sales grew 17% to £195 million and the return on sales margin improved to 9.1% (pre divisional and central cost allocations), representing encouraging progress towards our medium term target of 10%. Fused silica revenue grew 29% to £35 million driven by a 64% growth in sales of Solar Crucibles™. In March 2008, the extension to the Solar Crucible™ facility in Moravia, Czech Republic, started production and two new Solar Crucible™ factories are currently under construction in China, for completion by year end.
Electronics division
The division's trading profit of £29.9 million was 2% higher than the same period last year at constant exchange rates and 12% higher at reported exchange rates. Revenue of £321 million was 11% higher at constant exchange rates, 19% higher at reported exchange rates.
The higher revenue principally reflected the 'pass through' to customers of the significantly higher tin and silver prices in Assembly Materials' sales of solder products. Excluding both this impact and sales of precious metals related products in the Chemistry product line, underlying revenue was 1% lower than the same period last year. The decline in underlying revenue principally reflects some slow down in the growth of electronic equipment production due to weakening of consumer demand, particularly in the US. It also reflects a continuation of our strategy to focus on higher margin, more value added product lines and selectively cut back on some more commoditised products, such as leaded solder bar and non-proprietary electro-plating chemicals.
The higher trading profit reflected the above mentioned product mix effect plus the benefits of the restructuring of Assembly Materials' US operations and the opening of the new factory in Monterrey, Mexico, completed towards the end of last year. The results also benefited from the growth of the scrap solder recycling operation in the US. A similar recycling plant is being set up in Guangxi Province, China, and should start operations in the second half of 2008.
Construction of the new £9 million Chemistry factory in China is expected to commence shortly, for completion in the second half of 2009.
Precious Metals division
Trading profit for the first half of 2008 of £1.9 million was £1.2 million below the same period last year (at reported exchange rates). Net sales value of £55 million was 6% higher at constant exchange rates, reflecting higher levels of reclaim activity in Europe, stimulated by the high price of gold, together with the additional volumes from the Leach & Garner business, acquired in September 2007. These more than offset the sharp decline in demand for retail jewellery due to reduced consumer spending.
Trading profit from the European businesses improved compared with the same period last year, benefiting from the 2007 restructuring activities. The profit decline in the US operations was due to the reduction in underlying volumes and the relatively low profitability of the Leach & Garner activity prior to its transfer into our own manufacturing facility in Attleboro, Massachusetts, which was completed in July. The new low cost facility in the Dominican Republic started initial operation in March and production there will progressively ramp up throughout 2008.
Dividend
Supported by the Group's continued good progress, the Board is declaring an interim dividend for 2008 of 5.85 pence per share (interim 2007: 4.25 pence), an increase of 38%.
Group Profile
Cookson's profile has been transformed over the past few years. As well as delivering a marked improvement in its financial performance, this transformation has left the Group less cyclical and much more resilient. This is reflected in the continued strong performance in the year to date and in the anticipated further strong improvement in the full year.
The most cyclical and commoditised businesses, i.e. Speedline and Laminates, have been sold. Combined, these businesses made a trading profit of approximately £100 million in 2000 and a trading loss of £40 million in 2001. Twelve other non-core businesses have also been sold since 2003.
The Group is now composed of businesses focused on higher technology consumable products with leading market positions. The main end-market exposure is now predominantly in the less volatile ceramics markets rather than the intrinsically more cyclical segments of the electronics market. Over 75% of Group trading profit now comes from Ceramics compared with less than 30% in 2000.
The Group has a much better located and more flexible cost base, following extensive restructuring in Western Europe and North America and the establishment of full production capabilities within the emerging markets.
The Group's financial position is robust with long term and competitive borrowing facilities in place and an investment grade balance sheet with significant liquidity and covenant headroom.
Outlook
End-market trends experienced in the first half of the year are expected to continue through the second half. Continued growth in the global production of steel, foundry castings and solar panels should support a further strong improvement in the performance of the Ceramics division, benefiting from a full period contribution from Foseco and from our continuing investment in capacity in higher growth, higher margin areas. The Electronics division is expected to continue to maintain performance around 2007 levels. The Precious Metals division is expected to remain profitable despite the weak retail jewellery markets. Our results should also benefit from a lower tax rate than previously expected and from a positive currency translation impact while sterling remains weaker than in 2007.
Against this background, a continuing strong improvement in our full year performance is anticipated.
REVIEW OF OPERATIONS
Note: the data provided in the tables below are for continuing operations only and are at reported exchange rates.
Group
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First Half
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Year
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2008
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2007
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2007
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Revenue (£m)
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1,058
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785
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1,620
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Trading profit (£m)
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113.3
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78.4
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169.6
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Return on sales
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10.7%
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10.0%
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10.5%
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Group revenue in the first half of 2008 was 26% ahead of the same period in 2007 at constant exchange rates and 35% ahead at reported exchange rates. The increase in revenue at constant exchange rates principally reflected strong underlying growth in the Ceramics division (pre-Foseco), the acquisition of Foseco on 4 April 2008, and the impact of higher metal prices being 'passed through' to customers in the Electronics and Precious Metals divisions. Revenue growth (at constant exchange rates), excluding the impact of the Foseco acquisition, was 10%. Revenue for the Group's operations in the Asia-Pacific region continued to grow strongly; now representing 25% of Group revenue (first half 2007: 23%), with Europe and NAFTA representing 41% and 28% respectively.
Trading profit in the first half of 2008 increased significantly to £113.3 million (first half 2007: £78.4 million), being 30% higher at constant exchange rates and 45% higher at reported exchange rates. The increase in trading profit was largely driven by the strong performance from the enlarged Ceramics division, which increased its trading profit (at constant currency) by 45% (10% excluding the impact of Foseco). Trading profit growth for the Group (at constant exchange rates), excluding the impact of the Foseco acquisition, was 5%.
The strong growth in trading profit resulted in a significant increase in the Group's return on sales to 10.7% from 10.0% (at reported exchange rates). The impact of higher metal prices increasing reported revenue without any impact on profitability depressed the return on sales in the first half of 2008 by around 0.7 percentage points compared to the same period last year.
Foseco
The acquisition of Foseco was completed on 4 April 2008 and, since that date, its operations have been reported within the Ceramics division. Foseco's Foundry division's revenue is included within the foundry product line, whilst the revenue from its Steel division is included principally within the linings product line but also partly within the steel flow control product line.
Foseco has traded very strongly in the three month period since its acquisition and contributed revenue of £131 million and trading profit of £20.8 million to Cookson's results in the first half of 2008, giving a return on sales of 15.9%. Foseco's 'plc' headquarters have been closed, resulting in annualised savings of £4.5 million, and the rest of the integration process is proceeding well.
As a condition of the EU and US competition authorities' approvals of the Foseco acquisition, Cookson made commitments to sell Foseco's Carbon Bonded Ceramics (steel flow control products) business ('CBC') and Cookson's own Hi-Tech ceramic filters business. CBC was sold to RHI AG on 16 April 2008, and an agreement to sell the Hi-Tech business is expected to be signed shortly.
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.
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First Half
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Year
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2008
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2007
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2007
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Revenue (£m)
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582
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386
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781
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Trading profit (£m)
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85.1
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52.6
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109.4
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Return on sales
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14.6%
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13.6%
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14.0%
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The acquisition of Foseco in April 2008 significantly expanded the existing Ceramics division (known in its markets as Vesuvius) and brought together the two largest worldwide ceramic specialists for molten metal handling. The enlarged division - which trades under the Foseco brand in foundry markets and under the Vesuvius brand in all other markets - performed very strongly in the first half of 2008 with revenue at constant exchange rates higher by 39% compared to the same period last year (51% at reported exchange rates). This reflected strong underlying growth in the existing Ceramics business of 8%, plus the impact of the Foseco acquisition.
Trading profit at £85.1 million was 45% higher at constant exchange rates (62% at reported exchange rates) resulting in the return on sales increasing from 13.6% to 14.6% at reported exchange rates.
Following the acquisition of Foseco, the key end-markets for the Ceramics division are global steel production (which accounts for just over half of the division's revenue on a pro-forma basis) and the foundry casting market (just over one-third of the division's pro-forma revenue). The division's other key end-markets are solar, glass and industrial process plants.
Global steel production grew 5.7% in the first half of 2008, in line with the second half of 2007 but, as expected, marginally down on the 7.5% growth seen in full year 2007. Steel production grew in Europe (excluding the CIS) (up 1%), China (up 10%), India (up 4%), NAFTA (up 5%) and the CIS (up 3%). The overall growth in steel production in China has slowed from the 16% growth experienced in 2007. This is the result of the Chinese government's deliberate policy of discouraging the export of steel through fiscal measures whilst at the same time encouraging the closure of small, less efficient steel mills. Whilst steel production growth has slowed, underlying consumption of steel in China continues to exhibit double-digit growth. Steel production grew particularly strongly in NAFTA as imports from China have reduced whilst underlying demand has remained robust.
The foundry casting market has been generally strong with particularly good growth in infrastructure and commodity-related markets such as mining machinery, oil and gas, railway and heavy transportation, construction and heavy machinery, and wind power generation. The automotive market, which globally consumes around half of all foundry castings, whilst weak in North America, showed strong growth in the large emerging markets of Brazil, India and China.
Demand for solar energy - and thus the division's Solar Crucibles™ used in the manufacture of photovoltaic ('solar') cells - was also very strong as increasing oil prices and heightened environmental concerns stimulated demand for renewable sources of energy.
The management reporting responsibilities of the enlarged Ceramics division have been restructured on a product line, rather than geographic, basis. This will enable the business to serve better its increasingly global customer base and also help facilitate the integration of the Foseco business. An overview of each product line is given below.
Note: in the product line analysis below for the Ceramics division, all of the financial information is presented at constant currency. The impact of businesses disposed of, but included within continuing operations for financial reporting purposes, was not material.
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, mould and tundish fluxes and ingot hot-topping systems.
Underlying revenue in steel flow control grew by just over 6%, slightly ahead of global steel production growth. This growth, combined with the integration of the steel flow control operations of Foseco, resulted in revenue of £221 million. Trading profit in the first half of 2008 was broadly in line with the same period last year.
This product line benefited fully from the restructuring initiatives enacted during the course of 2007, including the transfer of slide-gate production from Goole, UK to an expanded facility in Skawina, Poland based on new slide-gate plate technology which became operational in July 2007. Steel flow control capacity is being increased in Europe with the construction of a new, £8 million, facility in Ostend, Belgium, which should be operational in the fourth quarter of 2008. Production of the more standardised steel flow control products will be reallocated from our other European factories to this new, highly automated, facility to yield significant overall productivity gains once the transition is completed. The division has also recently agreed the construction of a new £10 million steel flow control facility in Nizhny Novgorod, Russia, which should be operational in the first half of 2010. The expected future growth in Russian and Ukrainian steel production, and the modernisation of their steel industry, represents a significant opportunity for the division. These markets are currently served by products manufactured outside of these two countries and the establishment of a local manufacturing presence will enable us to serve these markets better.
The division's main operations in China are 100% owned. Since 2003, the division has operated a 50/50 joint venture with Wuhan Iron & Steel Corporation ('WISCO'), China's fifth largest steel producer, producing slide-gate refractories. This operation had revenue of £6 million full year in 2007. Based on this success, a further 50/50 joint venture with WISCO was announced in October 2007 for the production of VISO™, the division's range of isostatically-pressed alumina-carbon products used to control and protect the flow of molten metal in the enclosed continuous casting steelmaking process. The joint venture, managed by Cookson, involved the construction of a new facility in Wuhan, Hubei Province. The new facility, of which the division's share of the investment was £2 million, became operational in July 2008. Around half of the production is to be dedicated to supplying VISO™ products to satisfy the anticipated expansion of WISCO's own steel-making capacity, with the remainder available to the Ceramics division to sell to other Chinese steel producers.
Following the acquisition of Foseco, a number of complementary steel flow control products, notably mould fluxes (refractory materials used to prevent oxidation of the molten steel in the tundish and during casting) and ingot hot-topping systems, have been added to Vesuvius's existing range of products and services to further enhance our offering to steelmakers.
Linings
Linings includes products and services that enable our 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.
The linings product line continued its recent strong progress with revenue up 17% to £195 million compared to the first half of 2007. Strong underlying growth of 8% was complemented by the additional revenue arising from the acquisition of Bayuquan Refractories Co. Limited ('BRC') in April 2007 and the integration of the linings operations of Foseco's Steel division in April 2008. The growth was driven by the growth in worldwide steel production, strong growth in non-steel markets (to which around half of the revenue of the linings product line are directed and include the cement, lime, aluminium, petrochemical and waste incineration industries) and the 'pass through' of higher raw material costs. Growth was particularly strong in Europe with good growth also coming from the emerging markets of Asia-Pacific and India. Trading profit increased by 29%, resulting in the return on sales (pre divisional and central cost allocations) for the first half of 2008 of 9.1%. Whilst this improvement is encouraging, we believe that further progress can be made towards our medium-term target of achieving 10% return on sales. This business has seen reasonably significant increases in raw material costs (which comprise a broad range of ceramic minerals) in the first half of 2008. These additional costs have, to a very significant extent, been successfully passed through to customers.
Linings has been increasing its capabilities, particularly in emerging markets where it will be able to leverage the expertise gained from its strong presence in the more established markets, in order to capture the expected strong growth for these products. In India, the construction of a new facility producing monolithics, pre-cast linings and tap hole clay became operational at the end of 2007. Following the acquisition of BRC in China in April 2007, the facility - which manufactures brick-lining products and had been operating at full capacity - underwent a £1 million expansion which was completed in the second quarter of 2008. The proposed joint venture with Anshan Iron and Steel Corporation Group ('Angang'), announced in October 2007, should also add further capacity to our linings business in China.
Foseco's Steel division had a significant monolithics business, including a range of complex shaped pre-cast products (known as the Turbostop™ range) used in controlling the flow of molten steel in the tundish. These products are now being sold alongside Vesuvius' existing linings products and services.
Foundry
The foundry business is a leading supplier of products, services and solutions to the foundry industry worldwide. Products include feeding systems, filters, metal treatments, metal transfer systems, crucibles, stoppers, sand binders, coatings and moulding materials.
Vesuvius' existing foundry business, which principally manufactures crucibles, was significantly expanded with the acquisition of Foseco's much larger foundry business in April 2008. As a result, revenue for the business grew by nearly seven times to £131 million. On a pro-forma basis (as if Foseco had been acquired with effect from the beginning of 2007 and at constant currency), the underlying growth in revenue was 11%. The underlying growth in revenue has been driven by strong market conditions in the foundry casting market and increased sales penetration with particularly good performance in infrastructure and commodity-related markets such as mining machinery, oil and gas, railway and heavy transportation, construction and heavy machinery, and wind power generation. The automotive market, which globally consumes around half of all foundry castings, whilst weak in North America, showed strong growth in the larger emerging markets of Brazil, India and China. On a pro-forma basis (as calculated above), the underlying growth in trading profit was 19% and Foundry now contributes over one-third of the division's trading profit. All main geographic regions performed strongly and were all ahead of the same period last year.
In August 2007, the planned closure of Vesuvius' Buffalo (New York) facility by the end of 2008 was announced with its production of crucibles being transferred to the division's existing facility in Monterrey, Mexico. The expanded Monterrey facility is expected to become operational in the fourth quarter of 2008 with the Buffalo facility closing shortly thereafter. The closure is expected to generate cost savings of approximately £1 million per annum from the beginning of 2009. The new £5 million crucible facility in Suzhou, Jiangsu Province, has recently become operational. This facility produces long-life, high-performance alumina graphite crucibles for the fast growing non-ferrous foundry market. The Chinese foundry industry is the largest in the world and has experienced growth of around 10% per annum over the last few years.
Production capacity has been increased during the first half of 2008 with the completion of two new facilities in Gliwice, Poland (feeding systems and coatings) and Alrode, South Africa (coatings). Two further facilities are also currently under construction in Pune, India (feeding systems) and Gebze, Turkey (feeding systems and coatings), which will be operational in the third and fourth quarters of 2008 respectively.
An agreement to sell the Hi-Tech ceramic filters business is expected to be signed shortly. This business contributed £5 million of revenue and £1 million of trading profit in the first half of 2008.
The integration of Vesuvius's existing crucibles business into Foseco's foundry business, with its much wider range of products and services, is proceeding well.
Fused Silica
The principal products in the fused silica product line are Solar Crucibles™ used in the manufacture of photovoltaic ('solar') cells and tempering rollers used in the glass industry.
Underlying revenue has grown by 29% to £35 million compared to the first half of 2007, driven by good market conditions in both principal end-markets.
Solar Crucible™ revenue, which represents just over a half of total Fused Silica revenue, has grown very strongly by 64% reflecting an acceleration in the solar energy industry as supply shortages of the polycrystalline silicon material used in the majority of solar panels have eased with additional capacity now coming on stream. This higher level of customer demand has been met by the increased production capacity that has been put in place by the division over the last eighteen months. Commentators are forecasting the market for solar cells to continue to grow strongly over the next few years, particularly in light of the recent increases in non-renewable energy costs.
Revenue growth of 6% in tempering rollers and other speciality products reflects good growth in the glass industry, driven in particular by continuing strong demand from the construction industry in China. In order to meet this increased demand, our principal glass roller facility in Kua Tang, China underwent a £1 million capacity expansion, which was completed in the second quarter of 2008.
Trading profit for the fused silica product line has increased by one-third on the first half of 2007 with the strong volume growth more than offsetting the normal 'one-off' production start-up costs arising in the new Solar Crucible™ facility in Moravia, Czech Republic.
To enable the division to continue to benefit from the strong growth in the solar energy market and maintain its leading position as a key supplier to the industry, three new Solar Crucible™ facilities are to be completed in 2008. In March 2008, the new £6 million facility in Moravia, Czech Republic became operational. In October 2007, two new investments in China were approved. Firstly, a further £2 million is being invested in our existing facility in Wei Ting which will double its capacity, for completion in the third quarter of 2008. Secondly, a new facility ('Sunrise') is being constructed in Jiangsu Province, close to the division's existing Solar Crucible™ facility in Wei Ting. The total investment in the new facility will be just over £11 million and is expected to be completed by the end of 2008. The main part of the production from this facility is to be supplied under a five year agreement to a new £250 million solar cell factory currently being constructed in Jiangsu Province by Glory Silicon Energy.
Electronics division
The Electronics division is a world leading supplier of 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
|
||
|
|
2008
|
2007
|
|
|
2007
|
|
Revenue (£m)
|
321
|
269
|
|
|
558
|
|
Trading profit (£m)
|
29.9
|
26.8
|
|
|
58.0
|
|
Return on sales
|
9.3%
|
9.9%
|
|
|
10.4%
|
Revenue for the first half of 2008 was £321 million, 11% higher at constant exchange rates (19% higher at reported exchange rates) when compared to the same period last year. The higher revenue reflected the 'pass through' to customers in the Assembly Materials product line of higher metal prices, in particular for tin and silver. In the first half of 2008, the average prices of tin and silver - Assembly Materials' major raw materials - were respectively 49% and 27% higher than the same period last year, such that approximately £33 million 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 in Chemistry, underlying revenue was 1% lower than last year (on a constant currency basis), with Assembly Materials 2% lower and Chemistry flat compared to last year. This principally reflected some slowdown in the rate of growth of electronic equipment production (the end-market for around two-thirds of the division's revenue), due to weakening of consumer demand, particularly in the US. This impacted both the demand for solder products and also surface coating products used in the printed circuit board market. In addition, the lower revenue also reflects the continuation of the strategy of focusing resources on higher margin, more value-added products. These products include solder paste (whose volumes were up 18% by weight due to the continuing shift from wave soldering to surface mount technology) and low-silver SACX™ solder (whose volumes were up 14% by weight). At the same time, sales of some more commoditised products, such as leaded bar solder (whose volumes were down 16% by weight) and non-propriety electro-plating chemicals (revenue down from £10 million to £5 million), have been selectively reduced.
Trading profit of £29.9 million was 2% higher than the same period last year at constant exchange rates but 12% higher at reported exchange rates. Trading profit was ahead of the same period last year for Assembly Materials but marginally lower for Chemistry. The increase in underlying trading profit reflected the impact of the marginally lower underlying revenue being more than offset by the benefits of the restructuring initiatives enacted in 2007 (in particular, the transfer of Assembly Materials' manufacturing operations within NAFTA from the US to Mexico) and the successful launch of new products (including a 1% silver lead-free solder alloy and SACX™ solder paste). The results also benefitted from the continued growth - stimulated by high metal prices - in the reclaim business in the US, in which scrap solder generated by our customers' production processes is reclaimed for processing back into solder alloys for sale to third parties or for reuse within the business. A similar reclaim business in currently being set up in Guangxi Province, China, which is expected to be operational in the second half of 2008.
Return on sales for the division at reported exchange rates decreased from 9.9% to 9.3% due wholly to higher metal prices. If metals prices in the first half of 2008 had remained at similar levels to those in the same period last year, the return on sales would have increased to 10.5%.
Asia-Pacific, the division's largest region, accounted for 45% of revenue in the first half of 2008 (by location of customer), an increase of 3 percentage points over the same period last year, which reflects the increased migration of consumer electronics production to this region, a trend that has been matched through our investment in capacity in the region.
In February 2008, the transfer of European solder paste production from Ashford, UK to Hungary was announced for completion in early 2009. This initiative will result in annualised savings of £1 million from the beginning of 2009. Construction of Chemistry's new £9 million Chinese manufacturing facility in Shanghai is expected to commence shortly following the imminent acquisition of the land. This facility, which should accelerate growth of Chemistry in this region, is expected to be completed by mid-2009.
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.
|
|
First Half
|
|
Year
|
||
|
|
2008
|
2007
|
|
|
2007
|
|
Revenue (£m)
|
155
|
129
|
|
|
280
|
|
Net sales value (£m)
|
55
|
49
|
|
|
105
|
|
Trading profit (£m)
|
1.9
|
3.1
|
|
|
9.9
|
|
Return on net sales value
|
3.5%
|
6.3%
|
|
|
9.4%
|
The Precious Metals division operates in two distinct geographic regions; the US, which constitutes 51% of the total net sales value (being revenue excluding the precious metals content) for the division, and Europe (which is focused on the UK, France and Spain). Average precious metal prices (notably for gold, silver and platinum) in the first half of 2008 are higher than for the same period last year (gold and silver higher by 37% and 27% respectively), and are higher than the end of 2007 (13% and 21% for gold and silver respectively).
Net sales value of £55 million was 6% higher at constant exchange rates (11% higher at reported exchange rates). This reflected the sharp downturn in the demand for jewellery due to consumer spending cutbacks, being more than offset by additional net sales from the Leach & Garner business, acquired in September 2007. The European businesses also benefitted from higher levels of precious metal reclaim activity, stimulated by the high price of gold.
Trading profit for the first half of 2008 at £1.9 million was 39% (£1.2 million) below the same period last year. The profit shortfall arose wholly in the US due to the reduction in underlying volumes and the relatively low profitability of the Leach & Garner trading activity prior to its transfer to the division's principal US production facility in Attleboro (Massachusetts) which was completed in July 2008. Actions taken to mitigate the profit shortfall in the US include headcount reductions and the acceleration of the integration of the Leach & Garner business. Total headcount in the US was reduced by 19% (around 230 people) during the first half of 2008. The performance of the European businesses has improved compared to the same period last year, benefiting from the restructuring initiatives undertaken in 2007. These included the downsizing of manufacturing operations in Birmingham, UK and the opening of a new low-cost facility in Thailand in July 2007. Return on net sales value for the division was 3.5% (first half 2007: 6.3%).
A new low-cost facility was completed in the Dominican Republic in March 2008 and the manufacture of a number of product lines will be transferred from Attleboro to the new facility on a phased basis during 2008. This restructuring will generate annual cost savings of approximately £2 million from the beginning of 2009.
Group corporate
The Group's corporate costs, being the costs directly related to managing the Group holding company and which now incorporate the former central operations of Foseco, were £3.6 million, marginally lower than the same period last year.
GROUP FINANCIAL REVIEW
|
|
First Half
|
|
Year
|
|
|
|
2008
|
2007
|
|
2007
|
|
Profit before tax (£m)
|
|
|
|
|
|
- headline
|
99.1
|
68.3
|
|
149.8
|
|
- basic
|
75.2
|
67.7
|
|
151.6
|
|
|
|
|
|
|
|
Earnings per share (pence)
|
|
|
|
|
|
- headline
|
33.3
|
25.2
|
|
54.4
|
|
- basic
|
22.7
|
24.1
|
|
53.5
|
|
|
|
|
|
|
|
Dividends per share (pence)
|
5.85
|
4.25
|
|
13.0
|
|
|
|
|
|
|
|
Free cash flow (£m)
|
6.5
|
(36.9)
|
|
47.6
|
|
Net debt (£m)
|
706
|
245
|
|
51
|
Group Income Statement
Headline profit before tax
Headline profit before tax was £99.1 million for the first half of 2008, which was £30.8 million higher than for the same period in 2007. The increase in headline profit before tax arose as follows:
|
|
First Half
|
||||||
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
Change
|
||
|
|
£m
|
|
£m
|
|
£m
|
|
%
|
|
Trading profit:
|
|
|
|
|
|
|
|
|
Total operations
- at first half 2008 exchange rates
|
113.3
|
|
87.2
|
|
26.1
|
|
30%
|
|
Currency exchange rate impact
|
|
|
(8.8)
|
|
8.8
|
|
|
|
Trading profit – as reported
|
113.3
|
|
78.4
|
|
34.9
|
|
45%
|
|
Net finance charges (interest)
|
(14.3)
|
|
(11.2)
|
|
(3.1)
|
|
(28)%
|
|
Post-tax JV income
|
0.1
|
|
1.1
|
|
(1.0)
|
|
|
|
Headline profit before tax
|
99.1
|
|
68.3
|
|
30.8
|
|
45%
|
The £3.1 million higher charge for net finance costs (interest) comprised £2.7 million due to an increase in the average level of borrowings throughout the period and £0.4 million higher pension interest. The higher average level of borrowings in the first half of 2008 reflects the benefit in the first quarter of the £151 million share placing in October 2007 being more than offset by the impact of the acquisition of Foseco on the level of borrowings in the second quarter.
Items excluded from headline profit before tax
A net charge of £23.9 million was incurred in the first half of 2008 (first half 2007: £0.6 million) for the following items excluded from headline profit before tax:
Restructuring and integration costs: costs of £12.0 million (first half 2007: £2.3 million) were incurred in the first half of 2008. Of the total charge, £11.9 million related to cash-related costs and £0.1 million to the non-cash write down of assets. This principally consisted of a charge of £6.7 million in the Ceramics division, of which £6.4 million related to the integration of Foseco (of which £4.9 million related to redundancy costs); £3.0 million in the Electronics division, principally relating to the planned relocation of the Assembly Materials solder paste business from Ashford, UK to Hungary and for Chemistry the rationalisation of its sales, manufacturing and distribution network in Europe; and £2.3 million in the Precious Metals division, principally relating to the integration of Leach & Garner and further restructuring of the US operations.
The costs of integrating Foseco into the Ceramics division are currently expected to be around £15 million in total, of which the majority is expected to be reported as a charge in full year 2008. In addition, non-Foseco related restructuring costs of around £6 million are expected in full year 2008, continuing at around this annual level from 2009 onwards.
Inventory fair value adjustment: non-cash costs of £2.6 million have been incurred in the first half of 2008 relating to the element of Foseco's inventory that was uplifted in value as part of the fair value exercise on acquisition. Current accounting rules require the value of all acquired inventory to be uplifted from its net book value to a fair value, deemed to be its selling price less disposal costs and the portion of the total profit attributable to the selling effort. This has the effect of capitalising into inventory the expected profit earned up to the stage of production that the inventory had reached at the acquisition date. The inventory on hand at acquisition was sold in the second quarter of 2008 and this exceptional cost represents that element of total manufacturing costs incurred in the first half of 2008 that related to this Foseco-related inventory valuation uplift.
Amortisation of intangible assets: costs of £4.2 million (first half 2007: £nil) were incurred in the first half of 2008 relating to the amortisation of the intangible assets, principally customer relationships, intellectual property rights and the Foseco trade name, arising on the acquisition of Foseco. These intangible assets are being amortised over lives varying between 10 and 20 years. The total cost of acquiring Foseco (excluding the net debt acquired) is £517 million, of which £11 million has been allocated to net tangible assets, £181 million to intangible assets (net of deferred tax) and the remaining £325 million to goodwill.
Curtailment gains relating to employee benefits: a credit of £0.4 million (first half 2007: £nil) was realised in the period relating to the disposal of Foseco's CBC business and the closure of a Ceramics division facility in the US.
Finance costs - exceptional items: costs of £2.2 million were incurred in the first half of 2008 relating to the write-off of commitment fees arising from the cancellation of part of the bank facilities put in place to finance the acquisition of Foseco.
Net (loss)/profit on disposal of continuing operations: a net loss of £3.3 million (first half 2007: profit of £0.2 million) was realised in the first half of 2008 relating to the closure of the Chinese operations of Foseco's CBC business. The substantive part of Foseco's CBC business, namely its operations in Europe and the US, were sold on 16 April 2008.
Group profit before tax and after the items noted above was £75.2 million for the first half of 2008 compared to £67.7 million in the first half of 2007, up 11%.
Taxation
The tax charge on ordinary activities was £27.2 million. The effective tax rate on headline profit before tax (before share of post-tax profit of joint ventures) was 27.5% (first half 2007: 27.5%; full year 2007: 26.9%). The marginal increase in the effective tax rate in the first half of 2008 compared to 2007 arises as a result of Foseco's relatively higher tax rate. In full year 2007, Foseco had an effective tax rate of 37.2% as a result of a significant proportion of its pre-tax profits arising in relatively high-tax countries, notably in Europe. The Group's effective tax rate of 27.5% is expected to be maintained for the full year and is lower than previously expected due to strong profit growth in low tax rate jurisdictions and the faster than expected integration of Foseco from a tax perspective. The effective tax rate is expected to be maintained at around this level for 2009, absent any significant changes in the future geographic split of the Group's taxable profits and any material changes, beyond those already announced, in the statutory tax rates in those countries where the Group has significant taxable profits.
A tax charge of £0.9 million (first half 2007: £1.5 million) arose in relation to all the items excluded from headline profit before tax noted above.
Profit attributable to equity holders
Headline profit attributable to equity holders for the first half of 2008 was £70.5 million (first half 2007: £48.6 million), with the £21.9 million increase over 2007 principally arising from the significant increase in headline profit before tax.
After taking account of all items excluded from headline profit before tax noted above (net of the related tax impact), the Group recorded a profit of £45.7 million for the first half of 2008, £1.0 million lower than the £46.7 million profit recorded in the first half of 2007.
Earnings per share ('EPS')
The average number of shares in issue during the first half of 2008 was 211.9 million, 19.1 million higher than for the first half of 2007 principally reflecting the placing of 18.6 million new shares on 11 October 2007.
Headline EPS, based on the headline profit attributable to equity holders divided by the average number of shares in issue, amounted to 33.3 pence per share in the first half of 2008, an increase of 32% on the 25.2 pence recorded in the first half of 2007. The Board believes this basis of calculating EPS is an important measure of the underlying earnings per share of the Group. Basic EPS, based on the net profit attributable to parent company equity holders, was 22.7 pence (first half 2007: 24.1 pence).
Dividend
For 2007, the Company paid a total dividend of 13.00 pence per share; an interim dividend of 4.25 pence per share being paid in October 2007; and a final dividend of 8.75 pence per share paid in June 2008. The Board's confidence in the future prospects for the Group, supported by the strong improvement in profitability in the first half of 2008, has resulted in the Board declaring an interim dividend for 2008 of 5.85 pence per share, a 38% increase on the 2007 interim dividend. Going forward the Board is aiming to balance the split of interim and final dividends in line with market norms. The interim dividend will be paid on 13 October 2008 to all shareholders on the register at the close of business on 26 September 2008.
Shareholders may choose to use the Dividend Reinvestment Plan ('DRIP') to reinvest the interim dividend. The closing date for the receipt of new DRIP mandates is 29 September 2008.
Group cash flow
Net cash from operating activities
In the first half of 2008, there was a £16.9 million net cash inflow from operating activities, £48.4 million higher than the first half of 2007. This increase principally arose from:
|
|
First Half
|
||||
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
Change
|
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
EBITDA
|
134.9
|
|
95.5
|
|
39.4
|
|
Trade and other working capital
|
(63.9)
|
|
(82.2)
|
|
18.3
|
|
Cash outflow related to assets and liabilities
held for sale
|
-
|
|
(1.1)
|
|
1.1
|
|
Restructuring and integration costs paid
|
(8.5)
|
|
(8.0)
|
|
(0.5)
|
|
Additional UK pension contributions
|
(16.0)
|
|
(14.8)
|
|
(1.2)
|
|
Net interest paid
|
(6.7)
|
|
(8.9)
|
|
2.2
|
|
Taxation paid
|
(22.9)
|
|
(12.0)
|
|
(10.9)
|
|
Net cash inflow/(outflow) from operating activities
|
16.9
|
|
(31.5)
|
|
48.4
|
Of the £63.9 million cash outflow in respect of trade and other working capital, £43.6 million relates to the increased level of inventory and trade receivables in the Ceramics division. This increase results principally from the 8% underlying revenue growth in the existing Ceramics business in the period. Inventory levels for certain raw materials have also been increased as a precaution against possible restrictions on their production in China to reduce air pollution ahead of the Beijing Olympics. Also contributing to the outflow was the negative impact on the level of inventories and trade receivables at 30 June 2008 of higher metal prices (notably for gold, silver and tin) in the Precious Metals and Electronics divisions. The ratio of average trade working capital to sales (excluding Foseco) of 23.2% was marginally higher than the 23.0% for full year 2007.
Cash outflow for restructuring and integration was £8.5 million of which the majority related to programmes initiated in prior periods. The cash outflow in respect of the integration of Foseco was £3.1 million. A cash outflow for rationalisation of around £15 million is expected in full year 2008 (of which £9 million is expected to relate to the integration of Foseco) and £10 million for 2009 (of which £6 million is expected to be Foseco related).
Net cash from investing activities
Capital expenditure: payments to acquire property, plant and equipment in the first half of 2008 were £25.3 million, £0.9 million higher than the first half of 2007 and representing 117% of depreciation (first half 2007: 142%). Of the total payments, £18.9 million arose in the Ceramics division in respect of a number of projects in China, Czech Republic, Mexico and Belgium which, once completed, will increase production capacity and enhance underlying revenue growth going forward. A cash outflow for capital expenditure (including that related to Foseco) of around £75 million is expected in full year 2008. Of the total capital expenditure in 2008, some £15 million is expected to be incurred for the expansion of Solar Crucible™ capacity, £20 million in the emerging markets of China, India and Brazil, and £10 million for Foseco-related projects. Capital expenditure in 2009 is expected to be between £65 million and £70 million.
Dividends from joint ventures: dividends of £0.4 million were received in the period (first half 2007: £0.8 million) from Chemistry's Japanese joint venture.
Acquisitions: net cash outflow for acquisitions in the first half of 2008 was £491.5 million and included the following:
-
Acquisition of Foseco on 4 April 2008 for £484.2 million, including cash to acquire Foseco's shares of £496.7 million, payments for transaction costs of £8.0 million, and cash acquired of £20.5 million. In addition to this cash outflow, Cookson also assumed Foseco's gross borrowings at the date of acquisition of £126.4 million which is detailed below; and
-
Acquisition of an additional 20% interest in Foseco India, an Indian listed public company, in February 2008 for £7.3 million, including cash consideration for the shares of £6.9 million and payments for transaction costs of £0.4 million. This transaction was required by Indian takeover regulations as a result of Cookson's acquisition of Foseco. Following the acquisition of Foseco, Cookson holds 86% of the shares of Foseco India.
Disposals: net cash inflow from disposals in the first half of 2008 was £8.9 million, principally relating to the disposal on 16 April 2008 of Foseco's CBC business to RHI AG.
Free cash flow
Free cash flow is defined as net cash flow from operating activities and after net outlays for the acquisition and disposal of property, plant and equipment, dividends received from joint ventures and paid to minority shareholders, but before additional funding contributions to Group pension plans.
Free cash inflow for the first half of 2008 was £6.5 million, £43.4 million higher than the £36.9 million outflow in the first half of 2007, due principally to the £48.4 million increase in cash flow from operating activities for the reasons described above.
The Group traditionally experiences weaker 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. The annualised free cash inflow for the year ended June 2008, was £91.0 million (year ended June 2007: £33.3 million).
Net cash flow before financing
Net cash outflow before financing for the first half of 2008 was £494.3 million, compared with a net cash outflow of £39.2 million in the first half of 2007. This arose due to the improvement in free cash flow being more than offset by the acquisition of Foseco.
Cash flow from financing activities: net cash outflow from financing activities (before movement in borrowings) was £40.6 million (first half 2007: £26.7 million), principally comprising the following:
-
Cash outflow of £10.6 million relating to the settlement during the period of forward foreign exchange contracts. These had been taken out to broadly align the currency profile of the Group's borrowings with the net assets of the Group and formed part of the hedge on investments of the Group's foreign operations. This cash outflow was offset by an increase in the net assets of those operations. The cash outflow arose principally as a result of the strengthening against sterling during the period of the Czech Republic koruna, the Chinese renminbi and the Japanese yen;
-
Payments of £3.9 million to acquire Cookson Group plc shares for the purpose of satisfying the vesting of shares under the Group's Long-Term Incentive Plan;
-
Payments of £6.0 million in respect of the transaction costs for the £750 million committed bank facility entered into in October 2007; and
-
Dividend payment to equity shareholders of £18.6 million in respect of the 2007 final dividend of 8.75 pence per share in June 2008.
Net cash outflow and movement in net debt: net cash outflow for the first half of 2008 (before movement in borrowings) was £534.9 million, £469.0 million higher than the first half of 2007.
With a £2.4 million negative foreign exchange adjustment, £126.4 million of gross borrowings arising on the acquisition of Foseco, and £8.0 million in other non-cash movements, this resulted in an increase in net debt from £50.6 million at 31 December 2007 to £706.3 million at 30 June 2008.
Group borrowings
The net debt of £706.3 million as at 30 June 2008 was primarily drawn on available medium to long-term committed facilities of around £950 million. The Group's net debt comprised the following:
|
|
30 June |
31 December |
30 June |
|
|
2008 |
2007 |
2007 |
|
|
£m |
£m |
£m |
|
US Private Placement loan notes |
183.0 |
183.0 |
246.2 |
|
Committed bank facility |
588.7 |
13.0 |
10.0 |
|
Lease financing |
2.3 |
1.5 |
1.6 |
|
Other loans, overdrafts |
23.7 |
20.5 |
34.5 |
|
Gross borrowings |
797.7 |
218.0 |
292.3 |
|
Cash and short-term deposits |
(91.4) |
(167.4) |
(47.3) |
|
Net Debt |
706.3 |
50.6 |
245.0 |
The US Private Placement loan notes, currently US$365 million, are repayable in three tranches; US$40 million in November 2009, US$135 million in May 2010 and US$190 million in May 2012.
On 10 October 2007, the Group entered into a new multi-currency, committed bank facility for approximately £750 million, raised for the purpose of the acquisition of Foseco. On completion of the acquisition in April 2008, this facility was used, in combination with the net proceeds of £151 million from the share placing on 11 October 2007, to finance the acquisition of Foseco. This included the refinancing of the existing committed bank facilities of Cookson and Foseco. At this time, approximately 70% of the borrowings under this facility were swapped, using financial instruments, from floating to fixed interest rates for an average duration of just over two years. Based on interest rates at that time, the blended interest rate (being the 'all-in' coupon including the margin payable to the banks) on the Group's gross borrowings (including the US Private Placement loan notes) was approximately 5.5%.
The Group is currently operating with very comfortable borrowing ratios. For the first half of 2008, the Group's EBITDA to net interest ratio was 11.9 times and the net debt to EBITDA ratio (on a pro-forma basis reflecting the acquisition of Foseco) was 2.4 times.
Currency
The weakening of sterling over the last year has had a marked impact on the average exchange rates used to translate the Group's overseas results into sterling for the first halves of 2007 and 2008. Between these periods, the average exchange rates for sterling weakened against European currencies (notably the euro by 13%, the Polish zloty by 21% and the Czech Republic koruna by 22%), as well as against the Chinese renminbi (by 8%) and the Brazilian real (by 17%). Average sterling exchange rates have remained unchanged against the US dollar.
In the first half of 2008, the net translation impact of currency changes compared to the same period last year was to increase revenue by around £57 million and trading profit by around £9 million.
Pension fund and other post-retirement obligations
The Group operates defined contribution and defined benefit pension plans, principally in the UK and US. In addition, the Group has various other defined benefit post-retirement arrangements, being principally healthcare plans in the US. The Group's UK defined benefit pension plans, including that of Foseco, are closed to new members and its two principal defined benefit pension plans in the US are closed to new members and to further accruals for existing members.
As at 30 June 2008, a net liability of £93.1 million was recognised in respect of employee benefits, a reduction from the £96.1 million as at 31 December 2007, notwithstanding the inclusion of Foseco's net employee deficit, which totalled £31.7 million as at 30 June 2008. The increase in the Group's net liability as a result of the Foseco acquisition has been more than offset in the period by the effects of the increase of the prescribed discount rates used to calculate the present value of future liabilities and, in respect of Cookson's main UK defined benefit pension plan ('the UK Plan'), the additional 'top-up' funding payments made in the first half of 2008.
The total Group net liability comprises a surplus of £4.7 million, relating almost entirely to the UK Plan, together with a deficit of £97.8 million, of which £41.6 million relates to the Group's defined benefit pension plans in the US, £35.6 million to pension arrangements in other countries, and £20.6 million to unfunded post-retirement defined benefit arrangements, being mainly healthcare benefit arrangements in the US.
In agreement with the Trustee of the UK Plan, 'top-up' payments (in addition to the normal cash contributions) of £26.5 million per annum have been made via monthly payments since February 2006. In consultation with the Trustee it has been agreed to reduce the level of these payments by £12.5 million to £14.0 million per annum with effect from 1 September 2008.
The discount rate used to determine the liabilities of the UK Plan for IAS 19 accounting purposes is required by accounting standards to be a corporate bond yield. 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. 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. However, the current spread of corporate bond yields over swap yields results in the IAS 19 value of the UK Plan's liabilities being significantly lower than the value of the actual underlying economic liabilities. In the first half of 2008, this divergence in yields had the effect of improving the UK Plan's IAS 19 funding position by some £52 million compared with the deficit based on the UK Plan's economic liabilities. The Company continues to fund the UK Plan prudently with reference to its economic funding position.
The total charge to the income statement in the first half of 2008 for all pension plans (including defined contribution plans) was £9.9 million, an increase of £1.4 million over the first half of 2007. Of this charge, £8.2 million (first half 2007: £7.2 million) has been deducted in arriving at trading profit and £1.7 million (first half 2007: £1.3 million) has been included within finance charges. Total pension cash contributions amounted to £28.4 million in the first half of 2008 (first half 2007: £23.0 million).
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 35 to 37 of its 2007 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 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 2008. The impact of the economic and end-market environments in which the Group's businesses operate are considered in the trading sections of this IMR above, together with an indication if management is aware of any likely change in this situation.
The Company's 2007 Annual Report made reference to the principal risks and uncertainties associated with the acquisition of Foseco. Following the successful completion of that acquisition, these risks and uncertainties, including the successful integration of the Foseco business and the delivery of the expected synergy savings in line with the expected costs of obtaining those synergies are now the subject of considerable management focus and this will continue to be the case during the remainder of the second half of the year.
|
Shareholder/analyst enquiries: |
Cookson Group plc |
|
Media enquiries: |
|
Copies of the Half Yearly 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 5 August 2008 at 10.30am (UK time). This will be broadcast live on Cookson's website. An archive version of the presentation will be available on the website from the afternoon of 5 August.
Cookson Group plc, 165 Fleet Street, London EC4A 2AE
Registered in England and Wales No. 251977
www.cooksongroup.co.uk
Directors' responsibility statement
5 August 2008 5 August 2008
Independent review report on the condensed financial statements to the members of 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 2008 which comprises income statement, cash flow statement, balance sheet, statement of recognised income and expense 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 2008 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA.
KPMG Audit Plc
Chartered Accountants
Registered Auditor
London
5 August 2008
|
Condensed Group Income Statement
For the six months ended 30 June 2008
|
|
Unaudited
|
|
Unaudited
|
|
|
|
|
|
Half year
|
|
Half year
|
|
Full year
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
|
Notes
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
Revenue
|
2
|
1,057.8
|
|
784.9
|
|
1,619.5
|
|
Manufacturing costs - raw materials
|
|
(528.6)
|
|
(375.6)
|
|
(797.4)
|
|
- other
|
|
(236.2)
|
|
(186.0)
|
|
(370.6)
|
|
Administration, selling and distribution costs
|
|
(179.7)
|
|
(144.9)
|
|
(281.9)
|
|
Trading profit
|
2
|
113.3
|
|
78.4
|
|
169.6
|
|
Restructuring and integration costs
|
3
|
(12.0)
|
|
(2.3)
|
|
(5.8)
|
|
Inventory fair value adjustment
|
4
|
(2.6)
|
|
-
|
|
-
|
|
Profit relating to non-current assets
|
5
|
-
|
|
1.5
|
|
7.0
|
|
Amortisation of intangible assets
|
6
|
(4.2)
|
|
-
|
|
-
|
|
Curtailment gains relating to employee benefits
|
7
|
0.4
|
|
-
|
|
1.0
|
|
Profit from operations
|
2
|
94.9
|
|
77.6
|
|
171.8
|
|
Finance costs - ordinary activities
|
8
|
(35.0)
|
|
(27.6)
|
|
(50.9)
|
|
- exceptional items
|
8
|
(2.2)
|
|
-
|
|
-
|
|
Finance income
|
8
|
20.7
|
|
16.4
|
|
29.4
|
|
Share of post-tax profit of joint ventures
|
|
0.1
|
|
1.1
|
|
1.7
|
|
Net (loss)/profit on disposal of continuing operations
|
9
|
(3.3)
|
|
0.2
|
|
(0.4)
|
|
Profit before tax
|
|
75.2
|
|
67.7
|
|
151.6
|
|
Income tax costs - ordinary activities
|
10
|
(27.2)
|
|
(18.5)
|
|
(39.9)
|
|
- exceptional items
|
10
|
1.6
|
|
(1.5)
|
|
(3.5)
|
|
Discontinued operations
|
11
|
-
|
|
0.2
|
|
(0.3)
|
|
Profit for the period
|
|
49.6
|
|
47.9
|
|
107.9
|
|
|
|
|
|
|
|
|
|
Profit for the period attributable to:
|
|
|
|
|
|
|
|
Equity holders of the parent company
|
|
48.2
|
|
46.7
|
|
105.0
|
|
Minority interests
|
|
1.4
|
|
1.2
|
|
2.9
|
|
Profit for the period
|
|
49.6
|
|
47.9
|
|
107.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headline profit before tax
|
|
|
|
|
|
|
|
Trading profit
|
|
113.3
|
|
78.4
|
|
169.6
|
|
Net finance costs - ordinary activities
|
|
(14.3)
|
|
(11.2)
|
|
(21.5)
|
|
Share of post-tax profit of joint ventures
|
|
0.1
|
|
1.1
|
|
1.7
|
|
Headline profit before tax
|
1
|
99.1
|
|
68.3
|
|
149.8
|
|
Income tax costs - ordinary activities
|
|
(27.2)
|
|
(18.5)
|
|
(39.9)
|
|
Profit attributable to minority interests
|
|
(1.4)
|
|
(1.2)
|
|
(2.9)
|
|
Headline profit attributable to equity holders of the parent company
|
|
70.5
|
|
48.6
|
|
107.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing operations (pence)
|
12
|
|
|
|
|
|
|
Basic
|
|
22.7
|
|
24.1
|
|
53.5
|
|
Diluted
|
|
22.7
|
|
24.0
|
|
53.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headline earnings per share from continuing operations (pence)
|
1, 12
|
|
|
|
|
|
|
Basic
|
|
33.3
|
|
25.2
|
|
54.4
|
|
Diluted
|
|
33.2
|
|
25.1
|
|
54.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares
|
211.9
|
|
192.8
|
|
196.7
|
|
|
Condensed Group Statement of Cash Flows
For the six months ended 30 June 2008
|
|
Unaudited
|
|
Unaudited
|
|
|
|
|
|
Half year
|
|
Half year
|
|
Full year
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
|
Notes
|
£m
|
|
£m
|
|
£m
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
Profit/(loss) from operations - continuing operations
|
|
94.9
|
|
77.6
|
|
171.8
|
|
- discontinued operations
|
|
-
|
|
(0.1)
|
|
(0.2)
|
|
Adjustments for:
|
|
|
|
|
|
|
|
Restructuring and integration costs
|
|
12.0
|
|
2.3
|
|
5.8
|
|
Inventory fair value adjustment
|
|
2.6
|
|
-
|
|
-
|
|
Profit relating to non-current assets
|
|
-
|
|
(1.5)
|
|
(7.0)
|
|
Amortisation of intangible assets
|
|
4.2
|
|
-
|
|
-
|
|
Curtailment gains relating to employee benefits
|
|
(0.4)
|
|
-
|
|
(1.0)
|
|
Depreciation
|
|
21.6
|
|
17.2
|
|
34.9
|
|
EBITDA
|
1
|
134.9
|
|
95.5
|
|
204.3
|
|
Net increase in trade and other working capital
|
|
(63.9)
|
|
(82.2)
|
|
(44.8)
|
|
Net operating outflow related to assets and liabilities classified as held for sale
|
|
-
|
|
(1.1)
|
|
(1.5)
|
|
Outflow related to restructuring and integration costs
|
3
|
(8.5)
|
|
(8.0)
|
|
(14.7)
|
|
Additional funding contributions into Group pension plans
|
18
|
(16.0)
|
|
(14.8)
|
|
(28.1)
|
|
Cash generated from/(utilised by) operations
|
|
46.5
|
|
(10.6)
|
|
115.2
|
|
Interest paid
|
|
(13.1)
|
|
(11.0)
|
|
(24.9)
|
|
Interest received
|
|
6.4
|
|
2.1
|
|
5.8
|
|
Income taxes paid
|
|
(22.9)
|
|
(12.0)
|
|
(26.7)
|
|
Net cash inflow/(outflow) from operating activities
|
|
16.9
|
|
(31.5)
|
|
69.4
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
(25.3)
|
|
(24.4)
|
|
(59.9)
|
|
Proceeds from the sale of property, plant and equipment
|
5
|
0.3
|
|
4.9
|
|
10.5
|
|
Purchase of property classified as held for sale
|
|
-
|
|
(9.0)
|
|
(9.0)
|
|
Proceeds from the sale of property classified as held for sale
|
|
-
|
|
-
|
|
12.7
|
|
Acquisition of subsidiaries and joint ventures, net of cash acquired
|
14
|
(491.5)
|
|
(1.1)
|
|
(14.0)
|
|
Disposal of subsidiaries and joint ventures, net of cash disposed of
|
|
8.9
|
|
22.4
|
|
24.8
|
|
Dividends received from joint ventures
|
|
0.4
|
|
0.8
|
|
1.3
|
|
Other investing outflows, including additional costs for prior periods’ disposals
|
|
(4.0)
|
|
(1.3)
|
|
(11.6)
|
|
Net cash outflow from investing activities
|
|
(511.2)
|
|
(7.7)
|
|
(45.2)
|
|
Net cash (outflow)/inflow before financing activities
|
|
(494.3)
|
|
(39.2)
|
|
24.2
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
Repayment of borrowings
|
|
-
|
|
(18.6)
|
|
(93.0)
|
|
Increase in borrowings
|
17
|
459.7
|
|
6.6
|
|
14.2
|
|
Settlement of forward foreign exchange contracts
|
|
(10.6)
|
|
(12.4)
|
|
(20.0)
|
|
Proceeds from the issue of share capital
|
|
0.1
|
|
0.7
|
|
152.5
|
|
Purchase of treasury shares
|
|
(3.9)
|
|
-
|
|
-
|
|
Proceeds from the sale of treasury shares
|
|
0.2
|
|
-
|
|
-
|
|
Borrowing facility arrangement costs
|
|
(6.0)
|
|
-
|
|
(4.8)
|
|
Dividends paid to equity shareholders
|
13
|
(18.6)
|
|
(13.5)
|
|
(21.7)
|
|
Dividends paid to minority shareholders
|
|
(1.8)
|
|
(1.5)
|
|
(1.8)
|
|
Net cash inflow/(outflow) from financing activities
|
|
419.1
|
|
(38.7)
|
|
25.4
|
|
Net (decrease)/increase in cash and cash equivalents
|
17
|
(75.2)
|
|
(77.9)
|
|
49.6
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (including bank overdrafts)
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
153.2
|
|
105.0
|
|
105.0
|
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
-
|
|
0.2
|
|
(1.4)
|
|
Net (decrease)/increase in cash and cash equivalents
|
17
|
(75.2)
|
|
(77.9)
|
|
49.6
|
|
Cash and cash equivalents at end of period
|
|
78.0
|
|
27.3
|
|
153.2
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
|
|
|
|
|
|
Net cash inflow/(outflow) from operating activities
|
|
16.9
|
|
(31.5)
|
|
69.4
|
|
Additional funding contributions into Group pension plans
|
|
16.0
|
|
14.8
|
|
28.1
|
|
Purchase of property, plant and equipment
|
|
(25.3)
|
|
(24.4)
|
|
(59.9)
|
|
Proceeds from the sale of property, plant and equipment
|
|
0.3
|
|
4.9
|
|
10.5
|
|
Dividends received from joint ventures
|
|
0.4
|
|
0.8
|
|
1.3
|
|
Dividends paid to minority shareholders
|
|
(1.8)
|
|
(1.5)
|
|
(1.8)
|
|
Free cash flow
|
1
|
6.5
|
|
(36.9)
|
|
47.6
|
|
Condensed Group Balance Sheet
As at 30 June 2008
|
|
Unaudited
|
|
|
|
Unaudited
|
|
|
|
30 June
|
|
31 December
|
|
30 June
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
|
Notes
|
£m
|
|
£m
|
|
£m
|
|
Assets
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
353.0
|
|
254.7
|
|
226.5
|
|
Intangible assets
|
15
|
1,024.2
|
|
430.8
|
|
421.0
|
|
Employee benefits - net surpluses
|
18
|
4.7
|
|
-
|
|
-
|
|
Interests in joint ventures
|
|
15.0
|
|
14.2
|
|
11.4
|
|
Investments
|
|
15.3
|
|
16.3
|
|
15.4
|
|
Income tax recoverable
|
|
2.6
|
|
3.0
|
|
1.9
|
|
Deferred tax assets
|
|
12.1
|
|
8.9
|
|
10.7
|
|
Other receivables
|
|
8.4
|
|
7.6
|
|
8.0
|
|
Derivative financial instruments
|
|
3.1
|
|
-
|
|
-
|
|
Total non-current assets
|
|
1,438.4
|
|
735.5
|
|
694.9
|
|
|
|
|
|
|
|
|
|
Cash and short-term deposits
|
|
91.4
|
|
167.4
|
|
47.3
|
|
Inventories
|
|
292.4
|
|
201.4
|
|
192.7
|
|
Trade and other receivables
|
|
499.0
|
|
355.9
|
|
344.6
|
|
Income tax recoverable
|
|
1.5
|
|
0.8
|
|
0.4
|
|
Derivative financial instruments
|
|
2.6
|
|
0.3
|
|
4.1
|
|
Assets classified as held for sale
|
|
4.8
|
|
-
|
|
9.0
|
|
Total current assets
|
|
891.7
|
|
725.8
|
|
598.1
|
|
Total assets
|
|
2,330.1
|
|
1,461.3
|
|
1,293.0
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
Issued share capital
|
|
21.3
|
|
21.3
|
|
19.4
|
|
Share premium account
|
|
8.1
|
|
8.0
|
|
6.9
|
|
Other reserves
|
|
43.9
|
|
(0.2)
|
|
(24.9)
|
|
Retained earnings
|
|
767.5
|
|
724.9
|
|
512.6
|
|
Total parent company shareholders’ equity
|
16
|
840.8
|
|
754.0
|
|
514.0
|
|
Minority interests
|
16
|
13.0
|
|
11.9
|
|
9.3
|
|
Total equity
|
16
|
853.8
|
|
765.9
|
|
523.3
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Interest-bearing loans and borrowings
|
|
766.6
|
|
199.3
|
|
192.3
|
|
Employee benefits - net liabilities
|
18
|
97.8
|
|
96.1
|
|
126.7
|
|
Other payables
|
|
23.6
|
|
13.0
|
|
14.5
|
|
Provisions
|
|
28.9
|
|
24.5
|
|
20.9
|
|
Deferred tax liabilities
|
|
103.0
|
|
23.5
|
|
23.6
|
|
Total non-current liabilities
|
|
1,019.9
|
|
356.4
|
|
378.0
|
|
|
|
|
|
|
|
|
|
Interest-bearing loans and borrowings
|
|
31.1
|
|
18.7
|
|
100.0
|
|
Trade and other payables
|
|
340.2
|
|
258.6
|
|
232.2
|
|
Income tax payable
|
|
63.7
|
|
41.5
|
|
31.7
|
|
Provisions
|
|
20.8
|
|
17.9
|
|
27.0
|
|
Derivative financial instruments
|
|
0.3
|
|
2.3
|
|
0.8
|
|
Liabilities directly associated with assets classified as held for sale
|
|
0.3
|
|
-
|
|
-
|
|
Total current liabilities
|
|
456.4
|
|
339.0
|
|
391.7
|
|
Total liabilities
|
|
1,476.3
|
|
695.4
|
|
769.7
|
|
Total equity and liabilities
|
|
2,330.1
|
|
1,461.3
|
|
1,293.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt
|
|
|
|
|
|
|
|
Interest-bearing loans and borrowings - non-current
|
|
766.6
|
|
199.3
|
|
192.3
|
|
- current
|
|
31.1
|
|
18.7
|
|
100.0
|
|
Cash and short-term deposits
|
|
(91.4)
|
|
(167.4)
|
|
(47.3)
|
|
|
|
|
|
|
|
|
|
Net debt
|
1, 17
|
706.3
|
|
50.6
|
|
245.0
|
|
Condensed Group Statement of Recognised Income and Expense
For the six months ended 30 June 2008
|
|
Unaudited
|
|
Unaudited
|
|
|
|
|
|
Half year
|
|
Half year
|
|
Full year
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
Exchange differences on translation of the net assets of foreign operations
|
|
48.0
|
|
(11.3)
|
|
27.3
|
|
Net investment hedges
|
|
(6.8)
|
|
3.7
|
|
(10.1)
|
|
Cash flow hedges
|
|
3.3
|
|
-
|
|
(0.3)
|
|
Actuarial gain on employee benefits plans
|
|
14.5
|
|
11.4
|
|
23.5
|
|
Change in fair value of available-for-sale investments
|
|
(1.0)
|
|
-
|
|
1.0
|
|
Income tax on items recognised directly in equity
|
|
-
|
|
-
|
|
(0.3)
|
|
Net income recognised directly in equity
|
|
58.0
|
|
3.8
|
|
41.1
|
|
Profit for the period
|
|
49.6
|
|
47.9
|
|
107.9
|
|
Total recognised income and expense for the period
|
|
107.6
|
|
51.7
|
|
149.0
|
|
|
|
|
|
|
|
|
|
Total recognised income and expense for the period attributable to:
|
|
|
|
|
|
|
|
Equity holders of the parent company
|
|
106.8
|
|
50.2
|
|
145.0
|
|
Minority interests in - profit for the period
|
|
1.4
|
|
1.2
|
|
2.9
|
|
- foreign exchange translation differences
|
|
(0.6)
|
|
0.3
|
|
1.1
|
|
Total recognised income and expense for the period
|
|
107.6
|
|
51.7
|
|
149.0
|
Notes to the condensed financial statements
|
|
|
|
|
Half year 2008
|
|
Half year 2007
|
|
Full year 2007
|
|||
|
|
|
|
|
Segment
|
Segment
|
|
Segment
|
Segment
|
|
Segment
|
Segment
|
|
|
|
|
|
revenue
|
result
|
|
revenue
|
result
|
|
revenue
|
result
|
|
|
|
|
|
£m
|
£m
|
|
£m
|
£m
|
|
£m
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceramics
|
|
|
|
581.6
|
85.1
|
|
386.1
|
52.6
|
|
781.1
|
109.4
|
|
Electronics
|
|
|
|
321.4
|
29.9
|
|
269.4
|
26.8
|
|
558.2
|
58.0
|
|
Precious Metals
|
|
|
|
154.8
|
1.9
|
|
129.4
|
3.1
|
|
280.2
|
9.9
|
|
Corporate costs
|
|
|
|
-
|
(3.6)
|
|
-
|
(4.1)
|
|
-
|
(7.7)
|
|
Total Group continuing operations
|
|
|
|
1,057.8
|
113.3
|
|
784.9
|
78.4
|
|
1,619.5
|
169.6
|
Since its acquisition on 4 April 2008, Foseco plc ('Foseco') has contributed £130.8m of revenue and £20.8m of trading profit to the results of the Ceramics division.
|
|
|
Half year
|
|
Half year
|
|
Full year
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
Segment result
|
|
113.3
|
|
78.4
|
|
169.6
|
|
Restructuring and integration costs
|
|
(12.0)
|
|
(2.3)
|
|
(5.8)
|
|
Inventory fair value adjustment
|
|
(2.6)
|
|
-
|
|
-
|
|
Profit relating to non-current assets
|
|
-
|
|
1.5
|
|
7.0
|
|
Amortisation of intangible assets
|
|
(4.2)
|
|
-
|
|
-
|
|
Curtailment gains relating to employee benefits
|
|
0.4
|
|
-
|
|
1.0
|
|
Profit from operations
|
|
94.9
|
|
77.6
|
|
171.8
|
|
Finance costs - ordinary activities
|
|
(35.0)
|
|
(27.6)
|
|
(50.9)
|
|
- exceptional items
|
|
(2.2)
|
|
-
|
|
-
|
|
Finance income
|
|
20.7
|
|
16.4
|
|
29.4
|
|
Share of post-tax profit of joint ventures
|
|
0.1
|
|
1.1
|
|
1.7
|
|
Net (loss)/profit on disposal of continuing operations
|
|
(3.3)
|
|
0.2
|
|
(0.4)
|
|
Profit before tax
|
|
75.2
|
|
67.7
|
|
151.6
|
|
|
|
30 June
|
|
31 Dec
|
|
30 June
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
Ceramics
|
|
1,537.0
|
|
646.4
|
|
628.8
|
|
Electronics
|
|
497.7
|
|
449.8
|
|
435.5
|
|
Precious Metals
|
|
138.6
|
|
137.5
|
|
128.8
|
|
Unallocated assets
|
|
156.2
|
|
226.5
|
|
98.8
|
|
Discontinued operations
|
|
0.6
|
|
1.1
|
|
1.1
|
|
Total Group
|
|
2,330.1
|
|
1,461.3
|
|
1,293.0
|
Intangible assets recognised on the acquisition of Foseco (note 14) are amortised over their useful lives as summarised below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged in
|
|
|
|
|
|
|
|
|
|
|
|
Cost on
|
|
Useful
|
|
half year
|
|
|
|
|
|
|
|
|
|
|
|
acquisition
|
|
life
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
£m
|
|
years
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
103.7
|
|
20
|
|
1.3
|
||||||||
|
Foseco trade name
|
|
72.4
|
|
20
|
|
0.9
|
||||||||
|
Intellectual property rights
|
|
80.3
|
|
10
|
|
2.0
|
||||||||
|
|
|
256.4
|
|
|
|
4.2
|
||||||||
The credit relating to exceptional items of £1.6m (2007: half year £1.5m charge; full year £3.5m charge) includes a credit of £1.5m (2007: half year £0.3m; full year £0.5m) in relation to restructuring and integration costs, a credit of £0.8m (2007: half year £nil; full year £nil) relating to the inventory fair value adjustment, a credit of £1.2m (2007: half year £nil; full year £nil) relating to the amortisation of intangible assets, a charge of £1.6m (2007: half year £1.7m; full year £2.8m) relating to deferred tax on goodwill, a charge of £nil (2007: half year £0.1m; full year £1.2m) relating to non-current assets and a charge of £0.3m (2007: half year £nil; full year £nil) relating to the loss on disposal of continuing operations.
|
|
|
|
|
|
|
|
|
|
|
Half year
|
|
Half year
|
|
Full year
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
-
|
|
1.5
|
|
1.5
|
||||||||
|
Expenses
|
|
-
|
|
(1.6)
|
|
(1.7)
|
||||||||
|
Loss from operations
|
|
-
|
|
(0.1)
|
|
(0.2)
|
||||||||
|
Net post-tax profit/(loss) on disposal of discontinued operations
|
|
-
|
|
0.3
|
|
(0.1)
|
||||||||
|
Profit/(loss) for the period
|
|
-
|
|
0.2
|
|
(0.3)
|
||||||||
The net post-tax profit on disposal of discontinued operations of £0.3m in the first half of 2007 principally arose on the sale of Monofrax Inc. ('Monofrax'), a US-based manufacturer of fused-cast refractory products, partially offset by additional costs relating to prior periods' disposals of discontinued operations.
The net post-tax loss of £0.1m on disposal of discontinued operations in the full year 2007 comprised a profit of £3.9m on the sale of Monofrax and additional profit of £1.2m in respect of the 2003 disposal of the Group's former Speedline business, net of £5.2m of additional costs in respect of prior periods' disposals.
EPS is based upon the profit for the period attributable to equity holders of the parent company, which for continuing operations was £48.2m (2007: half year £46.5m; full year £105.3m) and for discontinued operations was £nil (2007: half year £0.2m; full year £0.3m loss) and a weighted average number of ordinary shares of 211.9m (2007: half year 192.8m; full year 196.7m). EPS from discontinued operations for the period was nil (2007: first half: 0.1p; full year 0.1p loss per share).
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. The fully diluted weighted average number of ordinary shares in issue during the period was 212.1m (2007: half year 193.4m; full year 197.2m). Diluted EPS from discontinued operations for the period was nil (2007: first half: 0.1p; full year 0.2p loss per share).
Headline EPS is based upon the headline profit for the period attributable to equity holders of the parent company, which for continuing operations was £70.5m (2007: half year £48.6m; full year £107.0m) and for discontinued operations was £nil (2007: half year £0.1m loss; full year £0.2m loss).
|
|
|
Half year
|
|
Half year
|
|
Full year
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
Amounts recognised as distributions to equity holders during the period:
|
|
|
|
|
|
|
|
Final dividend for the year ended 31 December 2007 of 8.75p per ordinary share
|
|
18.6
|
|
-
|
|
-
|
|
Interim dividend for the year ended 31 December 2007 of 4.25p per ordinary share
|
|
-
|
|
-
|
|
8.2
|
|
Final dividend for the year ended 31 December 2006 of 7.0p per ordinary share
|
|
-
|
|
13.5
|
|
13.5
|
|
Total dividends paid in the period
|
|
18.6
|
|
13.5
|
|
21.7
|
The Directors have declared an interim dividend of 5.85p per ordinary share (2007: 4.25p) in respect of the year ending 31 December 2008. The dividend will be paid on 13 October 2008 to ordinary shareholders on the register at the close of business on 26 September 2008. Based upon the number of ordinary shares in issue at 30 June 2008, the total cost of the dividend would be £12.4m (2007: £8.2m).
In February 2008, as an initial stage in its acquisition of Foseco, the Company completed the purchase of 20% of the issued share capital of Foseco India Ltd. at a cash cost of £6.9m, with directly attributable acquisition costs of £0.4m. On 4 April 2008, the Company completed the acquisition of the entire issued share capital of Foseco at an agreed price of 295p per Foseco share, valuing Foseco's equity at £496.7m. In addition to the cash cost of the shares, directly attributable acquisition costs amounted to £12.6m and net debt assumed on acquisition was £105.9m.
Foseco is a world leader in the supply of consumable products for use in the foundry and steel making industries, with a presence in 32 countries and major facilities in Germany, USA, UK, Brazil, China, India, South Korea and Japan.
On 16 April 2008, the Company completed the disposal of Foseco's Carbon Bonded Ceramics business ('CBC') to companies owned by RHI AG ('RHI'). A conditional agreement to sell CBC to RHI had been reached on 11 January 2008, in order to expedite anti-trust clearances in relation to the Company's acquisition of Foseco. CBC had revenue of approximately £19m for the year ended 31 December 2007 and gross assets of approximately £8m as at 31 December 2007. Prior to disposal, the CBC assets were classified as held for sale.
The acquisition of Foseco had the following effect on the Group's assets and liabilities as at the acquisition date of 4 April 2008:
|
|
|
|
|
|
|
|
|
Pre-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisition
|
|
|
|
Recognised
|
|
|
|
|
|
|
|
|
|
carrying
|
|
Fair value
|
|
values on
|
|
|
|
|
|
|
|
|
|
amounts
|
|
adjustments
|
|
acquisition
|
|
|
|
|
|
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
Property, plant and equipment
|
|
|
|
|
|
|
|
86.4
|
|
(1.6)
|
|
84.8
|
|
Intangible assets (note 15)
|
|
|
|
|
|
|
|
24.0
|
|
232.4
|
|
256.4
|
|
Employee benefits - net surpluses
|
|
|
|
|
|
|
|
2.4
|
|
-
|
|
2.4
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
1.4
|
|
1.0
|
|
2.4
|
|
Cash and short-term deposits
|
|
|
|
|
|
|
|
20.5
|
|
-
|
|
20.5
|
|
Inventories
|
|
|
|
|
|
|
|
46.9
|
|
(0.4)
|
|
46.5
|
|
Trade and other receivables
|
|
|
|
|
|
|
|
104.7
|
|
(0.7)
|
|
104.0
|
|
Assets classified as held for sale
|
|
|
|
|
|
|
|
-
|
|
8.0
|
|
8.0
|
|
Interest-bearing loans and borrowings
|
|
|
|
|
|
|
|
(126.4)
|
|
-
|
|
(126.4)
|
|
Employee benefits - net liabilities
|
|
|
|
|
|
|
|
(31.7)
|
|
-
|
|
(31.7)
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
(3.3)
|
|
(76.9)
|
|
(80.2)
|
|
Provisions
|
|
|
|
|
|
|
|
(2.4)
|
|
-
|
|
(2.4)
|
|
Trade and other payables
|
|
|
|
|
|
|
|
(71.6)
|
|
(3.9)
|
|
(75.5)
|
|
Income tax payable
|
|
|
|
|
|
|
|
(15.5)
|
|
-
|
|
(15.5)
|
|
Minority interests
|
|
|
|
|
|
|
|
(3.5)
|
|
1.4
|
|
(2.1)
|
|
Net identifiable assets and liabilities
|
|
|
|
|
|
|
|
31.9
|
|
159.3
|
|
191.2
|
|
Goodwill on acquisition
|
|
|
|
|
|
|
|
|
|
|
|
325.4
|
|
Consideration paid
|
|
|
|
|
|
|
|
|
|
|
|
516.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consideration paid comprises:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
|
|
503.6
|
|
Directly attributable acquisition costs
|
|
|
|
|
|
|
|
|
|
|
|
13.0
|
|
Total consideration
|
|
|
|
|
|
|
|
|
|
|
|
516.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of acquisition on Group cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid - for shares
|
|
|
|
|
|
|
|
|
|
|
|
(503.6)
|
|
- for acquisition costs
|
|
|
|
|
|
|
|
|
|
|
|
(10.0)
|
|
Cash and cash equivalents acquired
|
|
|
|
|
|
|
|
|
|
|
|
20.5
|
|
Total impact of acquisition on Group cash flows
|
|
|
|
|
|
|
|
|
|
|
|
(493.1)
|
|
Less: reported in 2007
|
|
|
|
|
|
|
|
|
|
|
|
1.6
|
|
Current period impact of acquisition on Group cash flows
|
|
|
|
|
|
|
|
(491.5)
|
||||
The goodwill arising on the acquisition of Foseco of £325.4m, principally relates to the value of the anticipated synergies to be realised from the acquisition, together with the value of Foseco's assembled workforce. The fair value adjustments shown above are provisional, based upon the fair value work that has been undertaken in the period since the acquisition date. It is anticipated that the acquisition accounting will be finalised in the Group's 2009 half-yearly financial report.
Since acquisition, Foseco has contributed £130.8m to the Group's revenue and £20.8m to the Group's trading profit. If the acquisition had taken place at the beginning of the year, the Group's revenue would have been £1,182m and the Group's trading profit would have been £130.6m.
|
|
|
30 June 2008
|
|
|
31 December 2007
|
|
|
30 June 2007
|
|||
|
|
|
Intangible
|
|
|
|
Intangible
|
|
|
|
Intangible
|
|
|
|
Goodwill
|
assets
|
Total
|
|
Goodwill
|
assets
|
Total
|
|
Goodwill
|
assets
|
Total
|
|
|
£m
|
£m
|
£m
|
|
£m
|
£m
|
£m
|
|
£m
|
£m
|
£m
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
As at the beginning of the period
|
430.8
|
-
|
430.8
|
|
429.0
|
-
|
429.0
|
|
429.0
|
-
|
429.0
|
|
Exchange adjustments
|
16.7
|
0.9
|
17.6
|
|
(1.4)
|
-
|
(1.4)
|
|
(7.5)
|
-
|
(7.5)
|
|
Acquisitions - businesses
|
325.4
|
256.4
|
581.8
|
|
3.7
|
-
|
3.7
|
|
-
|
-
|
-
|
|
Disposals - businesses
|
-
|
-
|
-
|
|
(0.5)
|
-
|
(0.5)
|
|
(0.5)
|
-
|
(0.5)
|
|
Transferred to held for sale
|
(1.8)
|
-
|
(1.8)
|
|
-
|
-
|
-
|
|
-
|
-
|
-
|
|
As at the end of the period
|
771.1
|
257.3
|
1,028.4
|
|
430.8
|
-
|
430.8
|
|
421.0
|
-
|
421.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortisation
|
|
|
|
|
|
|
|
|
|
|
|
|
As at the beginning of the period
|
-
|
-
|
-
|
|
-
|
-
|
-
|
|
-
|
-
|
-
|
|
Charge for the period
|
-
|
4.2
|
4.2
|
|
-
|
-
|
-
|
|
-
|
-
|
-
|
|
As at the end of the period
|
-
|
4.2
|
4.2
|
|
-
|
-
|
-
|
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value
|
|
|
|
|
|
|
|
|
|
|
|
|
As at the end of the period
|
771.1
|
253.1
|
1,024.2
|
|
430.8
|
-
|
430.8
|
|
421.0
|
-
|
421.0
|
Goodwill and intangible assets arising from business acquisitions in the six months to 30 June 2008 related to the acquisition of Foseco (note 14).
|
|
|
|
|
|
|
Total parent
|
|
|
|
|
Issued
|
Share
|
|
|
|
company
|
|
|
|
|
share
|
premium
|
Other
|
Retained
|
|
shareholders’
|
Minority
|
Total
|
|
|
capital
|
account
|
reserves
|
earnings
|
|
equity
|
interests
|
equity
|
|
|
£m
|
£m
|
£m
|
£m
|
|
£m
|
£m
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
As at 1 January 2007
|
19.3
|
6.3
|
(17.0)
|
466.2
|
|
474.8
|
9.4
|
484.2
|
|
Recognised income and expense for the year
|
-
|
-
|
16.8
|
128.2
|
|
145.0
|
4.0
|
149.0
|
|
Shares issued in the year
|
2.0
|
-
|
-
|
-
|
|
2.0
|
-
|
2.0
|
|
Arising on the exercise of options
|
-
|
1.7
|
-
|
-
|
|
1.7
|
-
|
1.7
|
|
Recognition of share-based payments
|
-
|
-
|
-
|
3.4
|
|
3.4
|
-
|
3.4
|
|
Arising from issue of shares
|
-
|
-
|
-
|
148.8
|
|
148.8
|
-
|
148.8
|
|
Dividends paid
|
-
|
-
|
-
|
(21.7)
|
|
(21.7)
|
(1.5)
|
(23.2)
|
|
As at 1 January 2008
|
21.3
|
8.0
|
(0.2)
|
724.9
|
|
754.0
|
11.9
|
765.9
|
|
Recognised income and expense for the period
|
-
|
-
|
44.1
|
62.7
|
|
106.8
|
0.8
|
107.6
|
|
Shares issued in the period
|
-
|
0.1
|
-
|
-
|
|
0.1
|
-
|
0.1
|
|
Recognition of share-based payments
|
-
|
-
|
-
|
2.2
|
|
2.2
|
-
|
2.2
|
|
Treasury shares - additions
|
-
|
-
|
-
|
(3.9)
|
|
(3.9)
|
-
|
(3.9)
|
|
- disposals
|
-
|
-
|
-
|
0.2
|
|
0.2
|
-
|
0.2
|
|
Dividends paid
|
-
|
-
|
-
|
(18.6)
|
|
(18.6)
|
(1.8)
|
(20.4)
|
|
Acquisition of minority interest
|
-
|
-
|
-
|
-
|
|
-
|
2.1
|
2.1
|
|
As at 30 June 2008
|
21.3
|
8.1
|
43.9
|
767.5
|
|
840.8
|
13.0
|
853.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Foreign
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
1 January
|
|
exchange
|
|
|
|
Non-cash
|
|
|
|
30 June
|
|
|
|
2008
|
|
adjustment
|
|
Acquisitions
|
|
movements
|
|
Cash flow
|
|
2008
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term deposits
|
|
118.2
|
|
-
|
|
-
|
|
-
|
|
(118.2)
|
|
-
|
|
Cash at bank and in hand
|
|
49.2
|
|
-
|
|
-
|
|
-
|
|
42.2
|
|
91.4
|
|
Bank overdrafts
|
|
(14.2)
|
|
-
|
|
-
|
|
-
|
|
0.8
|
|
(13.4)
|
|
|
|
|
|
|
|
|
|
|
|
(75.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings, excluding bank overdrafts
|
|
|
|
|
|
|
|
|
|
|
||
|
Current
|
|
(4.6)
|
|
-
|
|
(5.1)
|
|
-
|
|
(7.7)
|
|
(17.4)
|
|
Non-current
|
|
(199.5)
|
|
(2.4)
|
|
(121.3)
|
|
-
|
|
(452.0)
|
|
(775.2)
|
|
Capitalised borrowing costs
|
|
0.3
|
|
-
|
|
-
|
|
8.0
|
|
-
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
(459.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net debt
|
|
(50.6)
|
|
(2.4)
|
|
(126.4)
|
|
8.0
|
|
(534.9)
|
|
(706.3)
|
Cash acquired on the acquisition of Foseco of £20.5m (note 14) is shown within the cash flow column in the table above, to conform with the requirements of IAS 7, Cash Flow Statements, whereby the cash paid for the acquisition of subsidiaries and joint ventures, as reported in the condensed Group statement of cash flows, is reported net of cash and cash equivalents acquired.
On 10 October 2007, the Group entered into a new multi-currency, committed bank facility for approximately £750m, raised for the purpose of the acquisition of Foseco. The facility was used during the period, in combination with the net proceeds from the share placing on 11 October 2007, to finance the acquisition of Foseco (note 14).
|
|
|
30 June
|
|
31 Dec
|
|
30 June
|
|
|
|
2008
|
|
2007
|
|
2007
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
Employee benefits - net surpluses
|
|
|
|
|
|
|
|
UK defined benefit pension plans
|
|
4.6
|
|
-
|
|
-
|
|
ROW defined benefit pension plans
|
|
0.1
|
|
-
|
|
-
|
|
|
|
4.7
|
|
-
|
|
-
|
|
Employee benefits - net liabilities
|
|
|
|
|
|
|
|
UK defined benefit pension plans
|
|
2.2
|
|
26.0
|
|
62.4
|
|
US defined benefit pension plans
|
|
41.6
|
|
34.6
|
|
29.9
|
|
ROW defined benefit pension plans
|
|
33.4
|
|
14.0
|
|
12.8
|
|
Other post-retirement benefit obligations, mainly US healthcare arrangements
|
|
20.6
|
|
21.5
|
|
21.6
|
|
|
|
97.8
|
|
96.1
|
|
126.7
|
|
|
|
Period end rates of exchange
|
|
Average rates of exchange for the period
|
||||||||
|
|
|
30 June 2008
|
|
30 June 2007
|
|
31 Dec 2007
|
|
Half year 2008
|
|
Half year 2007
|
|
Full year 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US dollar
|
|
2.00
|
|
2.01
|
|
1.99
|
|
1.97
|
|
1.97
|
|
2.00
|
|
Euro
|
|
1.26
|
|
1.48
|
|
1.36
|
|
1.29
|
|
1.48
|
|
1.46
|
|
Czech Republic koruna
|
|
30.18
|
|
42.65
|
|
36.26
|
|
32.61
|
|
41.75
|
|
40.60
|
|
Polish zloty
|
|
4.23
|
|
5.59
|
|
4.93
|
|
4.52
|
|
5.70
|
|
5.53
|
|
Chinese renminbi
|
|
13.67
|
|
15.30
|
|
14.58
|
|
13.95
|
|
15.21
|
|
15.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This information is provided by RNS
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