008. Adelphi: Cookson Group At Adelphi
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H o m e | Friday 04 Dec 2009
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29 Jul 1999 Announcement of 1999 Interim Report to Shareholders FOR FINANCIAL STATEMENTS CLICK HERE
Email Alerts HIGHLIGHTS OF THE 1999 INTERIM RESULTS l
l
l l
Profit before tax of £64.5 million; in line with expectations Market conditions begin to improve in the second quarter Significant progress in repositioning Group Fibre optic cable business, Focas, to be disposed
Commenting on the interim results for 1999 and the outlook, Stephen Howard, Group Chief Executive, said: "Since the beginning of the year, we have accelerated the implementation of our strategy to reposition fundamentally the Group, focusing clearly on our three world-class businesses. The emphasis will now be placed on enhancing the market leadership positions they command and grasping the growth opportunities they present. Whilst profits in the first half were down on 1998, the outcome was as expected. "Trading conditions for suppliers of materials and equipment to the electronics industry improved in the second quarter and the order books of our Electronics division strengthened, particularly in the Assembly Equipment sector. In the Ceramics division, plant loadings in our steel related activities have improved over the depressed levels that have been experienced since the second half of 1998. Generally, order books in the Engineering division at the end of the period were solid. Overall, the gradual recovery in the second quarter and the current level of orders leads us to believe that the Group's performance should continue to improve after a particularly challenging first half." STRATEGIC INITIATIVES The Group's strategy outlined to shareholders in late 1997 has been vigorously pursued and the pace of implementation accelerated. This strategy involves: l
l l
l
strengthening the leading market positions of our global businesses; investing in growth opportunities in our core activities; shedding activities that are not core to this strategy; and ensuring that the Group operates at optimum efficiency and profitability
Acquisitions Since the beginning of the year, over £350 million will have been invested in earnings enhancing acquisitions which will strengthen the market positions and growth profile of the Group's core businesses, with the following acquisitions either completed or due to be completed in the third quarter: l
Premier Refractories, a manufacturer of specialist refractory products for the steel, foundry and glass
The Group’s operations are formed into three divisions: Ceramics Electronics Precious Metals
l
l
l
industries for £260 million; Plaskon, a manufacturer of patented polymer compounds used to encapsulate electronic devices, such as semiconductors, for £77 million; IRI, a manufacturer of stencils used in assembling printed circuit boards and semi-conductors; and the glass refractory division of the German-based group, VGT-Dyko AG.
Disposals The process of withdrawing from non-core businesses has also been progressed with cash proceeds of nearly £150 million realised through: l
l
the completion of the disposals of both Cookson Fibers and Zimco, announced in February for total proceeds of £96 million; and the disposal of TAM Ceramics, announced in July, for £50 million.
Additionally, the Group has announced today that negotiations are well underway to dispose of Focas, its aerial fibre optic cable manufacturing business. Rationalisation The rationalisation programme announced in February 1999, involving the reorganisation and closure of some 30 sites, the streamlining of managerial and divisional administrative functions, and a 4% reduction in the Group's workforce is proceeding on schedule and within the costs envisaged. The aim of this initiative is to generate permanent savings and efficiencies, in order to establish a cost and operating structure that will allow the Group to optimise its competitive positions. The cost savings are expected to be substantial in the years ahead, rising to more than £14 million per annum from 2000. Summary These strategic initiatives further advance the restructuring of the Group that began in late 1997. Cookson is focused on businesses which are well positioned to leverage their strong geographic and technological positions in markets that have clear long-term growth prospects. REVIEW OF OPERATIONS The Review of Operations only covers the Continuing Operations of the Group. Discontinued Operations only comprise disposals completed during the period - Cookson Fibers and Zimco - both of which were disposed in February 1999. All financial information has been expressed at current exchange rates and operating profits are stated before goodwill amortisation and exceptional items to facilitate meaningful comparisons. Group Trading Results First half
Year
1999 £m
1998 £m
1998 £m
Sales
834
819
1,641
Operating Profit
74.3
85.3
164.4
Sales for the continuing operations of the Group for the first half of 1999 were 2% above the same period last year, with the trend versus last year improving during the first half of 1999 with a year-on-year sales decrease of 1% in the first quarter reversing to a 5% increase in the second quarter. Operating profit was £74.3 million, which represents a decrease of 13% over the first half of 1998. The profit contribution from acquisitions completed in the first half of 1999 was not significant. Premier Refractories and Plaskon are only due to be completed in the third quarter of 1999. In the Electronics division, operating profit was down 6% on 1998, however, this was a markedly improved performance
versus the second half of 1998. In the Ceramics division, operating profits fell by 37% due primarily to the exceptionally difficult conditions encountered by its steel industry customers in the USA and Europe. The Engineering division recorded a 12% increase in operating profit, with sound performances registered by all sectors. Electronics Market conditions for suppliers of materials and equipment to the electronics industry remained broadly similar to those experienced in the second half of 1998, though a gradual improvement began to take hold during the second quarter of 1999. As a consequence, sales in the second quarter were up 5% after an unchanged rate of growth in the first quarter. Operating profit for the first half was down 6%, with return on sales at 8.1% compared with 8.8% in the prior year. Electronics First half
Year
1999 £m
1998 £m
1998 £m
Sales
390
381
742
Operating Profit
31.5
33.5
59.2
Results from the Assembly Materials sector remained sound in the first half despite patchy market conditions in Europe. Sales volumes in paste, spheres and coating products were high and improved margins were achieved. Market acceptance of recent product introductions, including ball grid array (BGA) spheres and the new UP78 solder paste, continued to gather momentum and underpin a more positive outlook for the remainder of the year. The acquisition of IRI, a manufacturer of stencils used in the PCB and semiconductor packaging industries was completed in April and the business has been integrated into the Assembly Materials sector. In July, the acquisition of the Plaskon Electronic Materials business from BP Amoco for $121 million was announced. Plaskon manufactures polymer based compounds, which are primarily used to encapsulate electronic devices, such as semiconductor. Plaskon's products are highly complementary to those of the Assembly Materials sector enabling Cookson Electronics to offer enhanced product packages to its major customers. Importantly, the combination of the market leading position of both Cookson - in the manufacture of BGA solder spheres - and of Plaskon - in the supply of encapsulation compounds for BGAs - will reinforce the division's pre-eminent role in the fastest growing sector of the integrated circuit packaging market. In the Assembly Equipment sector, the sharp decline in sales experienced during the second quarter of 1998 and the depressed conditions which were experienced throughout the remainder of that year began to ease during the first quarter of 1999. Bookings progressively improved throughout the first half and the order book at the end of the period was more than 40% higher than at the end of 1998. Whilst overall profitability for the first half was down compared with the prior year, the improved trading conditions encountered in the second quarter, together with a better sales mix and the implementation of new marketing initiatives, give cause for optimism regarding second half prospects for this sector. Results for the PCB Fabrication sector have continued to be adversely impacted by the pricing pressure which developed during the course of 1998, mainly due to continued customer consolidation and increased competition from Asian imports. In the USA, market conditions began to improve towards the end of the period and in Europe, business remained solid despite pricing pressure which continued to stifle margin improvement. The improvement in the demand for laminates seen at the end of last year in the Asia-Pacific region continued. Demand for high technology multi-layer printed circuit board substrates - Cookson's core product range remained strong on the back of buoyant conditions in the mobile phone and PC markets. In the Speciality and Industrial Products sector, which includes
TAM Ceramics, the disposal of which has been announced since the period end, both the industrial and consumer product lines in the USA performed soundly but market conditions in Europe continued to depress results, with sales volumes down across all product lines. A new technical services initiative has been launched which is aimed at leveraging the strength which Cookson Electronics has developed in support of its market leading product range. This will initially focus on internal and commerce opportunities and on co-ordinating the training and consultancy services currently available to customers of the Assembly Materials and Equipment sectors with our process development capabilities in PCB assembly and semiconductor packaging. The initiative should enhance the division's integrated solutions strategy of providing customers with comprehensive solutions to their production problems. Ceramics The Ceramics division, which primarily comprises the Vesuvius business, generates some 75% of its sales from the steel industry. In the first half of this year, the global steel market continued to exhibit the significant weakness which emerged during the second half of 1998, in marked contrast to the first half of 1998 when steel producers in most regions were operating at full or near full capacity. As a consequence, worldwide steel production decreased by 5% in the first half. Significantly, sharp falls were experienced in the division's largest markets, North America and the European Union, where steel production fell by 10%. This fall in steel production led to lower refractory volumes for the Steel sector which, combined with pricing pressure and favourable product mix, resulted in a reduction in divisional sales of 4% and operating profits falling by 37% in the period. However, increases in plant loading in Vesuvius' steel operations were experienced towards the end of the first half which provide evidence of an improvement materialising in the steel industry, particularly in the USA. Ceramics First half
Year
1999 £m
1998 £m
1998 £m
Sales
204
212
420
Operating Profit
19.3
30.8
54.4
In the Glass sector, shipments from Monofrax - which produces fused-cast products for lining glass furnaces remained low and are not forecast to improve before the end of the year. As a consequence, profits in this sector were well below 1998. The acquisition of the glass refractory activities of the German-based group VGT-Dyko AG took place in April. This acquisition will significantly strengthen the Glass sector's position in Europe. In the Foundry sector, tighter market conditions began to emerge during the period but remained better than last year. In June, it was announced that agreement had been reached to acquire Premier Refractories International from the Alpine Group for £260 million ($410 million). Premier is a manufacturer and supplier of value-added specialist refractory products, services and systems to the steel, glass, foundry, aluminium and cement industries. The majority of Premier's products and services are complementary to those of Vesuvius. This will enable the combined businesses to provide customers in the glass, aluminium and foundry industries with a more comprehensive range of products and services on a worldwide basis. Following the acquisition, the Ceramics division will have 8,000 employees and sales of approximately £700 million, with over 70 manufacturing sites strategically positioned to serve customers globally. Engineering Sales in the first half increased by 6% over the prior year and operating profit was up 12%, translating into an improved return on sales for the period of 9.8% compared with 9.3% in 1998. These results exclude the businesses of Cookson Fibers
and Zimco, both of which the Group disposed in February. Engineering First half
Year
1999 £m 1998 £m 1998 £m
Sales
240
226
479
Precious Metals
134
133
278
Mouldings & Telecoms
106
93
201
Operating Profit
23.5
21.0
50.7
Precious Metals
14.4
13.1
33.5
Mouldings & Telecoms
9.1
7.9
17.4
Profits for the first half for the Precious Metals sector were up 10%, with good performances across all businesses, despite a slow start to the year which had affected first quarter results. The Mill business encountered patchy trading conditions in the early part of the period, but a better second quarter performance was achieved, particularly in the USA. In the UK, increased imports provided added pressure on margins. Overall, the Jewellery Products business performed well, with improved results arising from successful marketing initiatives in the "findings" activities and from increased market penetration. In the Precision Products businesses, performance was sound and the integrated moulding component business, Matrix, which was acquired last year, performed above expectations. In the Telecommunication Products sector, Focas, the aerial fibre optic cabling systems manufacturer, which is in the process of being disposed, performed in line with expectations in the first half, though profitability was adversely affected by delays in some of its contracting projects. The revenue-sharing partnership with a major US local exchange carrier, ELI, which was established last year, has progressed well and the cable network system - to which the revenue-sharing agreement relates - should be fully installed by the end of the year. Neptco, the tapes and composites business, performed well in the first half of the year, with growth in the period coming mainly from products which service the cable TV market and from the electronic packaging market. Sales and profits of the Plastic Mouldings sector were up on the prior year, with demand in both the Material Handling and Recreational businesses strengthening during the period. Sales in the pallet business were up 30% over the prior year. Good progress was made on the commercialisation of the CHEP plastic pallet in the USA and on the development, for CHEP Europe, of a new pallet to service the European markets. Summary Group Results First half
Year
1999 £m
Profit before Tax (£m)*
64.5
Earnings per Share (pence) 6.9 * Interim Dividend (pence)
4.3
Free Cash Flow (£m)
(29.4)
1998 £m
80.0
8.4
4.3
(33.3)
1998 £m
151.3
16.0
9.4 20.4
* (before Goodwill Amortisation and Exceptional Items) Operating Profit and Profitability Profit before tax, goodwill amortisation and exceptional items of £64.5 million was 19% below the £80.0 million
achieved in the first half of 1998. In summary, the £15.5 million decrease arose as follows: l
l
£11.0 million lower operating profit from Continuing Operations, with the short fall arising primarily from the Ceramics division; £6.1 million reduction in contribution from Discontinued Operations - Cookson Fibers and Zimco - which were both disposed in February 1999;
which, in turn, was partly offset by: l
l
£1.3 million positive impact from currency translation; and £0.3 million decrease in interest paid.
Return on sales before goodwill amortisation and exceptional items for continuing operations decreased - from 10.4% to 8.9% - as did pre-tax return on investment, from 13.4% for the first six months of 1998 to 11.0% for the first half of 1999. The decline in Group profitability was largely due to the fall in profits in the Ceramics division. Taxation The effective rate of taxation on profit before goodwill amortisation and exceptional items was 26.0% for the first half of 1999. The rate is based on an estimate for the whole of 1999 and is the same effective rate for both the first half and the full year 1998. Shareholder Returns Profit before tax for the period of £64.5 million before goodwill amortisation and exceptional items was 19% down on 1998. Goodwill amortisation of £2.6 million (1998: £1.1 million) represents the write-off over 20 years of the £106 million of goodwill that has arisen on the acquisitions completed since the beginning of 1998. Goodwill of £533 million which arose before 1998 remains written-off to reserves. Minority interest in profits of the Group decreased from £1.4 million to £0.6 million, mainly due to the disposal of Cookson Fibers which had carried a 20% minority interest for most of the first quarter of 1998. Earnings per share, before goodwill amortisation and exceptional items, amounted to 6.9 pence per share, 18% down on the 8.4 pence achieved in the first half of 1998. Earnings per share for the first half of 1999 after goodwill amortisation and exceptional items amounted to 5.2 pence. The Board has declared an interim dividend of 4.3 pence per ordinary share, unchanged from the 1998 interim dividend. The dividend will be paid on 1 December 1999 to shareholders on the register at 8 October 1999. Exceptional Items In February 1999, the Group announced that it had embarked upon a rationalisation and restructuring initiative which is expected to realise cost savings of £8.5 million in 1999 and £14.5 million per annum from 2000 onwards. The total pretax costs of this initiative are expected to amount to £71 million, £41 million of which represented asset impairments and provision for pension costs. As required by the new UK accounting standard FRS12, £50 million of the total charge was accounted for in 1998 with the balance to be taken as the costs are committed. In the first half of 1999, £10 million of the these costs were charged as an exceptional item within operating profit; the majority of the £11 million costs that remain to be charged are likely to arise in the second half of 1999. No exceptional items arose in the first half of 1998. Cashflow, Investment and Borrowings Net cash flow from operating activities amounted to £60 million in comparison with £83 million in the same period last year. The £23 million decrease was due mainly to a £17 million lower profit contribution from subsidiaries and an additional £6 million outlaid for exceptional rationalisation
costs. Cash out flow for working capital of £29 million was unchanged from 1998. However, the ratio of average working capital to sales for continuing operations improved from 20.2% to 19.2%, signifying continued tight management of working capital. Free Cash Flow First half
Year
1999 £m 1998 £m 1998 £m
Operating Activities
60
83
225
less: Capital expenditure
30
45
71
Tax paid
13
26
46
Net Operating after Tax
17
12
108
less: Dividends and interest
46
45
88
(33)
20
Free Cash Flow
(29)
Capital expenditure of £30 million for the period, which was £15 million lower than the first half of 1998, represents 1.1 times depreciation (1998: 1.7 times). The deceleration in spend reflects the generally subdued market conditions experienced in the first half and more effective use of productive capacity. Free cash outflow of £29 million for the first six months of 1999 was £4 million better than the £33 million outflow in the same period last year. The improvement was mainly due to both lower capital expenditure and tax payments offsetting the lower profits earned in the period. The Group traditionally experiences a net free cash outflow in the first six months of the year; free cash flow for the 12 months ended 30 June 1999 represented an inflow of some £24 million (year to 31 December 1998: £20 million). Total consideration for acquisitions and investments in the first half amounted to £44 million, primarily for IRI and VGT, for further investment in the ELI project and for deferred consideration for prior year acquisitions. Cash inflow from disposals of £96 million relates to the sale of Cookson Fibers and Zimco in the first quarter of 1999. Net cash inflow for the first half was £21 million which, after exchange rate adjustments of £6 million, resulted in a £15 million decrease in net borrowings since the end of 1998 to £203 million. Interest cover for the period was 8.4 times and gearing - expressed as gross borrowings as a percentage of total invested capital including goodwill - was 19%, with both ratios well within the Group's financing targets. Significant Post Half Year End Events In June, the Group announced that agreement had been reached to acquire Premier Refractories International, ("Premier") a manufacturer of value-added specialist refractory products, for £260 million ($410 million). The consideration will be payable as to approximately £200 million in cash and by the issue of 30.2 million shares in Cookson. As reported under US GAAP, Premier had sales of £300 million and operating income of £19 million in the year ended 30 April 1999, with net tangible assets of £117 million on a debt free basis as at that date. The acquisition, which is subject to regulatory approval, is expected to be close in August. The purchasing, manufacturing, sales force and overhead synergies that can be derived from integrating Vesuvius and Premier are expected to amount to approximately £13 million in 2000, and in excess of £20 million per annum from 2001 onwards. The total costs of implementing this programme would amount to approximately £26 million of cash related costs, all of which would be outlaid over the 18 months following completion of the transaction, and £11 million of asset write-offs. In addition, an adjustment of approximately £36 million will be made to reflect the net assets of Premier in accordance with UK GAAP and on a basis that is consistent with Cookson's accounting policies, and to take account of the
one-off costs of acquisition. Based on the preliminary results of Premier for the year ended 30 April 1999, and taking into account the anticipated cost savings, the acquisition is expected to be earnings per share accretive for Cookson in the year ended 31 December 2000, both before and after goodwill amortisation, and before the aforementioned exceptional costs. In July, the Group announced the sale of TAM Ceramics for £50 million ($79 million) to Ferro Corporation Inc. payable in cash on completion. The anticipated exceptional gain on disposal, after write-back of goodwill, amounts to £5 million. TAM, whose results have been included as a continuing operation until the transaction is closed, contributed sales and operating profit of £17 million and £2.5 million respectively in the first half of 1999. Completion is expected to take place on 30 July 1999. In July, the Group announced the acquisition of Plaskon for £77 million ($121 million) from BP Amoco. Plaskon is a manufacturer of materials and compounds which are primarily used to encapsulate electronic devices. Plaskon had sales of £14 million and operating profits of £3.4 million in the first half of 1999 and net tangible assets of £20 million as at that date. Consideration is payable in cash on closing which is expected in the third quarter. The acquisition is expected to be immediately earnings enhancing before goodwill amortisation and earnings enhancing after goodwill amortisation in 2000. Board of Directors On 1 April 1999, Dr. Gian Carlo Cozzani, Chief Executive Officer of the Group's Ceramics division, joined the Board as an Executive Director. At the same time, Mrs. June de Moller, previously Group Managing Director of Carlton Communications Plc and a non-executive Director of Anglian Water plc and Lynx Group plc, was appointed as a nonexecutive Director. Sir Robert Malpas CBE, Chairman of Cookson Group plc until 1 October last year, retired from the Board at the AGM on 30 April. Outlook Trading conditions for suppliers of materials and equipment to the electronics industry improved in the second quarter and the order books of our Electronics division strengthened, with that of the Assembly Equipment sector in particular well up on the end of last year. In the Ceramics division, plant loadings in our steel related activities have improved over the depressed levels that have been experienced since the second half of 1998. Generally, the order books in the Engineering division at the end of the period were solid. Overall, the gradual recovery in the second quarter and the current level of orders leads us to believe that the Group's performance should continue to improve after a particularly challenging first half. For further information please contact Stephen Howard Group Chief Executive 0207 766 4500
Dennis Millard Group Finance Director 0207 766 4500
Copies of Cookson's 1999 Interim Report are being posted to the shareholders of the Company and will be available at the Registered Office of the Company. Cookson Group plc, The Adelphi, 1-11 John Adam Street, London WC2N 6HJ 28 July 1999 « Back
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29 Jul 1999 Announcement of 1999 Interim Report to Shareholders FOR FINANCIAL STATEMENTS CLICK HERE
Email Alerts HIGHLIGHTS OF THE 1999 INTERIM RESULTS l
l
l l
Profit before tax of £64.5 million; in line with expectations Market conditions begin to improve in the second quarter Significant progress in repositioning Group Fibre optic cable business, Focas, to be disposed
Commenting on the interim results for 1999 and the outlook, Stephen Howard, Group Chief Executive, said: "Since the beginning of the year, we have accelerated the implementation of our strategy to reposition fundamentally the Group, focusing clearly on our three world-class businesses. The emphasis will now be placed on enhancing the market leadership positions they command and grasping the growth opportunities they present. Whilst profits in the first half were down on 1998, the outcome was as expected. "Trading conditions for suppliers of materials and equipment to the electronics industry improved in the second quarter and the order books of our Electronics division strengthened, particularly in the Assembly Equipment sector. In the Ceramics division, plant loadings in our steel related activities have improved over the depressed levels that have been experienced since the second half of 1998. Generally, order books in the Engineering division at the end of the period were solid. Overall, the gradual recovery in the second quarter and the current level of orders leads us to believe that the Group's performance should continue to improve after a particularly challenging first half." STRATEGIC INITIATIVES The Group's strategy outlined to shareholders in late 1997 has been vigorously pursued and the pace of implementation accelerated. This strategy involves: l
l l
l
strengthening the leading market positions of our global businesses; investing in growth opportunities in our core activities; shedding activities that are not core to this strategy; and ensuring that the Group operates at optimum efficiency and profitability
Acquisitions Since the beginning of the year, over £350 million will have been invested in earnings enhancing acquisitions which will strengthen the market positions and growth profile of the Group's core businesses, with the following acquisitions either completed or due to be completed in the third quarter: l
Premier Refractories, a manufacturer of specialist refractory products for the steel, foundry and glass
The Group’s operations are formed into three divisions: Ceramics Electronics Precious Metals
l
l
l
industries for £260 million; Plaskon, a manufacturer of patented polymer compounds used to encapsulate electronic devices, such as semiconductors, for £77 million; IRI, a manufacturer of stencils used in assembling printed circuit boards and semi-conductors; and the glass refractory division of the German-based group, VGT-Dyko AG.
Disposals The process of withdrawing from non-core businesses has also been progressed with cash proceeds of nearly £150 million realised through: l
l
the completion of the disposals of both Cookson Fibers and Zimco, announced in February for total proceeds of £96 million; and the disposal of TAM Ceramics, announced in July, for £50 million.
Additionally, the Group has announced today that negotiations are well underway to dispose of Focas, its aerial fibre optic cable manufacturing business. Rationalisation The rationalisation programme announced in February 1999, involving the reorganisation and closure of some 30 sites, the streamlining of managerial and divisional administrative functions, and a 4% reduction in the Group's workforce is proceeding on schedule and within the costs envisaged. The aim of this initiative is to generate permanent savings and efficiencies, in order to establish a cost and operating structure that will allow the Group to optimise its competitive positions. The cost savings are expected to be substantial in the years ahead, rising to more than £14 million per annum from 2000. Summary These strategic initiatives further advance the restructuring of the Group that began in late 1997. Cookson is focused on businesses which are well positioned to leverage their strong geographic and technological positions in markets that have clear long-term growth prospects. REVIEW OF OPERATIONS The Review of Operations only covers the Continuing Operations of the Group. Discontinued Operations only comprise disposals completed during the period - Cookson Fibers and Zimco - both of which were disposed in February 1999. All financial information has been expressed at current exchange rates and operating profits are stated before goodwill amortisation and exceptional items to facilitate meaningful comparisons. Group Trading Results First half
Year
1999 £m
1998 £m
1998 £m
Sales
834
819
1,641
Operating Profit
74.3
85.3
164.4
Sales for the continuing operations of the Group for the first half of 1999 were 2% above the same period last year, with the trend versus last year improving during the first half of 1999 with a year-on-year sales decrease of 1% in the first quarter reversing to a 5% increase in the second quarter. Operating profit was £74.3 million, which represents a decrease of 13% over the first half of 1998. The profit contribution from acquisitions completed in the first half of 1999 was not significant. Premier Refractories and Plaskon are only due to be completed in the third quarter of 1999. In the Electronics division, operating profit was down 6% on 1998, however, this was a markedly improved performance
versus the second half of 1998. In the Ceramics division, operating profits fell by 37% due primarily to the exceptionally difficult conditions encountered by its steel industry customers in the USA and Europe. The Engineering division recorded a 12% increase in operating profit, with sound performances registered by all sectors. Electronics Market conditions for suppliers of materials and equipment to the electronics industry remained broadly similar to those experienced in the second half of 1998, though a gradual improvement began to take hold during the second quarter of 1999. As a consequence, sales in the second quarter were up 5% after an unchanged rate of growth in the first quarter. Operating profit for the first half was down 6%, with return on sales at 8.1% compared with 8.8% in the prior year. Electronics First half
Year
1999 £m
1998 £m
1998 £m
Sales
390
381
742
Operating Profit
31.5
33.5
59.2
Results from the Assembly Materials sector remained sound in the first half despite patchy market conditions in Europe. Sales volumes in paste, spheres and coating products were high and improved margins were achieved. Market acceptance of recent product introductions, including ball grid array (BGA) spheres and the new UP78 solder paste, continued to gather momentum and underpin a more positive outlook for the remainder of the year. The acquisition of IRI, a manufacturer of stencils used in the PCB and semiconductor packaging industries was completed in April and the business has been integrated into the Assembly Materials sector. In July, the acquisition of the Plaskon Electronic Materials business from BP Amoco for $121 million was announced. Plaskon manufactures polymer based compounds, which are primarily used to encapsulate electronic devices, such as semiconductor. Plaskon's products are highly complementary to those of the Assembly Materials sector enabling Cookson Electronics to offer enhanced product packages to its major customers. Importantly, the combination of the market leading position of both Cookson - in the manufacture of BGA solder spheres - and of Plaskon - in the supply of encapsulation compounds for BGAs - will reinforce the division's pre-eminent role in the fastest growing sector of the integrated circuit packaging market. In the Assembly Equipment sector, the sharp decline in sales experienced during the second quarter of 1998 and the depressed conditions which were experienced throughout the remainder of that year began to ease during the first quarter of 1999. Bookings progressively improved throughout the first half and the order book at the end of the period was more than 40% higher than at the end of 1998. Whilst overall profitability for the first half was down compared with the prior year, the improved trading conditions encountered in the second quarter, together with a better sales mix and the implementation of new marketing initiatives, give cause for optimism regarding second half prospects for this sector. Results for the PCB Fabrication sector have continued to be adversely impacted by the pricing pressure which developed during the course of 1998, mainly due to continued customer consolidation and increased competition from Asian imports. In the USA, market conditions began to improve towards the end of the period and in Europe, business remained solid despite pricing pressure which continued to stifle margin improvement. The improvement in the demand for laminates seen at the end of last year in the Asia-Pacific region continued. Demand for high technology multi-layer printed circuit board substrates - Cookson's core product range remained strong on the back of buoyant conditions in the mobile phone and PC markets. In the Speciality and Industrial Products sector, which includes
TAM Ceramics, the disposal of which has been announced since the period end, both the industrial and consumer product lines in the USA performed soundly but market conditions in Europe continued to depress results, with sales volumes down across all product lines. A new technical services initiative has been launched which is aimed at leveraging the strength which Cookson Electronics has developed in support of its market leading product range. This will initially focus on internal and commerce opportunities and on co-ordinating the training and consultancy services currently available to customers of the Assembly Materials and Equipment sectors with our process development capabilities in PCB assembly and semiconductor packaging. The initiative should enhance the division's integrated solutions strategy of providing customers with comprehensive solutions to their production problems. Ceramics The Ceramics division, which primarily comprises the Vesuvius business, generates some 75% of its sales from the steel industry. In the first half of this year, the global steel market continued to exhibit the significant weakness which emerged during the second half of 1998, in marked contrast to the first half of 1998 when steel producers in most regions were operating at full or near full capacity. As a consequence, worldwide steel production decreased by 5% in the first half. Significantly, sharp falls were experienced in the division's largest markets, North America and the European Union, where steel production fell by 10%. This fall in steel production led to lower refractory volumes for the Steel sector which, combined with pricing pressure and favourable product mix, resulted in a reduction in divisional sales of 4% and operating profits falling by 37% in the period. However, increases in plant loading in Vesuvius' steel operations were experienced towards the end of the first half which provide evidence of an improvement materialising in the steel industry, particularly in the USA. Ceramics First half
Year
1999 £m
1998 £m
1998 £m
Sales
204
212
420
Operating Profit
19.3
30.8
54.4
In the Glass sector, shipments from Monofrax - which produces fused-cast products for lining glass furnaces remained low and are not forecast to improve before the end of the year. As a consequence, profits in this sector were well below 1998. The acquisition of the glass refractory activities of the German-based group VGT-Dyko AG took place in April. This acquisition will significantly strengthen the Glass sector's position in Europe. In the Foundry sector, tighter market conditions began to emerge during the period but remained better than last year. In June, it was announced that agreement had been reached to acquire Premier Refractories International from the Alpine Group for £260 million ($410 million). Premier is a manufacturer and supplier of value-added specialist refractory products, services and systems to the steel, glass, foundry, aluminium and cement industries. The majority of Premier's products and services are complementary to those of Vesuvius. This will enable the combined businesses to provide customers in the glass, aluminium and foundry industries with a more comprehensive range of products and services on a worldwide basis. Following the acquisition, the Ceramics division will have 8,000 employees and sales of approximately £700 million, with over 70 manufacturing sites strategically positioned to serve customers globally. Engineering Sales in the first half increased by 6% over the prior year and operating profit was up 12%, translating into an improved return on sales for the period of 9.8% compared with 9.3% in 1998. These results exclude the businesses of Cookson Fibers
and Zimco, both of which the Group disposed in February. Engineering First half
Year
1999 £m 1998 £m 1998 £m
Sales
240
226
479
Precious Metals
134
133
278
Mouldings & Telecoms
106
93
201
Operating Profit
23.5
21.0
50.7
Precious Metals
14.4
13.1
33.5
Mouldings & Telecoms
9.1
7.9
17.4
Profits for the first half for the Precious Metals sector were up 10%, with good performances across all businesses, despite a slow start to the year which had affected first quarter results. The Mill business encountered patchy trading conditions in the early part of the period, but a better second quarter performance was achieved, particularly in the USA. In the UK, increased imports provided added pressure on margins. Overall, the Jewellery Products business performed well, with improved results arising from successful marketing initiatives in the "findings" activities and from increased market penetration. In the Precision Products businesses, performance was sound and the integrated moulding component business, Matrix, which was acquired last year, performed above expectations. In the Telecommunication Products sector, Focas, the aerial fibre optic cabling systems manufacturer, which is in the process of being disposed, performed in line with expectations in the first half, though profitability was adversely affected by delays in some of its contracting projects. The revenue-sharing partnership with a major US local exchange carrier, ELI, which was established last year, has progressed well and the cable network system - to which the revenue-sharing agreement relates - should be fully installed by the end of the year. Neptco, the tapes and composites business, performed well in the first half of the year, with growth in the period coming mainly from products which service the cable TV market and from the electronic packaging market. Sales and profits of the Plastic Mouldings sector were up on the prior year, with demand in both the Material Handling and Recreational businesses strengthening during the period. Sales in the pallet business were up 30% over the prior year. Good progress was made on the commercialisation of the CHEP plastic pallet in the USA and on the development, for CHEP Europe, of a new pallet to service the European markets. Summary Group Results First half
Year
1999 £m
Profit before Tax (£m)*
64.5
Earnings per Share (pence) 6.9 * Interim Dividend (pence)
4.3
Free Cash Flow (£m)
(29.4)
1998 £m
80.0
8.4
4.3
(33.3)
1998 £m
151.3
16.0
9.4 20.4
* (before Goodwill Amortisation and Exceptional Items) Operating Profit and Profitability Profit before tax, goodwill amortisation and exceptional items of £64.5 million was 19% below the £80.0 million
achieved in the first half of 1998. In summary, the £15.5 million decrease arose as follows: l
l
£11.0 million lower operating profit from Continuing Operations, with the short fall arising primarily from the Ceramics division; £6.1 million reduction in contribution from Discontinued Operations - Cookson Fibers and Zimco - which were both disposed in February 1999;
which, in turn, was partly offset by: l
l
£1.3 million positive impact from currency translation; and £0.3 million decrease in interest paid.
Return on sales before goodwill amortisation and exceptional items for continuing operations decreased - from 10.4% to 8.9% - as did pre-tax return on investment, from 13.4% for the first six months of 1998 to 11.0% for the first half of 1999. The decline in Group profitability was largely due to the fall in profits in the Ceramics division. Taxation The effective rate of taxation on profit before goodwill amortisation and exceptional items was 26.0% for the first half of 1999. The rate is based on an estimate for the whole of 1999 and is the same effective rate for both the first half and the full year 1998. Shareholder Returns Profit before tax for the period of £64.5 million before goodwill amortisation and exceptional items was 19% down on 1998. Goodwill amortisation of £2.6 million (1998: £1.1 million) represents the write-off over 20 years of the £106 million of goodwill that has arisen on the acquisitions completed since the beginning of 1998. Goodwill of £533 million which arose before 1998 remains written-off to reserves. Minority interest in profits of the Group decreased from £1.4 million to £0.6 million, mainly due to the disposal of Cookson Fibers which had carried a 20% minority interest for most of the first quarter of 1998. Earnings per share, before goodwill amortisation and exceptional items, amounted to 6.9 pence per share, 18% down on the 8.4 pence achieved in the first half of 1998. Earnings per share for the first half of 1999 after goodwill amortisation and exceptional items amounted to 5.2 pence. The Board has declared an interim dividend of 4.3 pence per ordinary share, unchanged from the 1998 interim dividend. The dividend will be paid on 1 December 1999 to shareholders on the register at 8 October 1999. Exceptional Items In February 1999, the Group announced that it had embarked upon a rationalisation and restructuring initiative which is expected to realise cost savings of £8.5 million in 1999 and £14.5 million per annum from 2000 onwards. The total pretax costs of this initiative are expected to amount to £71 million, £41 million of which represented asset impairments and provision for pension costs. As required by the new UK accounting standard FRS12, £50 million of the total charge was accounted for in 1998 with the balance to be taken as the costs are committed. In the first half of 1999, £10 million of the these costs were charged as an exceptional item within operating profit; the majority of the £11 million costs that remain to be charged are likely to arise in the second half of 1999. No exceptional items arose in the first half of 1998. Cashflow, Investment and Borrowings Net cash flow from operating activities amounted to £60 million in comparison with £83 million in the same period last year. The £23 million decrease was due mainly to a £17 million lower profit contribution from subsidiaries and an additional £6 million outlaid for exceptional rationalisation
costs. Cash out flow for working capital of £29 million was unchanged from 1998. However, the ratio of average working capital to sales for continuing operations improved from 20.2% to 19.2%, signifying continued tight management of working capital. Free Cash Flow First half
Year
1999 £m 1998 £m 1998 £m
Operating Activities
60
83
225
less: Capital expenditure
30
45
71
Tax paid
13
26
46
Net Operating after Tax
17
12
108
less: Dividends and interest
46
45
88
(33)
20
Free Cash Flow
(29)
Capital expenditure of £30 million for the period, which was £15 million lower than the first half of 1998, represents 1.1 times depreciation (1998: 1.7 times). The deceleration in spend reflects the generally subdued market conditions experienced in the first half and more effective use of productive capacity. Free cash outflow of £29 million for the first six months of 1999 was £4 million better than the £33 million outflow in the same period last year. The improvement was mainly due to both lower capital expenditure and tax payments offsetting the lower profits earned in the period. The Group traditionally experiences a net free cash outflow in the first six months of the year; free cash flow for the 12 months ended 30 June 1999 represented an inflow of some £24 million (year to 31 December 1998: £20 million). Total consideration for acquisitions and investments in the first half amounted to £44 million, primarily for IRI and VGT, for further investment in the ELI project and for deferred consideration for prior year acquisitions. Cash inflow from disposals of £96 million relates to the sale of Cookson Fibers and Zimco in the first quarter of 1999. Net cash inflow for the first half was £21 million which, after exchange rate adjustments of £6 million, resulted in a £15 million decrease in net borrowings since the end of 1998 to £203 million. Interest cover for the period was 8.4 times and gearing - expressed as gross borrowings as a percentage of total invested capital including goodwill - was 19%, with both ratios well within the Group's financing targets. Significant Post Half Year End Events In June, the Group announced that agreement had been reached to acquire Premier Refractories International, ("Premier") a manufacturer of value-added specialist refractory products, for £260 million ($410 million). The consideration will be payable as to approximately £200 million in cash and by the issue of 30.2 million shares in Cookson. As reported under US GAAP, Premier had sales of £300 million and operating income of £19 million in the year ended 30 April 1999, with net tangible assets of £117 million on a debt free basis as at that date. The acquisition, which is subject to regulatory approval, is expected to be close in August. The purchasing, manufacturing, sales force and overhead synergies that can be derived from integrating Vesuvius and Premier are expected to amount to approximately £13 million in 2000, and in excess of £20 million per annum from 2001 onwards. The total costs of implementing this programme would amount to approximately £26 million of cash related costs, all of which would be outlaid over the 18 months following completion of the transaction, and £11 million of asset write-offs. In addition, an adjustment of approximately £36 million will be made to reflect the net assets of Premier in accordance with UK GAAP and on a basis that is consistent with Cookson's accounting policies, and to take account of the
one-off costs of acquisition. Based on the preliminary results of Premier for the year ended 30 April 1999, and taking into account the anticipated cost savings, the acquisition is expected to be earnings per share accretive for Cookson in the year ended 31 December 2000, both before and after goodwill amortisation, and before the aforementioned exceptional costs. In July, the Group announced the sale of TAM Ceramics for £50 million ($79 million) to Ferro Corporation Inc. payable in cash on completion. The anticipated exceptional gain on disposal, after write-back of goodwill, amounts to £5 million. TAM, whose results have been included as a continuing operation until the transaction is closed, contributed sales and operating profit of £17 million and £2.5 million respectively in the first half of 1999. Completion is expected to take place on 30 July 1999. In July, the Group announced the acquisition of Plaskon for £77 million ($121 million) from BP Amoco. Plaskon is a manufacturer of materials and compounds which are primarily used to encapsulate electronic devices. Plaskon had sales of £14 million and operating profits of £3.4 million in the first half of 1999 and net tangible assets of £20 million as at that date. Consideration is payable in cash on closing which is expected in the third quarter. The acquisition is expected to be immediately earnings enhancing before goodwill amortisation and earnings enhancing after goodwill amortisation in 2000. Board of Directors On 1 April 1999, Dr. Gian Carlo Cozzani, Chief Executive Officer of the Group's Ceramics division, joined the Board as an Executive Director. At the same time, Mrs. June de Moller, previously Group Managing Director of Carlton Communications Plc and a non-executive Director of Anglian Water plc and Lynx Group plc, was appointed as a nonexecutive Director. Sir Robert Malpas CBE, Chairman of Cookson Group plc until 1 October last year, retired from the Board at the AGM on 30 April. Outlook Trading conditions for suppliers of materials and equipment to the electronics industry improved in the second quarter and the order books of our Electronics division strengthened, with that of the Assembly Equipment sector in particular well up on the end of last year. In the Ceramics division, plant loadings in our steel related activities have improved over the depressed levels that have been experienced since the second half of 1998. Generally, the order books in the Engineering division at the end of the period were solid. Overall, the gradual recovery in the second quarter and the current level of orders leads us to believe that the Group's performance should continue to improve after a particularly challenging first half. For further information please contact Stephen Howard Group Chief Executive 0207 766 4500
Dennis Millard Group Finance Director 0207 766 4500
Copies of Cookson's 1999 Interim Report are being posted to the shareholders of the Company and will be available at the Registered Office of the Company. Cookson Group plc, The Adelphi, 1-11 John Adam Street, London WC2N 6HJ 28 July 1999 « Back
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