In his statement on the group“s results for the 1H 2005 to 30 September 2005, Pilkington Chairman Sir Nigel Rudd said market conditions remained challenging and energy costs had risen worldwide. In s…
In his statement on the group“s results for the 1H 2005 to 30 September 2005, Pilkington Chairman Sir Nigel Rudd said market conditions remained challenging and energy costs had risen worldwide. In spite of this, he said Pilkington could report a good set of results, with increases in revenue and operating profits across both Building Products and Automotive Products. Operating profit from the group“s continuing operations increased by 26% from GBP 102 million to GBP 129 million in the half-year to 30 September 2005. Profit before taxation increased to GBP 99 million in the half-year, up 22% on the same period 2004. Sir Nigel said Pilkington continues to focus on cash generation and the achievement of strong free cash flow of GBP 69 million in the 1H has enabled the group to reduce net debt by 12% since September 2004. RESULTS Revenue in the 1H 2005 was GBP 1.3 billion, up 9% on the 1H of 2004. Operating profit from the group“s continuing operations was GBP 129 million, an increase of 26% on the GBP 102 million achieved in the 1H of 2004. Finance expenses, net of finance income, were broadly in line with 2004 and reflect higher interest rates applied to a reduced level of borrowings, together with the inclusion of a finance cost charge in respect of retirement benefit obligations and fair value adjustments on financial derivative assets and liabilities, introduced under IFRS. The tax charge in the income statement of GBP 24 million (2004: GBP 22 million) reflects a tax rate of 24% (2004: 27 %) on the group“s reported profit before taxation of GBP 99 million (2004: GBP 81 million). This rate appears lower than under UK GAAP and arises partly from the changed disclosure of the tax applicable to joint ventures and associates, which is now charged before striking the group“s profit before tax. EARNINGS AND DIVIDEND The profit attributable to equity shareholders has increased 31% from GBP 52 million in 2004 to GBP 68 million in the 1H 2005. Basic earnings per share have increased by 29% from GBP 0.041 per share in 2004 to GBP 0.053 per share in the half-year to 30 September 2005. The interim dividend has been increased to GBP 0.018 per share from GBP 0.0175 per share, consistent with the group“s progressive dividend policy introduced at the preliminary results in May 2005. The dividend will be paid on 16 December 2005 to shareholders of record on 2 December 2005. CASH FLOW AND BORROWINGS Free cash flow (defined as cash flow before expenditure on acquisitions, net of divestments and the disposal of property, plant and equipment and investments) amounted to GBP 69 million (2004: GBP 94 million). The group“s net debt has fallen by GBP 90 million in the last 12 months. BUILDING PRODUCTS Although competition remains intense in most major Building Products markets, Sir Nigel said revenues improved by 1% on the same period 2004, rising to GBP 616 million. The drive for improved efficiencies further lifted profits for the Building Products business to GBP 69 million, an increase year-on-year of 10%. Building Products Europe, representing around two-thirds of total Building Products sales, has seen signs of recovery in some continental markets, but overall market conditions remain difficult. Prices of standard float continue to fall across the region and the UK market in particular is currently experiencing low demand and high levels of competition. Despite this, Pilkington chairman said operating efficiencies and an overhaul of the management and administrative structure helped to increase profits in the region. Restructuring in 2004 improved the overall European result, helped by continuing strong sales of Pilkington Pyrostop(TM) Fire Protection glass. The European energy surcharge continues to mitigate the impact of rising energy costs. Building Products North America, representing 13% of total Building Products sales, is concentrated on the commercial construction market, which remains depressed. Although improvement is still expected in the medium term, recovery is unlikely in the current financial year. In South America, Sir Nigel said the group“s Building Products business continues to perform well, with demand for float glass continuing to grow strongly in Argentina, Brazil and Chile. Although there has been some slowdown in the residential construction sector in Australia, the economy generally remains strong, and the business has produced another good performance, Sir Nigel said. AUTOMOTIVE PRODUCTS Pilkington Automotive Original Equipment (OE) volumes were robust, the chairman said, due in part to several successful launches of vehicles in which Pilkington products are fitted. The North American Automotive Glass Replacement (AGR) market has stabilised and AGR sales in Europe have improved. As a result, Pilkington Automotive sales increased 15% to GBP 630 million and operating profits of GBP 61 million were GBP 13 million or 27% up on the 1H of 2004. More than 55% of Pilkington Automotive“s sales are in Europe. The market for light vehicles has been flat, but once again, due to success with the introduction of new models, the group“s sales volumes continue to grow. The European AGR market has been stable. Sustained emphasis on efficiency improvements and cost reductions has helped counter continuing price pressure and rising energy-related costs. As a result, profits in Automotive Europe exceeded the same period 2004 by 40%. Over 30% of Pilkington“s Automotive business is in North America, where light vehicle build is expected to be around 1% up on 2004. The group“s sales to OE manufacturers are higher than 2004. In AGR North America, the acquisition of the Autostock Distribution branches has started to flow through into increased sales. North America continues to experience significant price pressure and higher energy costs, but the benefits of increased volumes, operational efficiency improvements and cost reductions resulted in profits 20% above those of the 1H of 2004, the chairman said. In South America, light vehicle demand has risen 10%. Strong sales volumes and ongoing manufacturing efficiencies have helped increase operating profits over the same period 2004. Results from operations in Australasia have also improved, partly as a result of stronger market volumes, though overall profits were affected by the costs of restructuring the business to face increased import competition. In China, the market continues to expand rapidly and Sir Nigel said the group is putting greater emphasis on developing the cost and operational efficiency of the group“s profitable businesses there. JOINT VENTURES AND ASSOCIATES Under IFRS the results from joint ventures and associates are disclosed differently from those previously shown under UK GAAP. Pilkington now reports its share of the post-tax profits of joint ventures and associates as a one line item, prior to disclosing the group“s profit before tax. Overall, the share of profits after tax from joint ventures and associates has declined from GBP 11 million in the half-year to September 2004 to GBP 2 million in the half-year to September 2005. Trading difficulties in Mexico have led to deterioration in Pilkington“s share of the result from Vitro Plan SA de CV and subsidiaries (VVP). Additionally, as expected, start-up costs have been incurred at the group“s new Russian joint venture float line with Emerging Markets Partnerships, which is due to be commissioned shortly. The group“s other principal joint ventures, Cebrace in Brazil and Pilkington Glass France, continue to trade at similar levels to 2004. ENERGY COSTS The primary energy source for the group“s float plants is gas, and occasionally oil. In addition, electricity accounts for approximately 35% of group energy costs. Direct energy costs represent approximately 10% of Pilkington“s total costs, though this varies between businesses. Following the sharp increase in the cost of gas in North America, in 2000 Pilkington introduced a surcharge on glass delivered to Building Products“ customers there. A similar energy surcharge on deliveries of glass to Building Products“ customers in Europe was introduced in November 2004, and these measures have helped to offset the impact of increased energy costs during the period, Sir Nigel said. OUTLOOK “Pilkington continues to follow a clear three-stage“Cash for Growth“ strategy. Over the course of this financial year our priorities are to maintain momentum on the cost reduction programme, started in Stage 1, to complete the rebuilding of our financial strength, begun in Stage 2, and to begin the transition into Stage 3, with targeted, disciplined investments into profitable growth opportunities”, Sir Nigel said. “The Pilkington-constructed fourth float line in Brazil for our South American joint venture is now in full production, following an excellent start-up. A sound base has been established in China as a platform for future growth, with the three Automotive plants now fully integrated into the global Pilkington Automotive business. The commissioning of the joint venture float line in Russia is due to be completed soon”. “Although conditions in most of our markets remain challenging, Pilkington is sustaining its internal programmes to maintain the group“s competitiveness and we have continued confidence for the full financial year”, Sir Nigel concluded. ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) Pilkington, along with all EU listed companies, is now required to produce its results under IFRS. Earlier in 2005, Pilkington published IFRS information relating to its consolidated balance sheet at 1 April 2004, its half-year results to 30 September 2004 and the full year results to 31 March 2005. All preceding references reflect results prepared on the basis of IFRS.