- THE MAGAZINE
“Trading profit for 2009 was in line with the guidance given in November,” said Nick Salmon, chief executive. “Cash generation, however, was particularly strong due to an excellent performance throughout the Group in managing working capital. The improvement in steel production and electronics end-markets experienced in the second half of 2009 has continued so far into 2010. Customer shutdowns at year-end reverted to a normal pattern, in contrast to the prolonged shutdowns a year earlier.
“We have leading market positions supplying products and services to essential industries and a well-balanced global market presence with significant exposure to higher-growth emerging markets. Our cost base has been considerably reduced over the last 18 months and, hence, performance should continue to recover significantly as end-markets improve.”
Following the rapid decline in all of the Group’s end-markets in the last quarter of 2008, Cookson experienced very difficult trading conditions through the first half of 2009. According to World Steel Association (WSA) statistics, global steel production (outside China), Cookson’s largest end-market, recorded a volume decrease of 35% for the first six months of 2009. This acute downturn was caused by a significant reduction in steel inventories throughout the supply chain from producers to end-users (destocking), such that steel production declined much more than the decline in underlying demand.
Cookson believes that the destocking phase ended in the second half of 2009 but, as yet, re-stocking is limited, as evidenced by low levels of steel inventories reported in most regions. Destocking has had a similar impact on the Group’s other main end-markets (foundry castings and electronics).
The Group saw the first tentative signs of recovery in electronic materials markets starting in late March 2009, followed by global steel production (outside China) increasing slowly since May. While these markets continued to improve through the second half of the year as the destocking ended and production levels rose to match underlying demand, by year-end they still remained well below the levels seen in recent years. The other main end-market, foundry castings, remained weak throughout the year, indicating that the destocking phase for castings was not yet over.
Trading profit in 2009 decreased by 54% at constant exchange rates. The majority of this, £95.2 million (~ $142.9 million), was earned in the second half, reflecting the increased revenue and the progressive benefits from the significant cost reduction programs initiated in late 2008 and early 2009. The return on sales margin recovered to 9.2% for the second half of 2009, compared to 1.8% for the first six months.
On an underlying basis (at constant currency and as if Foseco had been acquired on January 1 rather than April 4, 2008), revenue in the Ceramics division was 35% lower in the first half of 2009 compared with 2008, but then increased by 11% in the second half compared to the first half of 2009. This increase was mainly due to higher sales in the Steel Flow Control product line, where second-half revenue exceeded that of the first half of 2009 by 29%, in line with steel production trends in key markets.
The division’s full-year revenue of £1,131 million (~ $1,698 million) was down 28% on an underlying basis. Trading profit (at reported rates) decreased from last year by 58% to £70.9 million (~ $106.5 million), giving a return on sales margin of 6.3% compared with 13.3% in 2008. The majority of the trading profit, £59.5 million (~ $89.3 million), was earned in the second half with strong profit drop-through from the additional revenue and increased benefit of cost savings from facility closures and headcount reductions. The return on sales margin in the second half increased to 10.1%.
For the four product lines, the underlying change compared to 2008 was as follows: Steel Flow Control, down 25%; Linings, down 21%; Foundry, down 37%; and Fused Silica, down 29%.
Full-year revenue for the Electronics division was £530 million (~ $795.8 million), 20% lower than in 2008 on an underlying basis (at constant currency and commodity metals’ prices and eliminating back-to-back equipment sales). Underlying revenue was 32% below the 2008 level in the first half but then increased by 19% in the second half compared to the first half of 2009, reflecting both improved trading conditions and normal seasonality. Revenue trends were similar in both the Assembly Materials and Chemistry product lines.
Trading profit decreased from last year by 24% to £39.2 million (~ $58.9 million), giving a return on sales margin of 7.4% compared with 8.3% in 2008. The majority of the trading profit, £32.9 million (~ $49.4 million), was earned in the second half due to the strong profit drop-through from the additional revenue, the increased benefit of cost savings and a more profitable revenue mix, with increased sales of higher-margin innovative products such as halogen-free and lower-melting-point solder pastes and semiconductor copper damascene. The return on sales margin in the second half was 11.3%.
Cookson’s current focus is on maximizing the performance of all its businesses as markets recover. Specific priorities include:
- continued tight control of costs and working capital as activity levels increase
- investment in further production capacity and people in the Group’s fastest-growing markets such as China and India
- continued R&D investment to further expand its portfolio of higher-technology products
- further reduction and de-risking of post-retirement benefit obligations
Additional details are available at www.cooksongroup.co.uk.