AGM and Interim Management Statement
29/04/2009
Charter International plc is holding its 2009 Annual General Meeting at 2 p.m. today. At the meeting, Lars Emilson, the Company’s Chairman, will make the following statement which incorporates the Company’s Interim Management Statement for the period from 1 January to 28 April 2009.
I am pleased to report that overall 2008 was another excellent year for the Company.
After three quarters of rapid growth in generally favourable economic conditions, the fourth quarter of the year saw economic activity severely constrained by worldwide shortages of credit. ESAB responded by taking steps to bring its capacity into line with the expected lower levels of demand. Howden, with its strong order book and exposure to the energy industry, has so far been less affected by the economic conditions and has continued to operate at high levels of activity. The managements of both businesses remain vigilant and ready to take further action should trading conditions deteriorate.
In 2008, Charter generated sales of £1,887.0 million (the comparable figure for 2007 was £1,451.1 million), an increase of 30.0 per cent, and operating profit of £201.0 million (2007: £173.3 million), an increase of 16.0 per cent. Adjusted profit before tax was £212.5 million (2007: £181.1 million), an increase of 17.3 per cent, and profit attributable to equity shareholders was £150.2 million (2007: £137.8 million), an increase of 9.0 per cent.
Dividend
At a meeting earlier today, the Board passed a resolution to declare a final dividend of 14 pence per share which will be paid on 5 May 2009 to holders of ordinary shares registered on 14 April 2009.
Board and management
As previously announced, Manfred Wennemer was appointed as a Non-Executive Director with effect from 26 March 2009. Until recently, he was Chief Executive of Continental AG, the international manufacturer of tyres and equipment for the automotive and transport industry. I believe that his wide experience of international business will enable him to make a valuable contribution to the Board and the future direction of the Company.
James Bruce has decided not to offer himself for re-election at the meeting and will stand down as the Senior Independent Non-Executive Director and Chairman of the Remuneration Committee at the conclusion of today’s meeting. I am sure that Shareholders will join me and the rest of the Board in thanking James for his contribution and wishing him well for the future. Grey Denham will replace him as the Senior Independent Non-Executive Director and Chairman of the Remuneration Committee.
We are also today announcing some changes to the way that the group is managed and in particular, we have decided to integrate the management structures of ESAB and Charter as much as practicable.
Under this approach, which will build on the management changes made in ESAB over the last 12 months, Michael Foster, the Company’s Chief Executive, is taking direct management responsibility for ESAB. James Deeley who, as previously announced, became the Company’s Commercial Director with effect from 26 March 2009, is additionally taking on the responsibility for ESAB’s Standard Equipment, Automation and Cutting activities.
Jon Templeman is stepping down from his role as Chief Executive of ESAB with immediate effect, and will move on to new challenges outside the group. I would like to thank Jon for his contribution and we wish him well in the next stage of his career.
The Board believes that these changes will build on the progress made by ESAB over recent years, and help position the business to meet the challenges ahead.
Charter International plc
Interim Management Statement for the period from 1 January to 28 April 2009
Current trading
The results for the first quarter of the year were generally in line with the Board’s previous expectations.
ESAB
After the sharp fall in trading in the fourth quarter of 2008, trading during the first quarter of 2009 continued at similar levels to those seen in January as reported at the time of the preliminary results, with seasonal increases in consumable volumes each month. The input cost of steel has fallen, but prices for consumables have so far either held or been marginally increased except for solid wires and in China and South East Asia. In relation to the market for solid wires, which has seen contraction due to the state of the automotive market, prices have fallen but gross margins have been broadly maintained.
It is expected that trading will continue for the next few months at similar levels, with downside risks emerging from potential extended summer shutdowns at end users in the third quarter and from falling shipbuilding activity later in the year. However, potential increases in demand from automotive activity restarting and governmental infrastructure spending programmes represent opportunities.
Regionally, trading in Europe is stable at current levels, although Russia seems to be strengthening from previously very low levels. South America is showing signs of softening and India is trading in line with last year. The Middle East and South East Asia are showing early signs of some potential improvement. North America and China remain challenging.
Purchases of Standard Equipment are deferrable and are therefore significantly down year-on-year but seem stable at current levels. ESAB’s Engineered automation business remains strong with good prospects and orders. The Cutting business is seeing falling levels of activity and reducing order backlog; in response we are introducing short-time working at our German Cutting equipment factory.
Overall, the business has continued to trade at net margins of over 8 per cent through to the end of the first quarter. This has been underpinned by continued focus on measures to reduce costs and to match capacity with demand. In January 2009, ESAB announced it had committed to the reduction of 940 employees at a cost of up to £10 million with an annualised saving of £30 million. Continued review and focus on costs and capacity has increased the planned reduction in head count to over 1,200, with savings in 2009 in excess of £40 million. The total cost to execute the measures taken since the fourth quarter of 2008 is expected to be around £12 million (of which £6.2 million was charged in 2008). The effect of these measures will be to reduce manned capacity for consumables by 27 per cent and Standard Equipment capacity in Europe and North America by 35 per cent.
We expect further cost reductions through our ongoing continuous improvement programmes, and as strategic initiatives to improve the distribution, manufacturing and administrative footprints in Europe are progressively implemented.
Overall, we believe that ESAB is gaining market share and remains well placed to benefit quickly from any strengthening in end user markets.
Howden
Trading has been in line with expectations, as Howden has worked to fulfil its order book.
In the year to date, order intake has broadly matched sales but, as expected, has been below last year. The overall size of the order book has grown due to exchange rate changes. Demand for Howden compressors from the Oil and Gas sector remains strong at present and is also expected to benefit from Howden’s recently established presence in India and Russia and from the water treatment market. However, power demand in China has fallen, which is leading to slower order placement. Demand in the USA for environmental improvements has slowed due to customers awaiting clarification of the legislative position.
Overall the current forecast from the business is for the order book to remain around current levels for the remainder of 2009, although with changes in mix, and a more protracted delivery profile. There is however a downside risk from delays in governmental expenditure and difficulties in funding projects.
Whilst Howden is actively and successfully managing its supply chain, it is foreseen that some further adjustments to the cost base may be required. At present, it is envisaged that headcount reductions of about 50 people will have been implemented by the third quarter. Booking levels will be kept under constant review to ensure that manning is in line with contract execution requirements.
The focus on the aftermarket continues to be beneficial with after market sales up 48 per cent on last year representing 31 per cent of sales so far this year.
Overall margins in the first quarter of 2009 were in line with those achieved in 2008 as a whole.
Business disposal
An agreement has been entered into for the sale of HD Engineering Limited, a manufacturer of drilling equipment, consumables and accessories, which was the last remaining non-core business in the Charter group of companies. The consideration is approximately £2 million, compared with net assets of some £3 million.
Financial position
Charter has continued to generate cash as the focus on working capital management is maintained and its current net cash position is in excess of the £52.0 million reported as at 31 December 2008.
Outlook
Trading is stable as ESAB has positioned itself for current demand conditions, and Howden continued to execute its order book. Vigilance will be maintained and further measures will be taken if conditions deteriorate. However, the Board currently continues to anticipate the overall outcome for the remainder of the year being in line with its previous expectations. We also expect to continue to generate positive cash flow from operations over the remainder of the year.
Enquiries
| Andrew Fenwick; Roberta Governale | +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
Forward Looking Statements
Certain sections of this statement may include forward looking statements that are subject to risk factors associated with, amongst other things, 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 the statement are reasonable but they may be affected by a wide range of variables which are outside the control of the Company and could cause actual results to differ materially from those currently anticipated.