UK glass giant Pilkington issued a trading up-date on 29 March 2004, ahead of the announcement of its results for the period to 31 March 2004, which is scheduled for Wednesday, 26 May 2004.
Group Chi…
UK glass giant Pilkington issued a trading up-date on 29 March 2004, ahead of the announcement of its results for the period to 31 March 2004, which is scheduled for Wednesday, 26 May 2004. Group Chief Executive Stuart Chambers commented “As we have indicated for some time now, trading conditions remain challenging in most of our major markets. In spite of this, the transformation in manufacturing and operational efficiency accomplished over recent years means that results for the current year are in line with our expectations. Like for like sales have remained steady and operating profit from Group businesses will be maintained at last year“s levels with a strong profit performance in Automotive offsetting the decline in profits within Building Products. The robustness of our business will again enable us to report good progress against our prime objective of generating free cash flow, leading to another substantial reduction in Group borrowings.” Building Products In the statement, Pilkington said Building Products (BP) markets remained “generally weak, with the exception of the UK and Australia. Efficiency improvements and cost savings continue to mitigate the impact of weak markets, though price pressures will result in operating profit for the business line being approximately 10% down on last year.” In Europe, the company said its BP business, representing two thirds of total BP sales, “continues to be adversely affected by depressed economic conditions on the continent, particularly in Germany”. On a brighter note, the company said trading performance in the UK “has held up well, supported by strong sales of energy efficient Pilkington “K-Glass“. Management of the primary and processed operations was combined during the year to improve operating effectiveness and over the next two years we will take out more costs from this business.” BP North America, which represents 15% of BP sales, “continues to be affected by the weakness in commercial construction, where Pilkington is the leading North American glass supplier. Office vacancy rates are still high, making near-term market improvement unlikely. However efficiency improvements continue to flow from the “Step Change” programme, resulting in a return to operating profit in the North American BP business during the year.” In South America “our BP businesses continue to perform well, helped by the improved economic environment in Argentina. Our Australasian business also did well. As a result, Building Products profits outside Europe and North America will be up on last year.” Automotive Despite “flat” automotive markets in 2004, “continued good progress on cost reduction and manufacturing efficiency led to operating profits for the Automotive business line increasing by almost 30 %.” Just over half of Pilkington“s Automotive sales take place in Europe, where Original Equipment light vehicle production has slowed. However, Pilkington said its sales, “have increased through good gains on new model introductions and higher shipments of specialised OE applications (bus, coach and truck). The European Automotive Glass Replacement (AGR) business also increased sales compared to last year. Automotive profits rose in Europe overall, due to sustained improvement in manufacturing efficiencies and continued focus on cost reduction throughout the supply chain.” North America accounts for around 40% of Pilkington“s automotive sales. The company said “while overall light vehicle build was around 5% lower than last year, which impacted sales, margins in our OE business continued to benefit from operational improvements. Sales from our North American AGR business reduced due to a fall in the overall market and to competitive pressures on pricing. The effect on our AGR NA business led to a reduction in overall profits for our North American Automotive business of around 25%.” The company reported brighter prospects elsewhere: “In South America, vehicle production is ahead of last year, as are Pilkington sales. Higher sales, increased productivity and improved plant efficiencies will deliver an increase in our operating profits in the region. Results in Australia will also show an improvement over last year, reflecting efficiency improvements and strong domestic demand.” Associates and Joint Ventures On flat sales, Pilkington said operating profits of the firm“s 35% owned Mexican associate, Vitro Plan SA de CV, for the year ended 31 December 2003 “declined by approximately 10% in US dollars, due to competitive pressures in North American construction and in the Automotive OE markets and the impact of the closure costs of a patterned glass line.” The results of Cebrace, the Pilkington joint venture in Brazil, “were affected by the difficult economic environment.” In China, the company said sales and profits at Shanghai Yaohua Pilkington (SYP) increased over the comparable period “due to increased demand in high performance glass for China“s construction projects driving higher sales of Pilkington“s processed architectural glass products. Pilkington“s automotive glass joint ventures in China continue to experience strong sales and profit growth. The Chinese vehicle market is growing rapidly, with two million passenger cars built in China in 2003, double the level of 2002.” Pilkington said the 50:50 joint venture with Emerging Markets Partnership, announced in November 2003, to construct and operate a float glass plant in the Moscow region of Russia “is progressing well. We plan to have the plant operational by Summer 2005.” “The impact of the slowdown in Brazil and Mexico will be to reduce our share of associates and joint ventures profits by around 25% this year.” Exceptional items As reported at the interim results, Pilkington closed the Automotive Glass Replacement business in New Zealand, at a cost of GBP 7 million. In September 2003 the sale of the firm“s Aerospace business to GKN for GBP 42 million was completed. The company said that after accounting for purchased goodwill the transaction had no significant impact on profits. Finance According to the statement: “Free cash flow for the year will be higher than 2002/03, and together with the proceeds of the disposal of our Aerospace business will lead to a further significant reduction in Group borrowings.” “Due to our strong cash flow and to lower interest rates, interest costs in total will be around GBP 5 million lower than last year, even after refinancing GBP 216 million equivalent of preference shares last March with fresh bank borrowings.” “Reported operating profits in 2003/04 were largely unaffected by foreign exchange movements, as until the turn of the calendar year the impact of the weak US Dollar had been offset by the stronger EUR and South American currencies.”