Pilkington predicts pre-tax profit up 15%

UK-based glass major Pilkington issued a trading up-date on 23 March 2005 ahead of the results for the period to 31 March 2005, which are scheduled for Thursday, 26 May 2005
Group Chief Executive Stu..

UK-based glass major Pilkington issued a trading up-date on 23 March 2005 ahead of the results for the period to 31 March 2005, which are scheduled for Thursday, 26 May 2005 Group Chief Executive Stuart Chambers commented: “Overall, trading remains in line with our expectations, with a good performance in Automotive and Building Products holding up. Together with lower interest costs and an improved profit contribution from joint ventures and associates, this should lead to an increase in pre-tax profits of around 15%.” “The Group continues to benefit from ongoing cost reduction and further improvements in operational efficiency, helping to mitigate the effects of variable trading conditions in our markets around the world. Energy surcharges on Building Products deliveries in Europe and North America have helped to alleviate the significant cost push from rising energy prices. Another year of focus on cash generation will again enable Pilkington to report a reduction in net debt.” “Pilkington remains on track to transition into the third phase of its strategy over the course of the next financial year, when we will begin to invest surplus cash generated into profitable growth opportunities.” BUILDING PRODUCTS Pilkington said in its statement that Building Products markets in Europe remain very competitive, with oversupply in float glass keeping prices at historically low levels. Building Products markets elsewhere are either holding up or improving. Sales volumes overall are similar to 2004, with continuing efficiency improvements and cost savings largely offsetting rising input costs to leave operating profit for the business line broadly unchanged. Building Products Europe, representing two thirds of the Group“s Building Products sales, has been affected by more difficult trading conditions in the UK, though demand elsewhere has begun to improve slowly, principally in Central and Eastern Europe. The Russian joint venture float plant is on schedule for commissioning in summer 2005. The new management structure introduced in 2003/04, combining the Upstream and Downstream operations into a unified European business, has led to significant improvements in operating efficiencies, Pilkington said. The performance of Building Products North America, which represents around 12% of Building Products sales, has improved in both operational and sales terms, though revenues in the final quarter were affected by adverse winter weather. Office occupancy rates have begun to rise which Pilkington expects to feed through into rising demand from the commercial market in the coming financial year. In South America, Pilkington says its Building Products businesses continue to perform well, helped by the improved economic environment in Brazil and continuing recovery in Argentina. The Pilkington-constructed joint venture float plant in Barra Velha, southern Brazil, is now fully operational, quickly attaining high capacity utilisation and good levels of operating efficiency, according to the Group. Although the Australian residential market is showing signs of slowdown, after three years of strong growth, the improving commercial market is providing a counterbalance. AUTOMOTIVE Original Equipment (OE) demand has held up, though the North American Automotive Glass Replacement (AGR) market is still very competitive. All areas of the business continue to reduce costs and improve efficiency so Pilkington expects operating profits to be up by around 15% on 2003/04. More than half of Pilkington Automotive“s sales are in Europe. The market for light vehicles has been flat, but as a supplier for several successful new models, Pilkington says sales continue to grow. The European AGR market has been relatively stable. Cost reductions continue to improve the Group“s overall results in Europe. Over 30% of Pilkington“s Automotive business is in North America, where light vehicle build is slightly up on 2003/04, and aftermarket volumes have seen some growth. However, the combined impact of the weak US dollar, higher energy costs and price pressures means that North American operating profits will be down on 2003/04. In South America, where the Automotive business represents 5% of the Group“s Automotive operations worldwide, light vehicle production has risen by nearly 30%. As a result of strong sales volumes and ongoing manufacturing efficiencies, operating profits will be up on 2003/04. Results in Australasia are down from 2004, partly as a result of the closure of the aftermarket business in the region. The Automotive glass joint ventures in China continue to expand as the market continues to grow. Over the course of 2004/05 Pilkington says it has worked to integrate the Chinese automotive operations more fully into its global network. JOINT VENTURES AND ASSOCIATES Pilkington“s share of the turnover of joint ventures and associates declined slightly in 2004/05, partly due to currency weakness, though the Group“s share of profits from joint ventures and associates increased by around 10%. Improved profits in Cebrace (Brazil) and Shanghai Yaohua Pilkington (China) were the main contributors, though profits reduced at Vitro Plan SA de CV and subsidiaries (in which Pilkington has a 35% stake). EXCEPTIONAL ITEMS Exceptional items in year 2004/05 will include the cost of closing the Building Products decorated glass operations in Australia, the sale and closure of some Building Products processing and merchanting operations in Austria and the anticipated closure of the optical glass operations in the UK, offset by the profit on disposal of the Group“s 50% share in the joint venture investment in SDC Technologies Inc in the United States. The net amount of all exceptional items will not be material and will be lower than 2003/04. OTHER On 24 February 2005, Pilkington confirmed that, as part of an industry-wide inspection, European Commission officials visited a number of Pilkington company locations in Europe. Pilkington says it is co-operating with the Commission and will update the market as appropriate. FINANCE Interest costs for 2004/05 are expected to be around 15% down on the previous year, due to lower borrowings. With lower interest costs, improved profits in Automotive and in joint ventures and associates, 2004/05 profit before tax, exceptional costs and the amortisation of goodwill should be around 15% higher than 2003/04. The Group said it has continued its drive to generate free cash flow and reduce borrowings through tight cost control and focused capital expenditure. As previously indicated, free cash flow generation will be below the exceptional level achieved in 2003/04, but net borrowings at 31 March 2005 should again show a good reduction, Pilkington said.