UK glass major Pilkington issued a trading update on 23 September 2004 ahead of its interim results announcement for the period to 30 September 2004, which is scheduled for 3 November 2004.
Stuart Ch…
UK glass major Pilkington issued a trading update on 23 September 2004 ahead of its interim results announcement for the period to 30 September 2004, which is scheduled for 3 November 2004. Stuart Chambers, Group Chief Executive commented: “Pilkington continues to make good progress through further improvements in manufacturing efficiency and cost reduction. Overall, trading is in line with our expectations and in the 1H year pre-tax profits will be in line with the 1H of last year, notwithstanding the impact of rising energy prices and the effect of the strong pound on our reported profits. The Groups continuing emphasis on the generation of free cash flow will enable us to report another strong cash performance.” Building Products Outside Europe, Pilkington said Building Products markets are showing improvements: “Efficiency gains and cost savings have continued, which will limit the impact of continuing weak European markets to a decline in operating profit of around 5% for the business line as a whole.” The European Building Products business represents two-thirds of the group“s total Building Products sales. Float prices across Europe “are generally stable at about the same level as 2003, except in the UK where they have weakened. The combination of competitive pressure in the UK market and the currency impact on a flat continental market means that overall operating profit will be down around 10% on the 1H of 2003.” Pilkington said construction of its joint venture Float Glass plant in the Moscow region of Russia is progressing on schedule. The plant is planned to come on stream in the summer of 2005. Building Products North America, representing 15% of the group“s Building Products sales, has been affected in recent years by the weakness in commercial construction, though there are signs that this market is now recovering, the company said. Operating profits in US dollars will be at similar levels to the same period in 2003. In South America, Pilkington said its Building Products business continues to perform well. “Market conditions in Brazil have strengthened and we continue to benefit from the improved economic environment in Argentina. Overall operating profits from South America are ahead of the 1H of last year. The Australian business continues to perform well and operating profits will be at a similar level to last year.” Automotive Original Equipment (OE) volumes were “relatively strong, although the combination of a weak North American Automotive Glass Replacement market and adverse foreign exchange conditions have resulted in flat 1H operating profits.” Just over 55% of Pilkington Automotives sales are in Europe. The market for light vehicles has been “relatively flat”, but due to success with new models, Pilkington said its sales volumes continue to move ahead. The European AGR market has been relatively stable. Although the strong pound will depress the top line figure, overall profits in Automotive Europe will be up on 2003 as cost reduction efforts continue. Over 30% of the group“s Automotive business is in North America where light vehicle build is expected to be around 2% higher than in 2003. However, due to the impact of exchange rates, higher energy costs and strong pricing pressure, particularly in the AGR market, the group said North American operating profits will be down on 2003. In South America, Pilkington said the light vehicle market has risen 28%. As a result of strong sales volumes and ongoing manufacturing efficiencies operating profits will be higher than for 2003. Results in Australasia are down from 2003, partly as a result of the closure of the AGR business in the region. The Automotive glass joint ventures in China continue to expand as the market continues to grow, Pilkington said. Associates and Joint Ventures Results from VVP (in which Pilkington has a 35% stake) are expected to be down on 2003, as VVP continues to suffer margin erosion in its markets. The fourth float line in Brazil, built and operated by Pilkington for the Cebrace joint venture, is now fully operational. In China, the group“s main investment, SYP, has seen both sales and operating profit increase over the comparable period, with growth coming from improved sales of processed architectural glass products, as China experiences increased demand for more high performance glass products in construction projects. Overall, Pilkington said it anticipates an increase in the profit contribution from associates and joint ventures of around 10% in the 1H year. Exceptional items Exceptional items in the 1H of 2004 include the cost of closing the Building Products decorated glass operations in Australia and some Building Products processing and merchanting operations in Austria, offset by the profit on the disposal of the 50% share in the joint venture investment in SDC Technologies Inc. in the United States. The net amount shown as exceptional items will not be material. Finance Pilkington said it remains committed to “the generation of free cash flow through tight control of working capital and capital expenditure, allied to a continued drive to reduce costs throughout Pilkington. We will generate further free cash flow in the half year, albeit lower than the record level generated last year.” Interest costs in the 1H of 2004 will be lower than the 1H of 2003, as a result of the reduction achieved in Group borrowings. Following the announcement of the results for the year ended 31 March 2004, Standard and Poors and Moodys confirmed their ratings of Pilkington bonds as BBB/BAA2, both having now moved from “negative” to “stable” outlook. The strong pound negatively affected reported pre-tax profits in the 1H of 2004 by approximately GBP 8 million, despite which reported profits were similar to the 1H of 2003. Summary Pilkington concluded that considering the background of continuing challenging market conditions, exacerbated by fuel price increases and the impact of the strong pound, the group has started the year well. Analysts Site Visit Pilkington is to hold a site visit for analysts and investors at its Polish operations on 28 and 29 September 2004. The visit will include presentations by management and a guided tour of the Sandomierz glass plant. The presentations will be available from 29 September 2004 on the Investor Relations section of the group website.