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Pilkington: trading in line with expectations

Pilkington PLC said 20 March 2006 that trading remains in line with its expectations, with a good performance in automotive and a more mixed picture at building products.
“Finance costs have reduced,…

Pilkington PLC said 20 March 2006 that trading remains in line with its expectations, with a good performance in automotive and a more mixed picture at building products. “Finance costs have reduced, despite rising interest rates, though the post-tax contribution from joint ventures and associates will be substantially lower than the previous year”, Pilkington said. “The group has continued to generate strong free cash flow through close control of costs and capital expenditure,” Group Chief Executive Stuart Chambers said in a trading update ahead of its results for the year ending 31 March 2006. Building products markets remain mixed, though sales revenues were higher than 2004/05. The rise in energy costs has been offset by energy surcharges, cost savings and continuing efficiency improvements, although underlying prices in Europe have continued to fall, Chambers said. Building Products Europe, representing two-thirds of total Building Products sales, has been hit by difficult trading conditions in the UK. Demand elsewhere, mainly in Central and Eastern Europe, has improved although pricing pressures remain. “In Building Products North America, which represents around 12% of Building Products sales, demand has been weak for most of the year and improvements in operational efficiencies have only provided a partial offset. “A rise in demand in the final quarter, chiefly from the commercial sector, has helped keep results close to last year,” Chambers said. In South America, Pilkington“s Group Building Products businesses continued to perform well, helped by the improving economies in Argentina and Chile. Cost pressures have increased throughout the region, while local selling prices have fallen in Brazil, due primarily to currency fluctuations. The Australasian market has had another solid year of trading, despite the residential sector being flat, and results will show a small improvement on 2004/05. Pilkington Original Equipment volumes have grown strongly, due in part to several successful new product launches by vehicle makers supplied by Pilkington Automotive. The group“s North American Automotive Glass Replacement (AGR) sales benefitted from the acquisition of the Autostock branches, and AGR sales in Europe have improved. More than 55% of Pilkington Automotive“s sales are in Europe. The market for light vehicles has been flat, but once again, due to the success of new models, Pilkington said its sales volumes continue to move ahead. European AGR sales have increased due to Pilkington“s improving competitive position. “Over 30% of our Automotive business is in North America, where overall light vehicle build is expected to be around 2% down on last year. “Our sales to OE manufacturers are higher than last year and the acquisition of Autostock branches has generated higher sales in the AGR market. There is still significant pressure on prices, and energy costs continue to increase,” Chambers said In South America, light vehicle demand has grown by around 10%. Pilkington said strong sales volumes and manufacturing efficiency improvements will improve results for the year. Results in Australasia have been affected by restructuring costs. In China, the market continues to expand rapidly, where the group“s emphasis has been on further improving the cost and operational efficiency of the businesses. Operating profits declined again at Vitro Plan SA de CV, Pilkington“s 35% associate in Mexico. Profits in Cebrace (Brazil) and Shanghai Yaohua Pilkington (China) were also down on 2004/05. Pilkington“s new joint venture float glass plant in Russia started glass making in February 2006 and the current year reflects initial start-up losses. Following the changeover to IFRS, finance costs have become more volatile and more difficult to predict, due to the requirement to value derivative financial instruments at the period end. Nevertheless total finance costs are expected to be lower than 2004/05, despite rising interest rates. The Group has continued to generate free cash flow through continued close control of costs and capital expenditure. On 27 February 2006 the boards of Pilkington and NSG announced that they had reached agreement on the terms of a recommended cash acquisition by NSG of Pilkington, at GBP 1.65 for each Pilkington share, to be carried out by way of a Scheme of Arrangement. The Scheme Document was posted to Pilkington shareholders on 20 March 2006. In light of the proposed acquisition, which is conditional on Pilkington shareholder approval, the consent of relevant regulatory authorities and the sanction of the Court, the announcement of Pilkington results for the financial period to 31 March 2006 is likely to be delayed.

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