TIDMCKSN
RNS Number : 4203I
Cookson Group PLC
25 July 2012
25 July 2012
COOKSON GROUP PLC
2012 HALF YEAR FINANCIAL REPORT
HIGHLIGHTS
-- Satisfactory overall performance in H1 2012 (versus H1 2011)
o Revenue of GBP1,300m, down 4% on underlying basis(1)
o Trading profit of GBP141.2m, down GBP4.7m (3%)
o Return on sales(1) of 10.9% (H1 2011: 10.3%)
-- Good trading profit improvement in the Performance Materials
and Precious Metals Processing divisions; Engineered Ceramics
division (excluding Fused Silica) marginally ahead; GBP4m adverse
foreign exchange translation impact
-- Fused Silica H1 2012 loss of GBP5m (H1 2011: trading profit
of GBP8m); Czech Republic Solar Crucible(TM) production closed on 1
July 2012
-- Continued progress towards our return on sales margin target
of 12% by 2013 (assuming constant metals prices) - H1 2012:
11.3%
-- Interim dividend declared of 7.50p per share (2011: interim - 7.25p; final - 14.50p)
-- Strong financial position with net debt of GBP451m giving a
leverage ratio (net debt to EBITDA) of 1.3 times
-- Further de-risking of the UK pension plan through pension
insurance buy-in agreement with Pension Insurance Corporation
covering c.60% of total UK liabilities
-- 'Bolt-on' acquisition of Metallurgica completed on 29 March
2012; disposal of the US operations of the Precious Metals
Processing division completed on 1 May 2012
-- Strategic review announced on 17 May 2012 is proceeding as
planned. The Board expects to update shareholders on the outcome
before year end
First half Inc/(dec) vs H1 Full
2011 year
------------------------ ------------------------
2012 2011 Reported Constant 2011
rates rates
----------- ----------- ------------- --------- ----------
Revenue GBP1,300m GBP1,421m (8)% (7)% GBP2,826m
Trading profit GBP141.2m GBP145.9m (3)% - GBP290.2m
Return on sales(1) 10.9% 10.3% 0.6pts 0.7pts 10.3%
Profit before tax - GBP127.6m GBP132.1m (3)% GBP261.5m
headline(1)
- basic GBP93.5m GBP119.7m (22)% GBP211.6m
Tax rate - headline(2) 23.5% 24.0% (0.5)pts 23.5%
Earnings per share -
headline(1) 34.3p 35.2p (3)% 70.4p
- basic 23.0p 31.6p (27)% 53.2p
Dividends per share(3) 7.50p 7.25p 3% 21.75p
Free cash flow(1) GBP(20.1)m GBP(29.3)m down GBP9.2m GBP90.1m
Net debt(1) GBP450.5m GBP428.8m up GBP21.7m GBP363.9m
(1) Refer to Note 16 of the attached condensed financial statements
for definitions
(2) Tax rate on headline profit before tax (before share of
post-tax loss of joint ventures)
(3) Dividends are presented on an "as declared" basis
Commenting on the Group's results and outlook, Nick Salmon,
Chief Executive, said:
"These results reflect a satisfactory first half performance in
our main businesses, with a particularly strong profit improvement
in the Performance Materials and Precious Metals Processing
divisions. Whilst the Engineered Ceramics division saw marginal
improvement in its three largest businesses, trading conditions in
its smaller Fused Silica business continue to be very difficult and
its resultant losses have impacted the Group's overall performance.
Decisive action has been taken to restructure this business.
"We continue to enhance the overall quality of our businesses.
We have disposed of two low margin businesses - the US Precious
Metals Processing operations and a refractory lining installation
business in Australia - and we have integrated the recently
acquired Metallurgica into the Engineered Ceramics division. We
continue to invest selectively in the emerging markets capacity and
R&D capabilities of Performance Materials and Engineered
Ceramics. Our financial position remains strong, and we have taken
further steps to significantly de-risk the Group's pension
arrangements.
"Looking to the second half, we expect Performance Materials to
benefit from its normal seasonal weighting, and Precious Metals
Processing should maintain its good performance. Recent signs of a
general weakening in the global economy and slowing industrial
production point to somewhat softer demand in Engineered Ceramics'
main end-markets and, in response, we are taking the necessary
management actions.
"Overall, we continue to make progress towards the three year
performance targets set out in January 2011, and the recently
announced strategic review of options to further enhance
performance and unlock shareholder value is proceeding as
planned."
INTERIM MANAGEMENT REPORT
The Directors submit their Interim Management Report ("IMR"),
together with condensed financial statements of the Group, for the
six months ended 30 June 2012.
This IMR has been prepared for the Group as a whole and
therefore gives greater emphasis to those matters which are
significant to Cookson Group plc and its subsidiaries when viewed
as a whole.
SUMMARY OF GROUP PERFORMANCE
Trading performance
Group revenue in the first half of 2012 of GBP1,300m was 8%
lower than the same period last year on an as reported basis and 4%
lower on an underlying basis. The main differences between the
reported and underlying figures were the pass through to customers
of lower commodity metals prices in the Performance Materials
division, the disposal of the US Precious Metals Processing
business on 1 May 2012, and the acquisitions of SERT and
Metallurgica in November 2011 and March 2012 respectively. The
underlying decline in revenue reflects the strategy to exit lower
margin business in both Advanced Refractories and Performance
Materials together with the significant reduction in Fused Silica
revenue.
Trading profit of GBP141.2m was GBP4.7m (3%) lower than that
reported in the first half of 2011 with good improvements in the
Performance Materials and Precious Metals Processing divisions
offset by losses in the Engineered Ceramics division's Fused Silica
business and adverse foreign exchange translation. The Group's
return on sales margin improved to 10.9% (H1 2011: 10.3%).
The Engineered Ceramics division's revenue of GBP819m was GBP32m
(4%) lower than that reported in the same period last year with the
Fused Silica business's revenue of GBP23m being GBP24m below the
prior period figure. The division's trading profit of GBP86.6m was
GBP11.9m (12%) below the same period last year with the three
principal businesses (Steel Flow Control, Advanced Refractories and
Foundry Technologies) combined marginally ahead, but with the Fused
Silica business recording a loss of GBP5m compared with a profit of
GBP8m in the same period last year and a GBP1m loss in the second
half of 2011. The Fused Silica business has been impacted by the
marked downturn in the global solar industry which started in
mid-2011 and has proved deeper and more extended than previously
anticipated. Further cost reduction plans have recently been
implemented involving the closure of the Solar Crucible(TM)
production facility at Moravia in the Czech Republic with effect
from 1 July 2012.
The Performance Materials division continued to deliver the
anticipated strong performance improvement with further penetration
of higher growth market segments, such as smartphones and tablets,
based on innovative, higher margin products. The division's revenue
of GBP362m was GBP55m (13%) lower than that reported in the first
half of 2011 but this partially reflected the impact of passing
through to customers lower commodity tin, silver and gold prices.
Excluding the impact of these commodity metals, underlying revenue
was 7% lower, reflecting the continuing strategy of exiting sales
of more commoditised, lower margin products while growing sales of
the higher margin products referred to above. As a result, trading
profit of GBP50.0m was GBP5.0m higher than the first half of 2011
and the return on net sales value increased to 24.4% (H1 2011:
21.8%).
The Precious Metals Processing division benefited from the
disposal of the US operations, completed on 1 May 2012, and
continuing high levels of reclaim business offsetting weakness in
retail markets in Europe. In the four months up to disposal, the US
business recorded net sales value of GBP15m and a trading profit of
GBP1.7m. The European operations recorded net sales value of GBP40m
and a trading profit of GBP7.9m, in line with the prior year.
Overall, the division recorded net sales value of GBP55m (H1 2011:
GBP65m) and trading profit of GBP9.6m, an increase of GBP2.9m
(43%).
Exceptional items
A net charge, pre-tax, of GBP34.1m was incurred in the first
half of 2012 (H1 2011: GBP12.4m) due to charges principally
relating to amortisation of intangible assets (GBP8.8m),
restructuring charges (GBP18.2m - the main item being fixed asset
write offs in relation to the closure of the Moravia, Czech
Republic Solar Crucible(TM) production facility), and the loss on
disposal of continuing operations and acquisition-related costs
(GBP7.1m - principally the disposal of the US operations of the
Precious Metals Processing division).
Of the total net charge, GBP6m is cash related and GBP28m is
non-cash related.
Portfolio changes
In addition to the sale of the US operations of the Precious
Metals Processing division reported above, the following
transactions have been completed since the start of 2012.
The acquisition of Metallurgica, one of the world's leading
suppliers of mould flux used in the enclosed continuous steel
casting process, was completed on 29 March. The business has been
integrated into the Engineered Ceramics division's Steel Flow
Control business. In 2011, Metallurgica had revenue of EUR48m
(GBP42m) and a trading profit of EUR4.6m (GBP4.0m).
On 24 July, the Engineered Ceramics division's refractory lining
installation operation based in Australia (named Andreco-Hurll) was
sold to Veolia Environmental Services for a cash consideration of
Aus$8m (GBP5m). In the first half of 2012, Andreco-Hurll had
revenue of Aus$17m (GBP11m) and a trading profit of Aus$0.7m
(GBP0.4m).
Taxation
The tax charge on ordinary activities was GBP30.1m on a headline
profit before tax of GBP127.6m, an effective tax rate (before share
of post-tax loss of joint ventures) of 23.5%. The effective tax
rate in the full year 2011 was also 23.5%.
Attributable profits and earnings
Headline attributable profit for the first half of 2012 was
GBP94.9m (first half 2011: GBP97.1m) and headline earnings per
share was 34.3p (H1 2011: 35.2p).
After taking account of all items excluded from headline profit
before tax noted above (net of the related tax impact), the Group
recorded a profit of GBP63.6m for the first half of 2012 (first
half 2011: GBP87.3m).
Dividend
Consistent with our stated target of growing dividends per share
at least in line with earnings, the Board is declaring an interim
dividend of 7.50p per share (2011: interim dividend - 7.25p)
Pensions
The net pension deficit at 30 June 2012 was GBP81m (31 December
2011: GBP59m). The increase arose as a result of a reduction in the
applicable interest rates used to value liabilities.
The offer of enhanced transfer values to deferred members of the
UK defined benefit pension plan ("the UK Plan"), launched last
year, was successfully completed in the first half of 2012. In
total 550 members took advantage of the scheme and, as a result,
longevity and investment risk has been eliminated in respect of
GBP50m (c.10%) of Cookson's total UK pension liabilities.
On 19 July 2012, the Trustee of the Plan and Pension Insurance
Corporation announced that they had signed a pension insurance
buy-in agreement covering all of the pensioner members of the UK
Plan. This eliminates inflation, interest rate, investment and
longevity risk in respect of around 60% of Cookson's total UK
pension liabilities.
Both the enhanced transfer offer and pensioner insurance buy-in
are further steps in the on-going strategy of de-risking the
Group's defined benefit pension arrangements.
Financial position
In line with expectations, net debt at 30 June 2012 was GBP451m
compared with GBP429m at 30 June 2011 and GBP364m at 31 December
2011. Working capital increased by GBP90m in line with normal
seasonal trends, whereby working capital increases towards mid-year
and then reduces through the second half of the year.
On 2 May 2012, US$190m (GBP117m) of US Private Placement loan
notes dating from 2000, which had an interest rate of 8.1%, were
repaid on their scheduled maturity date. Following this repayment,
the Group's committed debt facilities now comprise the GBP600m five
year Revolving Credit facility agreed in April 2011 and US$250m
(GBP159m) of US Private Placement loan notes that were issued in
December 2010 with an average weighted interest rate of 4.67%. The
average weighted remaining duration of the Group's debt facilities
is 4.5 years.
At 30 June 2012, the ratio of net debt to EBITDA was 1.3 times
(as compared with not more than 3.0 times for bank covenant
purposes) and is expected to decline further by year-end in line
with the normal seasonality of cash generation. Hence the Group's
financial position is strong with a good level of liquidity under
long-term financing arrangements.
STRATEGIC REVIEW
On 17 May 2012, the Board announced the initiation of a review
of the strategic portfolio options for the Group, believing that
there remains considerable scope further to enhance performance of
the individual businesses and unlock further shareholder value.
These options include a potential demerger or separation of
Cookson's main divisions, given the limited operational or
end-market overlap between the Engineered Ceramics and the
Performance Materials divisions. The review is proceeding as
planned and the Board expects to be able to update shareholders on
the outcome of the review before year-end.
DIRECTORATE
Steve Corbett, the Chief Executive of the Performance Materials
division, joined the Board as an executive Director on 1 May
2012.
Christer Gardell joined the Board as a non-executive Director on
1 June 2012. Christer Gardell is Managing Partner of Cevian Capital
which currently owns just over 20% of Cookson's issued share
capital.
GROUP TARGETS
On 26 January 2011, targets were set for performance improvement
over the three years ending 31 December 2013 and the strategy for
achieving those targets. The following table sets out those targets
and the continuing progress achieved to date.
3 year Targets for 2013 Progress to date
--------------------------------------------------------------- -----------------------------------------------------------
* Average annual revenue growth to exceed 1.5 times * H1 2012 revenue versus H1 2010: +6% as reported; +7%
global GDP growth underlying
* Return on sales margin of 12% by 2013 (assuming * H1 2012 margin restated at average 2010 metals
constant metals prices) prices: 11.3% versus 10.9% in FY2011 and 9.9% in
FY2010
* Double digit average annual headline earnings growth
* H1 2012 headline earnings versus H1 2010: +27%
* Dividend growth at least in line with earnings growth
* 2012 interim dividend 7.50p, +3% on 2011 (2011 final
dividend: +26% on 2010)
* Return on investment ('ROI') increasingly ahead of
Group WACC * H1 2012 ROI: 9.8% (10.3% in FY 2011 and 9.6% in FY
2010)
* Maintaining a strong financial position with net debt
to EBITDA leverage ratio not more than 1.5 times at * Net debt:EBITDA ratio at 30 June 2012 of 1.3 times
year end and 1.75 times at mid-year
--------------------------------------------------------------- -----------------------------------------------------------
Achievement of these targets is being underpinned by:
-- leading global market positions, supplying consumables to
essential industries - steel, foundry and electronics;
-- a track record of market share gains with new, enhanced
technology, higher margin products - increased R&D capability
and spending;
-- significant developing market exposure (c.50% of revenue and trading profit);
-- considerable further recovery potential in mature markets
where the cost base has been significantly reduced
-- opportunities to leverage further organic growth through bolt-on acquisitions; and
-- the maintenance of strong cash flow conversion.
OUTLOOK
The global macro-economic environment is increasingly uncertain.
Following the improving trends up to the middle of the second
quarter, there have been more recent signs of general weakening in
the global economy and slowing industrial production, most notably
in Europe.
As a consequence, we now expect the Engineered Ceramics
division's main steel production and foundry casting markets to be
somewhat softer in the second half of the year than in the first
half. Following the recent further restructuring of the Fused
Silica business, we expect a significantly lower level of trading
losses from this business in the second half even if its
end-markets do not improve.
We expect the Performance Materials division to benefit from the
normal seasonal strengthening in its end-markets in the second
half, and for the Precious Metals Processing division to maintain
its current good performance.
REVIEW OF OPERATIONS
Group
First half Inc/(dec) vs H1 Full
2011 year
---------------------- --------------------
2012 2011 Reported Constant 2011
rates rates
---------- ---------- --------- --------- ----------
Revenue GBP1,300m GBP1,421m (8)% (7)% GBP2,826m
Trading profit GBP141.2m GBP145.9m (3)% - GBP290.2m
Return on sales 10.9% 10.3% 0.6pts 0.7pts 10.3%
Group revenue in the first half of 2012 of GBP1,300m was 8%
lower than the same period in 2011, partially reflecting the
pass-through to customers of lower metal prices in the Performance
Materials division and the disposal, on 1 May 2012, of the US
operations of the Precious Metals Processing division. On an
underlying basis (being revenue at constant exchange rates, and
adjusted for differences in commodity metal prices, acquisitions
and disposals), revenue was 4% lower. The underlying decline in
revenue reflects the strategy to exit lower margin business in both
Advanced Refractories and Performance Materials together with the
significant fall in Fused Silica revenue. Demand in the Group's key
end-markets of steel production, foundry castings and electronics
has been stable overall during the period with generally weaker
demand in Europe offset by continued growth in the Americas and
Asia-Pacific, although towards the end of the period there have
been further signs of slowing global industrial production. Revenue
for the Group was well balanced geographically with 34% coming from
sales to customers in Europe, 31% from Asia-Pacific, 25% from NAFTA
and 10% from the Rest of the World.
Trading profit in the first half of 2012 of GBP141.2m was
unchanged compared to the same period last year at constant
exchange rates, but marginally (3%) lower at reported exchange
rates. Whilst trading profit improved in the Performance Materials
and Precious Metals Processing divisions, and in the three
principal businesses of the Engineered Ceramics division, the
latter's profitability was negatively impacted by the Fused Silica
business which made a GBP5m loss in the first half of 2012 having
made a trading profit of GBP8m in the first half of 2011 and a
GBP1m loss in the second half of 2011.
The return on sales margin in the first half of 2012 was 10.9%,
continuing the improvement seen in 2011 (10.3% in both the first
and second halves of 2011). This improvement reflected both the
impact of lower metal prices (notably for silver and tin), which
reduced reported revenue in the Performance Materials and Precious
Metals Processing divisions without any impact on profitability,
and the return to profitability of the US operations of the
Precious Metals Processing division prior to their disposal in May
2012. The return on sales margin in the first half of 2012 would
have been 11.3% if metal prices had remained at 2010 average
levels.
Note: in the divisional and product line narrative analysis
below, all of the financial information is presented at constant
currency, unless indicated otherwise.
Engineered Ceramics division
Trading under the Vesuvius and Foseco brand names, the
Engineered Ceramics division is the world leader in the supply of
advanced consumable products and systems to the global steel
industry (which accounts for a little over half of revenue) and the
global foundry industry (approximately one third of revenue) and is
a leading supplier of speciality products to the glass and solar
industries.
First half Inc/(dec) vs H1 Full year
2011
----------------------- --------------------
2012 2011 Reported Constant 2011
rates rates
--------- ------------ --------- --------- ------------
As reported As reported
Revenue GBP819m GBP851m (4)% (1)% GBP1,686m
Trading profit GBP86.6m GBP98.5m (12)% (9)% GBP193.2m
Return on sales 10.6% 11.6% (1.0)pts (0.8)pts 11.5%
The Engineered Ceramics division in the first half of 2012
experienced overall stable demand in its principal end-markets of
steel production and foundry castings, but very weak demand in the
solar end-market which significantly impacted demand for the
division's Solar Crucible(TM) products. Revenue of GBP819m was
GBP11m (1%) lower than the first half of 2011. Revenue for the
Fused Silica business was GBP23m, half of the total for the first
half of 2011 and GBP9m below the second half of 2011. On an
underlying basis (being revenue at constant exchange rates and
adjusted for the acquisitions of SERT in November 2011 and
Metallurgica in March 2012), revenue was 3% lower. Excluding the
Fused Silica business, underlying revenue for the remainder of the
division was unchanged.
Trading profit for the division's three principal businesses
(Steel Flow Control, Advanced Refractories and Foundry
Technologies, together comprising around 97% of the division's
revenue) was 3% higher than the first half of 2011. As expected,
the trading losses in the Fused Silica business (of which Solar
Crucibles(TM) now represents around one-third of revenue), which
started in the second half of 2011, continued into 2012. The Fused
Silica business incurred trading losses of GBP5m in the first half
of 2012 compared to a trading profit of GBP8m in the first half of
2011 (trading loss of GBP1m in the second half of 2011). Therefore,
due to the weaker performance of the Fused Silica business, the
division's overall trading profit in the first half of 2012 of
GBP86.6m was GBP8.2m (9%) lower than the first half of 2011 (12% at
reported exchange rates).
The return on sales margin in the first half of 2012 was 10.6%
(first half 2011: 11.4%). Excluding the Fused Silica business, the
return on sales margin for the remaining Engineered Ceramics
division was 11.5% in the first half of 2012 (first half 2011:
11.1%).
As previously outlined, the Engineered Ceramics division expects
to double its R&D spend over the next four years and, as part
of this initiative, investments in land and facilities for R&D
centres are being made in Pittsburgh, US and Visag, India.
Steel Flow Control
The Steel Flow Control business provides a full range of
consumable products, systems and technical services to control,
regulate and protect the flow of steel in the enclosed continuous
casting process. Products include VISO(TM) and VAPEX(TM) products,
slide-gate and tube changer systems and refractories, gas purging
and temperature control devices, and mould and tundish fluxes.
Global steel production represents almost 100% of the end-market
for Steel Flow Control products and services. According to the
World Steel Association ("WSA"), global steel production in the
first half of 2012 was 1% higher than the first half of 2011
(unchanged for the world excluding China), with the EU (27
countries) 5% lower, NAFTA 7% higher, and China 2% higher. This
reflects a continuation of the generally weaker trends seen in the
latter months of 2011, particularly in Europe and China.
Revenue of GBP278m was 6% higher compared to the first half of
2011. On an underlying basis (being revenue at constant exchange
rates and adjusted for the acquisitions of SERT in November 2011
and Metallurgica in March 2012), revenue was unchanged.
During 2011, the cost of the key raw materials used in Steel
Flow Control products rose significantly, notably for graphite and
zirconia. Compensating price increases were agreed with our
customers throughout 2011 and these have benefitted the first half
of 2012. Raw material prices have stabilised somewhat in the first
half of 2012. The Steel Flow Control results have been negatively
impacted by a reserve for a potential bad debt of GBP2m relating to
one of its US customers, RG Steel, which filed for Chapter Eleven
bankruptcy protection in May 2012.
The acquisition of Metallurgica was completed on 29 March 2012.
Metallurgica is one of the world's leading suppliers of mould flux
used alongside refractory products in the enclosed continuous steel
casting process. The business has been integrated into the Steel
Flow Control business and made a positive contribution in the
second quarter of 2012, in line with expectations. In 2011,
Metallurgica had revenue of EUR48m (GBP42m) and a trading profit of
EUR4.6m (GBP4.0m).
The second phase of the project to double the capacity of the
existing facility in Trinec, Czech Republic to service more
effectively the Eastern Europe and CIS steel market is progressing
well and is expected to be completed by the end of the year. A new
facility is being built in Brazil to improve the efficiency of raw
material processing.
Advanced Refractories
Advanced Refractories includes products and services that enable
customers' plants to withstand the effects of extreme temperatures
or erosive chemical attack and reduce energy consumption and carbon
emissions. The business manufactures castables, gunning materials,
ramming mixes, pre-cast shapes, tap hole clay, bricks, mortars, and
provides construction and installation services.
Global iron and steel production represents more than 75% of the
end-market for Advanced Refractory's products and services with the
remainder arising from a variety of non-steel markets including the
cement, lime, aluminium, power generation, petrochemical and waste
incineration industries.
Revenue of GBP252m represented a 4% decrease compared to the
first half of 2011. The decrease in revenue was wholly due to a
reduction in revenue in Andreco-Hurll, the refractory lining
installation operation based in Australia. As part of the
division's strategy of exiting low margin businesses, on 24 July
2012, Andreco-Hurll was sold to Veolia Environmental Services for a
cash consideration of approximately Aus$8m (GBP5m). In the first
half of 2012, Andreco-Hurll had revenue of Aus$17m (GBP11m) and a
trading profit of Aus$0.7m (GBP0.4m). Excluding the Andreco-Hurll
business, revenue in the first half of 2012 increased 2% on the
same period last year. While the installation market has been
exited, a refractories manufacturing and sales business has been
retained in Australia.
As with Steel Flow Control, raw material prices, notably for
magnesite - the single most important raw material for Advanced
Refractories - stabilised somewhat in the first half of 2012
following large increases in 2011.
The construction of a new monolithic lining facility in Ras Al
Khaimah, United Arab Emirates at a total cost of GBP4m is
progressing well, with completion expected by the end of 2012. The
fast growing Middle East market is currently being served from
existing facilities in the UK and Malaysia. Local production should
facilitate greater penetration of the linings market in this region
which is growing strongly due to significant capacity expansion
particularly in the steel, cement and aluminium industries.
Foundry Technologies
The Foundry Technologies business is a leading supplier of
consumable products and technical services to the foundry industry
worldwide and trades under the Foseco brand name. Products include
feeding systems, filters, metal treatments, metal transfer systems,
crucibles, stoppers, sand binders, coatings and moulding materials
used in the production of metal castings. These products improve
quality and yields whilst reducing energy consumption and
production costs.
The global foundry industry produces castings which are used in
a wide variety of engineered products. Approximately 40% of
castings (and therefore a similar percentage of the revenue for the
Foundry product line) are produced for the vehicle sector, being
25% for cars and light trucks ('automotive') and 15% for heavy
trucks. Other end-markets for foundry castings include
construction, agriculture and mining machinery; power generation
equipment, pipes and valves; railroad, and general engineering
equipment.
Revenue of GBP266m represented a 3% increase compared to the
first half of 2011. Foundry casting end-market conditions have been
mixed with good levels of activity in North America and Northern
Europe (notably Germany and Scandinavia), but relative softness in
Southern Europe, South Korea, China and Japan. Generally end-market
conditions have weakened in the second quarter compared to a
relatively strong first quarter, particularly in Europe.
The Foundry Technologies facility in Ping Tung, Taiwan is in the
process of being extended and refurbished for completion by the end
of 2012. In anticipation of strong growth in the Chinese foundry
castings end-market over the next few years, approval has recently
been given for the construction of a new production facility for
coatings and feeding systems in Changzhou, 55 miles north-west of
Shanghai. In addition, filter and metal treatment production
capacity will be installed at the existing foundry crucible
facility in Wei Ting, near Suzhou. The total investment in these
new facilities is around GBP13m spread over the next two and a half
years.
Fused Silica
The principal products in the Fused Silica business are Solar
Crucibles(TM) used in the manufacture of photovoltaic ("solar")
panels and tempering rollers used in the glass industry.
The Fused Silica business represents less than 3% of revenue in
the Engineered Ceramics division (and less than 2% of total Group
revenue). Revenue of GBP23m represented a 50% decrease compared to
the first half of 2011. Solar Crucible(TM) revenue, which now
represents around one-third of total Fused Silica revenue,
decreased by 78% compared to the first half of 2011. Whilst the
prospects for the solar industry in the medium to long-term remain
very promising, since mid-2011 customers have, as previously
reported, significantly cut production in response to excess global
inventories of finished solar panels. In particular, REC, the
business's largest customer in Europe, announced in April 2012 the
permanent closure of its Norwegian production facilities. Whilst a
recovery in the market was previously anticipated for the second
half of 2012, this is now looking increasingly unlikely.
For glass tempering rollers and other speciality products used
in the manufacture of glass, revenue decreased 8% compared to the
first half of 2011.
The reduction in demand for Solar Crucibles(TM) has led to the
trading losses in the Fused Silica business in the second half of
2011 continuing into 2012. The business incurred trading losses of
GBP5m in the first half of 2012 compared to a trading profit of
GBP8m in the first half of 2011 (trading loss of GBP1m in the
second half of 2011).
Steps were taken during the period to adapt to these market
conditions by removing temporary workers and adopting some
short-time working arrangements in Europe, and by some permanent
workforce reductions in the Chinese operations. A number of
technological innovations have been developed both to improve
product quality and also to significantly reduce production costs,
and hence improve competitiveness. Most recently, and consistent
with the contingency planning outlined in May, the Solar
Crucible(TM) production facility in Moravia in the Czech Republic
was closed. This restructuring, which involved a headcount
reduction of approximately 100, was completed in July and has
resulted in cash-related redundancy costs of GBP0.6m and a non-cash
asset write-off of GBP14m.
The resultant cost savings are expected to enable the Fused
Silica business to significantly reduce its trading losses in the
second half of the year compared to the first half even assuming
end-market demand remains at current depressed levels.
Whilst a strong recovery in the solar panel manufacturing market
is anticipated, the precise timing remains uncertain and it is
expected to be centred on Asian producers, notably in China, with
more limited recovery in Europe. The Group retains two Solar
Crucible(TM) production facilities in China and one in Poland.
Performance Materials division
The Performance Materials division is a world leading supplier
of electronic assembly materials and advanced surface treatment and
plating chemicals. The electronic equipment production end-market
accounts for approximately three-quarters of revenue with the other
quarter being direct applications (non-electronics) in automotive
and industrial production. The division comprises two businesses;
Joining Technologies, which is a supplier of solder, fluxes,
adhesives, and related products, and Surface Chemistries, which is
a supplier of electro-plating chemicals.
First half Inc/(dec) vs H1 Full year
2011
----------------------- --------------------
2012 2011 Reported Constant 2011
rates rates
--------- ------------ --------- --------- ------------
As reported As reported
Revenue GBP362m GBP418m (13)% (13)% GBP814m
Net sales value GBP205m GBP207m (1)% 2% GBP418m
Trading profit GBP50.0m GBP45.0m 11% 11% GBP99.6m
Return on sales 13.8% 10.8% 3.0pts 2.9pts 12.2%
Return on net sales value 24.4% 21.8% 2.6pts 1.8ps 23.8%
Electronics end-markets have been reasonably stable during the
half year with a continued strong performance in the Americas and
Asia-Pacific more than offsetting weaker end-market conditions in
Europe. According to recent estimates from Henderson Ventures,
global production of electronic equipment (measured in US dollars
at constant currency) is forecast to grow 4.7% in 2012 (6.3% in
2013) driven, in particular, by strong growth in tablets and
smartphones. Henderson Ventures expects tablet sales to nearly
double from 67m units in 2011 to around 120m units in 2012. Mobile
phone unit sales are expected to grow around 5% in 2012, but with
the more technically sophisticated smartphones increasing by around
37%. Automotive and industrial markets have been generally strong
in the Americas and Asia-Pacific but weaker in Europe, particularly
in the second quarter.
Revenue of GBP362m was 13% lower than the first half of 2011
(13% lower at reported exchange rates). This partially reflected
the 'pass through' to customers of lower tin and silver prices,
both major raw materials for Joining Technologies, and lower
palladium prices in the Surface Chemistries business. In the first
half of 2012, the average prices of tin, silver and palladium were
respectively 27%, 14% and 16% lower than the same period last year,
such that approximately GBP27m of the division's revenue decrease
was as a result of these lower metal prices. Excluding the impact
of these commodity metals, underlying revenue was 7% lower compared
to the first half of 2011. Asia-Pacific, the division's largest
region, accounted for 44% of revenue in the first half of 2012 (by
location of customer).
The negative revenue growth reflects the continuing strategy of
exiting more commoditised products (particularly bar solder and
proprietary chemicals) offset by the continued market penetration
of innovative, higher margin, products such as advanced solder
pastes, copper damascene, 'tape and reel' packaged solder
pre-forms, and plating-on-plastics chemicals.
In the first half of 2012, the division's revenue included
GBP78m of tin, GBP48m of silver and GBP32m of gold and palladium.
Net sales value (which excludes these amounts from revenue) in the
first half of 2012 was GBP205m (first half 2011: GBP200m).
As a result of the improving mix in the profitability of
revenue, trading profit for the first half of 2012 rose
significantly to GBP50.0m (first half 2011: GBP45.2m), a 11%
increase (11% higher at reported exchange rates).
The return on sales margin in the first half of 2012 was 13.8%,
well ahead of the 10.9% achieved in the first half of 2011. The
pass through to customers of the lower tin and precious metals
commodity prices discussed above decreased revenue by some GBP27m
but had no material impact on trading profit. The return on sales
margin in the first half of 2012 would have been 15.1% if metal
prices had remained at average 2010 levels.
The return on net sales value in the first half of 2012 was
24.4%, ahead of the first half of 2011 (22.6%). Management believe
this measure, which eliminates the impact of the pass through of
commodity metals, is an important measure of the underlying
profitability of the division.
The division normally sees a slightly stronger second half
compared to the first due to the third quarter peak in electronic
equipment production ahead of Thanksgiving and Christmas consumer
spending.
Joining Technologies
Joining Technologies is a leading global supplier of materials
to assemblers of printed circuit boards ("PCBs") and the
semi-conductor packaging industry and to certain non-electronics
markets such as automotive and water treatment. Its principal brand
name is Alpha and products include solder (in bar, wire, paste,
powder and sphere form) and fluxes, adhesives, cleaning chemicals
and stencils.
Revenue of GBP224m was 17% lower than the first half of 2011
(both at constant and reported exchange rates). Excluding the
impact of passing through lower tin and silver prices, on an
underlying basis revenue was 9% lower than the first half of 2011.
This reflects the continuation of the successful strategy to focus
on higher margin, enhanced technology products, and exiting more
commoditised products such as bar solder. For solder products,
which account for three-quarters of Joining Technologies revenue,
sales of higher margin solder pastes were unchanged by weight
compared to the first half of 2011 while bar solder was down 14%,
partially reflecting the continuing shift from wave soldering to
surface mount technology for the production of PCBs. Sales of
tape-and-reel packaged pre-forms, which are manufactured shapes of
solder used in joining applications requiring high physical
strength, grew by 9% driven, in particular, by smartphone
applications. The recycling, reclaim business in the US and China,
in which scrap solder generated by our customers' production
processes is reclaimed back into solder alloys for sale to third
parties or for reuse within the business, also performed well in
the period, notwithstanding lower metal prices.
Net sales value (which excludes the value of tin and silver from
revenue) in the first half of 2012 was GBP98m (first half 2011:
GBP90m).
The business continues to focus on new product development and
on penetrating new markets, including LED, solar and power
electronics. These new products include Ready Ribbon(TM), a
pre-fluxed, solder coated, copper ribbon used for connecting solar
cells within a solar panel, and nano-silver die attach products for
use in the manufacture of LED lights and power electronics. Both
products are currently being trialled at a significant number of
customers and commercial sales are expected to commence
shortly.
Surface Chemistries
The Surface Chemistries business manufactures and supplies
speciality electro-plating chemicals under the trade name Enthone.
Approximately 45% of sales are to the electronics industry and 55%
to industrial and automotive applications.
Revenue of GBP138m for the first half of 2012 was 5% lower than
the first half of 2011 (6% lower at reported exchange rates). Net
sales value (which excludes the value of gold and palladium from
revenue) in the first half of 2012 was GBP107m (first half 2011:
GBP110m). Compared to the first half of 2011, sales of
plating-on-plastics and corrosion and wear resistant products for
automotive and industrial applications were up 1%, whilst sales of
surface coating products serving the PCB fabrication market were
down 4%. Copper damascene sales into the semi-conductor market were
up 2% compared to the first half of 2011, with sales of products to
customers for their recently launched 22 nanometre node
semi-conductors commencing in the period.
The construction of the new GBP14m Chemistry facility in
Shanghai, to serve China's growing electronic materials, automotive
and industrial end-markets, is expected to be completed by the end
of 2012. Currently the Chinese market is served from Cookson
facilities in Shenzhen, Tianjin and Singapore.
Precious Metals Processing division
The Precious Metals Processing division is a leading supplier of
fabricated precious metals (primarily gold, silver and platinum) to
the jewellery industry in the UK, France and Spain, and also has
significant precious metal recycling operations.
First half Inc/(dec) vs H1 Full year
2011
---------------------- --------------------
2012 2011 Reported Constant 2011
rates rates
-------- ------------ --------- --------- ------------
As reported As reported
Revenue GBP119m GBP152m (22)% (21)% GBP326m
Net sales value GBP55m GBP65m (15)% (14)% GBP132m
Trading profit GBP9.6m GBP6.7m 43% 55% GBP6.2m
Return on net sales value 17.4% 10.3% 7.1pts 7.7pts 4.7%
The Precious Metals division previously operated in two distinct
geographic regions; Europe (which is focused on the UK, France and
Spain), and the US. On 1 May 2012, the US operations, which were
loss-making in 2011, were sold to Richline Group, Inc. (a
subsidiary of Berkshire Hathaway Inc.). The net cash consideration
is subject to closing balance sheet adjustments but is expected to
be sufficient for the exit from the US business to be cash neutral,
taking into account the restructuring and other costs incurred in
preparing the business for sale. Following the restructuring in
2011, the US operations were restored to profitability, albeit at
low levels, in the period prior to its disposal. Included in the
divisional results for the first half of 2012 are the following
amounts in respect of the US operations prior to their disposal;
revenue of GBP42m; net sales value (being revenue less the precious
metal content) of GBP15m; and trading profit of GBP1.7m.
The division's European operations are unaffected by the
transaction. For these operations, net sales value of GBP40m in the
first half of 2012 was 3% higher compared to the same period last
year (1% lower at reported exchange rates). This reflected
continuing weak retail jewellery markets being offset by continuing
good levels of precious metal recycling, stimulated by the
relatively high price of gold.
Trading profit for the European operations in the first half of
2012 at GBP7.9m was in line with that achieved in both the first
and second halves of 2011. The return on net sales value was 19.9%,
compared to 20.4% achieved in the first half of 2011.
Group corporate
The Group's corporate costs, being the costs directly related to
managing the Group holding company were GBP5.0m, GBP0.7m higher
than the same period last year.
FINANCIAL REVIEW
Group results highlights
First half Full year
---------------- ----------
2012 2011 2011
----------------------------------- ------- ------- ----------
Profit before tax (GBPm)
* headline 127.6 132.1 261.5
* basic 93.5 119.7 211.6
Earnings per share (pence)
* headline 34.3 35.2 70.4
* basic 23.0 31.6 53.2
Dividends per share (pence)(1)
* interim 7.50p 7.25p 7.25p
* final 14.50p
Free cash flow (GBPm) (20.1) (29.3) 90.1
Net debt (GBPm) 450.5 428.8 363.9
----------------------------------- ------- ------- ----------
(1) Dividends are presented on an
"as declared" basis
Group Income Statement
Headline profit before tax
Headline profit before tax was GBP127.6m for the first half of
2012, slightly below the GBP132.1m for the same period in 2011. The
change in headline profit before tax arose as follows:
First half
----------------
2012 2011 Change
GBPm GBPm GBPm
------------------------------------------- ------- ------- -------
Trading profit:
* at first half 2012 exchange rates 141.2 141.9 (0.7)
* currency exchange rate impact - 4.0 (4.0)
Trading profit - as reported 141.2 145.9 (4.7)
Net finance charges - ordinary activities (12.9) (13.7) 0.8
Post-tax loss from joint ventures (0.7) (0.1) (0.6)
------------------------------------------- ------- ------- -------
Headline profit before tax 127.6 132.1 (4.5)
------------------------------------------- ------- ------- -------
The GBP0.8m lower charge for net finance costs (interest)
principally resulted from GBP1.4m lower pension interest being only
partially offset by of GBP0.6m higher interest on borrowings, due
partially to an increase in the average level of borrowings
throughout the period. The higher average level of borrowings in
the first half of 2012 reflected the impact of acquisitions made
since 30 June 2011 and a number of one-off cash outflows in the
first half of 2012 which are detailed below.
Items excluded from headline profit before tax
A net charge of GBP34.1m was incurred in the first half of 2012
(first half 2011: GBP12.4m) for the following items excluded from
headline profit before tax:
Amortisation of intangible assets: costs of GBP8.8m (first half
2011: GBP8.9m) were incurred in the first half of 2012 relating to
the amortisation of intangible assets, being customer
relationships, intellectual property rights and the Foseco trade
name, arising on the acquisition of Foseco in 2008. These
intangible assets are being amortised over lives varying between 10
and 20 years.
Restructuring charges: the GBP18.2m charged in the first half of
2012 (first half 2011: GBP1.6m) comprised gross costs of GBP19.5m,
net of associated asset-related gains of GBP1.3m. Of the net total
of GBP18.2m, GBP14m related to non-cash related asset write-offs,
and GBP4m to cash-related items, principally headcount reductions.
Of the GBP18.2m, GBP2.8m arose in the Performance Materials
division, mainly in relation to headcount reductions, and GBP15.7m
arose in the Engineered Ceramics division. Of the total for the
Engineered Ceramics division, GBP14.6m relates to the restructuring
of the Fused Silica business, including the closure of the
production facility in Moravia, Czech Republic and other cost
saving initiatives. This latter charge comprised GBP14.0m of
non-cash related asset write-offs and GBP0.6m of cash-related
headcount reductions.
Restructuring charges of around GBP22m are expected to be
incurred in the full year 2012.
Loss on disposal of continuing operations and
acquisition-related costs: a net loss of GBP7.1m (first half 2011:
GBPnil) was incurred in the first half of 2012, of which GBP6.4m
relates to the disposal of the US operations of the Precious Metals
Processing division. This business was in the process of being
disposed of as at 31 December 2011 and was therefore recorded as
held for sale at that date. On being classified as held for sale
the net assets of the business were written down to their fair
value less costs to sell. On 22 February 2012, an agreement was
signed with Richline Group, Inc. (a subsidiary of Berkshire
Hathaway Inc.) for it to acquire the Group's interest in this
business and the disposal was completed on 1 May 2012. The loss
incurred in the first half of 2012 relates mainly to a non-cash
charge of GBP4.6m in respect of cumulative historic net foreign
exchange gains and losses previously charged to reserves relating
to the businesses disposed of. Under IFRS accounting, these are
required to be 'recycled' through the income statement on
disposal.
Group profit before tax and after the items noted above was
GBP93.5m for the first half of 2012 compared to a profit before tax
of GBP119.7m in the first half of 2011.
Taxation
The tax charge on ordinary activities was GBP30.1m on a headline
profit before tax of GBP127.6m, an effective tax rate (before share
of post-tax loss of joint ventures) of 23.5%. The effective tax
rate in the full year 2011 was also 23.5%.
Whilst the Group's effective tax rate going forward will be
affected by the geographic split of profit before tax, it is
currently expected that the effective tax rate for the full year
2012 will be around 23.5%.
Profit attributable to owners of the parent
Headline attributable profit for the first half of 2012 was
GBP94.9m (first half 2011: GBP97.1m).
After taking account of all items excluded from headline profit
before tax noted above (net of the related tax impact), the Group
recorded a profit of GBP63.6m for the first half of 2012 (first
half 2011: GBP87.3m).
A tax credit of GBP2.8m (first half 2011: GBP2.6m) arose in
relation to all the items excluded from headline profit before tax
noted above.
Return on investment ("ROI")
The Group's post-tax ROI in the first half of 2012 was 9.8%,
broadly in line with the 10.0% reported in the same period last
year.
Earnings per share ("EPS")
Headline EPS, based on the headline profit attributable divided
by the average number of shares in issue, amounted to 34.3p per
share in the first half of 2012 (first half of 2011: 35.2p). Basic
EPS, based on the net profit attributable to owners of the parent,
was 23.0p (first half 2011: 31.6p). The average number of shares in
issue during the first half of 2012 was 276.7m, 0.7m higher than
for the first half of 2011 reflecting shares issued in respect of
the award of shares to employees under the Long-Term Incentive
Plan.
Dividend and dividend policy
One of the financial targets for the three year period to 2013
is that dividends would grow at least in line with earnings
growth.
Consistent with this target, the Board is declaring an interim
dividend of 7.50p per share (2011 interim dividend: 7.25p). This
interim dividend is to be paid on 15 October 2012 to shareholders
on the register on 14 September 2012. Any shareholder wishing to
participate in the Cookson Dividend Reinvestment Plan ("DRIP")
needs to have submitted their election to do so by 1 October
2012.
Group cash flow
Net cash flows from operating activities
In the first half of 2012, there was a GBP6.9m net cash inflow
from operating activities compared to a GBP6.5m net cash outflow in
the first half of 2011. This change arose from:
First Half
--------------------------
2012 2011 Change
----------------------------------------------- ------- -------- -------
GBPm GBPm GBPm
EBITDA 168.7 173.6 (4.9)
Trade and other working capital (90.5) (134.9) 44.4
Restructuring charges paid (23.5) (7.9) (15.6)
Additional pension plan funding contributions (3.5) (6.6) 3.1
Net interest paid (13.2) (3.9) (9.3)
Taxation paid (29.5) (26.8) (2.7)
Assets held for sale (1.6) - (1.6)
Net cash inflow/(outflow) from operating
activities 6.9 (6.5) 13.4
----------------------------------------------- ------- -------- -------
The cash outflow of GBP90.5m from trade and other working
capital principally reflects the Group's normal seasonality, with a
build-up of working capital in the first half of the year and some
reduction expected during the second half. Whilst the absolute
level of trade working capital increased during the first half of
2012 the ratio of average trade working capital to sales in the
first half of 2012 of 22.7% remained in line with expectations and
compares with 23.2% for the full year 2011.
Cash outflow for restructuring was GBP23.5m. This principally
comprises a payment of GBP15.8m made in May 2012 to buy-out the
property lease relating to the Performance Materials division's
operations in Woking, UK. A cash outflow for restructuring of
around GBP27m is expected in the full year 2012.
The cash outflow for additional pension plan funding
contributions included the following:
UK defined benefit pension plan ("UK Plan"): payments totalling
GBP3.5m were made into the UK Plan in the first half of 2012. A new
funding valuation for the UK Plan as at the end of 2009 was
completed in July 2010, based upon which Cookson and the Trustee
agreed a new schedule of contributions of GBP7m per annum
commencing in August 2010. The level of 'top-up' payments will be
reviewed based on the UK Plan's next triennial valuation as of
December 2012, which should be available in mid-2013.
US defined benefit pension plans: no payments were made into the
US pension plans in the first half of 2012. However, in line with
the previously announced intention to make additional 'top-up'
payments of approximately US$10m (GBP6m) per annum into the plans
with effect from the beginning of 2011, payments of approximately
US$10m (GBP6m) are expected to be made into the plans in the second
half of 2012.
Net cash flows from investing activities
Capital expenditure: payments to acquire property, plant and
equipment in the first half of 2012 were GBP34.1m, GBP2.6m higher
than the first half of 2011 and representing 124% of depreciation
(first half 2011: 114%). A cash outflow for capital expenditure of
around GBP75m is expected in the full year 2012 principally
reflecting the expansion of production capacity in China, India,
Brazil, Eastern Europe, Japan and Singapore; and customer
installations in the Engineered Ceramics and Performance Materials
divisions.
Acquisition of subsidiaries: a cash outflow of GBP26.4m (first
half 2011: GBP0.4m) arose principally relating to the acquisition
of Metallurgica, which completed on 29 March 2012.
Disposal of subsidiaries: a cash inflow of GBP14.8m (first half
2011: outflow of GBP1.9m) arose principally relating to the
disposal of the US operations of the Precious Metals Processing
division, which completed on 1 May 2012.
Free cash flow
Free cash flow is defined as net cash flow from operating
activities after net outlays for capital expenditure, dividends
received from joint ventures and paid to non-controlling
shareholders, but before additional funding contributions to Group
pension plans.
Free cash outflow for the first half of 2012 was GBP20.1m,
GBP9.2m lower than the GBP29.3m outflow in the first half of 2011.
This principally reflects the lower outflow from trade and other
working capital between periods, as described above.
The Group traditionally experiences lower free cash flows in the
first half of the year compared with the second half, due to the
seasonality of trade working capital cash flows. Free cash flow is
expected to be strongly positive in the second half of 2012. The
free cash inflow for the year ended June 2012 was GBP99.3m (year
ended December 2011: GBP90.1m; year ended June 2011: GBP49.3m).
Net cash flow before financing
Net cash outflow before financing for the first half of 2012 was
GBP35.1m, GBP6.4m lower than the first half of 2011 due principally
to the increase in cash inflow from operating activities described
above.
Cash flow from financing activities
Net cash outflow from financing activities (before movement in
borrowings) was GBP59.1m (first half of 2011: GBP67.2m),
principally comprising the following:
Purchase of treasury shares: a cash outflow of GBP14.8m (first
half 2011: GBP4.4m) arose relating to the purchase by the Employees
Benefit Trust in March 2012 of Cookson Group plc shares in respect
of the award of shares to employees under the Group's Long-Term
Incentive and Deferred Share plans.
Dividends paid: a cash outflow of GBP40.3m arose in respect of
the payment in June 2012 of the final dividend for 2011 (first half
2011: GBP31.8m).
Net cash outflow and movement in net debt
Net cash outflow for the first half of 2012 (before movement in
borrowings) was GBP94.2m, GBP14.5m lower than the first half of
2011.
With an GBP8.2m positive foreign exchange adjustment and GBP0.6m
in other non-cash movements, this resulted in an increase in net
debt from GBP363.9m at 31 December 2011 to GBP450.5m at 30 June
2012, an increase of GBP86.6m. Net debt at 30 June 2011 was
GBP428.8m.
Net debt
The net debt of GBP450.5m as at 30 June 2012 was primarily drawn
on available committed facilities of around GBP759m. The Group's
net debt comprised the following:
30 June 31 December 30 June
2012 2011 2011
GBPm GBPm GBPm
----------------------------------------- -------- ------------ --------
US Private Placement loan notes
(June 2012: US$250m; June and December
2011: US$440m) 159.2 283.7 273.9
Committed bank facility 415.3 260.5 260.5
Lease financing 4.1 4.1 3.7
Other 6.3 3.7 35.7
----------------------------------------- -------- ------------ --------
Gross borrowings 584.9 552.0 573.8
Cash and short-term deposits (134.4) (188.1) (145.0)
----------------------------------------- -------- ------------ --------
Net debt 450.5 363.9 428.8
----------------------------------------- -------- ------------ --------
On 2 May 2012, US$190m (GBP117m) of US Private Placement loan
notes dating from 2000, which had an interest rate of 8.1%, were
repaid on their scheduled maturity date. Following this repayment,
the Group's committed debt facilities now comprise the GBP600m five
year Revolving Credit facility agreed in April 2011 and US$250m
(GBP159m) of US Private Placement loan notes that were issued in
December 2010 with an average weighted interest rate of 4.67%. The
average weighted remaining duration of the Group's debt facilities
is 4.5 years.
In the Capital Markets presentation on 26 January 2011, it was
stated as part of the financial targets for the three year period
to 2013 that the Group would maintain a strong financial position
with a leverage ratio (net debt to EBITDA ratio) of not more than
1.5 times at year end and 1.75 times at the half year. The Group is
currently operating very comfortably within this limit and, as at
June 2012, the net debt to EBITDA ratio was 1.3 times (as compared
with not more than 3.0 times for bank covenant purposes). Also as
at 30 June 2012, the ratio of EBITDA to interest on borrowings was
14.4 times (as compared with not less than 4.0 times for bank
covenant purposes). Based on these covenant ratios, the Group will
pay a margin of 105bps over LIBOR on its borrowings under the
committed bank facility.
As at 30 June 2012, the Group had undrawn committed debt
facilities totalling around GBP185m.
Currently around 40% of the Group's current gross borrowings are
at fixed interest rates for an average period of just under five
years from June 2012. This reflects both the fixed interest rate
nature of the US Private Placement loan notes and the Group
entering into a number of interest rate swaps. The percentage of
gross borrowings that are at fixed interest rates, which reduced
following the repayment of US$190m (GBP117m) of US Private
Placement loan notes in May 2012, is likely to be increased going
forward in line with normal Group policy.
Currency
In the first half of 2012, the net translation impact of using
2012 rates to translate 2011 first half results was a decrease in
first half 2011 revenue and trading profit of GBP24m and GBP4m
respectively. Between these periods, the average exchange rates for
sterling strengthened against the euro by 5%, the Czech koruna by
9%, the Polish zloty by 13% and the Brazilian real by 11%, but
weakened against the US dollar by 2% and the Chinese renminbi by
6%.
Currently, around 55% of the Group's gross borrowings are
non-sterling denominated, principally in US dollars and euros.
Pension fund and other post-retirement obligations
The Group operates defined contribution and defined benefit
pension plans, principally in the UK, the US and Germany. The
Group's principal defined benefit pension plans in the UK and the
US are closed to new members and to further accruals for existing
members.
As at 30 June 2012, a net deficit of GBP81.4m was recognised in
respect of employee benefits. The increase of GBP22.7m from the net
deficit as at 31 December 2011 of GBP58.7m primarily arose as a
result of a reduction in the applicable discount rates used to
value liabilities in the UK and US plans.
The total Group net deficit comprises a surplus of GBP46.2m
relating to Cookson's UK defined benefit plan ("the UK Plan"),
deficits of GBP66.6m relating to the Group's defined benefit
pension plans in the US, GBP37.3m to plans in Germany, GBP14.5m to
pension arrangements in other countries, and GBP9.2m to other,
unfunded, post-retirement defined benefit arrangements.
During 2011, the Company offered the deferred members of the UK
Plan the opportunity to transfer their benefits out of the UK Plan
to another arrangement of their choice at an enhanced value. The
offer of enhanced transfer values closed during the first half of
2012. In total some 550 members took up the offer and this has
eliminated the inflation, interest rate, investment and longevity
risk for Cookson in respect of the GBP50m of liabilities
transferred out of the UK Plan (representing around 10% of total UK
Plan liabilities). The impact on the IAS 19 valuation of UK pension
liabilities of the transfers agreed up to 31 December 2011, were
reflected in the results for 2011 as an exceptional charge of
GBP5.9m. The impact of transfers agreed after 1 January 2012 was a
charge of GBP0.3m and, not being material, has been reported in the
first half of 2012 in arriving at trading profit.
The UK Plan assets include a liability-driven investment
portfolio of financial derivative contracts which significantly
reduces the risk that the Plan's assets will fall materially
relative to the value of its projected liabilities for meeting
future pension payments (the UK Plan's "economic liabilities").
On 19 July 2012, the UK Plan Trustee announced that it had
entered into a pension insurance buy-in agreement with Pension
Insurance Corporation ("PIC") to insure approximately 60% of the UK
Plan's total liabilities. Under this arrangement, the UK Plan
Trustee is paying an insurance premium of approximately GBP320m to
PIC, wholly from the existing assets of the UK Plan, which will
secure a stream of income exactly matching future on-going pension
payments. The insured liabilities cover the UK Plan's pensioner
members, who comprise some 3,350 members out of a total UK Plan
membership of 5,900. This arrangement eliminates the inflation,
interest rate, investment and longevity risk for Cookson in respect
of these liabilities.
For plan funding purposes, the UK Plan's pensioner liabilities
are valued using more prudent assumptions than those required under
IAS19 for accounting purposes. On a funding basis - sometimes
called the 'economic' or 'ongoing' basis - the insurance premium
being paid to PIC represents some GBP10m less than the amount
reserved in the UK Plan against these liabilities. This means that
the funding level of the UK Plan - the measure which determines the
level of additional contributions required to be made by Cookson -
improves by some GBP10m as a result of the buy-in. On an accounting
basis, the pensioner liabilities are valued using a higher discount
rate (as required by IAS19), which produces a much lower valuation
of those liabilities. As a consequence, the accounting surplus of
GBP46m reported as at 30 June 2012 for the UK Plan would have been
a deficit of some GBP10m if the buy-in transaction had, in fact,
occurred prior to that date. The Group continues to fund the UK
Plan on the basis of the funding valuation.
Both the enhanced transfer value offer and the pensioner buy-in
represent further steps in the Group's on-going strategy of
de-risking its defined benefit pension arrangements. A further
exercise is currently underway in respect of the Group's US defined
benefit plans, whereby members are being offered the opportunity to
receive a lump sum payment of their accrued benefits, thereby
removing their liability from the plans. The member liabilities
associated with this offer amount to some GBP40m. The offer closes
in the second half of 2012.
The total charge against trading profit in the income statement
in the first half of 2012 for all pension plans (including defined
contribution plans) was GBP10.0m, marginally lower than the first
half of 2011. Included within net finance charges was GBP0.2m
(first half 2011: GBP1.6m). Total pension cash contributions
amounted to GBP17.8m in the first half of 2012 (first half 2011:
GBP18.6m), which included GBP3.5m (first half 2011: GBP6.6m) of
additional cash funding contributions into the UK and US plans.
RISKS AND UNCERTAINTIES
Throughout its global operations, Cookson faces various risks,
both internal and external, which could have a material impact on
the Group's long-term performance. Cookson manages the risks
inherent in its operations in order to mitigate exposure to all
forms of risk, where practical, and to transfer risk to insurers,
where cost effective. On pages 29 to 31 of its 2011 Annual Report
(a copy of which is available on Cookson's website at
www.cooksongroup.co.uk), the Company sets out what the Directors
regarded as being the principal risks and uncertainties facing the
Group as at 27 February 2012 and which could have a material impact
on the Group's long-term performance. The Directors continue to
regard these as the principal risks and uncertainties facing the
Group which might impact the Group's operations during the
remainder of the second half of 2012. These can be summarised as
risks associated with:
-- Significant weakening in demand in the Group's core end-markets;
-- Fluctuations in exchange rates, interest rates and the rate of inflation;
-- Loss of customers to competitors if its businesses do not
adapt to market developments or protect, maintain and enforce their
intellectual property;
-- Significant liabilities for any defects of its products or services;
-- Adverse political, legal, regulatory and other developments
in countries in which the Group operates; and
-- Withdrawal or reduction of precious metal consignment
arrangements, or increased precious metal prices.
Shareholder/analyst enquiries: Cookson Group plc
Nick Salmon, Chief Executive Tel: +44 (0)20 7822
Mike Butterworth, Group Finance Director 0000
Media enquiries:
John Olsen/Andrew Jaques/Ian Payne MHP Communications
Tel: +44 (0)20 3128
8100
Copies of the Half Year Financial Report will not be mailed to
shareholders. Copies can be obtained from the Cookson website
(www.cooksongroup.co.uk), or by contacting the Investor Relations
department at the Company's registered office (see below).
Cookson management will make a presentation to analysts on 25
July 2012 at 9.00am (UK time). This will be broadcast live on
Cookson's website. An archive version of the presentation will be
available on the website later that day.
About Cookson Group plc:
Cookson Group plc is a leading materials science company
operating on a worldwide basis in Ceramics, Electronics and
Precious Metals markets.
The Engineered Ceramics division is the world leader in the
supply of advanced consumable refractory products and systems to
the global steel and foundry industries and a leading supplier of
speciality ceramic products to the glass and solar industries. It
is also a regional leader in the US, UK and Australia in the supply
and installation of monolithic refractory linings.
The Performance Materials division is a leading supplier of
advanced surface treatment and plating chemicals and assembly
materials to the electronics, automotive, industrial and
construction markets.
The Precious Metals Processing division is a leading supplier of
fabricated precious metals (primarily gold, silver and platinum) to
the jewellery industry in the UK, France and Spain, and also has
significant precious metal recycling operations.
Forward-looking statements
This announcement contains certain forward-looking statements
which may include reference to one or more of the following: 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 announcement that are not historical facts
are hereby identified as "forward-looking statements". Such
forward-looking statements, including, without limitation, those
relating to the future business prospects, revenue, working
capital, liquidity, capital needs, interest costs and income, in
each case relating to Cookson, wherever they occur in this
announcement, 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 regulator 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
announcement might not occur.
Cookson Group plc, 165 Fleet Street, London EC4A 2AE
Registered in England and Wales No. 251977
www.cooksongroup.co.uk
Directors' responsibility statement
We confirm that to the best of our knowledge:
(a) The condensed financial statements have been prepared in
accordance with IAS 34, Interim Financial Reporting, as adopted by
the EU; and
(b) This half-yearly financial report includes a fair review of the information required by:
- DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of financial statements; and a description of the principal
risks and uncertainties for the remaining six months of the
financial year; and
- DTR 4.2.8R of the Disclosure and Transparency Rules, being
related parties' transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or the performance of the Group
during that period; and any changes in the related parties'
transactions described in the last annual report that could have a
material effect on the financial position or performance of the
Group in the first six months of the current financial year.
On behalf of the Board
Mike Butterworth
Group Finance Director
25 July 2012
Independent review report to Cookson Group plc
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-year financial report for the
six months ended 30 June 2012 which comprises the condensed Group
income statement, the condensed Group statement of comprehensive
income, the condensed Group statement of cash flows, the condensed
Group balance sheet, the condensed Group statement of changes in
equity and the related explanatory notes. We have read the other
information contained in the half-year financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the Company in accordance with the
terms of our engagement to assist the Company in meeting the
requirements of the Disclosure and Transparency Rules ("the DTR")
of the UK's Financial Services Authority ("the UK FSA"). Our review
has been undertaken so that we might state to the Company those
matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company
for our review work, for this report, or for the conclusions we
have reached.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FSA.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The condensed set of
financial statements included in this half-yearly financial report
has been prepared in accordance with IAS 34, Interim Financial
Reporting, as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK and Ireland) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2012 is not prepared, in all material respects, in accordance
with IAS 34 as adopted by the EU and the DTR of the UK FSA.
Paul Korolkiewicz
for and on behalf of KPMG Audit Plc
Chartered Accountants
15 Canada Square
London, E14 5GL
25 July 2012
Condensed Group Income Statement
For the six months ended 30 June 2012
Half Half Full
year year year
2012 2011 2011
Notes GBPm GBPm GBPm
Revenue 2 1,300.2 1,420.5 2,826.4
Manufacturing costs (929.2) (1,036.3) (2,083.2)
Administration, selling and distribution
costs (229.8) (238.3) (453.0)
------------------------------------------- ------
Trading profit 2 141.2 145.9 290.2
Amortisation of intangible assets 3 (8.8) (8.9) (17.8)
Restructuring charges 4 (18.2) (1.6) (8.9)
Gains relating to employee benefits plans 5 - - 15.2
------------------------------------------- ------
Profit from operations 2 114.2 135.4 278.7
Finance costs - ordinary activities 6 (29.5) (33.5) (67.0)
- exceptional items 6 - (1.9) (1.9)
Finance income 6 16.6 19.8 38.3
Share of post-tax loss of joint ventures (0.7) (0.1) -
Loss on disposal of continuing operations
and acquisition-related costs 7 (7.1) - (36.5)
Profit before tax 93.5 119.7 211.6
Income tax costs - ordinary activities 8 (30.1) (31.7) (61.4)
- exceptional items 8 2.8 2.6 2.5
Profit for the period 66.2 90.6 152.7
=========================================== ====== ======== ========== ==========
Profit for the period attributable to:
Owners of the parent 63.6 87.3 146.8
Non-controlling interests 2.6 3.3 5.9
Profit for the period 66.2 90.6 152.7
=========================================== ====== ======== ========== ==========
Headline profit before tax
Trading profit 141.2 145.9 290.2
Net finance costs - ordinary activities (12.9) (13.7) (28.7)
Share of post-tax loss of joint ventures (0.7) (0.1) -
Headline profit before tax 16.4 127.6 132.1 261.5
Income tax costs - ordinary activities (30.1) (31.7) (61.4)
Profit attributable to non-controlling
interests (2.6) (3.3) (5.9)
------------------------------------------- ------ -------- ---------- ----------
Headline profit attributable to owners
of the parent 94.9 97.1 194.2
=========================================== ====== ======== ========== ==========
Earnings per share (pence) 9
From profit attributable to owners of
the parent:
Basic 23.0 31.6 53.2
Diluted 22.7 31.3 52.3
=========================================== ====== ======== ========== ==========
Condensed Group Statement of Comprehensive Income
For the six months ended 30 June 2012
Unaudited Unaudited
Half Half Full
year year year
2012 2011 2011
Note GBPm GBPm GBPm
Profit for the period 66.2 90.6 152.7
Other comprehensive (loss)/income for
the period
---------- ---------- -------
Exchange differences on translation of
the net assets of foreign operations (47.0) 16.3 (47.5)
Reclassification of exchange differences 4.6 - -
on disposal of foreign operation
Exchange translation differences arising
on net investment hedges 11.2 (2.6) (3.3)
Change in fair value of cash flow hedges (0.2) 0.2 (0.2)
Change in fair value of cash flow hedges (0.2) - -
transferred to profit for the period
Actuarial gains on employee benefits plans 0.5 19.4 39.6
Actuarial losses on employee benefits
plans (36.9) (0.2) (18.4)
Change in fair value of available-for-sale
investments (0.1) 0.7 0.1
Income tax relating to components of other
comprehensive income 8 5.3 (4.5) (11.9)
---------- ---------- -------
Other comprehensive (loss)/income net
of income tax for the period (62.8) 29.3 (41.6)
Total comprehensive income for the period 3.4 119.9 111.1
============================================ ===== ========== ========== =======
Total comprehensive income for the period
attributable to:
Owners of the parent 2.0 116.8 108.7
Non-controlling interests 1.4 3.1 2.4
Total comprehensive income for the period 3.4 119.9 111.1
============================================ ===== ========== ========== =======
Condensed Group Statement of Cash Flows
For the six months ended 30 June 2012
Unaudited Unaudited
Half Half Full
year year year
2012 2011 2011
Notes GBPm GBPm GBPm
Cash flows from operating activities
Profit from operations 114.2 135.4 278.7
Adjustments for:
Amortisation of intangible assets 8.8 8.9 17.8
Restructuring charges 18.2 1.6 8.9
Gains relating to employee benefits plans - - (15.2)
Depreciation 27.5 27.7 56.3
------------------------------------------------ ------ ---------- ---------- --------
EBITDA 16.8 168.7 173.6 346.5
Net increase in trade and other working
capital (90.5) (134.9) (86.8)
Net operating outflow related to assets (1.6) - -
and liabilities classified as held for
sale
Outflow related to restructuring charges 4 (23.5) (7.9) (13.2)
Additional funding contributions into
Group pension plans 12 (3.5) (6.6) (13.2)
Cash generated from operations 49.6 24.2 233.3
Interest paid (13.8) (11.1) (27.6)
Interest received 0.6 7.2 10.0
Income taxes paid (29.5) (26.8) (55.9)
------------------------------------------------ ------ ---------- ---------- --------
Net cash inflow/(outflow) from operating
activities 6.9 (6.5) 159.8
Cash flows from investing activities
---------- ---------- --------
Capital expenditure (34.1) (31.5) (85.1)
Proceeds from the sale of property, plant
and equipment 3.6 2.1 2.3
Acquisition of subsidiaries and joint
ventures, net of cash acquired (26.4) (0.4) (11.3)
Disposal of subsidiaries and joint ventures,
net of cash disposed of 14.8 (1.9) (4.4)
Settlement of closed-out interest rate
swaps (0.5) (3.3) (4.0)
Dividends received from joint ventures 1.0 1.2 1.2
Other investing outflows (0.4) (1.2) (2.1)
---------- ---------- --------
Net cash outflow from investing activities (42.0) (35.0) (103.4)
------------------------------------------------ ------ ---------- ---------- --------
Net cash (outflow)/inflow before financing
activities (35.1) (41.5) 56.4
Cash flows from financing activities
---------- ---------- --------
Repayment of borrowings (117.0) (252.8) -
Increase in borrowings 155.6 289.6 41.2
Settlement of forward foreign exchange
contracts (4.9) (25.5) (27.6)
Proceeds from the issue of share capital 1.9 - -
Purchase of treasury shares (14.8) (4.4) (7.8)
Borrowing facility arrangement costs - (4.3) (4.3)
Dividends paid to equity shareholders (40.3) (31.8) (51.8)
Dividends paid to non-controlling shareholders (1.0) (1.2) (1.3)
Net cash outflow from financing activities (20.5) (30.4) (51.6)
------------------------------------------------ ------ ---------- ---------- --------
Net (decrease)/increase in cash and cash
equivalents 11 (55.6) (71.9) 4.8
Cash and cash equivalents at beginning
of period 183.9 181.4 181.4
Effect of exchange rate fluctuations on
cash and cash equivalents (3.3) - (2.3)
Cash and cash equivalents at end of period 125.0 109.5 183.9
================================================ ====== ========== ========== ========
Free cash flow
Net cash inflow/(outflow) from operating
activities 6.9 (6.5) 159.8
Additional funding contributions into
Group pension plans 3.5 6.6 13.2
Capital expenditure (34.1) (31.5) (85.1)
Proceeds from the sale of property, plant
and equipment 3.6 2.1 2.3
Dividends received from joint ventures 1.0 1.2 1.2
Dividends paid to non-controlling shareholders (1.0) (1.2) (1.3)
------------------------------------------------ ------ ---------- ---------- --------
Free cash (outflow)/inflow 16.6 (20.1) (29.3) 90.1
================================================ ====== ========== ========== ========
Condensed Group Balance Sheet
As at 30 June 2012
Unaudited Unaudited
30 31 30
June December June
2012 2011 2011
Notes GBPm GBPm GBPm
Assets
---------- ---------- ----------
Property, plant and equipment 386.6 399.4 411.7
Intangible assets 1,087.9 1,104.7 1,134.3
Employee benefits - net surpluses 12 46.2 65.6 20.6
Interests in joint ventures 28.2 31.2 27.1
Investments 5.9 5.7 6.3
Income tax recoverable 3.4 3.4 -
Deferred tax assets 20.3 20.8 19.9
Other receivables 22.2 21.7 10.4
Total non-current assets 1,600.7 1,652.5 1,630.3
Cash and short-term deposits 134.4 188.1 145.0
Inventories 304.5 300.2 346.7
Trade and other receivables 557.7 530.0 615.6
Income tax recoverable 1.9 1.9 4.0
Derivative financial instruments 2.3 3.7 2.5
Assets classified as held for sale 2.1 28.8 -
---------- ---------- ----------
Total current assets 1,002.9 1,052.7 1,113.8
Total assets 2,603.6 2,705.2 2,744.1
============================================= ======= ========== ========== ==========
Equity
---------- ---------- ----------
Issued share capital 278.3 276.4 276.4
Share premium account 0.1 0.1 0.1
Other reserves 101.4 131.9 194.1
Retained earnings 879.8 899.3 866.4
---------- ---------- ----------
Equity attributable to the owners of the
parent 1,259.6 1,307.7 1,337.0
Non-controlling interests 25.0 24.6 25.4
--------------------------------------------- ------- ---------- ---------- ----------
Total equity 1,284.6 1,332.3 1,362.4
--------------------------------------------- ------- ---------- ---------- ----------
Liabilities
---------- ---------- ----------
Interest-bearing borrowings 575.2 421.3 415.8
Employee benefits - net liabilities 12 127.6 124.3 108.9
Other payables 19.3 19.2 22.7
Provisions 37.6 55.7 49.7
Derivative financial instruments - - 11.5
Deferred tax liabilities 97.3 106.5 96.8
---------- ---------- ----------
Total non-current liabilities 857.0 727.0 705.4
Interest-bearing borrowings 9.7 130.7 158.0
Trade and other payables 359.5 409.4 432.9
Income tax payable 55.2 53.6 52.5
Provisions 22.7 24.9 29.6
Derivative financial instruments 14.9 19.6 3.3
Liabilities directly associated with assets
classified as held for sale - 7.7 -
---------- ---------- ----------
Total current liabilities 462.0 645.9 676.3
--------------------------------------------- ------- ----------
Total liabilities 1,319.0 1,372.9 1,381.7
--------------------------------------------- ------- ----------
Total equity and liabilities 2,603.6 2,705.2 2,744.1
============================================= ======= ========== ========== ==========
Net debt
Interest-bearing loans - non-current 575.2 421.3 415.8
- current 9.7 130.7 158.0
Cash and short-term deposits (134.4) (188.1) (145.0)
16.11,
Net debt 11 450.5 363.9 428.8
============================================= ======= ========== ========== ==========
Condensed Group Statement of Changes in Equity
For the six months ended 30 June 2012
Issued Share Investment- Non-
Owners
share premium Hedging revaluation Translation Retained of controlling Total
the
capital account reserve reserve reserve earnings parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
As at 1 January
2011 276.4 0.1 (2.0) (0.2) 181.5 797.8 1,253.6 23.5 1,277.1
Profit for the
period - - - - - 87.3 87.3 3.3 90.6
Exchange
differences on
the net assets of
foreign
operations - - - - 16.5 - 16.5 (0.2) 16.3
Exchange
translation
differences
arising on net
investment
hedges - - - - (2.6) - (2.6) - (2.6)
Change in fair
value of
cash flow hedges - - 0.2 - - - 0.2 - 0.2
Actuarial gains on
employee
benefits plans - - - - - 19.4 19.4 - 19.4
Actuarial losses on
employee
benefits plans - - - - - (0.2) (0.2) - (0.2)
Change in fair
value of
available-for-sale
investments - - - 0.7 - - 0.7 - 0.7
Income tax relating
to components
of other
comprehensive
income - - - - - (4.5) (4.5) - (4.5)
-------- -------- -------- ------------ ------------ --------- -------- ------------ --------
Other comprehensive
income
net of income tax
for the
period - - 0.2 0.7 13.9 14.7 29.5 (0.2) 29.3
-------------------- -------- -------- -------- ------------ ------------ --------- -------- ------------ --------
Total comprehensive
income
for the period - - 0.2 0.7 13.9 102.0 116.8 3.1 119.9
-------- -------- -------- ------------ ------------ --------- -------- ------------ --------
Purchase of
treasury shares - - - - - (4.4) (4.4) - (4.4)
Recognition of
share-based
payments - - - - - 2.8 2.8 - 2.8
Dividends paid
(note 10) - - - - - (31.8) (31.8) (1.2) (33.0)
-------- -------- -------- ------------ ------------ --------- -------- ------------ --------
Total transactions
with
owners for the
period - - - - - (33.4) (33.4) (1.2) (34.6)
-------------------- -------- -------- -------- ------------ ------------ --------- -------- ------------ --------
As at 1 July 2011 276.4 0.1 (1.8) 0.5 195.4 866.4 1,337.0 25.4 1,362.4
Profit for the
period - - - - - 59.5 59.5 2.6 62.1
Exchange
differences on
the net assets of
foreign
operations - - - - (60.5) - (60.5) (3.3) (63.8)
Exchange
translation
differences
arising on net
investment
hedges - - - - (0.7) - (0.7) - (0.7)
Change in fair
value of
cash flow hedges - - (0.4) - - - (0.4) - (0.4)
Actuarial gains on
employee
benefits plans - - - - - 20.2 20.2 - 20.2
Actuarial losses on
employee
benefits plans - - - - - (18.2) (18.2) - (18.2)
Change in fair
value of
available-for-sale
investments - - - (0.6) - - (0.6) - (0.6)
Income tax relating
to components
of other
comprehensive
income - - - - - (7.4) (7.4) - (7.4)
-------- -------- -------- ------------ ------------ --------- -------- ------------ --------
Other comprehensive
income
net of income tax
for the
period - - (0.4) (0.6) (61.2) (5.4) (67.6) (3.3) (70.9)
-------------------- -------- -------- -------- ------------ ------------ --------- -------- ------------ --------
Total comprehensive
income
for the period - - (0.4) (0.6) (61.2) 54.1 (8.1) (0.7) (8.8)
-------- -------- -------- ------------ ------------ --------- -------- ------------ --------
Purchase of
treasury shares - - - - - (3.4) (3.4) - (3.4)
Recognition of
share-based
payments - - - - - 2.2 2.2 - 2.2
Dividends paid
(note 10) - - - - - (20.0) (20.0) (0.1) (20.1)
-------- -------- -------- ------------ ------------ --------- -------- ------------ --------
Total transactions
with
owners for the
period - - - - - (21.2) (21.2) (0.1) (21.3)
-------------------- -------- -------- -------- ------------ ------------ --------- -------- ------------ --------
As at 1 January
2012 276.4 0.1 (2.2) (0.1) 134.2 899.3 1,307.7 24.6 1,332.3
Profit for the
period - - - - - 63.6 63.6 2.6 66.2
Exchange
differences on
the net assets of
foreign
operations - - - - (45.8) - - (45.8) (1.2) (47.0)
Reclassification of
exchange
differences on
disposal
of foreign
operation - - - - 4.6 - - 4.6 - 4.6
Exchange
translation
differences
arising on net
investment
hedges - - - - 11.2 - - 11.2 - 11.2
Change in fair
value of
cash flow hedges - - (0.2) - - - - (0.2) - (0.2)
Change in fair
value of
cash flow hedges
transferred
to profit - - (0.2) - - - - (0.2) - (0.2)
Actuarial gains on
employee
benefits plans - - - - - 0.5 - 0.5 - 0.5
Actuarial losses on
employee
benefits plans - - - - - (36.9) - (36.9) - (36.9)
Change in fair
value of
available-for-sale
investments - - - (0.1) - - - (0.1) - (0.1)
Income tax relating
to components
of other
comprehensive
income - - - - - 5.3 - 5.3 - 5.3
-------- -------- -------- ------------ ------------ --------- -------- ------------ --------
Other comprehensive
income
net of income tax
for the
period - - (0.4) (0.1) (30.0) (31.1) - (61.6) (1.2) (62.8)
-------------------- -------- -------- -------- ------------ ------------ --------- -------- ------------ --------
Total comprehensive
income
for the period - - (0.4) (0.1) (30.0) 32.5 - 2.0 1.4 3.4
-------- -------- -------- ------------ ------------ --------- -------- ------------ --------
Shares issued in
the period 1.9 - - - - - - 1.9 - 1.9
Purchase of
treasury shares - - - - - (14.8) - (14.8) - (14.8)
Recognition of
share-based
payments - - - - - 3.1 - 3.1 - 3.1
Dividends paid
(note 10) - - - - - (40.3) - (40.3) (1.0) (41.3)
-------- -------- -------- ------------ ------------ --------- -------- ------------ --------
Total transactions
with
owners for the
period 1.9 - - - - (52.0) - (50.1) (1.0) (51.1)
-------------------- -------- -------- -------- ------------ ------------ --------- -------- ------------ --------
As at 30 June 2012 278.3 0.1 (2.6) (0.2) 104.2 879.8 - 1,259.6 25.0 1,284.6
==================== ======== ======== ======== ============ ============ ========= ======== ============ ========
Notes to the condensed financial statements
1. BASIS OF PREPARATION
1.1 BASIS OF ACCOUNTING
These condensed financial statements have been prepared in
accordance with International Accounting Standard ("IAS") 34,
Interim Financial Reporting, as adopted by the EU and in accordance
with the Disclosure and Transparency Rules of the UK's Financial
Services Authority.
Except as noted in 1.4 below, these condensed financial
statements have been prepared using the same accounting policies as
used in the preparation of the Group's annual financial statements
for the year ended 31 December 2011, which were prepared in
accordance with International Financial Reporting Standards as
adopted by the EU ("IFRS"). They do not include all of the
information required for full annual financial statements, and
should be read in conjunction with the consolidated financial
statements of the Group for the year ended 31 December 2011. The
financial information presented in this document is unaudited, but
has been reviewed by the Company's auditor.
The comparative figures for the financial year ended 31 December
2011 are not the Company's statutory accounts for that financial
year. Those accounts have been reported on by the Company's auditor
and delivered to the Registrar of Companies. The report of the
auditor was unqualified, did not include reference to any matters
to which the auditor drew attention by way of emphasis without
qualifying its report and did not contain a statement under section
498(2) or (3) of the Companies Act 2006. These sections address
whether proper accounting records have been kept, whether the
Company's accounts are in agreement with those records and whether
the auditor has obtained all the information and explanations
necessary for the purposes of its audit.
1.2 GOING CONCERN
The Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future and, accordingly, they have continued to adopt
the going concern basis in preparing the condensed financial
statements for the six months ended 30 June 2012.
1.3 DISCLOSURE OF EXCEPTIONAL ITEMS
IAS 1, Presentation of Financial Statements, provides no
definitive guidance as to the format of the income statement, but
states key lines which should be disclosed. It also encourages the
disclosure of additional line items and the reordering of items
presented on the face of the income statement when appropriate for
a proper understanding of the entity's financial performance. In
accordance with IAS 1, the Company has adopted a policy of
disclosing separately on the face of its condensed Group income
statement the effect of any components of financial performance
considered by the Directors to be exceptional, or for which
separate disclosure would assist both in a better understanding of
the financial performance achieved and in making projections of
future results.
Both materiality and the nature and function of the components
of income and expense are considered in deciding upon such
presentation. Such items may include, inter alia, amortisation
charges relating to intangible assets, the financial effect of
major restructuring activity, profits or losses relating to
non-current assets, gains or losses relating to employee benefits
plans, finance costs, profits or losses arising on business
disposals, and other items, including the taxation impact of the
aforementioned items, which have a significant impact on the
Group's results either due to their size or nature.
1.4 NEW AND REVISED IFRS
During the period the Group has adopted a number of revised and
amended standards and interpretations, none of which has had a
material impact on the Group's net cash flows, financial position,
total comprehensive income or earnings per share.
2. SEGMENT INFORMATION
For reporting purposes, the Group is organised into three main
business segments: Engineered Ceramics, Performance Materials and
Precious Metals Processing. It is the Cookson Board which makes the
key operating decisions in respect of these segments. The
information used by the Cookson Board to review performance and
determine resource allocation between the business segments is
presented with the Group's activities segmented between the three
business segments, Engineered Ceramics, Performance Materials and
Precious Metals Processing. Taking into account not only the basis
on which the Group's activities are reported to the Cookson Board,
but also the nature of the products and services of the product
lines within each of these segments, the production processes
involved in each and the nature of their end-markets, the Directors
believe that these three business segments are the appropriate way
to analyse the Group's results. The principal activities of each of
these segments are described in the Review of Operations.
Segment revenue represents revenue from external customers
(inter-segment revenue is not material) and segment result is
equivalent to trading profit excluding corporate costs directly
related to managing the parent company, which are reported
separately in the tables below. Segment result includes items
directly attributable to a segment as well as those items that can
be allocated on a reasonable basis.
Unaudited half year 2012
Precious
Engineered Performance Metals
Ceramics Materials Processing Unallocated Group
GBPm GBPm GBPm GBPm GBPm
Segment revenue 819.2 362.4 118.6 - 1,300.2
----------- ------------ ----------- ------------ --------
Net sales value (note 16.1) 819.2 204.8 55.1 - 1,079.1
----------- ------------ ----------- ------------ --------
Segment EBITDA (note 16.8) 109.3 54.3 10.0 - 173.6
Segment depreciation (22.7) (4.3) (0.4) - (27.4)
----------- ------------ ----------- ------------ --------
Segment result 86.6 50.0 9.6 - 146.2
Corporate costs - - - (5.0) (5.0)
----------- ------------ ----------- ------------ --------
Trading profit 86.6 50.0 9.6 (5.0) 141.2
Amortisation of intangible assets (8.8) - - - (8.8)
Restructuring charges (15.7) (2.8) 0.3 - (18.2)
Profit from operations 62.1 47.2 9.9 (5.0) 114.2
----------- ------------ ----------- ------------
Finance costs (29.5)
Finance income 16.6
Share of post-tax loss of joint
ventures (0.7)
Loss on disposal of continuing operations
and acquisition-related costs (7.1)
--------
Profit before tax 93.5
========
Return on sales (%) (note 16.2) 10.6 13.8 n/a n/a 10.9
Return on net sales value (%) (note
16.2) 10.6 24.4 17.4 n/a 13.1
=========== ============ =========== ============ ========
Unaudited half year 2011
Precious
Engineered Performance Metals
Ceramics Materials Processing Unallocated Group
GBPm GBPm GBPm GBPm GBPm
Segment revenue 851.3 417.7 151.5 - 1,420.5
----------- ------------ ----------- ------------ --------
Net sales value (note 16.1) 851.3 206.6 65.1 - 1,123.0
----------- ------------ ----------- ------------ --------
Segment EBITDA (note 16.8) 120.2 49.2 8.5 - 177.9
Segment depreciation (21.7) (4.2) (1.8) - (27.7)
----------- ------------ ----------- ------------ --------
Segment result 98.5 45.0 6.7 - 150.2
Corporate costs - - - (4.3) (4.3)
----------- ------------ ----------- ------------ --------
Trading profit 98.5 45.0 6.7 (4.3) 145.9
Amortisation of intangible assets (8.9) - - - (8.9)
Restructuring charges (1.5) - (0.1) - (1.6)
Profit from operations 88.1 45.0 6.6 (4.3) 135.4
----------- ------------ ----------- ------------
Finance costs - ordinary activities (33.5)
- exceptional items (1.9)
Finance income 19.8
Share of post-tax loss of joint
ventures (0.1)
--------
Profit before tax 119.7
========
Return on sales (%) (note 16.2) 11.6 10.8 n/a n/a 10.3
Return on net sales value (%) (note
16.2) 11.6 21.8 10.3 n/a 13.0
=========== ============ =========== ============ ========
Full year 2011
Precious
Engineered Performance Metals
Ceramics Materials Processing Unallocated Group
GBPm GBPm GBPm GBPm GBPm
Segment revenue 1,685.8 814.4 326.2 - 2,826.4
----------- ------------ ----------- ------------ --------
Net sales value (note 16.1) 1,685.8 417.7 132.3 - 2,235.8
----------- ------------ ----------- ------------ --------
Segment EBITDA (note 16.8) 237.2 108.1 9.9 - 355.2
Segment depreciation (44.0) (8.5) (3.7) - (56.2)
----------- ------------ ----------- ------------ --------
Segment result 193.2 99.6 6.2 - 299.0
Corporate costs - - - (8.8) (8.8)
----------- ------------ ----------- ------------ --------
Trading profit 193.2 99.6 6.2 (8.8) 290.2
Amortisation of intangible assets (17.8) - - - (17.8)
Restructuring charges (7.0) (1.9) - - (8.9)
Gains relating to employee benefits
plans - 2.0 - 13.2 15.2
----------- ------------ ----------- ------------ --------
Profit from operations 168.4 99.7 6.2 4.4 278.7
----------- ------------ ----------- ------------
Finance costs - ordinary activities (67.0)
- exceptional items (1.9)
Finance income 38.3
Loss on disposal of continuing operations (36.5)
--------
Profit before tax 211.6
========
Return on sales margin (%) (note
16.2) 11.5 12.2 n/a n/a 10.3
Return on net sales value (%) (note
16.2) 11.5 23.8 4.7 n/a 13.0
=========== ============ =========== ============ ========
3. AMORTISATION OF INTANGIBLE ASSETS
Intangible assets other than goodwill arose on the acquisition
of Foseco in 2008 and are being amortised on a straight-line basis
over their useful lives. The assets acquired and their remaining
useful lives are shown below.
Unaudited
Net
book
value
as at
Remaining 30 June
useful
life 2012
years GBPm
Customer relationships 15.8 91.4
Trade name 15.8 57.0
Intellectual property rights 5.8 46.2
194.6
==========
4. RESTRUCTURING CHARGES
In the first half of 2012, restructuring charges of GBP18.2m
were incurred (2011: half year GBP1.6m; full year GBP8.9m),
comprising gross charges of GBP19.5m (2011: half year GBP4.3m; full
year GBP11.7m) offset by profits arising on the sale of vacant
properties of GBP1.3m (2011: half year GBP2.7m; full year GBP2.8m).
The charges arose in connection with initiatives that included
redundancy programmes, the downsizing or closure of facilities, the
streamlining of manufacturing processes and the rationalisation of
product lines. The net tax credit attributable to these charges was
GBP0.8m (2011: half year GBP0.5m; full year GBP1.6m).
A cash outflow of GBP23.5m (2011: half year GBP7.9m; full year
GBP13.2m) was incurred in the period in respect of the
restructuring initiatives commenced both in 2012 and in prior
years, leaving provisions made but unspent of GBP13.5m as at 30
June 2012 (2011: 30 June GBP35.8m; 31 December GBP31.5m) of which
GBP7.5m (2011: 30 June GBP24.9m; 31 December GBP24.4m) related to
onerous lease provisions in respect of leases terminating between
two and fifteen years. Of the total cash outflow in the period of
GBP23.5m, GBP15.8m related to the Group's purchase of the Woking,
UK property and resulted in the close-out of the onerous lease
provision which had been established in 2009 in respect of that
property.
5. GAINS RELATING TO EMPLOYEE BENEFITS PLANS
No exceptional gains (2011: half year GBPnil; full year
GBP15.2m) relating to employee benefits plans arose in the first
half of 2012. The GBP15.2m net gain in 2011, comprised a net gain
of GBP13.2m in the UK Plan, arising from the use of the Consumer
Price Index instead of the Retail Prices Index to value deferred
pension benefits and the impact of an enhanced transfer value
exercise, and a gain of GBP2.0m arising from the closure of two
defined benefits pension plans in the Netherlands.
6. FINANCE COSTS AND FINANCE INCOME
6.1 ORDINARY FINANCE COSTS AND FINANCE INCOME
Included within finance costs from ordinary activities is the
interest cost associated with the liabilities of the Group's
defined benefit pension and other post-retirement benefit plans of
GBP15.6m (2011: half year GBP17.6m; full year GBP34.3m) and
included within finance income is the expected return on the assets
of the Group's defined benefit pension plans of GBP15.4m (2011:
half year GBP16.0m; full year GBP32.0m).
6.2 EXCEPTIONAL FINANCE COSTS
No exceptional finance costs (2011: half year GBP1.9m; full year
GBP1.9m) arose in the first half of 2012. The GBP1.9m of costs
incurred in 2011 resulted from the early write-off of unamortised
borrowing costs as a consequence of the Group entering into a new
revolving credit facility. The costs written off related to the old
facility that had been due to expire in 2012. No tax was
attributable to these costs.
7. LOSS ON DISPOSAL OF CONTINUING OPERATIONS AND
ACQUISITION-RELATED COSTS
A net loss of GBP7.1m arose in the first half of 2012 (2011:
half year GBPnil; full year GBP36.5m). Included in the 2012 total
was GBP6.4m relating to the disposal of the US businesses of the
Precious Metals Processing division, being mainly recycled
historical foreign exchange differences relating to the businesses
sold. The closing balance sheet relating to this disposal is
expected to be completed during the second half of 2012, at which
time the loss on disposal of the business will be finalised. Other
charges made in 2012 were for trailing costs of prior year
disposals and costs relating to the acquisition of Metallurgica in
the period. No tax was attributable to these losses.
Of the loss on disposal of continuing operations of GBP36.5m
reported in 2011, GBP29.0m related to the disposal of the US
business of the Precious Metals Processing division, and GBP7.5m
related to a number of small business closures in 2011 and trailing
costs for disposals in earlier years. A tax credit of GBP0.4m was
attributable to these losses.
8. INCOME TAX COSTS
The Group's total income tax cost of GBP27.3m (2011: half year
GBP29.1m; full year GBP58.9m) comprised a tax charge on ordinary
activities of GBP30.1m (2011: half year GBP31.7m; full year
GBP61.4m), and a credit relating to exceptional items of GBP2.8m
(2011: half year GBP2.6m; full year GBP2.5m), which is analysed in
the table below.
Unaudited Unaudited
Half Half Full
year year year
2012 2011 2011
GBPm GBPm GBPm
Exceptional tax in relation to:
Amortisation of intangible assets 3.4 3.6 7.2
Restructuring charges 0.8 0.5 1.6
Gains relating to employee benefits plans - - (3.8)
Loss on disposal of continuing operations and
acquisition-related costs - - 0.4
Deferred tax on goodwill (1.4) (1.5) (2.9)
Total net tax credit relating to exceptional
items 2.8 2.6 2.5
========== ========== ======
The GBP5.3m of income tax charged in the condensed Group
statement of comprehensive income (2011: half year GBP4.5m charge;
full year GBP11.9m charge) relates to net actuarial gains and
losses on employee benefits plans.
The 2012 Budget on 21 March 2012 announced that the UK
corporation tax rate will reduce to 22% by 2014. A further
reduction to 24% (effective from 1 April 2012) was substantively
enacted on 26 March 2012.
9. EARNINGS PER SHARE ("EPS")
9.1 PER SHARE AMOUNTS
Unaudited Unaudited
Half Half Full
year year year
2012 2011 2011
pence pence pence
EPS - basic 23.0 31.6 53.2
- diluted 22.7 31.3 52.3
- headline 34.3 35.2 70.4
- diluted headline 33.9 34.8 69.1
========== ========== ======
9.2 EARNINGS FOR EPS
Basic and diluted EPS are based upon the profit attributable to
owners of the parent, as reported in the condensed Group income
statement, of GBP63.6m (2011: half year GBP87.3m; full year
GBP146.8m); headline and diluted headline EPS are based upon
headline profit attributable to owners of the parent of GBP94.9m
(2011: half year GBP97.1m; full year GBP194.2m). The table below
reconciles these different profit measures, which are both derived
entirely from continuing operations.
Unaudited Unaudited
Half Half Full
year year year
2012 2011 2011
GBPm GBPm GBPm
Profit attributable to owners of the parent 63.6 87.3 146.8
Adjustments for exceptional items:
Amortisation of intangible assets 8.8 8.9 17.8
Restructuring charges 18.2 1.6 8.9
Gains relating to employee benefits plans - - (15.2)
Exceptional finance costs - 1.9 1.9
Loss on disposal of continuing operations and
acquisition-related costs 7.1 - 36.5
Tax relating to exceptional items (2.8) (2.6) (2.5)
Headline profit attributable to owners of the
parent 94.9 97.1 194.2
========== ========== =======
9.3 WEIGHTED AVERAGE NUMBER OF SHARES
Unaudited Unaudited
Half Half Full
year year year
2012 2011 2011
m m m
For calculating basic EPS and headline EPS 276.7 276.0 275.7
Adjustment for dilutive potential ordinary shares 2.9 3.1 5.2
---------- ---------- ------
For calculating diluted EPS and diluted headline
EPS 279.6 279.1 280.9
========== ========== ======
For the purposes of calculating diluted basic and diluted
headline EPS, the weighted average number of ordinary shares is
adjusted to include the weighted average number of ordinary shares
that would be issued on the conversion of all dilutive potential
ordinary shares relating to the Company's share-based payment
plans. Potential ordinary shares are only treated as dilutive when
their conversion to ordinary shares would decrease earnings per
share, or increase loss per share, from continuing operations.
Other than the ordinary shares shown as being dilutive in the table
above, the Company had no other (2011: half year 0.3m; full year
0.2m) outstanding options and share awards that could dilute EPS in
the future.
10. DIVIDENDS
Unaudited Unaudited
Half Half Full
year year year
2012 2011 2011
GBPm GBPm GBPm
Amounts recognised as dividends and paid to
equity holders during the period
Final dividend for the year ended 31 December
2010 of 11.5p per ordinary share - 31.8 31.8
Interim dividend for the year ended 31 December
2011 of 7.25p per ordinary share - - 20.0
Final dividend for the year ended 31 December 40.3 - -
2011 of 14.5p per ordinary share
---------- ---------- ------
40.3 31.8 51.8
========== ========== ======
The Directors have declared an interim dividend of 7.50p (2011:
7.25p) per ordinary share in respect of the year ending 31 December
2012. The dividend will be paid on 15 October 2012 to ordinary
shareholders on the register at the close of business on 14
September 2012. Based upon the number of ordinary shares in issue
at 30 June 2012, the total cost of the dividend would be
GBP20.9m.
11. BORROWINGS
Unaudited Unaudited Unaudited Unaudited
Balance Balance
at Foreign at
1 January exchange Non-cash 30 June
Cash
2012 adjustment movements flow 2012
GBPm GBPm GBPm GBPm GBPm
Cash and cash equivalents
----------
Short-term deposits 42.1 (0.3) - (29.9) 11.9
Cash at bank and in hand 146.0 (3.0) - (20.5) 122.5
Bank overdrafts (4.2) - - (5.2) (9.4)
----------
(55.6)
Borrowings, excluding bank overdrafts
Current (127.7) 2.1 - 124.1 (1.5)
Non-current (424.4) 9.4 - (162.7) (577.7)
Capitalised borrowing costs 4.3 - (0.6) - 3.7
----------
(38.6)
Net debt (363.9) 8.2 (0.6) (94.2) (450.5)
========== =========== ========== ========== ==========
In May 2012, US$190m of long-term US Private Placement loan
notes were repaid on their scheduled repayment date, by drawing
down on the Group's syndicated bank facility.
12. EMPLOYEE BENEFITS
The net employee benefits balance as at 30 June 2012 of GBP81.4m
(2011: half year GBP88.3m; full year GBP58.7m) in respect of the
Group's defined benefit pension and other post-retirement benefit
obligations, comprised net surpluses of GBP46.2m (2011: half year
GBP20.6m; full year GBP65.6) and net liabilities of GBP127.6m
(2011: half year GBP108.9m; full year GBP124.3m), and results from
an interim actuarial valuation of the Group's defined benefit
pension and other post-retirement obligations as at that date.
Unaudited Unaudited
30 30
June 31 December June
2012 2011 2011
GBPm GBPm GBPm
Employee benefits - net surpluses
UK defined benefit pension plan 46.2 65.6 20.6
========== ============ ==========
Employee benefits - net liabilities
US defined benefit pension plans 66.6 64.8 48.5
Germany defined benefit pension plans 37.4 35.3 34.9
ROW defined benefit pension plans 14.4 14.5 15.2
Other post-retirement benefit obligations 9.2 9.7 10.3
127.6 124.3 108.9
========== ============ ==========
The enhanced transfer value offer made to deferred members of
the UK Plan in October 2011 successfully concluded in May 2012. In
total some 550 members took up the offer (a take-up rate of 24% by
deferred liability value) and this has eliminated the inflation,
interest rate, investment and longevity risk for Cookson in respect
of the GBP50m of liabilities transferred out of the UK Plan, some
10% of total UK Plan liabilities. The impact on the IAS 19
valuation of UK pension liabilities of the transfers agreed up to
31 December 2011 was reflected in the results for 2011 as an
exceptional charge of GBP5.9m. The adjustment made in 2012 to
finalise the accounting for the offer was not material.
On 19 July 2012, the UK Plan Trustee announced that it had
entered into a pension insurance buy-in agreement with Pension
Insurance Corporation ("PIC") to insure approximately 60% of total
UK Plan liabilities. Under this arrangement, the UK Plan Trustee is
paying an insurance premium of approximately GBP320m to PIC, wholly
from the existing assets of the UK Plan, which will secure a stream
of income exactly matching future on-going pension payments. The
insured liabilities cover the UK Plan's pensioner members, who
comprise some 3,350 members out of a total UK Plan membership of
5,900. This arrangement eliminates the inflation, interest rate,
investment and longevity risk for Cookson in respect of these
liabilities.
The total net charges in respect of the Group's defined benefit
pension and other post-retirement benefit obligations are shown in
the table below.
Unaudited Unaudited
Half Half Full
year year year
2012 2011 2011
GBPm GBPm GBPm
In arriving at trading profit - within manufacturing
costs 1.0 1.0 2.0
- within administration, selling and distribution
costs 0.5 1.5 2.7
In arriving at profit from operations - as exceptional
gains relating to employee benefits plans - - (15.2)
In arriving at profit before tax - within ordinary
finance costs 15.6 17.6 34.3
- within finance income (15.4) (16.0) (32.0)
---------- ---------- -------
Total net charge/(credit) 1.7 4.1 (8.2)
========== ========== =======
Cash contributions into the Group's defined benefit pension
plans amounted to GBP7.8m (2011: half year GBP8.9m; full year
GBP19.5m), which included additional funding contributions of
GBP3.5m (2011: half year GBP6.6m; full year GBP13.2m).
13. EVENTS AFTER THE BALANCE SHEET DATE
On 24 July 2012, the Group completed the sale of its
Andreco-Hurll refractory lining installation business in Australia.
As at 30 June 2012, the assets subject to the sale were reported as
held for sale. Consideration for the sale was Aus$8m (GBP5m).
14. CONTINGENT LIABILITIES
The Group has extensive international operations and is subject
to various legal and regulatory regimes, including those covering
taxation and environmental matters. Legal claims have been brought
against certain Group companies by third parties alleging that
persons have been harmed by exposure to hazardous materials used by
those companies in the manufacture of industrial and consumer
products, and further claims may be brought in the future. Certain
of the Group's subsidiaries are subject to lawsuits, predominantly
in the US, relating to a small number of products containing
asbestos manufactured prior to the acquisition of those
subsidiaries by the Group. These suits usually also name many other
product manufacturers. To date, the Group is not aware of there
being any liability verdicts against any of these subsidiaries. A
number of lawsuits have been withdrawn, dismissed or settled and
the amount paid, including costs, in relation to this litigation
has not had a material adverse effect on the Group's financial
position or results of operations.
15. EXCHANGE RATES
The Group reports its results in pounds sterling. A substantial
portion of the Group's revenue and profits are denominated in
currencies other than pounds sterling. It is the Group's policy to
translate the income statements and cash flow statements of its
overseas operations into pounds sterling using average exchange
rates for the period reported (except when the use of average rates
does not approximate the exchange rate at the date of the
transaction, in which case the transaction rate is used) and to
translate balance sheets using period end rates. The principal
exchange rates used were as follows:
Period end rates of Average rates of exchange
exchange for the period
30 June 30 June 31 Dec Half year Half year Full year
2012 2011 2011 2012 2011 2011
US dollar 1.57 1.61 1.55 1.58 1.62 1.60
Euro 1.24 1.11 1.20 1.22 1.15 1.15
Czech Republic koruna 31.60 26.94 30.49 30.53 28.08 28.32
Polish zloty 5.25 4.41 5.34 5.15 4.56 4.74
Brazilian real 3.16 2.51 2.89 2.94 2.64 2.68
Chinese renminbi 9.98 10.38 9.78 9.97 10.58 10.37
16. NON-GAAP FINANCIAL MEASURES
The Company uses a number of non-Generally Accepted Accounting
Practice ("non-GAAP") financial measures in addition to those
reported in accordance with IFRS. The Directors believe that these
non-GAAP measures, listed below, are important when assessing the
underlying financial and operating performance of the Group and its
divisions.
16.1 NET SALES VALUE
Net sales value is calculated as revenue, excluding the amount
included therein related to commodity metals.
16.2 RETURN ON SALES AND RETURN ON NET SALES VALUE
Return on sales is calculated as trading profit divided by
revenue. Return on net sales value is calculated as trading profit
divided by net sales value.
16.3 UNDERLYING REVENUE
Underlying revenue is calculated as revenue, adjusted to exclude
the effects of changes in metals prices and exchange rates, and
business acquisitions, disposals and closures.
16.4 HEADLINE PROFIT BEFORE TAX
Headline profit before tax is calculated as the net total of
trading profit, plus share of post-tax profit/(loss) of joint
ventures and total net finance costs associated with ordinary
activities.
16.5 HEADLINE EARNINGS PER SHARE
Headline earnings per share is calculated as headline profit
before tax and after income tax costs associated with ordinary
activities and profit attributable to non-controlling interests,
divided by the weighted average number of ordinary shares in issue
during the period.
16.6 FREE CASH FLOW
Free cash flow, defined as net cash flow from operating
activities after net outlays for the purchase and sale of property,
plant and equipment, dividends from joint ventures and dividends
paid to non-controlling shareholders, but before additional funding
contributions to Group pension plans.
16.7 AVERAGE WORKING CAPITAL TO SALES RATIO
The average working capital to sales ratio is calculated as the
percentage of average working capital balances to the annualised
revenue for the period. Average working capital (comprising
inventories, trade and other receivables, and trade and other
payables) is calculated as the average of the six previous
month-end balances, and annualised revenue is derived from the
revenue for the previous six months.
16.8 EBITDA
EBITDA is calculated as the total of trading profit before
depreciation charges.
16.9 NET INTEREST
Net interest is calculated as interest payable on borrowings
less interest receivable, excluding any item therein considered by
the Directors to be exceptional.
16.10 INTEREST COVER
Interest cover is the ratio of EBITDA to net interest.
16.11 NET DEBT
Net debt comprises the net total of current and non-current
interest-bearing borrowings and cash and short-term deposits.
16.12 NET DEBT TO EBITDA
Net debt to EBITDA is the ratio of net debt at the period-end to
EBITDA for the preceding 12 month period.
16.13 RETURN ON NET ASSETS
Return on net assets ("RONA") is calculated as trading profit
plus share of post-tax profit/(loss) of joint ventures, divided by
average net operating assets (being the average over the previous
12 months of property, plant and equipment, trade working capital
and other operating receivables and payables).
16.14 RETURN ON INVESTMENT
Return on investment ("ROI") is calculated as trading profit
after tax plus share of post-tax profit/(loss) of joint ventures,
divided by invested capital (being total equity plus net debt, net
employee benefits liabilities and goodwill previously written off
to, or amortised against, reserves).
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR KZLFLLDFXBBL
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