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In advance of a number of scheduled investor meetings and given that Cookson’s outlook for the first half of 2010 has improved since its preliminary results announcement in March 2010, the group recently released its interim management statement, which now covers the period from January 1 to April 25, 2010.
Global steel production, notably for Europe and NAFTA, has grown at a faster rate in the first quarter of 2010 than previously anticipated. Foundry castings end-markets have shown some improvement in the emerging economies, but remained low in Europe and NAFTA. Electronics end-markets have shown faster growth in the first quarter of 2010 than previously anticipated. The Precious Metals division continues to benefit from very high levels of reclaim business.
As a result of these improvements, reported revenue for the first half of 2010 is now expected to be in the region of 13 to 15% ahead of the second half of 2009 (25 to 27% ahead of the first half of 2009). Underlying revenue, which is revenue at constant exchange rates adjusted for the impact of commodity metal prices, for the first half of 2010 is expected to be in the region of 8 to 10% ahead of the second half of 2009 (22 to 24% ahead of the first half of 2009).
Following the extensive cost reduction measures implemented since the fourth quarter of 2008, the majority of which were completed by mid-2009, profit “drop-through” from the increased revenue in the first quarter has been strong. As a result, trading profit for the first half of 2010 is expected to be in the region of £110 million to £115 million (approximately $169-$176 million), 15 to 20% above that reported for the second half of 2009. With the geographic distribution of profit before tax currently anticipated (which includes better-than-expected profitability in the U.S.), the effective tax rate on headline profit before tax (before share of joint ventures) for the full 2010 year is now expected to be marginally lower than the previous guidance of 30%.
According to the World Steel Association, global steel production in the first quarter of 2010 was 4.7% higher than the fourth quarter of 2009. Excluding China (which currently accounts for less than 10% of the Ceramics division’s steel-related revenue), the growth in steel production between quarters was 2.3%, with growth in Europe and the U.S. of 4.6 and 9.1%, respectively.
On April 20, 2010, the World Steel Association issued a new short-range forecast for global apparent steel use, revising the 2010 growth estimate to 10.7% from its previous forecast of 9.2% (world excluding China revised to 14.4% from 13.1%). The association also published a forecast for 2011, which predicts growth in global apparent steel use of 5.3% (world excluding China, 7.4%).
Prospects in the later-cycle foundry castings market remain less clear. Major castings users are not reporting any material upturn in production activity to date but are anticipating some level of improvement later in the year. In March 2010, JD Power increased its forecast for global truck production growth in 2010 from 15.6% (per the December 2009 report) to 18.2%.
For electronics end-markets, several market commentators have recently been increasing their forecasts for end-market demand. For example, in April 2010, Henderson Ventures revised its forecast for year-on-year global electronics production growth to 8.3% in 2010 and 9.5% in 2011.
While underlying demand in the group’s end markets has clearly improved overall, uncertainty regarding macro-economic conditions remains. In addition, the level of inventory re-stocking by customers, which may be having the effect of increasing demand for Cookson’s products in the short-term, remains unclear. The group therefore remains cautious in anticipating further out-performance in the second half of the year. Nonetheless, given its much reduced cost base, Cookson anticipates that its performance should continue to improve as further end-market recovery is confirmed.
Additional details are available at www.cooksongroup.co.uk.