Charter International plc - Financial review

2010 HIGHLIGHTS – HOWDEN

	2010 £m	2009 £m	Increase %
New equipment	358.0	438.6	(18.4)
Aftermarket	204.0	189.2	7.8
Revenue	562.0	627.8	(10.5)


Order book	423.8	441.1	(3.9)


Operating profit	67.8	70.5	(5.2)


Capital expenditure	18.0	18.7
Depreciation	(6.6)	(5.9)


Operating margin	12.1%	11.2%


Average number of employees	3,783	3,819

Overview of 2010 performance

As anticipated, Howden recorded reduced revenue and profit as the impact of lower orders placed during 2009 came through. In 2010, revenue was £562.0 million (2009: £627.8 million) and adjusted operating profit was £67.8 million (2009: £71.5 million), representing decreases of 10.5 and 5.2 per cent respectively.

Howden’s adjusted operating margin was 12.1 per cent (2009: 11.4 per cent), an increase of 0.7 percentage points, as a result of increased higher-margin aftermarket revenues and strong contract execution.

Revenue from the sale of new equipment was £358.0 million (2009: £438.6 million), a reduction of 18.4 per cent, which reflected lower sales of new equipment into the coal-fired power generation industry of £137 million, which represented 24 per cent of Howden’s revenue for the year. This proportion is much reduced from previous years, also reflecting Howden’s strategic success in diversifying its business. Slightly over half of sales of new equipment into the coal-fired power generation industry arose in China and other emerging markets.

Howden’s aftermarket revenues continued to grow as planned and increased by 8 per cent to £204 million, representing 36 per cent of Howden’s total revenues, with a particularly strong performance in China. The aftermarket business accounted for nearly one-half of the total gross profit generated by Howden.

Howden’s compressor business continued to make progress, and accounted for around 15 per cent of Howden’s total revenue, a proportion which has risen steadily in recent years. A significant order was won to supply compressors to the coal-bed methane industry in Australia, and Howden is aiming to establish itself as the leader in this high-potential market.

Also during the year, Howden continued its expansion in emerging and resource rich markets. A joint venture was formed with Larsen & Toubro, the major Indian engineering group with a view to taking about 30 per cent of the market in supplying fans and heaters to the rapidly growing coal-fired power industry in India. Howden also commissioned its new manufacturing facility in Brazil during the year and acquired AustCold, a compressor packaging company located in Australia.

Order intake during the year was £533 million (2009: £503 million), an increase of 6.0 per cent. Particular features were the recovery in orders from customers in the power industry in China and the much higher level of orders from India, reflecting Howden’s enhanced market presence. As anticipated, order intake from the power industry in Europe and North America remained at relatively subdued levels. During 2010, the order book again proved to be robust, with minimal order cancellations. The level of order intake increased towards the end of the year, positioning Howden well for 2011.

At 31 December 2010, Howden’s order book was £424 million, of which £331 million is scheduled for delivery in 2011 and £93 million thereafter. Customers in emerging markets account for 60 per cent of Howden’s order book.