Update on trading for 2008 and response to current trading conditions
27/01/2009
As referred to in its pre-close announcement on 12 December, Charter International pIc ("Charter") is today updating shareholders on the actions that it is taking in response to macro-economic developments. Charter is also today updating on the expected outcome for 2008 and providing some initial comments on 2009.
Charter will be releasing its results for the year ended 31 December 2008 on 27 February 2009 .
Highlights
- Underlying earnings for 2008 expected to be slightly ahead of previous expectations.
- Year-end net cash in excess of £50 million
- ESAB restructuring to save in the region of £30 million per year
- Howden's order book remains strong
Michael Foster, Chief Executive of Charter, today said:
"We believe that the measures we have taken and are continuing to take position ESAB to adjust to the lower levels of demand which we are now seeing.
The fundamental strengths of ESAB and Howden, including their wide geographical and sector spreads and world leading brands and technologies, together with Charter's strong balance sheet, give the Board confidence that Charter is well placed to meet the challenges which it will face over the coming months and beyond."
27 January 2009
Charter International plc
Update on trading for 2008 and response to current trading conditions
Outcome for 2008
During December 2008, ESAB responded well to lower activity levels and traded somewhat ahead of expectations in the important European market although slightly below expectations in North America.
Howden had an excellent month with strong deliveries in the run up to the year-end.
As a result, underlying profit in the month was ahead of expectations and accordingly the Board expects that underlying earnings for 2008 will be slightly ahead of its previous expectations.
The continued focus on cash generation and control of working capital ensured that Charter ended the year with a net cash position in excess of £50 million, compared with £36.2 million at 30 June 2008 and £88.2 million at 31 December 2007, after having resumed dividend payments totalling £31.7 million during the year and also maintained its investment and acquisition programme.
ESAB
After a very strong first half of 2008, ESAB continued to trade ahead of 2007 during the third quarter. Activity levels in certain key end-user industries, part icularly in the automotive sector, dropped sharply in October as economic and financial conditions deteriorated. This led to reduced demand for ESAB's welding consumables and equipment , in particular solid welding wire and standard equipment. Demand for ESAB products was also adversely affected as distribution channels and end users de-stocked in response to lower demand and in anticipation of lower steel prices .
In repositioning itself for lower levels of activity, ESAB has benefited from the flexibility built into its business model over recent years at the time the business was growing strongly. This flexibility, which included the use of temporary staff and contractors and additional shifts and overtime , has enabled it to respond rapidly to lower levels of demand.
Since October , ESAB has reduced manned capacity for consumables by approximately 16 per cent globally and for equipment by 20 per cent in Europe and North America. These reductions have been achieved through the elimination of shifts and overtime and through workforce reduction. In order to bring stock levels into line with forecast demand for the first quarter of 2009, product ion was largely suspended at most plants in Europe during December.
For ESAB as a whole, possible headcount reductions of 940 people spread broadly across the globa l activities of the business (representing approximately 10 per cent of the workforce at the end of the third quarter) were identified. Of these, 635 people had left the business by the end of 2008 and it is expected that the remainder will leave by the end of the first quarter of 2009.
As part of this process, the flux plant at Gothenburg in Sweden, which was at the end of its useful life, and the small solid wire plant in Finland have been closed.
It is now expected that there will be exceptional costs in 2008 of the order of £10 million, of which the majority will be cash costs. The measures being taken are expected to result in annualised cost savings in the region of £30 million.
Howden
The second half of 2008 saw a continuation of the very strong trad ing environment for Howden, during which sales and operating profit achieved record levels and margins were in line with the Board's expectations.
Order intake remained strong in the second half of the year at close to £300 million. Because of the record sales in the second half of the year, the order book at the end 2 of the year was approximately £500 million, compared to the record level of £531 million achieved at 30 June 2008, but well ahead of December 2007.
2009
As we progress through the early part of 2009, there is no clear visibility yet of how general market conditions will change.
ESAB
In 2009, ESAB will continue to invest in its business, but the focus will be on operational improvement and cost reduction. It has the resources and intention to continue to maintain its position at the forefront of the welding industry and will continue to invest in new products and ways to service the market.
ESAB has formulated plans in all regions which ensure that the business will be ready to implement the necessary changes should activity levels contract further.
As well as the measures outlined above, ESAB is focussed on identifying and implementing further cost reductions in its manufacturing , assembly and distrib ution operations and support, administrative and central functions.
At the end of the year, ESAB's order backlog for engineered automation equipment stood at about nine months, which was broadly in line with the level at 30 June 2008. Cutt ing has just over three months of orders in hand, which is typical for the business, although order intake is slowing.
Howden
Howden has an order book of items for delivery over the next twelve months which is higher than at the same time last year. The order book for delivery beyond twelve months is in excess of £110 million , a record level. At the present time, the impact of order delays has not been material with a small number of orders cancelled or delayed from 2009 to 2010.
Overall, the level of enquiries and prospective orders remain good, although in the short term the booking of some orders is clearly being impacted by factors related to the current financial environment and economic downturn . Demand for Howden 's compressors from customers in the oil and gas and petrochemical sectors is holding up well at present; this part of Howden's business is becoming more significant as time goes on. The re-instatement of the Clean Air Interstate Rules (CAIR) is likely to support new activity in the USA for emission control equipment, even if there are some project delays and short term cuts to the capital and maintenance budgets of US utilities. In the European Union, reducing limits on emissions of nitrogen oxides arising from the Large Combustion Plant Directive is increasing the market for emission control equipment. In China, falling power demand is likely to lead to lower new build activity and weakness in demand may continue to affect metal production.
The aftermarket continues to represent a growth opportunity and China, in particular , is showing positive momentum.
Management remains vigilant to any softening of demand. Howden has worked extensively to ensure that its growth in recent years has been built on flexible supply chains and relatively low levels of fixed cost. With the visibility of a strong order book, Howden will be able to respond pro-actively to any slowdown in order intake .
Financing
Charter has a strong funding position. At 31 December 2008, Charter had net cash of approximately £50 million. Charter has committed credit facilities of £145 million which it renewed last summer, and which have maturity dates between 2011 and 2013.
Enquiries
| Andrew Fenwick; Nina Coad, Brunswick | +44 (0) 20 7404 5959 |
| Michael Foster, Chief Executive; Robert Careless, Finance Director | +44 (0) 20 7404 5959 |
Internet users will be able to view this announcement, together with other information about Charter International plc on the company's web site www.charter.ie
In conjunction with this announcement, Michael Foster, Chief Executive of Charter, hosted an analyst conference call. A recording of the call will be available later in the day and can be accessed using the following dial-in details:
Cautionary statement
Certain sections of this statement contain forward looking statements that are subject to risk factors associated with, amongst other things, the economic and business circumstances occurring from time to time in the countries in which the Company and its subsidiaries operate. It is believed that the expectations reflected in this statement are reasonable but they may be affected by a wide range of variables which could cause ectusl results to differ materiafly from those currently anticipated.