Preliminary Results
Cookson Group PLC
24 February 2004
24 February 2004
ANNOUNCEMENT OF 2003 PRELIMINARY RESULTS
Financial Highlights
• Significant improvement in Group profits
- 32.6m profit before tax* versus £4.1m last year
- headline EPS* of 1.1p compared to 0.1p in 2002
• Operating profit* for continuing operations up 13% at constant exchange
rates to £81.2m
• Electronics and Ceramics divisions achieve sound profit growth
• Strong recovery in Electronics division in Q4 2003
• Group net debt decreases by £70m
Strategic Initiatives
• Loss-making businesses addressed
- Speedline sold
- Laminates near break-even in Q4 2003
- French brickmaking activities sold
- Precious Metals European operations being restructured
• Increased Asia-Pacific presence and investment
• New bank facilities arranged
Current Trading
• Activity levels for year to date above same period in 2003
Commenting on the Group's results and current trading, Stephen Howard, Group
Chief Executive, said:
'Today we report a strong improvement in Cookson's performance. It is
heartening to see that the recovery, for which we have done much to prepare, is
now starting to show through in the Group's results. We are, however, not
complacent and believe there is room for further improvement. Our major
businesses are well positioned to deliver such improvements in the current year,
and this supports the strategy of the past two years to strengthen our balance
sheet and to build on our core businesses.
'Underlying trading conditions in our major markets in the year to date have
been consistent with the much improved fourth quarter of 2003. Against this
background, the quality of Cookson's businesses provides a strong platform for
revenue and profit growth. The significantly lower cost base across all three
divisions gives us a high level of operational gearing, and we will continue to
manage the business tightly, focusing on cash generation, internal efficiency,
margin enhancement and organic growth.'
*(before goodwill amortisation and exceptional items)
OVERVIEW
Summary of results
Turnover for the Group's continuing operations of £1,624 million was 1% higher
and operating profit of £81 million rose by 13% over 2002 at constant exchange
rates. This, in turn, resulted in a 0.5 percentage point improvement in return
on sales to 5% in 2003.
Higher operating profit from continuing activities and significantly lower
interest costs led to a marked increase in profit before tax, goodwill
amortisation and exceptional items to £33 million, up from £4 million in the
prior year. Headline earnings per share were 1.1 pence compared with 0.1 pence
in 2002.
Continued tight management of working capital and capital expenditure, as well
as asset sales, led to the generation of £37 million of positive net cash flow
in 2003 and, together with a positive exchange rate effect, Group net debt at
year-end was £70 million lower than last year.
Market conditions
Trading conditions throughout many of the Group's major markets improved in 2003
with the first positive signs beginning to appear towards the end of the first
half. Momentum then built through the second half, particularly for the
Electronics division in the fourth quarter.
The Electronics division benefited from a recovery in the global electronics
industry in 2003, with demand increasing across many end markets such as PCs and
mobile handsets. The electronics materials industry was led out of its two and
a half year depression by semiconductor manufacturing which began to recover in
the second quarter of 2003. This ultimately led to a resurgence in demand for
PCB fabrication materials in the fourth quarter of 2003, particularly laminates,
which usually lags changes in output of semiconductors by several months.
Steel production in the Ceramics division's established markets - USA and Europe
- was broadly unchanged for the year as a whole, although there was a
quarter-on-quarter improvement in activity in the fourth quarter. The
division's emerging steel markets remained strong. The Foundry sector
experienced some weakness, although conditions in the Glass and Industrial
Processes sectors were stable.
The Precious Metals division faced difficult market conditions in 2003.
Well-documented inventory reductions by major jewellery retailers in the USA
during the first half were followed by wavering consumer sentiment in general,
and a fashion trend towards silver and gemstone jewellery rather than carat gold
items. The high and volatile gold price in 2003 also had a negative impact on
the business.
Strategic Initiatives
Action was taken during the course of the year to deal with two of the
Electronics division's loss-making business sectors: Speedline and Laminates.
Speedline had incurred heavy losses since 2001 as a result of the electronics
industry downturn and severe overcapacity in PCB manufacturing, and registered a
loss of £25 million and cash outflows of £18 million in 2002. This level of
losses and cash outflow continued at a similar rate in 2003. Following an
announcement in July to exit the business, Speedline was sold in November 2003.
Following on from a 55% reduction in the Laminates sector's workforce in 2001-2
in the USA and Europe, a major rationalisation of the sector's manufacturing
capacity was embarked upon in 2003, encompassing the closure of four plants in
the USA and Europe. This programme will be completed during the first half of
2004. As a result, Laminates' losses of £34 million in 2002 virtually halved in
2003 and the sector operated near break-even in the fourth quarter.
Further measures to deal with underperforming businesses resulted in a cost
cutting programme being initiated in the Precious Metals division during the
first half in response to US retailer inventory reductions. In addition, a
programme to rationalise the division's loss-making French jewellery business
and to restructure its other European activities has recently commenced. In the
Ceramics division, a loss-making French brickmaking operation was sold at the
end of 2003.
Management continued to increase the geographic footprint of Cookson's
businesses in the fast growing Asia-Pacific region during 2003. The region now
accounts for some 35% of the Electronics division's total sales, as both the
migration of its Western customer base to Asia-Pacific, particularly China,
continues and Asian domestic demand ramps up. The Electronics division both
increased and optimised capacity to ensure that it is well positioned to take
advantage of this structural shift in its market, whilst retaining the
substantial presence that is necessary to serve fully the global electronics
OEMs. In the Ceramics division, one new facility was opened in China during
2003 and capacity at another expanded to meet the demands of steel and glass
customers. Cookson's Asia-Pacific operations continue to generate strong profit
growth and high margins.
Lastly, new banking facilities were arranged in 2003 to ensure that the Group
can both meet near-term maturities and support the plans of its businesses in
the longer term.
DIRECTORATE
Anthony Alexander, a non-executive Director since December 1996, and currently
the Company's senior independent Director, retires from the Board at this year's
AGM. Kent Atkinson, who joined the Board in April 2003, succeeds Mr. Alexander
as senior independent Director with immediate effect.
CURRENT TRADING AND OUTLOOK
Underlying trading conditions in Cookson's major markets in the year to date
have been consistent with the fourth quarter of 2003. In the Electronics
division, activity levels for the first six weeks of 2004 were well up on the
same period last year and have generally maintained the improved pace of the
fourth quarter of 2003, other than for the effects of the Chinese New Year
holidays. Steel production levels in the USA and in other major markets have
remained broadly the same in the current year as in the fourth quarter of 2003.
Trading activity in the Precious Metals division's markets is similar to that of
the same period last year.
The quality of Cookson's businesses provides a strong platform for revenue and
profit growth as its markets continue to improve. The significantly lower cost
base across all three divisions provides Cookson with a high level of
operational gearing, especially in the Electronics division. The Group will
continue to be managed tightly, with a particular emphasis on cash generation,
internal efficiency and organic growth. Further opportunities for efficiency
and margin enhancement will be pursued vigorously to ensure that Cookson
continues to improve its financial and competitive position in 2004.
RESULTS OF OPERATIONS
Group - Continuing operations
Turnover (£m) Operating Profit (£m) Return on Sales (%)
2003 2002 2003 2002 2003 2002
First half 795 821 32.1 27.7 4.0 3.4
Second half 829 812 49.1 45.5 5.9 5.6
Year 1,624 1,633 81.2 73.2 5.0 4.5
(Note. The above data and those in the divisional tables included in the Results
of Operations: are at reported exchange rates; exclude the results of
discontinued operations, primarily Speedline which was sold in November 2003 and
Precision Products which was sold in January 2003; include the Group's share of
results attributable to joint ventures; and operating profit is stated before
goodwill amortisation and exceptional items. The impact of acquisitions was
immaterial in 2003 and 2002.)
Turnover. Turnover for 2003 was 1% lower than 2002 but up 1% at constant
exchange rates, i.e. expressing turnover for 2002 at 2003 exchange rates. In
the second half of 2003, turnover increased by 2% over the second half of 2002
at reported exchange rates and by 1% at constant exchange rates. Turnover in
the Electronics division improved sharply in the last three months of 2003,
resulting in turnover for the Group in the fourth quarter increasing by 6% over
the same period last year at constant exchange rates.
Operating profit. Despite turnover being 1% lower than 2002, operating profit
increased by 11% in 2003 and by 13% at constant exchange rates. Improvements in
operating profit over 2002 were achieved by the Electronics (£12.3 million) and
the Ceramics (£3.8 million) divisions, whereas for the Precious Metals division
operating profit was down £8.1 million. Return on sales for the Group's
continuing operations increased by 0.5 percentage points in 2003 to 5.0% and
rose to 5.9% in the second half of the year.
Electronics division
Turnover (£m) Operating Profit (£m) Return on Sales (%)
2003 2002 2003 2002 2003 2002
First half 296 316 7.0 3.0 2.4 0.9
Second half 308 295 15.6 7.3 5.1 2.5
Year 604 611 22.6 10.3 3.7 1.7
Turnover. Turnover decreased by 1% in 2003 versus 2002 but increased by 2% at
constant exchange rates. Notably, turnover in the fourth quarter was the
highest for the division since the second quarter of 2001 and grew by 14% in
comparison with the same period last year, at constant exchange rates. The
division's relative contribution to Group turnover of continuing operations
remained at 37% in 2003.
During the year, a broad recovery in the global electronics industry began to
take hold with demand increasing across many end use markets. The improving
health of worldwide economies in general, and the US economy in particular, also
had a positive impact on electronics production. Computing and communications
equipment continued to be the main drivers of industry demand, representing some
two-thirds of the total end market. The electronics materials industry, which
is at the 'front end' of the manufacturing chain for these end markets, was led
out of its two and a half year long depression by semiconductor manufacturing
which showed the first real signs of a sustainable recovery at the end of the
first half. This, in turn, resulted in a resurgence in demand for Cookson's PCB
fabrication materials in the fourth quarter, particularly for laminates, which
usually lags semiconductors by several months.
The Laminates sector experienced a sharp increase in turnover in the fourth
quarter, rising by 33% at constant exchange rates over the same period last year
and, after two very challenging years, the sector's turnover for 2003 increased
by 5% to £116 million at constant exchange rates. This was due mainly to strong
growth in Asia-Pacific and US markets, the benefits of the new product
introductions - including GETEK - and market share gains.
The Chemistry sector made solid progress during 2003; turnover of £247 million
was 3% higher than the previous year at constant exchange rates, with sales of
the sector's PCB fabrication product range increasing strongly in the fourth
quarter.
Turnover for the Assembly Materials sector of £241 million was 1% lower in 2003
at constant exchange rates, largely due to the impact of SARS in the first half
and a fall in demand for SCS's conformal coating services, previously part of
the Speedline sector. Demand for the sector's PCB assembly materials tends to
lag that for PCB fabrication materials and the sector did not therefore
experience the same fourth quarter surge in offtake as the Laminates and
Chemistry sectors.
The division's customer base continued to migrate to the Asia-Pacific region
during 2003. In 2003, Asia-Pacific accounted for 35% of the Electronics
division's sales, with the US and European operations accounting for 29% and 33%
respectively.
Operating profit. Despite essentially flat turnover for 2003 as a whole, the
Electronics division's operating profit and return on sales more than doubled.
This resulted from the extensive cost cutting initiatives undertaken over the
past two years which have reduced the division's cost base significantly and
from the improvement in activity during the fourth quarter.
In the Laminates sector, operating losses virtually halved in 2003 to £17.4
million. This dramatic improvement resulted from increased sales in the latter
part of the year and from the benefits accruing from the extensive cost cutting
and capacity reduction measures in the USA and Europe which the sector has
undertaken. Importantly, Laminates operated near break-even in the fourth
quarter, a significant improvement over the same period last year when an
operating loss of more than £9 million was incurred.
The Chemistry sector recorded a 38% increase in operating profit to £22.2
million in 2003 and return on sales rose to 9.0% as a result of the introduction
of higher margin products and improved manufacturing efficiency.
Operating profit for the Assembly Materials sector fell by 38% in 2003 to £17.8
million on lower sales than 2002. The sector's performance was affected by a
number of factors: the impact of SARS in the first half; a sharp and unexpected
increase in the price of the sector's key raw material, tin, in the second half
which could not immediately be passed on to customers in all cases; and a
disappointing year from SCS.
Ceramics division
Turnover (£m) Operating Profit (£m) Return on Sales (%)
2003 2002 2003 2002 2003 2002
First half 351 343 24.5 18.4 7.0 5.4
Second half 360 357 25.5 27.8 7.0 7.8
Year 711 700 50.0 46.2 7.0 6.6
Turnover. The Ceramics division's turnover for 2003 was 2% higher than 2002 at
both reported and constant exchange rates. The division's relative contribution
to Group turnover of continuing operations increased from 43% in 2002 to 44% in
2003.
Approximately 70% of the division's turnover is linked to the level of steel
produced in the markets within which it operates. Steel production in the USA
and Europe was broadly unchanged compared to 2002, with improving trends evident
during the latter part of the year; these regions each account for 32% of the
division's turnover. The rationalisation and restructuring which commenced in
the US steel industry in 2001-2002 continued in 2003. Steel production grew
strongly in emerging markets, particularly China, India, Russia, Ukraine and
Brazil; the division's sales in these regions collectively account for some 16%
of its total sales. As a result, turnover for the division's Iron and Steel
sector rose 2% at constant exchange rates, consistent with the rate of growth in
steel production in the regions in which it operates.
In the Glass sector, where conditions in the USA were stable, difficult in
Europe and buoyant in Asia - largely as a result of Chinese demand for
architectural and automotive applications - turnover increased by 4% in 2003
over the previous year at constant exchange rates. Conditions in the Foundry
and Industrial Processes sectors' traditional US and UK markets were generally
stable whilst performance in Asia was robust, leading to 4% growth in turnover
for these sectors at constant exchange rates.
Operating profit. Operating profit of the Ceramics division in 2003 was 8%
higher than 2002 and up 9% at constant exchange rates. The year's results were
positively impacted by strong growth in profits by the Iron and Steel sector and
by the continued focus of management on increasing manufacturing efficiency.
These results reflect the resilience of the division. In addition, in its first
complete year of operation following the complex three-year programme to
integrate the Premier Refractories acquisition, the division demonstrated
further steady improvement in profitability, with return on sales rising from
6.6% in 2002 to 7.0% in 2003.
Precious Metals division
Turnover (£m) Operating Profit (£m) Return on Sales (%)
2003 2002 2003 2002 2003 2002
First half 148 162 0.7 6.3 0.5 3.9
Second half 161 160 7.9 10.4 4.9 6.5
Year 309 322 8.6 16.7 2.8 5.2
Turnover. The Precious Metals division's turnover for 2003 was down by 4%
versus 2002 and by 3% at constant exchange rates. Net sales value, i.e.
turnover excluding the precious metal content, fell by 7% to £125 million,
highlighting the difficult market conditions the division experienced,
particularly in the first half. The division's relative contribution to Group
turnover decreased from 20% in 2002 to 19% in 2003.
Across the US retail industry, major destocking took place in the first half of
the year which impacted the jewellery manufacturing industry, most particularly
by inventory reductions at major retail chains. Traditionally, the division's
turnover is higher in the second half of the year than in the first half due to
a build-up in inventory by both jewellery manufacturing customers and retailers
prior to the Christmas season. Although there was an improvement in the second
half of 2003, the holiday season surge was again less pronounced than expected.
In addition, demand for the division's largest end market product - gold
fabricated jewellery - remained relatively soft. This was largely due both to
the current fashion for silver and gemstone products and to a sharply higher and
volatile gold price. In the division's UK and Continental European businesses,
sales were also affected by muted consumer demand and difficult conditions in
France.
Operating profit. The Precious Metals division's operating profit was 49% lower
in 2003 than 2002 and down by 45% at constant exchange rates. A programme to
realign the division's cost base in the USA commenced in the first half in
response to the jewellery industry's inventory realignment, which was aimed at
reducing the division's costs by some £5 million on an annualised basis. A
fundamental appraisal of the loss-making French business has been undertaken and
a significant rationalisation programme instigated, with a view to achieving a
material improvement in profitability across the European business in 2004.
Discontinued operations
Turnover and operating profit for discontinued operations was as follows.
Turnover Operating Profit
2003 2003
Date of sale 2002 2002
£m £m £m £m
Speedline November 2003 52 67 (16.1) (25.3)
Precision Products January 2003 2 63 - 8.6
Other Various 4 29 (0.9) 0.3
Total 58 159 (17.0) (16.4)
Details on the disposals of Speedline and Precision Products are set out later
in this statement.
GROUP PROFIT AND LOSS
Profit/(loss) before taxation
Profit/(loss) before Tax* (£m)
2003 2002
First half 5.5 (11.9)
Second half 27.1 16.0
Year 32.6 4.1
*(at reported exchange rates and before exceptional items and goodwill
amortisation)
Group profit before tax, exceptional items and goodwill amortisation was £32.6
million for 2003, £28.5 million higher than 2002. This increase arose as
follows:
• 8.0 million increase in operating profit from continuing operations;
• 21.1 million decrease in interest;
• partly offset by a £0.6 million increase in net losses from
discontinued activities.
The decrease in interest in 2003 from £52.7 million to £31.6 million arose
primarily from the Group's average borrowings being significantly lower than
2002. This was due to the rights issue in August 2002, the sale of Precision
Products, positive free cash flow generation and a favourable exchange rate
impact. The Group's average borrowing rate for 2003 of approximately 6.0%,
excluding amortisation of fees, was 0.6% less than the previous year. Exchange
translation effects resulted in a reduction in interest costs of £2.2 million.
Group loss before taxation, after all exceptional items (£185.2 million) and
goodwill amortisation (£34.7 million), amounted to £187.3 million compared with
a loss of £96.9 million in 2002.
Operating exceptional items
Operating exceptional items were £22.2 million in 2003 and included £7.3 million
of asset write-offs. Of the total charge, £18.5 million arose in the
Electronics division, primarily related to the programme to optimise the
manufacturing capacity of the Laminates sector in the USA and Europe. A further
operating exceptional charge of approximately £1 million is expected to accrue
in 2004 to complete these initiatives. A charge of £3 million is also
anticipated in 2004 in relation to new initiatives being undertaken in the
Ceramics division's US operations.
In January 2004, a rationalisation programme in the Precious Metals division's
loss-making operations in France was initiated. This has resulted in a charge of
£2.4 million being raised in 2003; information on the further exceptional costs
and likely benefits that are expected to arise from this action will be provided
when the extent of the programme has been finalised.
Exceptional interest charge
An exceptional interest charge of £2.4 million arose from the one-off
amortisation of fees relating to the £450 million syndicated credit facility
that was raised in 2001 and replaced in December 2003 with a new £188 million
syndicated credit facility.
Non-operating exceptional items
Net loss on sale or closure of operations
A net loss on sale of operations of £165.7 million, consisting of a net loss
before goodwill of £23.2 million and a write-back/off of goodwill of £142.5
million, arose primarily from the following disposals:
• Precision Products: In January 2003, the Precision Products sector of the
Precious Metals division was sold, resulting in a net surplus on disposal of
£18.1 million and a write-back/off of goodwill of £19.4 million;
• Speedline: In November 2003, Speedline - the PCB assembly equipment sector
of the Electronics division - was sold, resulting in a net loss on
disposal of £26.6 million and a write-back/off of goodwill of £114.9
million, £87.8 million of which had been impaired in 2002; and
• French brickmaking business: In December 2003, the Ceramics division sold
its loss-making French brickmaking business, resulting a net loss on
disposal of £7.2 million and a write-off of goodwill of £8.2 million.
Net profit/(loss) on sale of fixed assets
A profit in 2003 of £5.1 million (2002: loss of £10.9 million) arose from the
sale of properties that were surplus to the Group's requirements.
Taxation
The Group recorded a net tax charge of £9.8 million on profit before tax,
goodwill amortisation and exceptional items; this represents an effective tax
rate of 30%, the same rate as in 2002. In addition, a tax charge of £5.0
million arose in 2003 on net exceptional charges and goodwill amortisation.
Earnings per share (EPS)
Headline EPS, which is based on profit after tax but before goodwill
amortisation and all exceptional items, amounted to 1.1 pence per share in 2003
(2002: 0.1 pence). The Directors believe this basis of calculating EPS gives
the most appropriate measure of the underlying earnings of the Group for the
year. The basic and fully diluted loss per share, after goodwill amortisation
and exceptional items, was 10.9p (2002: 8.7p).
The average number of shares in issue during 2003 was 1,880 million (2002: 1,129
million) and the number of shares in issue at 31 December 2003 was 1,892
million.
Dividends
No dividends were paid in 2003 or 2002 or are proposed for 2003. This is
consistent with the dividend policy outlined in December 2001 in which the Board
stated that no cash dividends would be paid until certain financial targets had
been achieved. This policy will remain under review.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow statement
Cash flows from operating activities
In 2003, the Group generated £107.5 million from operating activities. This was
£25.3 million less than in 2002 with the decrease arising as follows:
• £4.1 million increase in EBITDA for continuing operations to £129.6 million;
• decrease in EBITDA for discontinued operations of £4.1 million;
• a £31.5 million lower reduction in working capital than that achieved in
2002; and
• decrease in cash outlaid for rationalisation costs of £6.2 million.
Over the past three years, the Group has significantly reduced its investment in
working capital, both in response to lower activity levels and as a result of
wide-ranging management initiatives. This is evidenced by the percentage of
trade working capital to sales for the Group decreasing from 26.2% in 2001 to
22.7% in 2003; over the same three-year period, cash inflow from a reduction in
trade working capital has amounted to £191 million.
Cash outlaid for rationalisation costs of £14.0 million arose primarily in the
Electronics division, and in particular for the programme to reduce capacity in
the Laminates sector. In total, some £10 million is expected to be outlaid in
2004 for rationalisation programmes, excluding amounts for the programme now
underway in the Precious Metals division's French operations.
Capital expenditure
Payments to acquire fixed assets increased by £5.3 million to £48.5 million in
2003, representing 0.9 times depreciation compared with 0.7 times in 2002. The
major projects undertaken in 2003 were: the commissioning of two new facilities
in China and a semiconductor copper plant in the USA by the Electronics
division; and the expansion of the existing plant and the commissioning of a new
facility in China and a new solar crucible plant in the Czech Republic by the
Ceramics division.
Receipts from the disposal of fixed assets, primarily for properties, were £5.8
million in 2003, down from £8.0 million in 2002.
Operating cash flow
Operating cash flow for 2003 for the Group, i.e. cash flow from operating
activities plus dividends received from joint ventures less capital expenditure,
amounted to £67.0 million. Of this amount, discontinued operations had
operating cash outflows of £22.2 million whereas continuing operations generated
cash inflows of £89.2 million. This compares favourably with an operating profit
before exceptional items and goodwill amortisation of £81.2 million for
continuing operations for 2003. The high rate of cash conversion, i.e.
operating cash flow as a percentage of operating profit, that was achieved in
2003 has been a consistent feature of Cookson's performance in the last five
years, with the cash conversion rate for the Group's continuing operations being
98% over the five year period.
Net interest paid
Net cash outflows for interest paid in 2003 were £29.1 million compared with
£45.8 million in 2002. The decrease was primarily due to a significant
reduction in net borrowings, lower average interest rates than in 2002 and a
favourable exchange rate impact, partly offset by £5.0 million lower cash
proceeds from the close-out of long dated interest rate swaps in 2003.
Taxation
Tax cash outflows for 2003 were £20.7 million compared to £10.8 million inflows
in 2002. The increase partly reflects higher payments on account for 2003 tax
liabilities due to increased profitability in operations outside the USA and UK.
More significantly, in 2002 the Group received substantial tax refunds of
£26.4 million arising from loss carry-backs, particularly in the USA, compared
to £3.3 million in tax refunds in 2003.
Free cash flow
As a result of the above, free cash inflow before and after dividends was £15.7
million in 2003 compared with £63.8 million in 2002. This is the ninth year in
succession that the Group has generated positive free cash flow after dividends;
over this period, £660 million of free cash flow has been generated before
dividends and £228 million after dividends.
Acquisitions and disposals
Acquisitions. In 2003, net cash outflow for acquisitions was £19.1 million of
which £12.7 million was in respect of deferred consideration for prior period
acquisitions and the balance for the acquisition of the GETEK undertaking and
another small acquisition. The balance owing for deferred consideration for
prior period acquisitions is £22.1 million, of which £9.7 million falls due in
2004.
Disposals. Net cash inflow from disposals amounted to £49.7 million and
primarily relates to the disposal of: the Precision Products businesses (£43.7
million); the Group's 45% interest in Ebara (formerly within the Chemistry
sector of the Electronics division); and of Speedline. In addition, outlays in
respect of other costs, including prior years' disposals, amounted to £9.1
million.
Net cash inflow before financing
The aggregate effect of the above cash flows resulted in a net cash inflow
before financing of £37.2 million for 2003 compared with £35.8 million in 2002.
GROUP BORROWINGS
The following table presents the Group's net debt position at 31 December 2002
and 2003:
At 31 December 2003 (£m) At 31 December 2002 (£m)
US Private Placement loan notes 318.4 353.0
Convertible bonds 80.0 80.0
Committed bank facilities - 28.1
Other loans, overdrafts, other 16.9 9.6
Gross borrowings 415.3 470.7
Cash and short-term deposits (56.8) (42.5)
Net debt 358.5 428.2
The Group's net debt decreased by £69.7 million in 2003 primarily due to net
cash inflow of £37.2 million and a positive translation exchange rate adjustment
of £37.6 million.
The Group's current long-term borrowing requirements have been satisfied by $570
million (£318.4 million) of US Private Placement loan notes that are due for
repayment between 2005 and 2012. The Group's near-term and mid-term borrowing
requirements have been met primarily by a £188 million committed syndicated bank
facility that was arranged in December 2003. This facility consists of two
tranches: a £108 million revolving credit facility that matures in December
2006; and an £80 million term facility that matures in December 2005 which may
only be drawn down, if necessary, to repay the £80 million convertible bonds
that are due for repayment in November 2004. As at 31 December 2003, there
were no drawings against either tranche of the syndicated bank facility. Drawn
amounts under the credit facility are secured against certain assets of some of
the Group's subsidiaries.
CURRENCY
The principal exchange rates used for the period were as follows:
Year ended 31 December
2003 2002 2003 2002
Average rate Year-end rate
US dollar ($ per £) 1.63 1.50 1.79 1.61
Euro (€ per £) 1.45 1.59 1.42 1.53
Singapore dollar (S$ per £) 2.84 2.69 3.04 2.79
Japanese yen (Y per £) 189 188 192 191
Given that the 31 December 2003 US dollar rate is significantly weaker than the
2003 average rate, the table below has been provided for illustrative purposes
only and as a guide to the effect on the Group had results been translated at
the year-end rate rather than the 2003 average rates for all currencies.
Results for 2003 (£m)*
At 2003 average At 31 December
rates 2003 rates
Sales - continuing operations 1,624 1,561
Operating profit - continuing operations 81.2 76.8
- discontinued operations (17.0) (15.6)
64.2 61.2
Interest (net) (31.6) (29.2)
Profit before tax 32.6 32.0
*(before goodwill amortisation and exceptional items)
PENSIONS AND OTHER POST-EMPLOYMENT PLANS
The Group has defined benefit pension plans, principally in the UK and USA. The
valuation deficit on these plans, net of notional deferred tax and balance sheet
accruals, if accounted for in accordance with FRS 17, would have resulted in an
estimated reduction in shareholders' funds of £85.0 million as at 31 December
2003 (2002: £73.2 million). The increase in net liability arises from changes in
actuarial assumptions relating to bond yields, inflation expectation and
mortality rates which have more than offset a £38.6 million (18%) increase in
the market value of the assets of the funds since the end of 2002. As at 31
December 2003, 64% of the pension plans' £254.8 million assets were invested in
equities, with the balance mainly in bonds.
After consultation with the trustees of the Company's UK and US pension plans
early in 2003, cash contributions to these plans were increased by £5.0 million
and £1.3 million respectively in 2003. These increases in cash contributions
were designed to take into account both the valuation deficit and the long-term
nature of the funding of the plans. The charge to the profit and loss account
in 2003 for the UK pension plan was, however, unaffected by these increased cash
contributions.
Actuarial valuations of the UK and US plans are carried out tri-annually and
annually respectively. The next formal valuation of the UK plan takes place as
at 31 December 2003, although the results will not be available until May 2004.
At that time, the rate of cash contributions and accrual rates for 2004 will be
determined.
The Group has various post-employment plans which, based on actuarial estimates,
have future liabilities of £28.5 million. Whilst all of these liabilities are
unfunded, the profit and loss account bears the appropriate cost to meet them.
Shareholder/analyst enquiries:
Cookson Group plc Tel: 020 7061 6500
Stephen Howard, Group Chief Executive
Dennis Millard, Group Finance Director
Lisa Williams, Investor Relations Manager
Press enquiries:
Hogarth Partnership Tel: 020 7357 9477
John Olsen
Copies of Cookson's 2003 Annual Report will be posted to the shareholders of the
Company on 13 April and will be available on the Company's website and at the
Registered Office of the Company after that date.
Cookson management will make a presentation to analysts on 24 February at 9:00am
(UK time). This will be broadcast live on Cookson's website. An archive version
of the presentation will be available on the website from 25 February.
Cookson Group plc, 265 Strand, London WC2R 1DB
Registered in England and Wales No. 251977
www.cooksongroup.co.uk
Forward Looking Statements
This announcement contains certain forward looking statements regarding the
Group's financial condition, results of operations, cash flows, dividends,
financing plans, business strategies, operating efficiencies or synergies,
budgets, capital and other expenditures, competitive positions, growth
opportunities for existing products, plans and objectives of management and
other matters. Statements in this document that are not historical facts are
hereby identified as 'forward looking statements' for the purpose of the safe
harbour provided by Section 21E of the Exchange Act and Section 27A of the
Securities Act. Such forward looking statements, including, without limitation,
those relating to the future business prospects, revenues, working capital,
liquidity, capital needs, interest costs and income, in each case relating to
Cookson, wherever they occur in this document, are necessarily based on
assumptions reflecting the views of Cookson and involve a number of known and
unknown risks, uncertainties and other factors that could cause actual results,
performance or achievements to differ materially from those expressed or implied
by the forward looking statements. Such forward looking statements should,
therefore, be considered in light of various important factors. Important
factors that could cause actual results to differ materially from estimates or
projections contained in the forward looking statements include without
limitation: economic and business cycles; the terms and conditions of Cookson's
financing arrangements; foreign currency rate fluctuations; competition in
Cookson's principal markets; acquisitions or disposals of businesses or assets;
and trends in Cookson's principal industries.
The foregoing list of important factors is not exhaustive. When relying on
forward looking statements, careful consideration should be given to the
foregoing factors and other uncertainties and events, as well as factors
described in documents the Company files with the UK and US regulators from time
to time including its annual reports and accounts.
Such forward looking statements speak only as of the date on which they are
made. Except as required by the Rules of the UK Listing Authority and the London
Stock Exchange and applicable law, Cookson undertakes no obligation to update
publicly or revise any forward looking statements, whether as a result of new
information, future events or otherwise. In light of these risks, uncertainties
and assumptions, the forward looking events discussed in this report might not
occur.
Group Profit and Loss Account
for the year ended 31 December 2003
2003 2002
Before Exceptional Before Exceptional
exceptional items and exceptional items and
items and goodwill items and goodwill
goodwill amortisation goodwill amortisation
amortisation (notes 2,3,8) Total amortisation (notes 2,3,8) Total
note £m £m £m £m £m £m
Turnover, including joint ventures
Continuing operations 1,623.9 - 1,623.9 1,633.1 - 1,633.1
Discontinued operations 57.8 - 57.8 158.8 - 158.8
Total turnover 1 1,681.7 - 1,681.7 1,791.9 - 1,791.9
Operating profit/(loss), including
joint ventures
Continuing operations 1 81.2 - 81.2 73.2 - 73.2
Operating exceptional items 1,2 - (22.2) (22.2) - (31.4) (31.4)
Goodwill amortisation 1 - (34.7) (34.7) - (37.9) (37.9)
Continuing operations 81.2 (56.9) 24.3 73.2 (69.3) 3.9
Discontinued operations 1 (17.0) - (17.0) (16.4) - (16.4)
Total operating profit/(loss) 64.2 (56.9) 7.3 56.8 (69.3) (12.5)
Net loss on sale of operations
Loss before goodwill written-back/off - (23.2) (23.2) - (14.5) (14.5)
Goodwill written-back/off - (142.5) (142.5) - (6.3) (6.3)
3 - (165.7) (165.7) - (20.8) (20.8)
Net profit/(loss) on sale of fixed 4 - 5.1 5.1 - (10.9) (10.9)
assets
Profit/(loss) on ordinary activities 64.2 (217.5) (153.3) 56.8 (101.0) (44.2)
before interest
Net Interest (31.6) (2.4) (34.0) (52.7) - (52.7)
Profit/(loss) on ordinary activities 32.6 (219.9) (187.3) 4.1 (101.0) (96.9)
before taxation
Taxation on profit/(loss) on ordinary (9.8) (5.0) (14.8) (1.2) 1.8 0.6
activities
Profit/(loss) on ordinary activities 22.8 (224.9) (202.1) 2.9 (99.2) (96.3)
after taxation
Minority interests (2.4) - (2.4) (2.1) - (2.1)
Profit/(loss) for the year 20.4 (224.9) (204.5) 0.8 (99.2) (98.4)
Dividends - - - - - -
Net loss transferred to reserves 20.4 (224.9) (204.5) 0.8 (99.2) (98.4)
Earnings per share - basic and
diluted 5 1.1p (10.9)p 0.1p (8.7)p
Statement of Group Cash Flows
for the year ended 31 December 2003
2003 2002
note £m £m
Net cash inflow from operating activities (see analysis below) 107.5 132.8
Dividends from joint ventures 2.2 2.4
Capital expenditure
Payments to acquire fixed assets (48.5) (43.2)
Receipts from disposal of fixed assets 5.8 8.0
(42.7) (35.2)
Operating cash flow 6 67.0 100.0
Net interest paid 7 (29.1) (45.8)
Dividends paid to minority interests (1.5) (1.2)
Taxation (20.7) 10.8
Free cash flow 15.7 63.8
Net proceeds from business divestments 49.7 3.8
Consideration for business acquisitions (19.1) (14.6)
Other, including prior year disposals costs (9.1) (17.2)
Net cash flow before financing 37.2 35.8
Issue of shares - 277.2
Refinancing costs paid (1.5) (8.5)
Change in net debt resulting from cash flow 35.7 304.5
Increase in short-term deposits - (8.9)
Decrease in debt (21.9) (285.9)
Increase in cash during the year 13.8 9.7
Analysis of Group Net Debt
Net debt at 1 January (428.2) (749.6)
Change in net debt resulting from cash flows 35.7 304.5
Foreign exchange adjustments 37.6 21.3
Refinancing and issue costs (3.6) (4.4)
Net debt at 31 December (358.5) (428.2)
Analysis of Net Cash Inflow from Operating Activities
Group operating profit before exceptional items and goodwill amortisation 64.2 56.8
Depreciation 52.6 59.8
Less: share of profit of joint ventures (2.0) (1.8)
EBITDA from subsidiaries 114.8 114.8
Net decrease in trade working capital and other movements 6.7 38.2
Rationalisation costs (14.0) (20.2)
Net cash inflow from operating activities 107.5 132.8
Group Balance Sheet
as at 31 December 2003
2003 2002
note £m £m
Fixed assets 8 916.7 1,076.0
Current assets 9 626.9 651.1
Creditors: amounts falling due within one year (430.5) (377.8)
Net current assets 196.4 273.3
Total assets less current liabilities 1,113.1 1,349.3
Creditors: amounts falling due after more than one year (412.0) (553.4)
Provisions for liabilities and charges (71.3) (67.8)
629.8 728.1
Equity capital 375.4 375.4
Reserves 10 242.6 341.9
Minority interests 11.8 10.8
629.8 728.1
Net borrowings included above:
Borrowings - short-term 95.0 13.7
- long-term 320.3 457.0
Total gross borrowings 415.3 470.7
Less: cash and short-term deposits (56.8) (42.5)
Total net borrowings 358.5 428.2
Notes to the accounts
1 Segmental analyses
The results reported for 2003 as discontinued operations mainly comprise the
Electronics division's Speedline business. Speedline was largely based in the
USA, with satellite operations in Europe and Asia. Other disposals in 2003
included the Precision Products sector of the Precious Metals division which was
sold in January 2003 and largely based in the USA, three non-core European
businesses in the Ceramics and Precious Metals divisions and a non-core
Asia-Pacific joint venture in the Electronics division. These discontinued
operations previously formed part of the Group's ongoing operations and
comparatives have been restated accordingly.
The results reported for 2002 as discontinued operations include all the
businesses disposed of in 2003 referred to above and the Dental Products
operations of the Precision Products sector and some non-core Electronics
operations, all based in the USA and disposed of in 2002.
2003 2002
Operating Operating
By division/sector Turnover profit/ Turnover profit/
(loss) (loss)
£m £m £m £m
Electronics 604.0 22.6 611.3 10.3
Assembly Materials 240.9 17.8 256.3 28.5
Chemistry 247.4 22.2 240.9 16.1
Laminates 115.7 (17.4) 114.1 (34.3)
Ceramics 711.1 50.0 699.7 46.2
Precious Metals 308.8 8.6 322.1 16.7
1,623.9 81.2 1,633.1 73.2
Goodwill amortisation - (34.7) - (37.9)
Exceptional items - (22.2) - (31.4)
Continuing operations 1,623.9 24.3 1,633.1 3.9
Discontinued operations 57.8 (17.0) 158.8 (16.4)
Total Group 1,681.7 7.3 1,791.9 (12.5)
Of the goodwill amortisation charge of £34.7m (2002: £37.9m), £17.5m related to
Electronics (2002: £19.9m), £15.1m to Ceramics (2002: £15.2m) and £2.1m to
Precious Metals (2002: £2.8m).
Of the total exceptional items of £22.2m (2002: £31.4m), £18.5m related to
Electronics (2002: £25.2m), £0.8m to Ceramics (2002: £4.3m) and £2.9m to
Precious Metals (2002: £1.9m).
2003 2002
By geographic location By By geographic By
customer location customer
of Group operations location of Group operations location
Operating Operating
Geographical Turnover profit/ Turnover Turnover (loss)/ Turnover
(loss) profit
£m £m £m £m £m £m
United Kingdom 166.2 2.8 123.6 177.9 (1.3) 135.4
Continental Europe 486.1 21.4 471.2 454.0 18.9 457.1
USA 546.4 (1.4) 519.6 622.1 5.6 536.2
Asia-Pacific 289.2 44.3 331.5 263.4 37.4 331.8
Rest of the World 136.0 14.1 178.0 115.7 12.6 172.6
1,623.9 81.2 1,623.9 1,633.1 73.2 1,633.1
Goodwill amortisation - (34.7) - - (37.9) -
Exceptional items - (22.2) - - (31.4) -
Continuing operations 1,623.9 24.3 1,623.9 1,633.1 3.9 1,633.1
Discontinued operations 57.8 (17.0) 57.8 158.8 (16.4) 158.8
Total Group 1,681.7 7.3 1,681.7 1,791.9 (12.5) 1,791.9
Of the goodwill charge of £34.7m (2002: £37.9m), £3.6m (2002: £3.6m) was in the
UK, £4.7m (2002: £4.3m) in Continental Europe, £19.0m (2002: £22.1m) in the USA,
£5.7m (2002: £6.6m) in Asia-Pacific and £1.7m (2002: £1.3m) in the Rest of the
World.
Of the exceptional items of £22.2m (2002: £31.4m), £3.2m (2002: £2.4m) was in
the UK, £8.9m (2002: £9.7m) in Continental Europe, £7.1m (2002: £19.1m) in the
USA, £2.9m (2002: £0.2m) in Asia-Pacific and £0.1m (2002: nil) in the Rest of
the World.
The majority of discontinued operations were located in the USA.
2 Operating exceptional Items
The charges of £22.2m in 2003 and £31.4m in 2002 were the result of the
implementation of initiatives aimed at ensuring that the cost base of each of
the Group's major businesses is aligned with prevailing and near-term market
conditions. The initiatives implemented included redundancy programmes, the
consolidation of facilities, plant closures, the streamlining of manufacturing
processes and the rationalisation of product lines. Of the exceptional charges,
£7.3m represents asset write-downs (2002: £16.2m), the majority of which,
together with the plant closures, were in the USA and Continental Europe.
Total cash spend in 2003 in respect of operating exceptional items was £14.0m,
leaving aggregate provisions made but unspent in respect of the above operating
exceptional items of £13.4m as at 31 December 2003.
The taxation credit attributable to operating exceptional items was £2.6m (2002:
£1.8m).
3 Net loss on sale of operations
The sale of non-core businesses in 2003 produced a net loss of £165.7m, after
goodwill written-off of £142.5m. These included the Electronics division's
Speedline businesses, sold for a loss of £141.5m after a goodwill write-off of
£114.9m in November 2003. Speedline was largely based in the USA, with
satellite operations in Europe and Asia. Other disposals in 2003 included the
Precision Products sector of the Precious Metals division which was sold in
January 2003 and largely based in the USA, three non-core European businesses in
the Ceramics and Precious Metals divisions and a non-core Asia-Pacific joint
venture in the Electronics division.
The disposal of operations in 2002 incurred a net loss of £20.8m, after goodwill
written-off of £6.3m. The businesses disposed included the Dental Products
operations of the Precision Products sector and some non-core Electronics
operations, all in the USA.
The taxation charge attributable to the sale of operations was £7.6m (2002:
nil).
4 Net (loss)/profit on sale of fixed assets
The net profit on sale of fixed assets of £5.1m in 2003 (2002: £10.9m net loss)
arose predominantly on the sale of properties in Asia and Europe. Net
consideration of £5.8m was received for these properties. The net loss of
£10.9m in 2002 included a gain of £2.3m arising on the sale and leaseback of
some UK sites, a net charge of £5.4m related to closed facilities and product
lines and a charge of £7.8m against the carrying value of the Group's ESOP
shares.
5 Earnings per share (EPS)
Basic and diluted EPS are calculated using a weighted average of 1,880m ordinary
shares in issue during the year (2002: 1,129m as adjusted for the rights issue
of August 2002).
The Directors believe that the calculation of EPS excluding goodwill
amortisation and all exceptional items, together with the associated tax charge
or credit, gives the most appropriate measure of the underlying earnings of the
Group. Using this measure, EPS amounted to 1.1p per share in 2003. This compared
to the 0.1p EPS reported in 2002. The basic and fully diluted loss per share,
after goodwill amortisation and exceptional items, was 10.9p (2002: 8.7p).
6 Operating cash flow
Operating cash flow by division/sector is as 2003 2002
follows:
£m £m
Electronics 32.9 35.7
Assembly Materials 20.9 36.3
Chemistry 39.1 17.5
Laminates (27.1) (18.1)
Ceramics 48.0 55.8
Precious Metals 8.3 14.7
Continuing operations 89.2 106.2
Discontinued operations (22.2) (6.2)
Group 67.0 100.0
7 Net interest paid
In 2003, as part of an ongoing hedging programme to optimise the mix of fixed
and floating rate debt and to maintain stable and predictable effective interest
rates, a number of interest rate swaps were closed out. This generated £5.3m
(2002: £10.3m) in cash proceeds which are included in arriving at net interest
payments for 2003 of £29.1m (2002: £45.8m).
8 Goodwill
Included in fixed assets is £505.6m of goodwill (2002: £598.3m). Goodwill
arising in 2003 amounted to £4.4m (2002: £13.3m) and all goodwill is amortised
over its estimated life of up to 20 years. Accumulated goodwill arising prior to
1998, which remains fully written-off against Group reserves, amounts to £317.8m
(2002: £430.6m).
9 Current assets
Total current assets at 31 December 2003 of £626.9m (2002: £651.1m) comprise the
following:
2003 2002
£m £m
Stocks 172.9 190.1
Debtors - amounts falling due within one year 335.0 351.7
- amounts falling due after more than one year 62.2 66.8
Cash and short-term deposits 56.8 42.5
Total current assets 626.9 651.1
In addition to the stocks recorded in the balance sheet as current assets, the
Group held precious metals on consignment terms with a total value at 31
December 2003 of £202.4m (2002: £241.3m).
10 Reserves
2003
£m
At 1 January 341.9
Loss for the financial year (204.5)
Exchange adjustments (7.6)
Goodwill written-back on disposals 112.8
At 31 December 242.6
11 Financial information
This preliminary results announcement has been prepared on the basis of the
accounting policies adopted in the Group's audited statutory accounts for 2003.
The financial statements were approved by the Board of Directors on 24 February
2004. The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2003 or 2002, but is derived
from those accounts. Statutory accounts for 2002 have been reported on by the
Company's auditor and delivered to the Registrar of Companies. The report of
the auditor was unqualified and did not contain a statement under section 237
(2) or (3) of the Companies Act 1985. These sections address whether proper
accounting records have been kept, whether the Company's accounts are in
agreement with these records and whether the auditor has obtained all the
information and explanations necessary for the purposes of their audit.
This information is provided by RNS
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