Pilkington trading up-date

In accordance with its established policy, Pilkington recently issued the following trading up-date ahead of its interim results announcement for the period to 30 September 2002, which will be made on…

In accordance with its established policy, Pilkington recently issued the following trading up-date ahead of its interim results announcement for the period to 30 September 2002, which will be made on Wednesday, 30 October 2002. As explained at the Annual General Meeting, the markets for Building Products remain difficult, with the notable exceptions of the UK and Australia, where demand has been strong. Against this trading background, the internal action taken over time has strengthened materially Pilkington“s competitive position in this market. The slowdown in continental European markets in the second half of 2001 continues to affect Pilkington“s European Building Products business, which represents around 60% of Building Products“ sales in total. As a result of the reduced level of demand, the Group extended the planned shutdown for cold repairs of float glass plants at Gladbeck in Germany and Venice, Italy. Both plants are now back to full production. Float selling prices have been under pressure, but have now stabilized at a level around 10 -12% below the average for 2001. By contrast with continental Europe the market in the UK has been robust, underpinned by the rapid increase in the use of low-emissivity glass in buildings, which has been a legislative requirement since 1 April. This has benefited both primary and processing and merchanting businesses in the UK. Building Products North America, which accounts for approximately 15% of Building Products“ sales, has been affected by the contraction in commercial building, which is its prime focus, although the residential market has been strong. In July the Ottawa float plant was taken down for repair and was expected be back in service in early October. Sales of Pilkington“s 35% per cent owned Mexican associate VVP were marginally down in local currency terms, reflecting pressure on prices and the softness of the US economy, especially on the West Coast. Operating profits in sterling terms are below those of the first half of 2001. Although economic recession and currency devaluations in Argentina, and devaluations and political uncertainty in Brazil, made trading in these markets difficult, the Group“s South American operations have performed well, with earnings still running at a reasonable level. The Australian housing market continues to be strong and some glass products are in short supply. Results for the year to date of this business, which represents approximately 10% of Building Products“ sales, are very encouraging. Though sales of Pilkington“s 19% owned associate in China, SYP, continue to grow, pressure from new competitive floats will result in lower profits than the first half of 2001. The European Automotive glass business accounts for approximately half the Group“s Automotive glass sales. European light vehicle sales and production were around 4% down on the first half of 2001, with only the UK market showing signs of growth. Demand for buses, coaches and trucks in Europe is beginning to improve and after-market (AGR) demand continues to be firm. Despite lower vehicle production, Pilkington“s sales have held up due to new model introductions and solid AGR sales. The continuing benefits from the restructuring actions of recent years, together with our on-going improvement programme, are sustaining profits from the European Automotive business around the level of last year. In North America, light vehicle sales have been maintained, assisted by OE manufacturers“ incentive programmes. Vehicle production is 5% higher than 2001, in a flat sales market, as vehicle inventories are replenished. In the AGR market in North America demand has softened. Pilkington“s Automotive sales have reduced on last year, largely due to the end of the Ford supply contract. However, the results of the Automotive glass businesses are benefiting from operational improvements coming through, with efficiencies rising steadily, providing a consequential improvement in margins. Profits from the North American Automotive business are ahead of last year. VVP“s auto glass sales have held up well overall as an increase in sales in the AGR market largely compensated for the impact of the slower OE segment. Plant productivity gains have improved profitability. Demand for vehicles in South America has fallen with the economic recession. Nevertheless, whilst sales have been affected, operating profits have been maintained. Results of the Group“s Automotive OE business in Australia continue to be satisfactory. Pilkington“s Aerospace business continues to be affected by the slump in civil aviation markets. Nevertheless, sales and operating profits have been maintained at last year“s levels. As indicated at the year end results presentation, from 1 April Pilkington will charge the costs of ongoing restructuring programmes to operating profit. Also as indicated, priority is shifting to the generation of free cash flow. Despite the difficult market background and a heavy programme of cold repairs in our float plants this year, borrowings at 30 September are expected to be at a similar level to that of the end of 2001. VVP (Mexico) has recorded a non-cash exchange loss on its borrowings which are denominated in US dollars. Despite this, Pilkington“s total interest costs for the year to date will be in line with 2001.